Voisey’s Bay delivers the goods

Notwithstanding Inco’s (N-T, N-N) bid for Falconbridge (FAL.LV-T, FAL-N) and the subsequent unsolicited takeover offer launch by Teck Cominco (TEK.SV.B-T, TCKBF-O), the big story this past year for Inco was the completion of the Voisey’s Bay nickel mine in northern Labrador.

“In just a few years, Voisey’s Bay has gone from a project in limbo to become one of mining’s great success stories,” said chairman Scott Hand at Inco’s recent annual general meeting of shareholders. “This is a project that has succeeded by every measure, not just economic, but also environmental and social.”

Situated on the Labrador Coast, 335 km north of the regional centre of Happy Valley-Goose Bay, the Voisey’s Bay mine is expected to produce an average 50,000 tonnes (or 110 million lbs.) nickel-in-concentrate, containing 2,300 tonnes (5.1 million lbs.) cobalt and up to 6,800 tonnes (15 million lbs.) copper, plus 32,000 tonnes (70.5 million lbs.) copper-in-concentrate annually over a mine life of about 30 years.

The first phase of development centres on an open-pit mine and 6,000-tonne-per-day concentrator plant at Voisey’s Bay. It is on a peninsula bordered to the north by Anaktalak Bay and to the south by Voisey’s Bay, 35 km southwest of Nain and 80 km northwest of Utshimassits. The project area offers challenges consistent with a remote, sub-arctic environment. It required the construction of extensive infrastructure such as port facilities, 12.5 km of access roads, power and water supply, an airstrip and an accommodation complex.

Inco bought Voisey’s Bay for $4.3 billion in 1996 and, to the end of 2005, had spent US$902 million on the first phase of development, which is expected to cost a total of US$970 million.

Voisey’s Bay production began in September 2005 and the first batches of intermediate nickel concentrates were shipped to Inco’s refineries in Sudbury, Ont., and Thompson, Man., in November. By year-end, the mine had achieved commercial production, six months ahead of schedule. In 2005, 10,450 tonnes (23 million lbs.) nickel-in-concentrate and 4,406 tonnes (10 million lbs.) copper-in-concentrate were produced at Voisey’s Bay.

“Given the great ramp-up, our estimate for 2006 is about 120 million pounds of low-cost, high-grade nickel concentrates,” said Inco president and chief operating officer, Peter Jones, during a first-quarter conference call. “During 2006, we’ll process about eighty-three million pounds of this concentrate through to finished product at Sudbury and Thompson, as we fill the pipeline during the first half of the year.”

The copper concentrate is being sold overseas.

Money-forward returns from January 2003 should top 23%, based on US$3.75-per-lb. nickel and US$1-per-lb. copper.

As part of a negotiated arrangement with the Newfoundland and Labrador government, Inco is processing all of the Voisey’s Bay concentrate out of province during 2006-2011 while it tests the feasibility of processing sulphide ore using hydrometallurgical technology over conventional smelting. Inco is committed to building a nickel refinery in the province and having it in operation by 2011. The senior producer has guaranteed it will replace all of the Voisey’s Bay nickel and cobalt concentrate shipped out of the province with other worldwide sources. Copper concentrates, however, are not part of the agreement and can be refined anywhere.

Phase one

The first phase of the Voisey’s Bay project included the construction of a hydromet demonstration test plant in Argentia, Nfld., at a 1:100 scale of the eventual commercial plant. The demonstration plant has been up and running since October. During the first quarter, Inco successfully completed a 15-day contiguous and integrated operation campaign and achieved 97-98% metal extraction in the autoclave.

“Everyone’s worked so hard to turn the nickel concentrate from Labrador into finished nickel, copper and cobalt. And when you see the nice shiny nickel being produced, there’s a lot of pride,” said plant manager Don Stevens in the Voisey’s Bay Nickel Co. (VBNC) newsletter. “We target to be operating at the design conditions by this summer. There will be a lot of optimization and testing to be done over the next year and a half.”

The demonstration plant, which is scheduled to run until December 2007, will help determine if the chemistry proven in the laboratory can be replicated without a buildup of unwanted elements, ensure that the materials chosen for construction are robust enough to withstand the extreme environment they will be subjected to in terms of heat, temperature and corrosion, and allow the consistency of the residue to be monitored and determine the most environmentally acceptable way to dispose of it.

The advantages of hydromet technology over conventional refining include substantial energy savings and elimination of the dust and sulphide emissions associated with smelting.

