While mineral opportunity abounds, a lack of infrastructure, crippling cold and the challenge of attracting and retaining an adventurous workforce have dimmed the prospects of a mining boom in Canada’s Arctic territory.
TORONTO (Reuters) – The prospects of a mining boom in Canada’s Arctic territory of Nunavut – once as bright as the Northern Lights – are fading fast as costs in the inhospitable region spiral higher, forcing writedowns on two major gold projects there.
The sparsely populated territory has gained a reputation as one of the most promising regions in Canada for exploration, with prospectors promoting discoveries ranging from gold to uranium. But getting the ore out of the ground is a different story entirely.
While climate change has made it easier to find mineral deposits in Nunavut, the task of mining is complicated by a lack of roads and other infrastructure, the still-crippling cold and the challenge of attracting and retaining an adventurous workforce.
Agnico-Eagle Mines, which owns the only working mine in Nunavut, recently booked a partial writedown on changes to the mine plan at Meadowbank, while cash costs at the gold mine have risen to more than $1,000 per ounce.
That happened just months after a fire destroyed the mine’s kitchen, crippling staffing levels and slashing into 2011 gold output, illustrating how susceptible remote projects are to the even the smallest operational hiccups.
“It is a high-cost part of the world to operate in,” said Agnico’s chief executive, Sean Boyd. “There are risks in that part of the world, no doubt about it.”
It’s a risk Newmont Mining isn’t willing to take. The world’s No. 2 gold miner shelved its Hope Bay project in the northern territory and booked a $1.6 billion writedown after the economics of the project failed to meet its investment criteria.
The flurry of bad news could spell trouble for companies such as Sabina Gold and Silver, North Country Gold and Kivalliq Energy, which are developing everything from precious metals projects to uranium deposits in Nunavut.
Analysts say the challenge is to prove that the benefits of their projects outweigh the potential risks of building a billion-dollar operation in a ruthless terrain.
“In these parts of the world you don’t have railways, power lines and road access,” said John Hayes, a mining analyst with BMO Capital Markets, “so call them barriers to entry to mining in the north – I think they’re pretty real concerns.”
Without access to hydro-electricity, projects in Canada’s Far North are dependant on diesel fuel to generate power. Agnico uses up to 60 million liters of diesel gasoline a year at Meadowbank, making energy one of its biggest cost pressures.
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