Construction Stoppage at Major Canadian Mine Emphasizes Problems Facing Major Construction Projects Going into 2008

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Researched by Industrial Info Resources (Sugar Land, Texas)--Escalating project costs for labor, equipment and construction services are the main bottlenecks constraining the development of new Metals & Minerals Industry projects going into 2008. Several high-profile projects have recently been canceled or postponed, emphasizing that this trend is intensifying. This is especially true in regions where there are a great number of projects under construction at the same time. For example, Western Canada has in excess of $25 billion worth of major industrial construction starting in 2007 (reference: North American Industrial Spending Index). This week's announcement that Galore Creek Mining Corporation (Smithers, British Columbia), a joint venture between Teck Cominco Limited (NYSE:TCK) (Vancouver, British Columbia) and NovaGold Resources Incorporated (NYSE:NG) (Vancouver) had halted construction activity at its Galore Creek copper gold and silver mining project located 200 kilometers northeast of Stewart, British Columbia, is definitely a wake-up call to industrial project developers and highlights the growing economic problems that are making some industrial projects unfeasible in today's market.

An engineering study completed in October 2007 revealed that project costs for Galore Creek had increased from $2 billion to $5 billion, mainly because of rapidly escalating costs for labor, materials and equipment facing major construction projects worldwide. Reduced operating margins because of the strong Canadian dollar compounded the economic stress on the project, making it unfeasible.

Excitement was palpable earlier this year when Teck Cominco bought into the project, and construction at the Galore Creek site began a few months later on Phase I off-site work, which included infrastructure, such as access roads, a 4.3 kilometer access tunnel, bridges, pipelines, electrical transmission line and airstrips. Construction of Phase II, a 65,000-ton-per-day open pit mine and concentrator, would start in 2008. Hatch Limited (Vancouver) is providing engineering services for the project.

The project is not dead. Teck Cominco has committed $72 million over the next five years to re-evaluate the project and attempt to mitigate the escalating cost. More than a third of the project's $5 billion price tag is attributed to the logistics and construction of a tailings dam and water diversion and management structures.

Another example of a high-profile project experiencing cost growing pains in Western Canada is the Fort Hills Oil Sands project. With a price tag exceeding $14 billion, the integrated oil sands mine and upgrader represents the largest outlay ever conceived for a project in the region. For details, see related September 6, 2007, article - Fort Hills Energy Hires Team of E&C Firms for $14 Billion Oil Sands Project.

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