Voisey's Bay / Inco News summary
CBC Regional News - Wednesday, December 17, 1997 AM NEWS
Voisey's Bay Nickel estimates it will pay out about one-point-five billion dollars in direct employment benefits during the 25-year operating life of its mine. That's according to information in the company's environmental impact statement. The six-thousand page, four-volume document was submitted to an environmental review panel yesterday.
The 15-million dollar study covers the mine and mill proposal for Northern Labrador.
The company says it has developed a management system to protect the environment and the livelihoods of people living nearby. The environmental assessment will be studied by a review panel and will go through public hearings.
-------------------------------
A spokesperson for the Labrador Inuit Association says their land claims negotiations are going well. Toby Andersen says talks with the federal and provincial governments are now focusing on Inuit self government.
Andersen says the discussions are at the "critical point"of funding for an Inuit government. The talks will recess later this week for the holidays. Andersen says they'll resume on the 8th of January. He's hopeful that an agreement in principle will be reached by the end of March.
-------------------------------
CBC Regional News - Wednesday, December 17, 1997 PM NEWS
The Voisey's Bay Nickel Company says it's confident its Environmental Impact statement for the Voisey's Bay mine and mill addresses all the concerns people might have about the project. The company has submitted the document to the joint panel that's overseeing the project.
And it promises to do everything possible to minimize the impact of the mine and mill on people and the environment.
Philip Daniel reports.
DANIEL REPORT:
Voisey's Bay Nickel says the massive project will create up to 80-thousand person-years of employment and pump more than four-billion dollars into the province over its lifetime. But it says because the mine and mill complex is in a remote area, and doesn't cover much land, the impact on wildlife and nearby communities should be minimal.
The company says contaminated rock and tailings will be kept underwater in two ponds. ...and the entire site will be fully reclaimed once the project is over. It also says measures will be taken not to disrupt migrating caribou, and fish habitat will be protected as much as possible.
The company says 60% of the jobs at the site will go to Labradorians...and the shift schedule will allow aboriginal employees to spend time on the land.
The E-I-S is now being reviewed by the joint review panel, to make sure it has addressed all the issues....the panel's chairperson, Leslie Griffiths says they could ask for more information...but she doubts the process will drag on too long.
GRIFFITHS CLIP:
"As far as the panel's concerned, We've been given some strict time lines for each step of the process that we're responsible for. So certainly the intent is not to have this process dragged out, but to carry it out as efficiently and effectively as possible."
Griffiths says if the E-I-S is acceptable, there'll be three months for public reaction before hearings are scheduled...likely for May and June.
-------------------------------
The mayor of Placentia says the Argentia smelter project is full speed ahead. Recent comments by a Voisey's Bay Nickel vice president fueled speculation that the smelter site was being reconsidered. But Bill Hogan says that isn't true.
David Cochrane reports.
COCHRANE REPORT:
Bill Hogan came to St. John's today looking for some answers.
The mayor of placentia and several councillors met with Voisey's Bay nickel executives this afternoon to get to the bottom of rumours surrounding the Argentia Smelter. And Hogan says the rumours are just that -- rumours.
HOGAN CLIP:
"Their plans are on-track . . . somewhat delayed by external factors but they're going ahead."
Those external factors include a recent drop in the parent company Inco's stock prices, a lawsuit over the environmental assessment of the Argentia smelter, and threats of a takeover. But Hogan says the company gave him a commitment today that the smelter project will go ahead.
HOGAN CLIP:
"They're trying to move as fast as they possibly can and we're more confident than ever that there's going to be a smelter refinery on the Argentia peninsula in the next year or so."
Hogan said that as soon as the mining development in Voisey's Bay gets the green light, the smelter project will soon follow.
----------------------------
CBC Regional News - Monday, December 22, 1997 AM NEWS
Rumours and doubts continue to plague Inco's plans to build a nickel smelter in Argentia. Today, the Globe and Mail reports that Inco is reviewing its plans to build the smelter to process ore from the nickel find in Voisey's Bay.
The report quotes unnamed sources and comes just days after assurances by the company and the provincial government that Argentia will see ground broken for a smelter.
Investors quoted in the report say Inco is being forced to take a hard look at its plans because the company's stock has tumbled in recent months.
