RNS Number:2541E
Inco Ld
19 October 2004
INCO ANNOUNCES DECISION TO PROCEED WITH GORO PROJECT
___________________
UPDATED CAPITAL COST ESTIMATE AND SCHEDULE
AND PROGRESS ON OTHER KEY MILESTONES
PROVIDES BASIS FOR DECISION TO PROCEED
_________________
TORONTO, October 19, 2004 -- Inco Limited announced today that, having completed
and successfully achieved the key objectives of the second and final phase of
its Goro project review, it has decided to proceed with the development of its
Goro nickel-cobalt project in New Caledonia.
"We are happy to report that all of the critical elements we required to proceed
with Goro have all come together through our review process, giving us the
confidence to make this positive decision," said Inco Chairman and CEO Scott
Hand. "Our review has been successfully completed and we have the right project
going forward: We're on our way," he noted.
A key objective of the second phase, or Phase 2, of the Goro review was to
achieve a reliable and acceptable capital cost estimate for the project. This
review, which proceeded in two phases, had begun following the decision made in
December 2002 to suspend the project.
The final results of the review have included an updated capital cost estimate
of $1.878 billion (U.S.), within a minus 5 per cent to plus 15 per cent
reliability range. This estimate includes about $40 million (U.S.) for assumed
escalation in costs during the construction phase of the project, an amount that
was not in previous capital cost estimates, and also reflects favourable
currency hedging gains realized by Inco of about $31 million (U.S.) which were
also not included in previous estimates. The principal reasons for the increase
from the $1.85 billion (U.S.) estimate announced on May 25, 2004 has been higher
costs for a range of construction materials and labour required for construction
and the incorporation of a new tailings storage area as part of the project.
The final results of Phase 2 of the review also included an updated estimated
cash cost per pound of nickel to be produced by the project, after by-product
credits, of $1.10 to $1.15 (U.S.) per pound, based upon a cobalt price of $7.00
(U.S.) per pound. "We believe that the Goro project returns will achieve our
goal of meeting Inco's long-term, after-tax weighted average cost of capital of
9 to 10 per cent assuming a $3.00 per pound price for nickel and a $7.00 per
pound price for cobalt," Mr. Hand noted.
Phase 2 of the project review also focused on a number of other key objectives,
including (1) a viable project implementation schedule and clear project
execution plan, (2) a prudent financing plan taking into account Inco's
projected cash flow potential to fund its expected share of the capital cost of
the project, (3) an experienced and dedicated team for both the construction and
operating phases and (4) optimizing the Goro project's planned process plant
design and engineering requirements while also meeting specific objectives on
project operability, maintainability, risk mitigation and environmental
protection. The final results of Phase 2 of the review have met all of these key
objectives. Consistent with the preliminary results of Phase 2 of the review
announced in May 2004, the project's process plant footprint area has decreased
by approximately 50 per cent from its original plan, reducing the quantities of
bulk materials required, enhancing the efficiency of the planned process plant
from an operational and maintenance perspective, and reducing any potentially
adverse environmental effects.
"The final results of Phase 2 are consistent with the key preliminary findings
of this phase we announced in May, and our confidence level is now much higher,"
said Inco President and Chief Operating Officer Peter Jones. "We believe that we
now have a very reliable, cost-effective and efficient configuration for our
Goro project, allowing us to develop the project in a manner consistent with our
operational and financial objectives and with the support of the government and
the provinces of New Caledonia," he added.
In moving forward with Goro, the project will focus initially on engineering
work, with remobilization for construction at the Goro site expected to begin in
early 2005. Based upon the final results of Phase 2 of the review, the project
construction schedule is expected to be approximately 35 months in length, with
initial production estimated to begin in September 2007.
Inco and Goro Nickel S.A. ("Goro Nickel"), the project company, currently plan
that, as part of the project schedule, the Goro project would reach about 75 per
cent of its expected annual capacity of 60,000 metric tonnes of nickel within 12
months after initial production, and would be at approximately 90 per cent of
the expected nickel capacity within two years after initial production. The Goro
project's expected cobalt capacity has been revised to a current range of 4,300
to 5,000 metric tonnes per year to take into account the optimized mine plan for
the project as part of the final results of the review.
