Voisey's Bay project on the move

For Inco, it is the road to becoming the world's largest nickel producer.

For the residents of isolated, depressed Labrador, it holds the rare promise of steady jobs and solid economic gains.

For the government of Newfoundland and Labrador, it will be a triumphant end to some of the toughest resource-development negotiations in Canadian history.

For now, if all goes as planned, the mine and concentrator at the Voisey's Bay project and a demonstration processing plant at Argentia, Newfoundland, will begin operations in 2006, a full decade after Inco paid a staggering C$4.3 billion to acquire the deposit.

Proven reserves at the site on Labrador's north coast are 30 million metric tons and expected annual production is about 110 million pounds of nickel, 70 million pounds of copper concentrate and 5 million pounds of cobalt.

Over its planned life, Voisey's Bay is projected to yield about 49,000 metric tons of nickel, 38,000 tons of copper and 2.200 tons of cobalt.

Project would move Inco to No. 1

If those targets are reached, Inco should move from second place on this year's list of global nickel producers at 231 kilotonnes ahead of Siberian-based Norilsk at 240 kilotonnes. Next in the rankings are Toronto-based Falconbridge 107 kilotonnes, and two Australian-based companies, BHP Billiton 82.5 kilotonnes and WMC Resources 63 kilotonnes.

Analysts have predicted that Voisey's Bay and Inco's Goro new project in the French territory of New Caledonia will boost its nickel output by 40 percent and reduce its unit costs to US$1.70 per pound from this year's US$2.35.

Scott Hand, chief executive officer of Toronto-based Inco, has made no secret of his company's ambition to be the "world's leading nickel company, not just a leading nickel company."

Capital cost estimates up

Investors in Inco have their fingers crossed that the C$3 billion investment in Voisey's Bay and a processing facility at Argentia in southeastern Newfoundland will pay off, but they have had cause for unease over the last 18 months.

Inco raised its capital cost estimates for the first phase of the mining by 14 percent to US$776 million, blaming the increase on its decision to build a larger concentrator plant that previously planned.

That came just four months after the company raised eyebrows when it admitted the capital cost of the Goro project might push the original price tag up by 45 percent to US$2.1 billion, forcing it to scale back plans.

But Hand was adamant that Inco intended "in the next few years" to see "both of our outstanding greenfield developments up and running and contributing vigorously to Inco's performance."

He also said that one of the key requirements for a successful Voisey's Bay project is "having a capital cost estimate that we have full confidence in."

Demonstration plant at Argentia

While work proceeds on the open-pit mine and processing facility, Inco has started a demonstration plant at Argentia to test an experimental hydromet chemical refining process.

For the first five years of the mine's operations, concentrate will be shipped to Inco's operations in Sudbury, Ontario, or Thompson, Manitoba.

That will provide the cash flow for Inco to meet its 2002 commitment to put a full-scale commercial processing facility in Argentia before 2012.

More than anything, the whole project hung in the balance in the late 1990s when the Newfoundland government refused to grant a mining license unless Inco agreed to build a smelter in the province.

Negotiations collapsed late in 1999 and Inco laid off most of its 100 project staff when the company insisted it needed an escape clause in case its new processing technology didn't work.

"We're going to stand our ground," said then Premier Brian Tobin.

The deadlock broke in 2002 when Tobin's successor Roger Grimes signed a deal with Inco that has given the company time to de-bug its hydromet technology at pilot plants in Mississauga, Ontario, and Argentia.

By 2008, Inco is required to tell the province whether it will use the hydromet process, seen by some analysts as a huge gamble, or revert to a conventional refinery.

Whatever the outcome, Tobin feels vindicated in taking such a hard line which delayed Voisey's Bay by as much as six years.

With nickel demand exceeding supply and prices at a robust level that analysts expect to last for at least another two years, Tobin is convinced an agreement based on extraction alone would have denied Newfoundland substantial economic benefits, including the expected 400 full-time staff at the Argentia facility.