---------------------------
CBC Regional News - Monday, December 22, 1997 PM NEWS
Officials with Voisey's Bay Nickel Company aren't commenting this morning on questions raised about the future of the proposed smelter at Argentia. A Globe and Mail newspaper article says INCO is reviewing plans to construct a 1-billion dollar smelter at Argentia.
Low nickel prices and a possible year-long delay of its plans to develop a mine in Northern Labrador have hurt the company. Today, INCO is worth less than the 4.3 billion dollars it paid to acquire the mineral discovery.
The newspaper article says INCO may consider "scaling back or delaying" the mine and smelter complex. Similar concerns were raised two weeks ago, but they were dismissed by Inco.
-------------------------
CBC Regional News - Saturday, December 27, 1997
There's been a steady decline in mineral exploration in the province, since the rush which
followed the discovery of Voisey's Bay. In the aftermath of that find, exploration companies spent more than 100-million dollars in the province in just one year.
The figures for the year now ending show the total has dropped, to about 73-million dollars.
And the Minister of Mines says next year it's expected to be down again, to about 60-million dollars.
But Chuck Furey says it doesn't mean the exploration bubble has burst. Furey says there are still people coming in daily to stake new claims, and mining companies are still showing a lot of interest in the province.
The Opposition Mines critic agrees. Paul Shelley says the province couldn't have expected the exploration stampede which followed Voisey's Bay to continue. Shelley says he too is hearing from companies that still plan to explore here, and he's expecting some good news soon from some of the prospects in his part of the province, around Baie Verte.
-----------------------------
NORTHERN MINER
December 29 - January 4, 1998
Volume 83, Number 44
Page: 4
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
FACTS 'N' FIGURES -- Nickel costs to head south
The average cost of nickel production in 2002, net of credits, will have fallen to US$1.90 per lb., a drop of almost 16% from 1993 figures, according to a study published by Australian-based AME Mineral Economics.
The report, Nickel 1998: Industry Operating Costs to 2002, forecasts that the average cost of nickel production for 1997 will be $2.15 per lb., with highest-cost output well over $3 per lb. Gross average costs before credits remained stable this year, with a small increase attributable to a lower cobalt price. By the end of 2002, more than 2.5 times as much cobalt will be produced as a byproduct of the Western World nickel industry than in 1995. The price of cobalt is forecast to fall from its current level of more than US$20 per lb. for high-grade cathode, to around $10 per lb. by 2002. As a result, the average cobalt credit per pound of Western World nickel produced, will fall to 13cents in that year from 24cents in 1995. In light of such forecasts, and with the current nickel price around US$2.80 per lb., it is not surprising that major sulphide nickel producers are implementing cost-reduction programs. Australian-based Western Mining Corp. (WMC), for example, has stated that its future competitive potential in nickel will be determined by its ability to improve the cost effectiveness of every aspect of its operations. Inco and Falconbridge already occupy relatively low-cost positions (for integrated sulphide producers) as a result of significant byproduct credits from copper, cobalt and precious metals in their Sudbury ores. Inco is implementing major cost-saving measures next year, and Falconbridge intends to reduce its overall cash operating costs at Sudbury to US$1.30 per lb. nickel by 2000, from around $1.90 per lb. in 1996.
However, the longer-term direction for industry costs is downward. In real terms, nickel costs have fallen since 1992 and this trend will continue despite depressed prices for byproduct metals, accelerated by the start-up over the next few years of new low-cost mining and processing operations, both sulphide and laterite. Chief among the former, of course, will be Inco's Voisey's Bay project in Labrador.
Inco planned to produce nickel from*Voisey's*Bay*at a rate of 122,500 tonnes per year beginning in 1999, but announced in September 1997 that this schedule would be delayed by at least a year. It now seems unlikely that initial production of significant quantities of concentrate will be achieved before 2001.
Voisey's Bay production is forecast, perhaps optimistically, at 60,000 tonnes of nickel in 2002 from open-pit mining of the rich Ovoid deposit and assumed flash smelting and refining at Argentia. The addition of this production at a cost, after credits, of US78cents per lb. nickel, marks a significant change to the lowest quartile of the forecast cost curve. New laterite projects include the three pressure-acid-leach operations in Western Australia, which are all due to be commissioned in 1998. Although sulphuric acid leaching of limonite laterite ores has been practiced at Moa Bay, Cuba, for more than 35 years, the plant there has remained, until now, the sole operation of its type in the world. Within two years, however, the three new Australian operations will potentially be contributing an additional 62,500 tonnes of low-cost nickel to world supply, their bottom-quartile production costs being advantaged by high recovery rates for both nickel and cobalt. The largest of these laterite projects is the Murrin Murrin joint venture between Anaconda Nickel and Glencore International which, at current forecasts, will produce around 5% of Western World nickel output at the close of the century. Given a cobalt price of US$15 per lb. in 2000, costs at the mine will average 60cents per lb. These examples illustrate the downward influence that new projects now being planned or built will exert on the overall nickel industry cost structure.