"We've put together an exceptionally strong and experienced team to manage Goro
through every phase of construction and ramp-up," said Mr. Jones. "We have also
formed an integrated overall team consisting of personnel from the owner and the
SNC Lavalin-Foster Wheeler organizations' joint venture, CEG, to build on the
strengths and capabilities of all our personnel."
As part of the objectives Inco set for Phase 2 of the review, Inco has over the
past several months sufficiently advanced, consistent with these objectives,
certain other key milestones to be met to enable the Company to reach its
decision to proceed with the project. These milestones have included (1)
achieving sufficient progress on all key permits for the construction and
operation of the Goro project in New Caledonia and a Good Neighbour Agreement
and having reached appropriate understandings or arrangements with local labour
unions and other key stakeholders in New Caledonia to put Inco and Goro Nickel
in a position to proceed with the project, including with respect to both the
construction and eventual operating phases, on a basis that will help to ensure
a clear dispute resolution process designed to avoid any potential labour or
other disruptions, (2) advancing the terms of the Girardin Act tax-advantaged
financing to be provided by the French Government and (3) reaching a
satisfactory understanding on the acquisition by the three provinces of New
Caledonia of the interest in Goro Nickel held by the French Government agency,
Bureau de Recherches Geologiques et Minieres ("BRGM"), as part of a required
realignment of the equity ownership in the project to also enable Sumitomo Metal
Mining Co., Ltd. and Mitsui & Co., Ltd. to be brought into the project.
Inco, the governments of the three provinces of New Caledonia and BRGM have
entered into a letter of understanding covering the acquisition of BRGM's
interest in Goro Nickel by these three provinces. The letter of understanding
also covers the rights, once they have acquired BRGM's interest, that these
three provinces would have as a shareholder in Goro Nickel, including the right
to maintain up to a 10 per cent interest in Goro Nickel once certain shareholder
advances have been capitalized, which will have the effect of reducing BRGM's
current approximately 15 per cent interest to about 10 per cent. It is currently
expected that definitive agreements covering the sale of BRGM's interest and the
rights that the three provinces of New Caledonia will have as a shareholder in
Goro Nickel will be completed prior to the end of 2004.
Inco has continued its discussions with the French Government in obtaining at
least $350 million (U.S.) in the Girardin Act tax-advantaged financing which the
French Government had earlier agreed in principle to provide to the project.
While the French Government has recently reconfirmed the availability of this
financing for the Goro project, the specific terms and conditions of this
financing still need to be agreed upon with the French Government. The current
expected economic benefits to the project of this financing would be about $120
million (U.S.).
"I am very pleased that a decision has been taken to proceed with the Goro
project based upon the participation of the provinces of New Caledonia as a
shareholder", said Anne Duthilleul, President of ERAP, an agency of the French
government, and the lead French government official who has been responsible for
facilitating nickel development in New Caledonia.
Earlier today, the government of the South Province of New Caledonia formally
issued to Goro Nickel the principal governmental operating permit required for
the project.
"The government of the South Province of New Caledonia fully supports the
development of Goro and we are committed to making the project a success for New
Caledonia and for Inco: This project is bringing tremendous hope for the future
of New Caledonia," said South Province President Philippe Gomes. "I have
presented the Inco and Goro Nickel Boards of Directors with the signed
Installation Classee to proceed with the project", he stated.
"Projects of this scope require strong partnerships to succeed and deliver
sustainable benefits and we have succeeded in putting together strong
partnerships for Goro," said Mr. Hand.
Inco has entered into a memorandum of understanding with Sumitomo Metal Mining
Co., Ltd. and Mitsui & Co., Ltd. covering their purchase of a 21 per cent
interest in Goro Nickel. Inco and Goro Nickel currently expect that definitive
agreements with these two Japanese companies covering the terms and conditions
of this acquisition and certain other arrangements relating to their
participation in the project, including pro rata rights to product offtake, will
be completed prior to year-end 2004. Koichi Fukushima, president of Sumitomo
Metal Mining Co., Ltd., said: "Sumitomo and Inco have enjoyed a very productive,
long-term partnership covering PT Inco's nickel operations in Indonesia. Our
partnership at Goro will further strengthen our relationship and make a
considerable contribution to the further development of our nickel business."
