The battle continues at Taseko’s New Prosperity

VANCOUVER — The permitting saga has lasted nearly four years for B.C.-based copper producer Taseko Mines (TSX: TKO; NYSE-MKT: TGB) and its New Prosperity copper-gold project, 125 km southwest of Williams Lake, but the proposed mine’s near-term future should be determined over the next four months. On Oct. 31 a three-member federal review panel released a report on New Prosperity, which will inform a permitting decision by federal Environment Minister Leona Aglukkaq.

This will be the third time New Prosperity has undergone government scrutiny, and the project has done so under three pieces of legislation. In 2010 Taseko submitted an original plan for the mine, which was reviewed under British Columbia’s Environmental Assessment Act and by a federal panel under the former Canadian Environmental Assessment Act. 

The company obtained an environmental certificate at the provincial level, but had its mine plan rejected by the federal government, which cited “significant adverse environmental effects.”

In September 2012 Taseko submitted an environmental-impact statement based on a revised plan at New Prosperity — reviewable under the federal government’s Canadian Environmental Assessment Act, 2012  — that added US$300 million to the project’s development cost in a bid to save Fish Lake. The lake was scheduled to be drained under Taseko’s original plan, and remains a hot-button topic for local First Nation and activist groups.

The issues haven’t changed over the past three years. Taseko maintains that New Prosperity could offer substantial economic benefits, while opponents claim the mine would damage the environment. The company says New Prosperity could generate US$11 billion over its 20-year mine life, and create 550 direct jobs and $5.5 billion in tax revenue at the federal and provincial levels.

The new report by the Canadian Environmental Assessment Agency (CEAA) barely shifts the goal posts of the debate. Water quality and fish habitat remain an issue, with the panel citing concerns regarding the impact of proposed tailing facilities on the Fish Lake water system. The panel cites deficiencies in Taseko’s water-impact studies, while the company “strongly disagrees” with the panel’s research methods and conclusions on water quality.

To complicate matters, Taseko announced on Nov. 5 that its consulting engineers Knight Piesold had discovered that an analysis by the CEAA on New Prosperity’s tailings facility had used an incorrect design. The company reported that Natural Resources Canada had relied on a model that indicated there would be seepage from the facility into Fish Lake, but it was apparently not the tailings model designed by Taseko.

“When we received that information we determined it was definitely material due to the implications,” Taseko vice-president of corporate affairs Brian Battison said by phone. “Now the government of Canada has this flawed finding they’ll have to deal with, and the minister will have to take this into consideration when she decides if there is indeed a ‘significant adverse environmental effect’ or not. It’s up to the government to take that information, along with the report, and weigh it with the social and economic benefits of the project. It definitely calls into question the findings on fish, fish habitat and wild lands.”

The report includes concerns over a local grizzly bear population, as well as First Nation issues with the regional Tsilhqot’in and Secwepemc bands. The Tsilhqot’in Nation has been especially vocal about its opposition to the project, and described the CEAA report as the “final nail in the coffin.”

“In 2010 [Taseko] and Environment Canada stated the rejected proposal was the least environmentally risky of all options, so it comes as absolutely no surprise that this latest proposal has been found to be worse,” Tribal Chair for the Tsilhqot’in National Government Chief Joe Alphonse said on Oct. 31. “First Nations will be outraged if the federal government accepts this project after rejecting the first one.”

Taseko says the panel review is just a planning tool, and does not represent a policy decision. The company notes that the report agrees “in most respects” with its assessment of the environmental affects, and cites support from local governments and communities.

So begins the next stage of lobbying at New Prosperity. Over the next four months Taseko and its opponents will keep rallying support in an attempt to influence Minister Aglukkaq’s decision. But even a rejection by the Ministry of Environment may not mean the end for Taseko, as Prime Minister Stephen Harper and his cabinet could weigh the socio-economic benefits against the environmental concerns, and give it the go-ahead.

“We believe there are no adverse environmental effects from the project, after what we plan to do with mitigation around wildlife, fish and other environmental-related activities,”  president and CEO Russ Hallbauer said during an Oct. 31 conference call. 

“This is a simple open-pit mining project. It is only complicated by outside influences that have nothing to do with environmental protection or sound public policy. We expect the federal government to grant us a federal environmental certificate in the near future, and then we will proceed to the next steps in the process,” he continued.

But markets took a negative view of the CEAA report, with Taseko dropping 17% — or 43¢ over two days of trading — after the news. The company closed at $2.13 per share at press time. Taseko has 193 million shares outstanding for a $414-million market capitalization.

Scotiabank analyst Mark Turner — who maintains a “sector perform” rating, along with a $2.56 price target on Taseko — was not surprised by the investor reaction.

“We do not ascribe any value for New Prosperity,” Turner wrote in a Nov. 1 research report. “Our valuation continues to be based on Taseko’s share of its Gibraltar operations, but approval by the federal [and provincial] government on New Prosperity would provide potential upside. That said, we expect [the company’s] shares to react negatively to the panel’s findings, as, in our opinion, the market is likely to view approval by the federal cabinet as less likely.”