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In a province that trades on its natural beauty, it came down to the business-friendly government of Prime Minister Stephen Harper to save a postcard-perfect lake.

Federal Environment Minister Jim Prentice announced Tuesday that the proposed Prosperity mine near Williams Lake in Interior B.C. could not proceed, citing significant adverse environmental effects that included turning Fish Lake – once featured in a tourism campaign – into a tailings dump.

The decision, which ended months of uncertainty and spiralling rhetoric over the $800-million project, takes the lid off a bubbling conflict between Ottawa and the government of Liberal Premier Gordon Campbell, who had championed the project as a boon for the provincial economy.

In Victoria on Tuesday, B.C. Minister of State for Mining Randy Hawes insisted that Ottawa's rejection of the project is not a slap against B.C.

"I wouldn't call it embarrassing, I would just say disappointing," Mr. Hawes said.

The Liberal government will attempt to help Taseko Mines rejig its project and try again to win approval, he added.

"We should go back and take a look and see if there is a way this can be re-presented and restructured so it can work," he said.

The Prosperity project was seen by many in the province, especially in Williams Lake, as a lifeline for a forestry-dependent region crippled by slumping lumber markets and a pine beetle infestation.

Located about 125 kilometres southwest of Williams Lake, the proposed mine has been on and off the shelf in B.C. for nearly 20 years, with the most recent plans in full swing since 2005.

Under a provincial review process, B.C. gave the Prosperity mine a green light in January, saying environmental effects would be outweighed by jobs, spinoff benefits and millions of dollars in tax revenue for regional and provincial governments.

In July, a federal panel – which did not take economic factors into account – found that the proposed mine would have significant adverse environmental effects on such things as fish and fish habitat and "potential or established Aboriginal rights or title."

On Tuesday, Mr. Prentice said the panel's report was "scathing" in its comments on the environmental impact.

The Tsilhquot'in National Government, which represents six bands in the area, was the main opponent of the project, saying it would destroy a pristine lake and threaten area watersheds.

"We finally feel that someone listened," said Tsilhqot'in Chief Marilyn Baptiste, who has spent years opposing the project. "The panel did a good job – they heard our voices, they came out here on the land, they went to the sites.

"I am extremely happy, and extremely grateful."

Tempers and rhetoric flared over the project, especially in Williams Lake, where several mills have closed and new jobs are in short supply.

In a statement, Taseko said it was disappointed in the decision and that it plans to meet with federal and provincial governments to look at options for the project.

Mr. Prentice said the Prosperity project could not proceed "as proposed," giving supporters hope that a revised proposal might fly.

On the same day Ottawa gave a thumbs down to the Prosperity mine, it gave a green light to the Mount Milligan gold-copper mine near Prince George, a move widely seen as an attempt to soften the blow of the Prosperity decision.

Business interests have fretted that a decision against Prosperity would discourage mining investment in the province.

"This was the biggest and the most significant of the new metal mines planned in the province," said Pierre Gratton, CEO of the Mining Association of British Columbia. "We are concerned about the impact this might have on investor confidence."

With a report from Justine Hunter in Victoria

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