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NovaGold CEO warns of the risks of a zero-risk society

 

Last updated 11/30/2008 at Noon



Rick Van Nieuwenhuyse, president and CEO of Novagold Resources Inc., said problems facing global markets today as well as his struggling company are the result of society's desire for zero risks.

"Today we have a world that is ruled by lawyers, accountants, politicians, and (securities and banking) regulators; and they have made a mess of things lately," Nieuwenhuyse told members of the Alaska Miners Association at their annual convention in Anchorage Nov. 7.

"We can't really blame them for it. In reality, as a society we have asked them for all this protection. It gets back to wanting to reduce risk in our lives. It seems like we want to create a zero-risk society. I say be careful what you wish for because you might just get it."

In a presentation titled, "Building a Mining Company in the New World Disorder," Van Nieuwenhuyse said NovaGold has experienced the effects of risk abating at its Galore Creek high-grade copper-gold-silver deposit in northern British Columbia and at the recently launched Rock Creek gold mine in Northwest Alaska.

Exchange rates hurt Galore

A year ago NovaGold and 50-50 partner Teck Cominco Ltd. had to suspend the development of Galore Creek because the estimated costs to bring the mine online had skyrocketed to about C$5 billion, around double the original estimates.

Nieuwenhuyse said a nearly 30 percent swing in the United States-Canadian dollar exchange rates from the time of the original feasibility study until the updated cost estimate was one of the biggest factors leading up to the decision to re-evaluate the plan for building the mine. Inflation of materials and labor were also big contributors to the escalating costs.

"We have seen the costs of building a new mine doubled, really, in the last couple of years. That's a staggering amount, but that is the reality. We certainly experienced this firsthand at both Galore Creek and Rock Creek. The costs didn't double because we forgot a whole bunch of things or didn't designate things correctly or got the volumes wrong on the amount of materials moved. The increase is due mostly to inflation of materials and wages, and also delays related to litigation and permitting," he said.

All of these things also contributed to the recently announced shutdown at the Rock Creek gold mine near Nome.

Litigation delays Rock Creek

NovaGold received permits needed to advance Rock Creek toward construction in August 2006. By the end of that year, the project's wetlands permit, issued by the U.S. Army Corps of Engineers was challenged in court by a group called Bering Straits Citizens for Responsible Resource Development.

After a lengthy court battle that ended in a January 2008 ruling by the U.S. 9th Circuit Court of Appeals upholding NovaGold's permit, the Vancouver B.C. based-miner resumed construction after a delay of nearly 18 months.

This put the company in the position of trying to complete construction on the project in the brutal cold of Nome's Arctic winter. Not only was the junior forced into construction during a winter recording record snowfalls, but the company also had to complete construction during record high energy prices and missed out on the record high gold prices of 2007, he said.

"Our timing on getting Rock Creek up and running has not been tremendous," Nieuwenhuyse reflected.

"Our society really needs to reassess our fixation on trying to create a zero-risk society. I don't really think it has worked out too well," he concluded.

 

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