GLOBE AND MAIL
Sat Dec. 27, 1997
Page: B2
DATELINE: SUDBURY, Ont.
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
Inco looks at selling five hydro plants
Canadian Press
SUDBURY, Ont. Inco Ltd. says it is prepared to sell five hydro plants to cut costs. "That's something that has been looked at," Inco spokesman Cory McPhee said.
The Toronto-based mining giant is considering the sale of the company's generating stations west of Sudbury - four on the Spanish River and one on the Vermilion River.
No offers have been made on the plants, which generate 20 per cent of electricity requirements for Inco's Sudbury operations, Mr. McPhee said. He denied Inco wants to sell the generating stations simply to raise badly needed cash to finance the development of the Voisey's Bay deposit in Labrador. "It's not a sale that would be made for sale's sake."
When Inco paid $4.3-billion for Voisey's Bay, it expected to be able to start generating revenue from the huge deposit by 1999. But that has been pushed back at least one year.
Inco announced last month that it will close three area mines and cut 500 jobs from its Sudbury operations in 1998.
Industry observers expect Inco to make a number of financial and corporate changes as it struggles to deal with delays at the Voisey's Bay project, falling nickel prices, shrinking profit and a drop in its stock value.
Aside from selling assets and cutting costs at its operations in Sudbury and Thompson, Man., the company's options include a new debt issue to generate cash.
But the prospect of raising cash doesn't impress Dave Campbell, who heads the United Steelworkers of America local representing 4,700 Inco workers. The scramble to raise cash to finance developing Voisey's Bay will result in short-term gain but long-term pain for Inco, he said.
NORTHERN MINER
Date: December 22-28, 1997
Volume 83, Number 43
Page: 1
BYLINE : Thomas Brockelbank
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
Bleak outlook for nickel market
The outlook for nickel over the next few quarters and beyond is not great. In today's terms, you could even say it's as good as gold. Credit Lyonnaise, a major metal trader, has forecast a 10,000-tonne oversupply of nickel for 1997, the same amount again in 1998, and then a whopping 50,000-tonne surplus in 1999.
Even before the recent economic crisis in the Asian (paper) Tiger countries could be taken into account, Credit Lyonnaise predicted a 1998 nickel price of US$7,500 per tonne (US$3.40 per lb.), followed by US$7,000 per tonne (US$3.17 per lb.) in 1999, mostly as a result of oversupply combined with an increase in the scrap-to-primary nickel sales ratio. Says another metal trader, Billiton Metals, even if demand increases in 1998, in the absence of substantial supply disruptions, the nickel market is heading into a period of significant oversupply accompanied by lower prices.
Nickel prices this past week hovered around US$2.68 per lb.; a year ago the price was in the US$3 range, whereas two years ago it was US$3.66. Says Billiton Metals, "Prices could fall some way before they hit the bottom."
The precipitous price drop has prompted a 50% drop in the share price of market leader Inco (n-t) over the past year, such that it has now reached a position few would have predicted possible: that of a takeover target. Number two Western World producer, Falconbridge (FL-T), has also been hit hard. As a result, U.S. rating agency Standard & Poor's has revised Falco's outlook down to negative, from stable. According to S&P, Falco's performance will suffer as a result of weak nickel prices, the likelihood of excess copper supply over the next several years and an excess nickel supply beginning around 2000, by which time Inco is expected to be producing massive amounts of nickel, copper and cobalt at Voisey's Bay in Labrador.
"This new excess supply could place downward pressure on prices and lower the cost curve due to the expected low-cost nature of this new supply," Standard & Poor's says.
While the future market impact of the Voisey's Bay project was predicted two years ago, no one predicted nickel would drop so low with production at that project still two or three years off. Much to the contrary: the combination of a 30,000-tonne disruption in supply in the first half of 1997 (as a result of labor disputes) and a 12% boost in stainless steel production was expected to keep inventories low and prices high.
