Nickel producer
The deal, announced in St. John’s, will see Inco build a mine and mill at Voisey’s and either a hydrometallurgical plant or a conventional refinery at Argentia on the island’s Avalon Peninsula. The commitment to build a processing plant in Newfoundland was a key condition for the province’s approval of a mining lease.
In exchange, Inco gets to ship the first concentrates to its existing smelters in Sudbury, Ont., or Thompson, Man. This spreads the initial capital expenditures out over a longer period, and was a vital concession to make the longer-term processing plant economic.
The company has agreed to send concentrate, matte, or ore containing equivalent amounts of metal to what was shipped out of the province from Voisey’s, to Argentia once its plant is up and running.
The current agreement is only in the form of a “statement of principles,” which is not binding on the parties. They have agreed to have definitive agreements in place by the end of September. There are also overriding conditions including tax concessions, permitting, financing, and interim settlements to First Nations land claims.
The agreement is subject to a vote in the Newfoundland House of Assembly, though Premier Roger Grimes has indicated the deal has the support of the slim Liberal majority in the legislature. The opposition Conservatives have not commented on the deal, and initial reactions from the third-party New Democrats have been favourable.
Under the statement of principles agreed to by the government and Inco, the nickel miner will build a pilot plant in Argentia to demonstrate the practicability of hydrometallurgical processing on Voisey’s ore. The initial outlay for the pilot plant is US$85 million, part of a US$120-million research and development program in hydrometallurgy. About 200 people will work on the development stage of the project.
Another part of the program is a US$13-million “innovation centre” connected to Memorial University of Newfoundland, which will engage in research in mineral exploration, mining engineering, and metallurgy.
The Canadian government has agreed to kick in up to $150 million in grants through existing research and development programs (see separate story, page 5). Funding from the Technology Partnerships program would be available for the hydrometallurgical demonstration plant, and there could be basic business grants from the Atlantic Canada Opportunities Agency (the regional development program), job-training grants from Human Resources Development Canada, and targeted economic-development aid from the Department of Indian and Northern Affairs.
Inco has budgeted US$1.9 billion for the project, including sustaining capital for a 30-year mine life. Mine and mill construction, and related infrastructure, would take up about US$470 million of the budget, and a commercial-scale hydrometallurgical plant is estimated to cost US$530 million.
The company says its initial economic studies show a return of better than 15% (Inco’s internal “hurdle rate” that projects must meet), based on prices of US$3 per lb. (US$6,600 per tonne) for nickel, US90 per lb. (US$1,980 per tonne) for copper, and US$7 per lb. (US$15,400 per tonne) for cobalt, and a Canadian dollar worth US66. The studies assume complete internal financing.
Inco has estimated that 3,700 person-years of employment will be created by the construction phases at Voisey’s Bay and Argentia. The mine and processing plant will have a permanent staff of around 400 people each.
July start
The timetable for the development would see preparatory construction at both Voisey’s Bay and Argentia begin in July, and a final feasibility study on mine production ready at the end of 2002. Mine construction would start in 2003 and first production would come in 2006. The concentrates would go to Sudbury or Thompson.
Plans for the mill entail production of a nickel-copper-cobalt concentrate and a separate copper concentrate. Exporting copper concentrate has not been contentious, and the agreement allows Inco to ship the copper concentrate out-of-province “until . . . additional copper reserves are discovered to permit commercial copper processing in the province.”
The hydrometallurgical demonstration plant, which would employ about 200 people, would have to be ready to test Voisey’s concentrates when mine production started. Inco must have a bankable feasibility study on a full-scale commercial plant — with an annual capacity of 50,000 tonnes nickel, 2,270 tonnes cobalt and 6,800 tonnes copper — by the end of 2008, or the province may suspend its permit to ship concentrate.
If the hydrometallurgical plant proves not to be feasible, Inco has agreed to build a 50,000-tonne-per-year electrolytic refinery taking smelter matte as feed and producing a high-purity nickel cathode product. Either plant would be in operation by the end of 2011.
Hydrometallurgy has been presented as “new technology” for sulphide ores such as those at Voisey’s, but techniques for processing sulphides were developed in the mid-1950s by Sherritt Gordon (now
A hydrometallurgical plant would not have the capacity to recover platinum group metals. This is not a concern for processing Voisey’s ores, which do not have appreciable platinum group content, but may affect the plant’s ability to handle external feeds.
Inco is currently developing a hydrometallurgical plant for the Goro nickel laterite project in the French overseas territory of New Caledonia. The Goro plant would have a capacity similar to that of the Voisey’s Bay plant.
The pressure-acid-leach (PAL) technology to be used at Goro is a modification of a system used at three large Australian dry laterite projects: Murrin Murrin, Cawse, and Bulong. All three of those projects have failed to meet production targets, but Inco believes it has solved the problems of PAL at the Goro project’s large pilot plant.
The chief difference between PAL metallurgy applied to laterites and PAL applied to sulphides would be in the leaching stage at the front end of the process, which would have to be modified to break down sulphide ores. The process would have to include a sulphur-precipitating circuit, and a solvent-extraction and electrowinning stream for copper recovery.