Inco has until November 2008 to inform the provincial government of its decision to build either a commercial-scale hydromet plant, or a conventional nickel processing facility for the Voisey’s Bay concentrate. Both will have the capacity to produce 110 million lbs. of finished nickel product annually, along with associated copper and cobalt products.

Environmental assessment

Inco has begun the environmental assessment process following a decision to relocate its planned commercial plant to an alternate site near Long Harbour, 20 km from Argentia. VBNC, a wholly owned division of Inco, had originally chosen Argentia as the preferred site, but a comprehensive review of environmental, engineering and operating factors raised some concerns. One of the risks at Argentia was the length of the effluent pipeline that would have to be routed through certain protected watersheds.

“In anticipation of conducting further environmental assessment of the Long Harbour, VBNC has already begun background studies to provide information likely to be needed for that process, which is expected to take approximately 18 months,” noted Brenda Brown, an environmental analyst with VBNC.

Since the results of the hydromet research program will not be known until late 2007, VBNC has chosen to register both the hydromet technology and the proven nickel matte processing technology for environmental assessment so construction can begin early in 2009, regardless of the processing technology that is eventually selected. The commercial nickel processing plant, once built, will create 350-400 permanent positions.

Inco expects to produce 565 million lbs. nickel in 2006 from its operations, including 30 million lbs. of toiled material, at a nickel unit cash cost of sale averaging US$2.35-US$2.40 per lb., net of byproduct credits. Costs to process its own mine output alone are forecast at US$2.15-US$2.20 per lb. In addition, the company is targeting copper production of 340 million lbs. in 2006, with 65 million lbs. coming from Voisey’s Bay.

Last year, Inco produced 487 million lbs. nickel at a US$2.65-per-lb. cash cost of sales, net of byproduct credits.

In the first full quarter since achieving commercial production, Voisey’s Bay produced 34 million lbs. of nickel in concentrate.

“With the first winter shipping season safely and successfully completed, operations at the mine and concentrator in Labrador have settled into their natural rhythm,” said VBNC managing director Phil du Toit in the company newsletter.

Inco completed two shipments of concentrate from Voisey’s Bay to Quebec City in late January and early February using a Falconbridge icebreaker. VBNC will take possession of its own carrier, Umiak 1, in late May. The combination bulk carrier and icebreaker was custom built to transport Voisey’s Bay concentrate from Edward’s Cove in Anaktalak Bay, Labrador. It will be capable of carrying about 30,000 tonnes of concentrate. Of the nine shipments planned for the remainder of the year, eight will be carried out by Umiak 1.

The initial mine plan of Voisey’s Bay is based on a pit model conta
ining proven and probable reserves of 32 million tonnes grading 2.75% nickel, 1.59% copper and 0.14% cobalt for a life of 14 years.

Ovoid deposit

The proposed open pit is centred on the Ovoid deposit, Mini-Ovoid zone and the near-surface portion of the Southeast Extension deposit, at a stripping ratio of about 1.3:1. The Ovoid is a bowl-shaped deposit measuring 800 by 350 metres, and is more than 100 metres thick at the centre. The top of the deposit lies 2.5 to 30 metres below surface. The pit will ultimately be 1 km long, 500 metres wide and 125 metres deep.

The Ovoid deposit consists of roughly 70% crystalline massive sulphide minerals. It is believed to represent a depression on the bottom of a troctolite dyke, which joins the Eastern Deeps chamber to the Western Extension.

The Ovoid ore reserves consist of about 21 million tonnes of massive sulphide mineralization and 9 million tonnes of disseminated sulphides.

Given the mineral resources already identified and the expectation that additional resources will be found, the life of Voisey’s Bay is expected to be significantly longer than the 14 years envisaged for phase one. The project will entail an estimated total investment of US$2 billion over what Inco is calling a “30-year life” based on the initial prefeasibility studies of going underground, and including the capital cost of building a new nickel processing facility on the island. The long-term plan calls for the mill to be expanded in 2017-2018 when the company will go underground in order to offset the lower grades and keep production at 50,000 tonnes nickel per year.

Most of the remaining resource is contained at depth in the Eastern Deeps zone and the Western Extension, which includes the Discovery Hill and Reid Brook zones. At the end of 2005, indicated resources stood at 40 million tonnes grading 1.89% nickel, 1.9% copper and 0.12% cobalt. Another 6 million tonnes grading 1.9% nickel, 1% copper and 0.2% cobalt are inferred.

