December 5, 2008

BC's New Gold Rush

Investment is risky in unceded land

by J.P. Laplante

The Dominion - http://www.dominionpaper.ca

Fish Lake, of spiritual, cultural and subsistence value to the Tsilhqot'in, may become a tailing dump. Photo: Loretta Williams

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PRINCE GEORGE, BRITISH COLUMBIA–The past few years have marked the arrival of a renewed gold rush in BC. Mining exploration in the province has soared as high metal prices entice prospectors and their backers with dreams of the next big find.

What often isn’t discussed is how this gold rush is one of the riskiest games on the stock market. The gamble is not just the inherent risk that no minerals will be found. Rather, it’s whether the next big find stands a chance to become a mine.

Many mining exploration companies downplay the risks and exaggerate the likelihood that their prospect will become an operating mine. This is most notable in the strained relations mining has with First Nations, who have land claims that cover nearly the entire province. It is also evident in the manner that companies predict the costs to build the mine.

The Galore Creek catastrophe

NovaGold Resources had what was self-promoted as one of the world’s largest deposits of gold and copper, located in unceded Tahltan lands in northwestern BC. The company had even negotiated a deal with the Tahltan, receiving the much-needed support from the Nation and subsequent environmental permits from BC and Canada.

Then, unexpectedly, everything fell apart.

In November 2007, company officials surprised investors when they announced a halt to mine construction, because a new feasibility study calculated a staggering $3 billion cost overrun. The project, now estimated to cost $5 billion to develop, became unfeasible, and it was shelved while the company retreated to determine its next move.

The Kemess South copper mine. A second mine, dubbed Kemess North, was stopped by the Tse Keh Nay First Nations before Amazay Lake could be turned into a waste dump. Photo: J.P. Laplante

How is a $3 billion error possible? NovaGold’s shareholders think it isn’t. Over the past months, several class action lawsuits have been filed in New York State court. The company, listed on the American and Toronto Stock Exchanges (TSE) (AMEX: NG, TSX: NG), is alleged to have violated the US Securities Act “by issuing a series of materially false and misleading statements regarding the costs, progress and viability of its multi-billion dollar Galore Creek project.”

According to Schiffrin Barroway Topaz & Kessler, LLP, one of the firms filing suit, these “misleading statements” included NovaGold’s President and CEO Rick Van Nieuwenhuyse’s response to Barrick Gold’s August 2006 hostile takeover attempt. Nieuwenhuyse at the time said that "at US$16, Novagold shares are better than money in the bank.” His reassurances to NovaGold’s shareholders about the viability of the Galore Creek project, and the now-discredited feasibility study this was based on, saw Barrick’s US$1.5 billion offer turned down.

Shareholders are not the only people who have realized that the soft underbelly of the mining industry is its need to sell itself to investors. The Northwest Mining Investor Report, a website sharing information on potential risks not divulged by the mining industry, is one example of an increased awareness of just how important the stock market is to a proposed mine.

“We want to provide an overview for would-be investors of the social and ecological implications of proposed mines in Northwest BC,” André Gagné, spokesperson for the Northwest Mining Investor Report, explained. “For example, there are eight proposed mining projects for the Stikine River area alone. Eight projects are not going to go ahead at once.”

The importance of First Nation support in BC is not lost on Gagné. “Right now, companies may not want to share information that might deter investors. We want to show which projects have or don’t have First Nations’ support and to link to media stories that highlight these. Investors might not realize a group of First Nation elders are blockading a road because of their concern for aboriginal title, rights, conservation and heritage,” he notes.

Project-by-project basis: a recipe for more conflict and investor risk

That BC has few, if any, regional mining or land use plans with First Nations means that companies not only run the risk of not finding enough mineral wealth under the ground, but they also risk not having the support of the people on the ground. The proposed project may be located in an environmentally sensitive area, or may affect a spiritually significant site, like the Tse Keh Nay’s Amazay Lake.

Investors, especially those based outside of this province, may be unaware that projects in BC are subject to challenges based on an increasingly long list of domestic Aboriginal case law and international agreements, like the 2007 UN Declaration on the Rights of Indigenous Peoples, which Canada embarrassingly opposed.

The UN declaration speaks directly to the issue of mining in First Nations lands through its promotion of the indigenous right to free, prior and informed consent (FPIC). FPIC is emerging as the minimum standard by which multinational corporations must operate; giving First Nations a veto over proposed developments they deem to be unsuitable.

Several major proposed projects currently find themselves in this situation, including Terrane Metals’ Mt. Milligan Mine (TSX: TRX.V) and Taseko’s Prosperity Project (TSX: TKO.V, AMEX: TGB), both listed on the TSE.

The copper-gold project on Shus Nadloh, the Nak’azdli traditional name for Mt. Milligan, is not a sure bet. In September, Chief Fred Sam stated, “The mining industry and a minister have claimed that working with First Nations support is important, so it is important to know we do not support this project. Even if the flawed review process were to approve the proposed mine on Nak’azdli traditional territory, the rulings of courts to date indicate it would not be allowed to proceed without Nak’azdli’s involvement and without our concerns being dealt with in a serious and conclusive manner.”

Regardless of this reality and Nak’azdli’s position, the project is being pushed through the contentious BC environmental assessment (EA) process. On September 4, Terrane’s EA application was accepted by the BC Environmental Assessment Office.

“Our water is our gold”

Taseko Mines’ proposed Prosperity copper-gold mine, located in Tsilhqot’in territory, is indicative of just how First Nation relations are being portrayed to investors. Taseko’s July news release announcing Prosperity’s acceptance in the BC environmental assessment process failed to mention the Tsilhqot’in or the fact that their consent is crucial.

Like the nixed Kemess North project and Amazay Lake, the controversial Prosperity project seeks to destroy Teztan Biny – a large, fish-bearing lake being proposed as the company’s tailings impoundment area.

Perhaps out of fear of the precedent set by the Kemess North Review Panel, which rejected the destruction of Amazay lake for a tailings dump, the BC government has announced a less rigorous process for Prosperity, known as a ‘comprehensive review,’ to the chagrin of the Tsilhqot’in.

The Tsilhqot’in Chiefs have indicated they oppose the project as long as Teztan Biny (Fish Lake) is slated for destruction. “I don’t think the Prosperity project is a go because it’s going to destroy clean water and we don’t have very much,” said Chief Marilyn Baptiste of the Tsilhqot’in community of Xeni Gwet’in. “Just look at the Fraser River’s pollution and you can understand why. Our water is our gold. Teztan Biny is our spiritual homeland.”

In light of this opposition, investors in Taseko and Terrane Metals are playing Russian roulette with these mine proposals. Two decades of legal precedents are enough ammunition to support the Nak’azdli and the Tsilhqot’in positions that they must be intimately involved in all stages of a mine review if the mine has any chance of proceeding.

The government's and companies' refusal to admit that a mine proposal might be rejected because of First Nation opposition is likely what is driving these risky decisions and the under-reporting to investors. Reactions like those of NovaGold’s investors may not be farfetched if companies continue to deny the First Nation right to say ‘no.’ Educating investors about the tenuous land question in BC and its impact on their investments may be an increasingly powerful tool for First Nations seeking to protect their homelands.

J.P. Laplante is the Mining Co-ordinator for the Takla Lake First Nation. However, the statements expressed above are solely the opinion of the author.

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