Hope for Voisey’s Bay

The end of the soap opera over development of the Voisey’s Bay nickel deposit in Labrador is as welcome as it is overdue.

The long deadlock between project owner Inco and the government of Newfoundland and Labrador, which insisted Inco should build a plant to produce top-grade nickel in the province, was broken by a compromise agreement: by September, Inco must deliver a commitment to build either a hydrometallurgical plant or a refinery in Newfoundland, at Argentia on the southern coast.

That is a good thing, unalloyed. A hydrometallurgical plant will be great for Argentia, and Argentia — with a skilled and willing workforce that would be the envy of many larger places — will be great for a plant.

That being said, we have to presume Inco has given the plant a serious economic analysis. An uneconomic plant will be no prize for the company, the town, or the province. And we hope the national government — which will kick in as much as $150 million to help build the mine and mill at Voisey’s and the Argentia plant — has done its homework too.

It is well worth remembering that there are only a handful of Canadian base metal discoveries that have paid back a smelter or refinery: we count Endako, Afton, Trail, Flin Flon, Lynn Lake, Thompson, Sudbury, Kidd Creek, the Horne, Gaspe, Lac Allard, and Brunswick. (Port Radium was a special case.) Some immense discoveries — Faro, Highland Valley, Manitouwadge — never justified building a new smelter, because shipping concentrate made more economic sense.

It was argued, during the deadlock, that Voisey’s had plenty of resources to justify building a smelter. But the argument was made through the confusion of resources with reserves; Voisey’s “150-million-tonne” resource would disappear up one sleeve and re-emerge from the other as a reserve. The real reserve — 31 million tonnes grading 2.88% nickel, 1.69% copper and 0.14% cobalt — represents slightly more than a fifth of the tonnage and about two-fifths of the contained nickel in inventory at Voisey’s. That is significant in two ways.

First, the planned mine life of the Ovoid reserve is (depending on final mining rates) between 15 and 20 years. If the resource proves not to be economic, that’s the end of feed from Voisey’s, and Inco will have to look for suitable concentrates for Argentia on the open market.

Second, the resource has less than half the nickel grade and less than half the copper grade of the Ovoid reserve. It has the lowest unit value of all Inco’s sulphide resources. It has not been shown to be economic. In short, as things stand, the Eastern Deeps justifies a smelter about as well as does Howards Pass.

That could change, and we hope it will. But it is important to note that the Eastern Deeps resource is largely an indicated resource, and that converting it to a reserve is less a question of infill drilling than it is a question of economic feasibility. We hope both Newfoundland and Inco will know the answer to that one sooner, rather than later.

Apart from the mine, mill and metallurgical plant, the other issue occupying the mining industry’s attention is the looming writedown of the carrying value of Voisey’s Bay. Inco now has Voisey’s on the books for US$3.7 billion, having paid about US$3.3 billion to acquire Diamond Fields Resources when Voisey’s was widely believed to be about the size of Grasberg, but much higher grade. Hype really does work, and takeover battles do destroy capital.

But we look, with some hope, to the future. Newfoundland and Inco will have a good new mine, built with more environmental sensitivity than many that went before; the Innu and Labrador Inuit will have a chance at social progress that only comes from economic opportunity; and a new hydrometallurgical plant could mean a great jump in extraction technology.

And maybe this: a realization that resource wealth consists not in the metal held in the ground but in what a society does with it. In the end, what will ensure long-term employment in Newfoundland and Labrador is a competitive economic climate. If value is added more economically there than elsewhere, that’s the place business will want to be. Neither Inco nor the governments of Newfoundland and Canada should forget that.