ANDY HOFFMAN

Wednesday, November 28, 2007

The head of battered NovaGold Resources Inc. says his company would have continued building infrastructure for its remote Galore Creek copper and gold project, despite soaring capital costs, but was forced to suspend construction this week by its joint venture partner Teck Cominco Ltd.

At a mining conference in Toronto, Rick Van Nieuwenhuyse, NovaGold's president and chief executive officer, also took issue with escalating capital cost estimates for its other major project, the Donlin Creek gold property in Alaska, predicted by its partner Barrick Gold Corp.

NovaGold's shares lost more than half their value Monday after construction at the proposed Galore Creek mine site in northwestern British Columbia was halted due to skyrocketing building cost estimates that had risen to as much as $5-billion (U.S.) from $2.2-billion.

About half of a road and 20 per cent of a tunnel, giving access to the site, had been completed, and Mr. Van Nieuwenhuyse said construction of the tunnel would have continued had NovaGold had the final say.

“If NovaGold were doing this by itself and were a big company, that's exactly what we would have done,” Mr. Van Nieuwenhuyse said.

“It wasn't our decision,” the executive added.

Without a road and tunnel, all construction materials and workers were being airlifted by helicopter to the site, sharply increasing costs.

NovaGold and Teck formed a joint venture agreement in May to develop the massive deposit, which contains roughly 10 billion pounds of copper, eight million ounces of gold and 142 million ounces of silver.

“Teck is the one spending the money and usually the guy spending the money is the one who makes the decision,” the NovaGold CEO said.

Consulting firm Hatch had estimated capital costs of $2.2-billion to build the mine in a 2006 report, and Teck had done six months of due diligence on Galore Creek before agreeing to jointly develop the deposit.

Mr. Van Nieuwenhuyse said another mining consulting firm, AMEC, disagreed with Hatch's feasibility study, saying that it had underestimated the number of man hours needed to build a 300-metre-high tailings dam and water diversion facilities. Hatch's report suggested it would take between five million and seven million man hours to do the work, but AMEC pegged the number at between fifteen million and nineteen million hours.

The NovaGold CEO referred to the discrepancy between the two estimates as “the screw up.”

The cost estimate blowout at Galore Creek has also raised questions about the viability of NovaGold's other major project, Donlin Creek.

This week, the head of exploration and corporate development at Barrick said the world's largest gold producer believes it will cost roughly $4-billion to build Donlin, compared with NovaGold's estimate of $2.1-billion.

Mr. Van Nieuwenhuyse said the difference in costs is due to opposing views between the partners on how to power the mine. NovaGold wants to build a $600-million power line to connect the remote operation to the Alaskan power grid.

©