This did not happen. Nickel inventories have actually risen and prices have plummeted. The main reason for this turn of events, says Credit Lyonnaise, is "a massive unpredicted surge" in Russian primary and scrap nickel exports that have flooded the Western markets. Consequently, nickel prices have drifted down, averaging US$7,182 per tonne (US$3.26 per lb.) in the year to date versus US$7,504 (US$3.40) in 1996.
Exports from Russia are expected to continue to hold the key to the direction of nickel prices, and, says Credit Lyonnaise, "It is difficult to see at this stage why the current trend in Russian exports should not continue."
Former east bloc exports are expected to reach 215,000 tonnes in 1997 versus 190,000 tonnes in 1996. Russian nickel exports totalled 98,640 tonnes in the first half of 1997 -- a 40% increase from 1996 levels. In addition to the primary metal, scrap supplies from Russia are running at twice the normal level, adding almost 60,000 tonnes of nickel to the supply side annually.
Credit Lyonnaise notes that significantly higher tonnages of scrap could be exported if logistical problems are overcome. Since the start of the year, nickel inventories have been edging up because of the rise in Russian exports. Total stocks (producer, consumer and London Metal Exchange) are currently 177,000 tonnes, versus 169,500 tonnes at the start of the year. Producer stocks have fallen marginally to 82,000 from 85,000 tonnes. However, the more visible LME stocks have increased by 12,000 tonnes to the current 60,936 tonnes. Thus, combined stocks currently represent 10.1 weeks of Western World supply.
While Inco's Voisey's Bay mine, at a possible 122,000 tonnes of nickel per year, is the biggest new producer on the horizon, it will be preceded by a number of smaller mine startups, including Forteleza in Brazil, a Rio Tinto (rtp-n) operation that is expected to start up in early 1998, adding 10,000 tonnes to world nickel supply. No to be overlooked is the Raglan mine in northern Quebec, where Falconbridge expects to produce 20,000 tonnes of nickel in 1998, and up to twice that amount in the years beyond. In addition, the strength of Cuban nickel production is a major worry for major nickel producers, particularly if forecasts of 90,000 to 100,000 tonnes (compared with the current 54,000 tonnes) of production are realized by the year 2000.
On the demand side, stainless steel producers are boosting their output, but more and more they are using scrap nickel instead of more expensive primary nickel sources. Because of this, LME stocks have risen. Nickel demand in the major manufacturing countries of the Far East had been skyrocketing in recent years (South Korean demand was up 24% from 1996 to 1997 alone), but demand has dropped dramatically in recent months as a result of the overall economic crisis in Asian countries. Current growth on the production side exceeds the amount that can be easily absorbed by the stainless steel market. Consequently, inventories held by distributors and mills are rising.
GLOBE AND MAIL
Dec. 22, 1997
Page: B1
Byline: Jacquie McNish
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
Inco digs deep with gamble on Voisey's Bay
Deal questioned after long delays, low nickel prices and takeover rumours
Michael Sopko had some explaining to do when he sat down for breakfast at Toronto's Hotel Inter-Continental in early October. The chairman of Inco Ltd. was meeting with a shareholder to defend the company's management of the beleaguered Voisey's Bay nickel megaproject.
After unexpected delays, a sudden plunge in nickel prices and a crop of hostile takeover rumours, some investors have begun to question the wisdom of Inco's $4.3-billion takeover of the Labrador ore body.
Mr. Sopko had faced impatient shareholders before to reassure them about the long-term potential of the Labrador discovery, but this morning's session would be his most awkward. Sitting across the table was Robert Friedland, Inco's largest individual shareholder, who helped put the nickel giant in its precarious position by hoisting the Voisey's Bay takeover price above $4-billion, the biggest price ever paid for a single mining property. Mr. Friedland's personal take was about $600-million worth of Inco stock.
"Robert, you got all the profits," Mr. Sopko explained, "we got all the headaches."
There is hardly a mining executive in the world who doesn't have a migraine these days as ailing Asian economies send global metal prices into a tailspin. Mr. Sopko, however, is suffering more than most.
Inco's senior managers bet the company when they issued a mother lode of new shares to pay for Voisey's Bay through a stock swap with Diamond Fields Resources Inc. in August, 1996. To absorb a 40-per-cent increase in Inco stock without triggering shareholder losses, Mr. Sopko and his management team gambled that they could start mining the rich Labrador ore by 1999 before nickel prices were slated to take their cyclical fall.
