NovaGold, Teck Cominco to form JV to develop Galore Creek copper-gold project
Teck Cominco is spending some of its post-Inco bid cash on a joint venture with fellow Canadian miner NovaGold to develop the $2.2 billion Galore Creek copper gold project in British Columbia.
Posted: Thursday , 24 May 2007
RENO, NV -
NovaGold's announcement Wednesday that it was forming a joint venture with fellow Vancouver-based miner Teck Cominco to build the Galore Creek copper-gold mine in northwestern British Columbia generated some nervousness among analysts and institutional shareholders.
To earn 50% in Galore Creek, Teck will fund US$478 million in construction costs with each company responsible for its pro rata share of funding thereafter for a $2 billion project. Basically, Teck's portion will finance Phase One of the development including road access, a tunnel and other access to the property. Phase 2 construction will concentrate on mine facilities and earthworks.
When asked by one analyst during a conference call why Teck Cominco isn't actually acquiring NovaGold (AMEX, TSX: NG) and its suite of Alaskan and Canadian projects, NovaGold President and CEO Rick Van Nieuwenhuyse responded, "We think they prefer us as a partner." He affirmed that NovaGold has not discussed possible involvement in Teck's Pogo or other Teck projects during the Galore Creek negotiations.
In a statement issued Wednesday, Teck Cominco President and CEO Don Lindsay said his company was attracted to the chance to develop a major asset in its home province of British Columbia. Even B.C. Premier Gordon Campbell declared that the investment made by the two companies "show the confidence that these companies have in British Columbia's economy. Tahltan Nation officials have also endorsed the project.
Galore Creek is supposed to commence production in 2012. However, the project still is awaiting a handful of key permits.
The impetus to finish construction of Galore Creek rests with NovaGold, which will seek Teck Cominco's assistance in arranging NovaGold's US$500 million of project debt financing. However, Van Nieuwenhuyse said other financing remedies are available to NovaGold including selling the project silver stream, which he estimated could raise $200 million. During Wednesday's conference call with analysts, NovaGold officials repeatedly gave assurances to nervous institutional investors that they would not have to resort to equity financing. The company's CFO Don MacDonald explained that NovaGold could even finance its portion of Galore's cost through bonds.
The $2 billion Galore Creek project is projected to yield 432 million pounds of copper, 341,000 ounces of gold and 4 million ounces of silver annually for the first five years of production. Estimates were based on $1.50/lb copper, $450/oz gold and $8/oz silver.
NovaGold believes that with 540 tonnes of reserves and 1 billion tonnes of resources, Galore Creek could increase its annual production and extend the mine life beyond 20 years.
NovaGold has already invested US$128 million in significant pre-construction activities at the site and plans to invest a total of Cdn$262 million this year, according to Van Nieuwenhuyse.