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Massive Canada mine-waste spill casts doubt on resource projects

VANCOUVER, Aug 8 (Reuters) - A massive waste spill at a gold and copper mine in British Columbia could delay, or even derail, other energy and mining projects planned in the famously "green" West Coast Canadian province.

The breach of a dam holding back a huge pond of tailings, or waste materials, at Imperial Metals Corp's Mount Polley mine in the province's Interior region sent billions of gallons of gray sludge containing metals and minerals coursing into waterways early this week. On Tuesday, the miner's stock plunged 40 percent in reaction.

The disastrous spill comes as a raft of government and industry-backed resource developments already face increased scrutiny from aboriginal groups and environmentalists, who worry that their risks may outweigh their rewards.

It also comes after a recent Supreme Court of Canada ruling on land titles, which is likely to give aboriginal groups more influence over developments in huge swathes of the province.

Besides Imperial Metal's own upcoming Red Chris copper-gold mine project, Enbridge Inc and Kinder Morgan Energy Partners are both planning major pipeline projects to move crude from Alberta's oil sands to the Pacific Coast. There are also major hydroelectric and liquefied natural gas (LNG) developments in the works.

"Clearly the existing regulations and legal framework were not sufficient to prevent this disaster, so how can we be assured that other major projects proposed for British Columbia will not produce similar results?" asked Dave Porter, chief executive of the B.C. First Nations Energy and Mining Council.

"The disaster at the Mount Polley mine will have an effect on the conversation with respect to Site C (hydroelectric dam), the proposed LNG projects and oil pipelines."

The cause of the dam breach is still being investigated by government authorities and Imperial Metals. The company said in a statement it was working to limit negative impact on the environment and community.

British Columbia Premier Christy Clark said the Toronto-listed company would be responsible for all clean-up costs.

"The company has multimillion dollars in bonds, sitting with the Ministry of Environment now," she told reporters, referring to funds held by the province for reclamation costs.

"In addition to that, the company needs to provide a clean-up plan and there's pretty strict deadline to getting there."

Fish and other aquatic life are not expected to be overly harmed by the spill, based on early water quality samples taken at several locations, British Columbia's environment ministry said in a statement. Still, residents have been told not to drink or bathe in the water, and fishing has been banned in nearby waterways.

PROJECTS THREATENED

Developing mines and an LNG industry are key planks in Premier Clark's economic platform, and the provincial government has been expected to rake in billions in revenues over the coming decades from natural resource projects.

For already controversial projects such as Enbridge's C$7.9 billion ($7.2 billion) Northern Gateway oil pipeline, the Mount Polley spill will likely add fuel to arguments that any risk of a breach is simply not worth the potential reward.

"We're trying to take a level-headed approach to it, but I think our membership is in a big uproar and I don't blame them," said Willie Sellars, a councillor with the Williams Lake Indian Band, which is one of two aboriginal communities located near the Mount Polley mine.

"We were made to believe it was never going to happen and it did, so we are taking a step back and we're trying to assess the situation and how we move forward."

The most immediate casualty of the disaster could be Imperial Metals' own Red Chris project in northwest British Columbia. The open-pit copper-gold mine is under construction had been expected to start production by year-end.

The company has not yet changed its timetable for the project, but analysts say it could be financially and operationally difficult for it to manage both the massive clean-up at Mount Polley and the start-up of a new mine.

The spill has also come at a time when the global mining industry is struggling with weak metal prices as well as difficulties securing financing and a general lack of investor interest.

"It all really depends on the outcome of the investigation," said Grant Moenting, an analyst at Paradigm Capital in Toronto. "What was the cause, will they be on the hook for all the clean-up, what are the costs?"

Shares in Imperial, whose top investor is billionaire Canadian oilman N. Murray Edwards, were up 61 Canadian cents at C$10.03 on the Toronto Stock Exchange on Friday.

($1=$1.10 Canadian)

(Reporting by Julie Gordon; Editing by Amran Abocar and Peter Galloway)