Northgate’s Ke-mess

Vancouver — After a prolonged environmental review process, a joint federal-provincial panel has recommended against development of the Kemess North copper-gold deposit, in north-central British Columbia, as proposed by Northgate Minerals (NGX-T, NXG-X), dealing the company a significant blow.

“Development of the Kemess North copper-gold project in its present form would not be in the public interest,” the panel concluded. “Economic and social benefits provided by the project, on balance, are outweighed by the risks of significant adverse environmental, social and cultural effects, some of which may not emerge until many years after mining operations cease.”

Under Canada’s Environmental Assessment Act, the panel’s recommendation will go to the federal and provincial Environment ministers.

The Kemess North deposit has been described as a “larger sister” to Northgate’s Kemess South porphyry copper-gold deposit, currently being mined by open-pit methods and located about 6 km away.

A 2004 feasibility study on Kemess North indicated positive economics and an estimated production life of almost a dozen years.

Northgate plans to blend Kemess North and Kemess South ore until reserves at Kemess South are exhausted. Existing processing facilities will continue to be used. Life-of-mine production from the North deposit was projected at about 2.7 million oz. gold and 1.2 billion lbs. (550,000 tonnes) copper; proven and probable reserves stand at 414 million tonnes grading 0.31 gram gold per tonne and 0.16% copper.

In 2005, after roughly three years of preparation, Northgate completed its environmental impact assessment report for proposed development and handed it over to the review panel. While a final report was anticipated by mid-2006, the process became protracted due to the company’s plan to use a nearby lake (Duncan Lake, or Amazay, in local First Nations language) for tailings-waste containment.

The issue was a polarizing one, with strong environmental and First Nations opposition.

Kemess North rock is rich in sulphides and would be a significant source of acid rock drainage, and disposing of the material in an aqueous environment would mitigate the problem.

In a release, Northgate called attention to the fact that the review panel recommended against approving development despite its finding that the project “would not likely result in significant adverse environmental effects” and that “Duncan (Amazay) Lake is the only waste disposal alternative which is environmentally effective, and technically and economically feasible.”

However, the environment ministers are free to disagree with the panel’s recommendations and approve development of Kemess North.

The main issues reviewed in the panel’s decision relate to the loss of Duncan Lake (and its eventual restoration), its long-term water management implications and the affect on First Nations culture and traditional use of the area.

Should the project be approved, the panel included 32 recommendations to reduce the potential effects of development.

Northgate will review the report and begin discussions with federal and provincial authorities shortly.

About 475 direct jobs would be created if the project goes ahead.

Interestingly, the company recently extended the life of its Kemess South mine by one year, until late 2010. Robust metals prices have allowed the company to add 18 million tonnes of new, low-grade reserves in the eastern end of the Kemess South pit. The zone contains about 175,000 oz. gold and 57 million lbs. (26,000 tonnes) copper.

Kemess South was built by the now-bankrupt Royal Oak Mines in the mid-1990s. Northgate acquired the mine from creditors in 2000 for US$180 million, boosting output and trimming costs.

Northgate shares dropped as much 10% on news of the environmental panel’s decision to around $2.80 apiece.