The Eastern Deeps zone is 2 km southeast of the Ovoid. The deposit is ribbon-shaped and lies at the base of a large troctolite magma chamber. Mineralization consists of an upper disseminated sulphide zone and a basal massive sulphide zone. The deposit begins at about 500 metres below surface and plunges east-southeast at 20 to nearly 1,000 metres depth. It measures 1,000 metres long, 100-200 metres wide and 20-100 metres thick.

The Discovery Hill and Reid Brook zones in the Western Extension occur and 1 and 2 km west of Ovoid, respectively. Discovery Hill, contiguous with the Ovoid, consists mainly of disseminated sulphides, with narrow veins and stringers of massive sulphides. The Reid Brook zone is a sheet-like body that plunges eastward from near-surface to 1,500 metres deep. Massive sulphides occur primarily as bands and lenses within the wall rocks adjacent to the troctolite dyke that hosts much of the lower-grade mineralization.

New environment

“This is a new nickel sulphide camp with varying deposit types,” explained Larry Cochrane, VBNC’s director of mine exploration, at this year’s Mineral Exploration Roundup in Vancouver. The presence of high-grade nickel sulphide mineralization within troctolite intrusions associated with a large anorthosite complex represents a new environment for nickel deposits, not previously recognized.

Before temporarily suspending exploration at Voisey’s Bay in September 2001, Inco had spent $100 million, bringing total spending to about $160 million — including previous exploration expenses of Diamond Field Resources; 555 holes, representing 350,000 metres, had been completed.

In August 2003, to assess the future development and economic potential of the underground resources, Inco launched an initial-phase, 4-year, US$15-million surface exploration program that is part of a much larger US$63-million advanced 2-stage exploration campaign. The 2004 program consisted of infill drilling from surface on the Reid Brook, Discovery Hill and Eastern Deeps deposits. The results from 35 holes were used to update the resource block model, and an underground scoping stage assessment was completed based on the sub-level cave mining method.

Inco spent US$5 million on exploration in 2005. Totalling 21,000 metres, 52 holes were drilled on Reid Brook deposit, resulting in the discovery of additional high-grade massive sulphide mineralization.

“We continue to achieve good results from our advanced exploration program on the Reid Brook deposit,” said Jones during a presentation to the investment community earlier in the year. “Earlier drilling indicated a massive sulphide zone with intersections showing attractive grades. We’re focusing on a section that shows good thickness and the high nickel-copper grades of a massive sulphide zone, with several hundred metres of favourable structure still to explore.”

Selected highlights from a section of exploration drilling across the new massive sulphide discovery at Reid Brook include: 38.7 metres grading 3% nickel, 1.4% copper and 0.2% cobalt; 61.6 metres of 2.9% nickel, 1.5% copper and 0.2% cobalt; 40.4 metres averaging 2.7% nickel, 1.1% copper and 0.17% cobalt; 75.4 metres of 2.9% nickel, 1.2% copper and 0.2% cobalt; and 46.6 metres grading 3.1% nickel, 1.2% copper and 0.2% cobalt.

The new discovery is hosted in a flat-lying structure, which has crosscut the troctolite dyke. The sulphides have moved along that structure, Cochrane explained.

Inco has also picked up mineralization at the base of the Western chamber in the Ryan’s Pond area, 4 km west of the Eastern Deeps zone.

“We put some holes in there that had some mineralization, but we’re not concentrating on that now,” Cochrane said. “We have a lot of exploration targets still to cover at Voisey’s Bay and we are encouraged by the exploration potential beyond the current resources.”

Exploration drilling will continue at Reid Brook in 2006 with the objective of growing the resource.

In terms of regional exploration, Inco has focused its attention on the Garland Lake area, about 30 km southeast of Voisey’s Bay, where the company picked up 7,000 new claims. There is evidence the area is locally underlain by troctolite rocks considered favourable for hosting Voisey’s Bay-style nickel sulphide mineralization.

Of the 400 employees, who work a 2-week-in, 2-week-out rotation at Voisey’s Bay, nearly 50% are aboriginal. As well, 80% of the workers hail from Labrador, while 98% are from Newfoundland and Labrador.

“We’re quite pleased about that,” said Tom Paddon, manager of aboriginal affairs and Labrador human resources, in a recent company publication. “We have actually exceeded our recruitment targets, and are very confident that our aboriginal and Labrador employees have the skill sets, training and ability to do the work required.”

Negotiations with the United Steelworkers on a collective labour agreement for Voisey’s Bay employees are either under way or will start shortly. According to Peter Jones, it’s not unusual for first collective agreements to take six to 12 months to negotiate.