After much political wrangling with the provincial government,
“Given all the work that has been done, . . . we believe we have a first-class and reliable bankable feasibility study and execution plan, which gives us a lot of confidence as we go forward,” says Inco President Peter Jones.
Unfortunately for Inco, the projected capital cost of building a 6,000-tonne-per day mine-and-mill complex has risen to US$582 million, or US$77 million more than envisaged in the 1999 study. (Included in the new figure is US$54 million in contingency funds, as well as the US$35 million spent since July 2002 on infrastructure.)
The capital-cost increase comprises: US$27 million related to the remoteness of the site; US$21 million for insurance and other owners’ costs; US$17 million in extra freight costs and mine equipment; and US$14 million in improvements to the mine and concentrator stemming from pilot-plant work completed over the past six months.
Inco will spend another US$134 million to research and develop hydrometallurgical processing technologies for the treatment of nickel and cobalt concentrates.
Some of these funds are earmarked for construction of a demonstration plant at Argentia on the island of Newfoundland. It should be ready to accept Voisey’s Bay concentrate for testing by July 2006. In the meantime, a pilot plant is being built in Mississauga, Ont., at a 1-to-10,000 scale. Due to be completed in mid-May 2003, it will employ 60 people by year-end.
Still more money will be spent building handling facilities at Inco’s existing Canadian operations for the nickel and cobalt concentrates so that Voisey’s ore may be processed there over the 2006-2011 period, that is, in the years leading up to completion of a commercial hydrometallurgical plant at Argentia.
(Last year, after years of haggling, the provincial government made Inco commit to producing refined nickel within the province by the end of 2011, by using either hydrometallurgical techniques or a conventional refinery should a hydromet facility not be technically or economically feasible. Copper concentrates, however, are not part of the agreement and can be refined anywhere, while cobalt can be refined in the hydromet plant.)
The second phase of the project will include the commercial hydrometallurgical processing facility, while the third phase, if proved viable, will be the development of Voisey’s underground resources.
To advance the prospects of the third phase, Inco has budgeted another US$13 million for underground exploration of three targets: Eastern Deeps, Reid Brook and Discovery Hill.
In total, the capital-cost estimate for all parts of the initial phase of the Voisey’s Bay project is US$776 million, or about 14% above the prefeasibility study estimates of US$680 million.
The overall cost will likely be reduced by about US$100 million, as Inco has lined up federal-government funding for its job training and hydrometallurgical research.
In related news, Inco and
Assuming federal funds kick in, the schedule of capital expenditures will look something like this: US$35 million in 2002; US$185 million in 2003; US$305 million in 2004; US$165 million in 2005; and US$86 million in 2006.
Goals
Inco has set the following goals for Voisey’s: in May 2003 it will begin overburden stripping; by September it will have built a permanent airstrip; by October the company intends to expand the main camp; by November it will have built support facilities; and by December Inco will have completed the concentrator enclosure.
The entire mine-mill complex, including a 25-MW diesel power plant, is scheduled to be completed by the end of 2005, which would allow the first shipment of concentrates in July 2006.
Philip du Toit has been hired as managing director of Voisey’s Bay, having proved himself instrumental in the construction of the Diavik diamond mine in the Northwest Territories, where SNC was also the leading engineering firm.
Overall, 15% of the required engineering has been completed, and Inco has obtained quotes for 75% of the major equipment.
Mining will first exploit the open-pit reserves of the Ovoid deposit, where there are 30 million tonnes grading 2.85% nickel, 1.68% copper and 0.014% cobalt.
The remaining deposits are not nearly so rich or accessible, with indicated resources standing at 54 million tonnes of 1.53% nickel, 0.7% copper and 0.09% cobalt. Another 16 million tonnes grading 1.6% nickel, 0.8% copper and 0.1% cobalt are in the inferred category. The reserves and resources contain no byproduct platinum group metals.
Over a mine life of at least 30 years, annual production is pegged at 50,000 tonnes nickel, 38,600 tonnes copper and 2,270 tonnes cobalt.
Higher grade
The average nickel-concentrate grade will be about 18-19% nickel, up from the prefeasibility-study expectations of 13-14%. This improvement will increase milling expenses, owing to a longer retention time in the float system at the same grind size. However, transportation costs will be dramatically reduced since about 35-40% less product, by tonnage, will be shipped from Voisey’s.
About 82% of the copper mined at Voisey’s will be contained in a copper concentrate, while the remainder will report to the nickel concentrate.
In the early years of the project, high-grade (22-24%) nickel concentrates that are weak in copper will be transported to Inco’s operations in Thompson, Man., since this facility is not designed to deal with a lot of copper. The unusually high level of nickel in these concentrates is attainable thanks to the coarseness of Voisey’s ore crystals, which allows the ore to be floated easily once it is activated.
The more copper-rich nickel concentrates, containing 16-17% nickel, will be transported to Inco’s Sudbury operations, which can handle copper. Inco will sell the copper concentrates to third parties.
