Could Rising Costs Jeopardize Existing Mining Projects?

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Because of the high costs and risks associated with large Greenfield projects, UBS mining analysts, Tony Lesiak, Alec Kodatsky and Brian MacArthur, figure there will be more industry consolidation, especially given the valuation gap between the bigger and smaller players.

After NovaGold's (NG) Galore Creek project was unexpectedly shuttered last month because of soaring costs, a lot of investors are wondering if the same thing could happen to other large projects.

According to UBS mining analysts Tony Lesiak, Alec Kodatsky and Brian MacArthur, Galore Creek was probably a unique case. However, they figure other large projects could also face weaker financial returns because of capital cost creep, higher royalty and tax structures, the weak U.S. dollar, and long delays.

Because of the high costs and risks associated with large Greenfield projects, the analysts figure there will be more industry consolidation, especially given the valuation gap between the bigger and smaller players.

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