Inco takes US$1.6-b Voisey’s writedown

In a widely anticipated move, Inco (N-T) has written down the carrying value of the Voisey’s Bay nickel project in Labrador by US$1.6 billion to US$2.2 billion.

Inco could act on the matter as the company and the province of Newfoundland have now reached an agreement on how to develop the project (T.N.M., June 17-23/02). Under the agreed-upon plan, Inco will build a US$470-million mine and milling complex at Voisey’s and either a US$530-million hydrometallurgical plant or a conventional refinery at Argentia on Newfoundland’s Avalon Peninsula.

In June 1995, Inco bought an initial 25% stake in the subsidiary of Diamondfields Resources that owned a 100% interest in the Voisey’s Bay project and other claims in Labrador.

In late 1996, after fighting off rival Falconbridge in a bidding war, Inco acquired the remaining 75% of Voisey’s Bay in return for a combination of cash, common shares, series E preferred shares and newly printed “class VBN” shares (Inco bought back the VBN shares in early 2001).

The total consideration offered for the 75% stake was US$3.1 billion, placing the total value of the project in 1996 at US$4.1 billion.

Before closing down its exploration camp at Voisey’s Bay in September 2001, Inco had spent US$100 million on exploration, bringing total expenditures by Inco and Diamond Fields to about US$160 million. In total, 555 holes, representing 350,000 metres, have been completed.

With the project back on track, Inco plans to spend about US$35 million in the province between July 2002 and March 2003. The funds will be used to build access roads, expand the exploration camp, clear land for the mine and mill, prepare for a demonstration plant at Argentia, advance the hydrometallurgical processing research and development program, and help create an “innovation centre” at Memorial University in St. John’s.

The writedown announcement came as the nickel major posted a net loss for the second quarter of US$1.6 billion (or US$8.70 per diluted share) on revenue of US$591 million. This compares with a profit of US$192 million (US95 per share) on revenue of US$583 million.

In its results, Inco recorded a second, non-cash charge of US$61 million, primarily related to capitalized exploration and development costs at the Victor Deep exploration project in Ontario’s Sudbury camp — activity that is being halted now that Voisey’s Bay is going forward.

Not counting the writedowns, Inco posted a profit of US$65 million (US36 per share) in the recent quarter.

Total nickel deliveries in the second quarter soared to 62,083 tonnes from 57,141 tonnes a year earlier, reflecting greater demand for Inco nickel, particularly in the stainless steel sector.

Other deliveries in the quarter were: 30,691 tonnes copper (35,095 tonnes last year); 386 tonnes cobalt (365 tonnes); 121,000 oz. platinum group metals (125,000 oz.); 19,000 oz. gold (20,000 oz.); and 410,000 oz. silver (480,000 oz.).

During the recent quarter, Inco received US$7,296 per tonne of nickel and US$1,673 per tonne of copper, compared with last year’s realized US$7,065 and US$1,707, respectively. These figures represent a slight premium to the average cash prices of the two metals on the London Metal Exchange.

At the Goro nickel-cobalt laterite project in New Caledonia, Inco has reached an agreement in principle to sell a 25% interest in the project to a consortium of Japanese companies. The consortium will be led by Sumitomo Metal Mining, which is already a partner of Inco’s at the PT Inco mine in Indonesia.

As part of the deal, which is expected to close in the fourth quarter, Inco is arranging to buy the 15% stake in Goro still held by French-state-owned Bureau de recherches gologiques et minires.

Financial terms of the two Goro deals have not yet been released.

Inco says if it can soon get New Caledonian-government approval of an operating permit, then the company would remain on schedule to begin production at Goro in late 2004. At full capacity, the mine will be producing 55,000 tonnes of nickel and 4,500 tonnes of cobalt per year.

In the Philippines, Sumitomo has entered into a second joint venture to build a US$175-million nickel-cobalt processing plant with Rio Tuba Nickel Mining and two other Japanese companies.

The plant, to be built next to the Rio Tuba mine on Palawin Island, will annually produce matte containing 10,000 tonnes nickel and 700 tonnes cobalt over a minimum project life of 20 years.