Inco and Goro Nickel have developed the framework for a Good Neighbour
Agreement, which has been endorsed by local community leaders in New Caledonia,
setting out the principles intended to build sustainable relationships with the
project's neighbouring communities. This accord is expected to encompass such
areas as education, training, local employment and business opportunities,
traditional values and social impacts, and to provide a community advisory role
in key operational areas such as the environment. "Goro has a long future in New
Caledonia and we're working with the local communities to ensure that the
project has a positive impact right from the outset," said Mr. Hand. "We are
gratified by the support we have received from the governments of New Caledonia
and France and the local communities of New Caledonia."
In August 2004, Goro Nickel signed a workplace accord with local unions to be
involved in the project which included a dispute resolution process designed to
avoid labour disruption during Goro's construction and operations phases. "The
construction phases will include significant involvement from local contractors.
Our long-term target is to have over 90 per cent of the operations workforce
from New Caledonia, " said Mr. Jones.
"As one of the largest high grade undeveloped lateritic nickel orebodies, Goro
remains a very important part of our growth strategy in nickel and has the clear
potential to be expanded significantly beyond its initial expected capacity in
the future," Mr. Hand noted. "We intend to continue our efforts to meet the
growing needs of our customers."
Access to Webcast
As previously announced, interested investors can listen to our presentation on
the Goro project which will be part of our conference call covering third
quarter 2004 financial and operating results on a live, listen-only basis, or
access the archival webcast or the recording of the conference call through the
Internet or by calling the toll-free telephone call in North America as
indicated below.
The conference call is scheduled for today beginning at 4:30 p.m. (Toronto time)
and can be accessed by visiting the website of a third-party webcasting service
we will be using, Canada NewsWire Ltd., at www.newswire.ca/webcast, at least
five minutes before the start of the conference call. Slides or other
statistical information to be used for the conference call can be accessed and
will be available for online viewing through www.newswire.ca/webcast on the
event title or through our website, www.inco.com, by clicking on the "Latest
Presentations" link on the homepage.
The archival webcast of the presentation can be accessed via the Internet
through www.newswire.ca/webcast. A recording of the conference call can be
listened to until 11:59 p.m. (Toronto time) on November 2, 2004 by dialing
1-800-558-5253 in North America and by entering the reservation number 21208377.
This recording is also available outside North America by dialing 416-626-4100.
This news release contains forward-looking statements regarding the Company and
its Goro nickel-cobalt project, including capital cost estimates and
targets,expected nickel and cobalt capacity, cash costs of production of nickel
based upon certain assumptions, project schedule and expected timing of initial
production and ramp-up of production to expected capacity, changes in project
configuration and certain other aspects of the project, resumption of certain
work, key milestones relating to the project schedule and advancement of the
project, returns on investment, anticipated sources of financing and agreements
and other arrangements with the provinces of New Caledonia, the Government of
France, Sumitomo Metal Mining Co., Ltd., Mitsui & Co., Ltd. and other parties.
Actual results and developments may differ materially from those contemplated by
these statements depending on, among others, such key factors as business and
economic conditions in the principal markets for the Company's products, the
supply and demand for nickel and other metals, the capital cost, scope,
schedule, ramp-up and other key aspects of the Goro project, the timing of
receipt of all necessary permits and regulatory approvals, engineering and
construction timetables, and the necessary financing plans, including necessary
agreements with the French Government and the Government of New Caledonia and
its Provinces, and arrangements for, and joint venture, partner or similar
investments and other agreements and arrangements associated with, the Goro
project.
- 30 -
IN 04/19
October 19, 2004
For further information:
Media Relations: Steve Mitchell (416) 361-7950
Investor Relations: Sandra Scott (416) 361-7758
or www.inco.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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