Electrolytic recovery of nickel from solution and precipitation of cobalt compounds would be at the end of the process and would be similar to those in use at laterite projects. Inco has assumed it will get recoveries of around 93% from Voisey’s Bay ore using hydrometallurgy.
No surprise
The broad terms of the agreement between the company and the province were no surprise, based on the two parties’ earlier public statements and a series of leaks that began about two weeks before the agreement was announced. Inco, which had unveiled plans to build a smelter and refinery at Argentia in 1996, backed off from the idea as nickel prices fell over the next two years, tabling plans to smelt the Voisey’s ore at Sudbury or Thompson instead.
The provincial government treated the earlier plans as a promise and threatened to deny Inco a mining lease under amendments to the province’s Mineral Act, passed in 1996 and 1998. Negotiations dragged through 1998 but were broken off by the government under then-premier Brian Tobin. They resumed later in the year, only to be broken off by Inco in early 2000.
Tobin’s departure in 2001, and the appointment of Roger Grimes as his successor, offered a break in the deadlock, particularly when Grimes suggested the company could satisfy the government’s demand for a processing plant by agreeing to send equivalent amounts of nickel concentrates to Newfoundland in exchange for processing Voisey’s concentrates in Sudbury or Thompson.
Open pit
The mine itself will start with the development of the Ovoid deposit
, a near-surface resource containing 31 million tonnes grading 2.88% nickel, 1.69% copper and 0.14% cobalt. The planned open pit at the Ovoid has a low stripping ratio, and Inco has estimated unit production costs at US$1 per lb. (US$2,200 per tonne) after copper and cobalt credits, based on the prices in Inco’s economic studies.
The Ovoid has an expected mine life of about 15 years.
Development of the underground resource at the Eastern Deeps, about 2 km southeast of the Ovoid, has not been scheduled, but Inco plans a US$13-million drilling program to block out a minable reserve. The province says a further US$50 million or so may go into underground exploration if a reserve can be outlined.
Inco has used projections of an 85-million-tonne resource at Voisey’s Bay in long-term planning, implying it would expect to get at least half of the Eastern Deeps resource of 111 million tonnes grading 1.25% nickel, 0.62% copper, and 0.08% cobalt.
While the Ovoid, measured against the standard of operating nickel mines, is high grade, the grades at Eastern Deeps are below average. The Deeps’ nickel grade is comparable to Inco’s Sudbury reserve grade of 1.23% but has only about half the copper credit, and its cobalt credit, at least at present-day prices, does not match the precious-metal credits Inco gets at Sudbury.
Added to that, the Eastern Deeps is (as the name implies) a relatively deep underground deposit, though not as deep as many of the Sudbury orebodies. Conceptual plans for mining the deposit have mainly envisioned underground bulk-mining methods such as vertical retreat or panel caving. If developed, an underground mine at Eastern Deeps would employ about 800 people and probably enter production sometime around 2018.
Other mineralized zones at Reid Brook, about 1.5 km west of the Ovoid, and at Discovery Hill, the original showing just west of the Ovoid, are also slated for resource and reserve drilling.
The mill is expected to have conventional flotation circuits, and Inco expects to store concentrates at tidewater and ship them seasonally.
Writedown
Along with the announcement of the deal, Inco conceded, for the first time, that it expected to write down the carrying value of Voisey’s Bay, which is currently on the books at US$3.7 billion. Inco got control of the deposit by taking over original owner Diamond Fields Resources in a bidding war with rival nickel producer
Estimates of the writedown, which would be applied against earnings in the second quarter, generally range between US$1 billion and US$2 billion. Inco reported earnings of US$25 million in the first quarter, and analysts’ forecasts had averaged around US$60 million for the second.
In a conference call on June 11, analysts pressed company officials for a figure on the size of the writedown, but no numbers came out.
The company has stated a preference to keep Voisey’s as an in-house operation, unlike the Goro project. At Goro, Inco is in talks with several potential partners who might provide some financing for the project in exchange for a 15-30% interest. One of the potential partners is Japanese industrial conglomerate Sumitomo, and another is the French nickel producer
The two projects, taken together, will need about US$1.2 billion between now and 2006, of which roughly half is available from existing cash.
Inco has agreed, under the statement of principles, to make a proportion of its corporate tax payable to Newfoundland, and in return the government undertook to keep the corporate rate applicable to Inco at or below the average provincial corporate tax rate in Canada. A 10-year tax holiday under the province’s existing Mining and Mineral Rights Tax Act will be limited to $2 million annually.
Inco has already signed impacts-and-benefits agreements with the two main First Nations groups affected by the project, the Innu Nation and the Labrador Inuit Association (T.N.M., June 3/02). The two groups are holding ratification votes on the deals later in June. The deals include employment targets and training commitments. Both First Nations groups are in negotiations with the national and provincial governments for interim agreements that will allow the project to go ahead.
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