Update: Federal government deals TKO to Prosperity mine

Vancouver – The Federal government has decided to block Taseko Mines (TKO-T) from developing an open pit mine at its Prosperity project in central British Columbia, citing “concerns about significant adverse environmental effects,” in a decision that overrules the provincial government’s support for the $815-million project.

At a hastily convened news conference late in the day on Tuesday Jim Prentice, the Federal Minister for the Environment, announced the Prosperity project “as proposed” cannot be granted federal authorizations. He said he agree with a federal review panel’s conclusion that the proposed mine would destroy a nearby lake.

“[The report] was scathing in its comments about the impact on the environment,” Prentice said. “It was, I would say, probably the most condemning report that I’ve seen.”

Plans for Prosperity included draining Teztan Biny, or Fish Lake, because shallow lake sits right on the edge of the planned pit; keeping the lake in place would make a stable pit impossible. Taseko had proposed building a new lake to compensate for the loss.

Local native groups were fiercely opposed to the mine and said Teztan Biny was critical to their culture.

Taseko shares had been climbing slowly but surely over recent weeks in anticipation the federal government would side with the provincial government and approve the mine. Before the news came out Taseko was trading within 75¢ of its 52-week high, at $6.55. In the day of trading following the news its share price dropped $1.61 or 24.6% to $4.94.

Most analysts downgraded their target prices for Taseko after reducing Prosperity’s value within the company significantly. Owest Wowkodaw at Canaccord Genuity reduced his target price to $5.25, from $6.85, while Steve Parsons at Wellington West dropped his target to $4.25 from $6.70.

Not everyone downgraded the company, however. Adam Graf at Dahlman Rose retained his bullish target price of $15.61, saying he kept Prosperity in his calculation of value because a revised proposal could still keep the project on track. Similarly, David Davidson at Paradigm Capital wrote in an email, “A big blow but the project is far from dead…TKO has options that will see the project delayed but still viable.”

Prosperity would have been produced 3.6 billion lbs. copper and 7.7 million oz. gold over a 33-year mine life. Plans called for an open pit operation churning through 70,000 tonnes of ore daily and able to produce a pound of copper for 59¢, net of gold credits.

Taseko expected to need $815 million to build the mine. It would have employed 700 people during the construction phase and 500 during operations.

The provincial government granted its approval to the project in January. The provincial environmental review panel had, like the federal review panel, concluded the mine would cause significant adverse environmental effects. But the provincial government decided to authorize the project regardless, arguing the significant economic benefits of a new mine in a region that has been hit hard by the downturn in forestry outweighed the environmental losses.

Taseko said little in response to the decision, other than to lament the loss of the project’s benefits for the economically depressed Cariboo-Chilcotin area. The company also left the door open to trying again.

“We are extremely disappointed by this decision, not only for our shareholders but for the communities that were relying on the development of Prosperity to help offset the economic situation in the Cariboo-Chilcotin,” said Taseko president and CEO Russell Halbauer in a statement. “Our next steps will be discussions with both the federal and provincial governments to look at options so that this mining project can move forward and meet the criteria that the federal government deem appropriate.”

There is no doubt the region needs economic stimulus. In his presentation to the Prosperity project community hearings Kerry Cook, the mayor of Williams Lake, spoke powerfully to this point.

“Consumer bankruptcies in the Cariboo Regional District increased from 274 to 466 in 2009, an increase of 70% over the last year,” he said. “The unemployment rate in the Cariboo Region increased 84% in 2009. As people are moving away, looking for work, Williams Lake residential rental vacancy rates have increased 700% in the last year, rising to 13.6%…

“The City of Williams Lake supports the Prosperity mine project because we desperately need a boost to our local economy. We need to keep our families here. We need to provide jobs and opportunities to turn the situation around. In January, with a Provincial green light given, there was a new hope and optimism in our community that I haven’t felt for a long time. We need that hope.”

