In its preliminary findings from a major review of its 85%-owned Goro nickel-laterite project in the French Pacific territory of New Caledonia,
Goro, which hosts reserves of 54 million tonnes grading 1.53% nickel and 0.12% cobalt plus measured and indicated resources of 99 million tonnes grading 1.4% nickel and 0.14% cobalt, had once been scheduled to enter production in late 2004 at a rate of 55,000 tonnes annually, with 4,500 tonnes of cobalt coming out as a byproduct.
However, development activity at the project was brought to an abrupt halt in December 2002, when contractors told the company the capital cost could end up being 30-45% more than the US$1.45 billion estimated in a March 2001 feasibility study.
At the time, Inco management said the overruns were “not process-related” but mainly caused by geotechnical problems and infrastructure requirements.
As a result of the review, the project’s preliminary capital cost estimate has been chopped by some US$250 million to about US$1.85 billion. About US$500 million was shaved off the capital costs for equipment, piping electrical instruments, concrete and earthworks, but another US$250 million was added, owing to unfavourable currency adjustments — especially in relation to the strengthening Australian dollar and euro.
The forecast annual production rate has been ratcheted up, at no additional capital cost, to 60,000 tonnes nickel and 5,100 tonnes cobalt. Cash operating costs are pegged at an impressive US$1.05-1.10 per lb. nickel, after cobalt credits priced at US$7 per lb.
Inco is also pleased that the updated plan will reduce the project’s footprint by 50%, which should enhance the plant’s operability and maintainability, and save on concrete, structural steel, piping and electrical requirements.
A change in the plan toward a more-efficient direct, rather than indirect, heating of the ore feed, plus other modifications will result in US$180-210 million in now-obsolete direct-heating work being written off as of mid-2004.
Inco expects to complete the current review later this summer. Jointly leading the engineering work are engineering consultants
Inco Chairman and CEO Scott Hand says that at a capital cost of US$1.85 billion and using long-term prices of US$3 and US$7 per lb. for nickel and cobalt, respectively, the Goro project’s returns would meet Inco’s long-term, after-tax weighted-average cost of capital of 9-10%.
“While we still have a number of key milestones to be met, I remain optimistic we will reach a decision to proceed later this year,” he says.
Assuming Inco makes a decision to restart the project in October 2004, Hand reckons that process-plant commissioning could begin sometime in early 2007, with initial plant startup in mid-2007.
At the site, Inco has already been operating a fully integrated, US$50-million pilot plant for the past two and a half years — an activity that has proved invaluable in training local employees and tweaking the company’s metallurgical recovery techniques.
The remaining 15% interest in Goro is held by the French-government agency Bureau de recherches gologiques et minires, which has expressed an interest in selling its stake, most likely to a Japanese consortium led by Sumitomo Metal Mining.
While Goro is one of the pillars of Inco’s growth strategy, the company wants to wind up with a 70% equity interest in Goro in order to spread the risk and lighten the financial burden.
Inco continues to try to secure a US$350-million, tax-advantaged financing that the French government had earlier agreed in principle to provide. The company also hopes the government will provide support for a 100-MW power-generating facility, to be built by a third party, which would meet all of Goro’s anticipated external power requirements.
Inco notes that the French and local governments have consistently supported the project, which will be the largest industrial enterprise in New Caledonia’s history. Of note, the New Caledonia government is providing a 15-year tax holiday plus another five years at 50% of normal taxes.
Terror threat
Meanwhile in Indonesia, the nickel operations of Inco subsidiary International Nickel Indonesia (PT Inco) “are proceeding as normal” following threats made against foreign interests on the Indonesian island of Sulawesi, the company says.
Wire service reports, quoting PT Inco spokesman Rimba Andilolo, said the company had requested additional police to guard the company’s nickel-laterite operation at Saroako. Inco also stated it had moved some expatriate staff off-site for their protection. A report from the Australian Broadcasting Corporation said 58 Canadian and four Australian workers were leaving the Saroako area, and the network said sources told it there was a death threat against the company’s Western employees.
The Canadian and Australian foreign ministries issued a warning to their citizens to defer travel to Sulawesi, and if in the area, to leave. The Canadian warning referred to a “credible terrorist threat to Western interests in South Sulawesi province,” while the Australian warning said there had been specific terrorist threats against Westerners “around and between the cities of Saroako in South Sulawesi province and Salonsa in Central Sulawesi province.”
U.S. and British consular services issued more general advisories against travel to Sulawesi earlier this year, after religious clashes between the majority Muslim and minority Christian populations in the area.
Sulawesi and the adjacent Moluccan islands have been the site of massacres and forced “conversions” by the Laskar Jihad terrorist group, which aims to impose Islamic law on Sulawesi and in the Moluccan Islands. Most of the violence was centred about 130 km northwest of Saroako, between the cities of Poso and Tentena, where about 9,000 people died between 1999 and 2002.
Laskar Jihad ostensibly disbanded after the October 2002 bombing of the Sari Club in Bali, but announced in late April that it was reforming to fight against Christian groups on Ambon Island in the Moluccas. The organization is alleged to be supported by elements in the Indonesian armed forces and by donors in the Middle East. Security analysts have estimated the organization’s strength in Sulawesi at 7,000, against about 2,000 police and soldiers.
The Saroako nickel operation, which produced 17,700 tonnes nickel in the first quarter of the year, has been the focus of demonstrations by anti-mining groups, but the consular warnings linked the current threats to Laskar Jihad and militant Islamic groups connected with Jamaah Islamiyah, the group blamed for the Bali bombings and a car-bombing at a Marriott Hotel in Jakarta last August. Three suspected members of Jamaah Islamiyah, who had earlier been sentenced to jail terms as accessories to the Sari Club bombing, were released on May 21.
The Philippine-based Islamic terror group Abu Sayyaf has been reported to be active in the northern part of Sulawesi as well.
“We’ve monitored the situation for some time to try to anticipate any possible impacts on our people and operations in Saroako,” says Hand. “When we receive information that could be of concern, we take appropriate precautions — and we have done so in this case.
“As best as we can determine, this was not directed at our PT Inco people as such, but reflects that situation in Indonesia where Westerners can be targeted by a few hostile groups in that country,” says Hand.
He emphasizes that PT Inco’s rule is to be “cautious and to ensure the safety of our people — and I mean all of our people, Indonesians and ex-pats alike — even if in retrospect such actions may not have been required. I believe in the adage, ‘be safe rather than sorry.'”
He describes PT Inco’s relations as being “very good” in the Saroako community: “the people there are very supportive of the progress that PT Inco has brought to the area, but we cannot ignore the actions that outsiders may wish to take that are against the will of the people in the Saroako area and the government and people of Indonesia.”
Hand says Inco will continue to monitor the situation with the help of the Indonesian and Canadian governments, and he’s “confident that this temporary situation will be resolved.”
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