These two factors, combined with reduced operating margins as a result of the stronger Canadian dollar, made the project—as currently conceived and permitted— uneconomical at current consensus long-term metal prices, said the two companies in a joint statement. The Canadian dollar has appreciated strongly, rising 60% since 2002 and surpassing the U.S. dollar in September.

The Galore Creek project is owned by a 50:50 partnership between NovaGold and Teck Cominco with all aspects of the project overseen by Galore Creek Mining Corp., a jointly controlled operating company.

NovaGold said it retained AMEC Americas, an independent engineering firm, in April 2007 to review the October 2006 Galore Creek feasibility study and commence project engineering. The review covered the entire project with a focus on construction of the mine facilities and tailings and water management structures.

By mid-October, the AMEC review showed that capital costs would be significantly higher than originally estimated. As a result, NovaGold and Teck Cominco commenced a project strategy review, involving multiple engineering teams, to assess the AMEC work. Their results indicated that the capital cost of the project could reach $5 billion—a 127% increase over the estimate in the 2006 feasibility study.

According to the top executives of the two companies, NovaGold has, to date, spent about $400 million on Galore Creek, and Teck Cominco has made investments and commitments through year-end totaling about $265 million, with additional costs to come that will also bring its total expenditure on the project to about $400 million.

“We are disappointed,” said Teck Cominco CEO and President Don Lindsay during a conference call. “With the new engineering information it has now become clear to us that the construction schedule underlying the original feasibility study could not be met and that certain costs, particularly related to civil work, were seriously underestimated.”

Analysts participating in the conference call expressed bewilderment over the sudden turnabout in the project’s economic viability, as well as curiosity about what the term “consensus long-term metal prices” actually meant in regard to the predicted prices upon which the project’s economics were based.

Although there have been changes in scope from the original feasibility study, the largest portion of the capital cost increase appears to have been related to the complex sequencing of activities necessary to build Galore Creek’s tailings dam and water management structures, and the resulting extension of the construction schedule by 18 to 24 months.

Rick Van Nieuwenhuyse, president and CEO of NovaGold, acknowledged that unanticipated labor costs were a major factor in the decision. “One of the major areas was the amount of labor required to complete the [tailings dam and water diversion structures] as envisioned in the feasibility study. That would be what was probably the most significant changes from where we see the project today versus where we saw it at the feasibility level.”

Lindsay explained that “this decision is made based on long-term commodity prices, which is what the industry generally uses, and for good reason, since we’ve had such a cyclical industry forever. Those long-term prices…would be more around [the $1.50/lb] copper range.”

The companies agreed to amend the terms of Teck Cominco’s earn-in obligations in connection with the project. Under the new arrangements, Teck Cominco will invest an additional $72 million in the partnership to be used over the next five years principally to reassess the project and evaluate alternative development strategies. NovaGold and Teck Cominco will share the next $100 million of project costs 33% and 67% respectively, and will share costs proportionately thereafter. Both companies anticipated sizable writedowns on the project but could not provide accurate estimates at the time of the announcement.

Lindsay noted that the Galore Creek partners had seven engineering teams working on various technical alternatives that might eventually provide a solid basis for advancing the project in the near future. Doug Brown, president of Galore Creek Mining, said the companies are focusing “on looking at alternatives to reduce the time and cost associated with the diversion of water in the Galore Creek valley and the construction of our tailings dam facility. That could involve a variety of alternatives. There’s obviously other options that could be considered ranging from exploration, throughput, or other cost changes across the board. Obviously we’d like to look across the entire estimate in great detail to identify opportunities.”

Peter Kukielski, Teck Cominco’s COO, said “We would also be looking at alternative methods of deposition of tailings and storage of potentially acid-generating rock. It is really is a question of going back to basics and taking a look at the costs as they are, the execution strategies currently contemplated, and alternative execution strategies as well as alternative design elements.”

However, in response to analysts’ questions about whether the companies might continue certain construction activities on the project pursuant to an eventual restart, NovaGold’s Nieuwenhuyse concluded, “At this time we’ve decided to shut down the project and put it on care and maintenance. We think that’s the best course of action given where we see the project today.”