Cash costs to finished product, after byproduct copper and cobalt credits, are expected to be US$1.10-1.15 per lb. of nickel over the project’s entire life.
Inco calculates that the internal rate of return (IRR) over the 3-phase life of the project will exceed 15% on an unleveraged basis, based on several assumptions: US$3 per lb. nickel; US90 lb. copper; US$7 per lb. cobalt; a Canadian-to-U.S. dollar exchange rate of US66; and US$26.80 per barrel of fuel oil.
The project is highly leveraged to nickel prices, with the IRR rising 1% for every US10-per-lb. increase in nickel prices.
Goro review
Inco also provided an update on its stalled, 85%-owned Goro nickel-laterite project in the French Pacific territory of New Caledonia.
In December 2002, facing the sudden news that costs might be 30-45% more than the US$1.45 billion estimated in a March 2001 feasibility study, Inco decided to launch a full review of the project’s costs. By then, it had spent US$385 million on the project (T.N.M., Dec. 16-22/02).
“This was clearly unacceptable to us,” says Jones. “We cannot move ahead unless what we are doing provides us with an acceptable financial return.”
In particular, up to half of the possible increase is related to bulk items, such as steel, concrete, piping and wiring, and to their installation costs. Geotechnical aspects have added about US$100 million to costs.
The company says it has identified areas where capital costs can be reduced but that a full review of cost reductions will not be completed
until June, at the earliest.
“The bottom line is that we have some real opportunities to reduce the capital cost,” says Jones, who notes that almost half of the engineering work has been completed to date.
Regarding Inco’s plan to bring in Sumitomo Metal Mining as a 25% partner, Jones says the two companies remain in contact and that the Japanese major remains “very interested” and is participating in the review process. France’s Bureau de recherches gologiques et minires (BRGM), which owns the remaining 15% interest in Goro, has previously indicated its willingness to sell its stake to Sumitomo.
Based on the 2001 feasibility study, Goro has the potential to produce about 55,000 tonnes of nickel and 4,500 tonnes of cobalt annually at an operating cost of US$1 per lb. nickel and US$7 per lb. cobalt.
“Goro is a great orebody and a vital part of Inco’s future,” says Jones. “We’re committed to proceeding, but only in a way that benefits all stakeholders. . . . We must be thorough in looking at all the options, and that includes perhaps doing something like a mixed-sulphide product that could go to another operation rather than producing the nickel oxide that we had intended to produce.”
Adds Inco Chairman Scott Hand: “Our objective would be, as we see it today, an approximate 1-year delay in completing a plant in New Caledonia.”
Inco also updated the sensitivity of its overall financial results to changes in commodity prices and currencies. The company’s first-quarter unit cash costs of sales, after byproduct credits, is now expected to be “somewhat higher” than its projected US$1.65-1.70 per lb. of nickel for all of 2003, owing chiefly to higher energy costs and a rising Canadian dollar.
As well, the metal-price premiums Inco regularly realizes over London Metal Exchange (LME) cash prices will be lower for the first quarter of 2003 than its overall guidance for 2003.
In 2003, Inco expects to produce 214,000 tonnes nickel, consisting of production from Sudbury (104,000 tonnes), PT Inco (64,000 tonnes) and Thompson (45,400 tonnes).
The company also expects to produce 114,000 tonnes copper, 180,000 oz. palladium, 145,000 oz. platinum, and 30,000 oz. of a combination of other platinum group metals.
Last year, Inco produced 210,000 tonnes nickel, derived from Sudbury (103,000 tonnes), PT Inco (62,000 tonnes) and Thompson (45,400 tonnes).
By 2007, the major intends to be producing 40% more nickel, or 295,000 tonnes per year, sourced from Sudbury (88,500 tonnes), PT Inco (68,000 tonnes), Goro (54,500 tonnes), Voisey’s Bay (50,000 tonnes) and Thompson (34,000 tonnes).
Strong future
Speaking to an audience in Toronto in February, Peter Goudie, Inco’s executive vice-president of marketing, spoke about the strong future he sees for nickel demand in the coming years.
“We are in interesting times and will soon be in exciting times,” said Goudie. “This is a time of change that needs to be understood and closely watched [since] fundamental shifts in a market are often not recognized until they are well under way.”
He outlined his five reasons for optimism:
q More than 3 million tonnes of new stainless steel-making capacity is being added worldwide in 2002 and 2003 (this sector soaks up half of all nickel production).
q Producer and LME nickel inventories are at low levels relative to prior cycles.
q Scrap nickel supply this year should be tighter than LME price levels suggest.
q Reported consumer and producer nickel inventories remain low, leaving substantial room for potential restocking.
q Chinese nickel demand has continued to grow strongly.
“China was a critical factor in the nickel market in 2002 and its importance will continue to grow throughout this decade,” said Goudie. “My advice is to pack your bags, head off to China and see it for yourselves.”
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