The Mining Association of British Columbia (MABC) also responded quickly and critically to the decision, saying it is deeply disappointed .

“This is bad news for B.C.’s mining sector, and for the B.C. and Canadian economy, and especially for the central interior of B.C. whose hopes were tied to this project,” said MABC president and CEO Pierre Graton. “The social and economic contribution of this project would have benefitted all British Columbians for at least a generation. Prosperity would be a larger economic contributor to the provincial economy than the province’s film and television industry.”

The Federal government’s task in deciding whether to authorize Prosperity was to assess if the significant adverse environmental effect of losing Fish Lake was justified by the economic and social benefits of having the mine. The project would have resulted in 2,000 direct and indirect jobs, more than $5 billion in revenues for the provincial and federal governments, and $7 billion in spin-off consumer spending.

Regardless, local Native and environmental groups were outspoken in their opposition to the mine. The local Xeni Gwet’in people, who are one of the groups governed under the Tsilhqot’in National Government (TNG), say they have been fishing in the lake for generations.

“The federal government has honoured its constitutional duty to protect First Nations rights and its responsibility to protect the environment,” said TNG tribal Chief Joe Alphonse. “The government should be commended for recognizing that this project did not represent the best way to create jobs and economic growth.”

It is no simple task to balance environmental losses, especially those tied to Native land claims, with economic development. To that end Taseko brought up many interesting points during the six-week community hearing. In summarizing its position on the mine’s environmental impacts at the end of the hearings, Taseko started out by explaining that it did not want to have to drain Fish Lake.

“After completing three separate alternative assessments, directed and reviewed by government, the public, and First Nations, and reflective of a sincere effort by Taseko to avoid the loss of Fish Lake, Taseko concluded each time that there was only one technically, environmentally, and economically feasible option. This option results in the unavoidable loss of Fish Lake. We wish it were otherwise.”

The company continued on to say it tried to understand the nature of the spiritual or sacred value of Fish Lake to the Tsilhqot’in through comments made by Tsilhqot’in presenters, and came to the conclusion that all things, or virtually all things, are sacred throughout their traditional territory, and presumably beyond. Presenters had said precisely that during the hearing.

If all things are sacred within their territory, then the question fells to what areas they can claim as traditional territories. The only legal test for Native land claims in central B.C. is the William case, formally known as the Tsilhqot’in Nation versus British Columbia, which was heard in B.C. Supreme Court in 2007 and is headed to Appeals court shortly.

At the end of the four-year hearing, Supreme Court Justice Vickers decide
d the Tsilhqot’in did not have Aboriginal Title to more than 4,000 sq. km of land in the Cariboo-Chilcotin region. He said he would have been prepared to find title to roughly half the land in question, except that a change in the pleadings from Roger Williams, who was at the time Chief of the Tsilhqot’in. Most of the land where he would have granted title is in an area known as the Brittany Triangle.

Fish Lake is not in the Brittany Triangle; rather, it is in the area known as the Eastern Trapline Territory. Justice Vickers decided no portion of the Eastern Trapline Territory should be subject to aboriginal title because the Tsilhqot’in people did not have a sufficient connection with the land.

In one sense Justice Vickers’ ruling the in the Willam case is irrelevant, as it was non-binding. On the other hand, it is the most important test case for aboriginal title to date in B.C. and the area in question included Fish Lake. The ruling means one could reasonably assume that, if the Tsilhqot’in ever reach an agreement with B.C. over land claims, their title would likely cover the Brittany Triangle area and not Fish Lake.

On top of that, The Supreme Court of Canada in its ruling on the case Haida Nation versus British Columbia (Minister of Forests) determined clearly that the Crown manages resources prior to the conclusion of a treaty or determination of land claims. That management process “cannot cavalierly run roughshod over aboriginal interests…” but consultation does not imply a veto right for First Nations: “This process does not give Aboriginal groups a veto over what can be done with land pending final proof of the claim.”