Sixteen months later, the bet is looking shaky. Nickel prices fell off a cliff this fall, two years ahead of schedule, and land claim and environmental disputes have delayed the Labrador project at least a year until the end of 2000. The bad news has squeezed Inco's profit, triggered a 50-per-cent drop in its stock price and forced its managers to risk more than they ever imagined to pay for Voisey's Bay.
"The issues have proven to be a lot more complex than we anticipated," Mr. Sopko conceded in an interview.
"The world has changed rather dramatically. We thought there was a window of two or three years that we would be able to take advantage of a good market situation to generate good cash flows."
Now that the window has slammed shut on their fingers, Inco's managers are contemplating a number of financial and corporate changes, which could reshape the 95-year-old nickel giant. At stake are their jobs and the future ownership of Inco.
Although Inco declines to discuss details, sources say the company is reviewing a number of alternatives to put the shine back in its stock price.
The first change will likely be a financial recapitalization, possibly a new debt issue, that will generate cash for Inco to buy back a substantial quantity of its depressed stock. Also under consideration are further cuts at Inco's expensive and aging mining operations in Sudbury and Thompson, Man., to accelerate the company's focus on low-cost nickel facilities in Indonesia and Labrador.
"We are prepared to bite the bullet and do what's necessary to realize improved costs," Mr. Sopko said.
The question is whether Mr. Sopko and his team will be allowed to deliver their vision.
The unexpected plunge in nickel prices, coupled with the huge influx of Inco shares triggered such a sharp drop in Inco's stock price that the company is vulnerable to a hostile takeover at bargain-basement prices. With its stock price humbled at $24.90, down from a 52-week high of $51.45, a raider could walk away with all of Inco's operations for virtually the same price that Inco paid for Voisey's Bay.
Unless Mr. Sopko and his team can reverse the stock drop, restive shareholders could show them the door before the management team has a chance to realize their dream at Voisey's Bay.
"There isn't a senior manager here who does not believe that his job is on the line right now,"confided one Inco executive who declined to be identified.
A number of major shareholders voted against management in recent months by selling some of their Inco stock. Boston-based Fidelity Investments, a major Inco shareholder, has been actively selling down its holding and sources say Mr. Friedland also trimmed some of the 4-per-cent stake in Inco he received in exchange for his Diamond Fields shares. A spokesman for Mr. Friedland declined to comment.
For the moment, Inco's Voisey's Bay gamble appears to have more supporters than detractors.
Pierre Sweeney, vice-president of Montreal-based fund manager TAL Investment Counsel Ltd., said the sharp slide in nickel prices underlines the importance of owning Voisey's Bay. The ore body is so rich that it is expected to cost virtually nothing to produce the nickel because of its lucrative copper and cobalt byproducts. "Voisey's Bay is still a very good, long-term strategic investment for Inco. . . . They are building for the future."
TAL has "slightly" reduced its Inco stake recently in response to falling nickel prices, Mr. Sweeney said, but the stock remains its largest base metal investment. He declined to disclose the fund's holding in Inco.
"Inco represents good value at this price,"he said.
Shareholder support, however, could be short lived if nickel prices fall much further or Inco is not able to improve its stock price.
"I am listening and waiting with an open mind for results,"said one Inco shareholder and fund manager who declined to be identified. "I haven't walked yet."
Inco's management must reassure shareholders that it can foot the bill for the massive Labrador nickel mine and Newfoundland smelter without further punishing shareholders. It won't be easy. Management credibility suffered when Inco was forced to shelve the Voisey's Bay project for at least a year and some analysts are questioning whether the company can stick to the $1.5-billion budget it set a year ago to build the project's mine and smelter.
"Our immediate challenge is to reduce our costs of production so that we can generate improved cash flow and . . . be in a position to bring the (Voisey's Bay) project ahead quickly," he said.
Inco began cutting last month when it mothballed four Sudbury mines and slashed capital spending in Ontario and Manitoba by nearly 50 per cent. At an analysts meeting last month, Inco president Scott Hand told investors to "stay tuned" for more possible changes.
"There are no sacred cows," he said.
As the company focuses on low-cost nickel ventures such as Voisey's Bay and PT Inco in Indonesia, it is not inconceivable, sources said, that Inco could sell an interest in its aging mining complexes. According to one scenario that has been considered, Inco and its competitor Falconbridge Ltd. could roll their adjacent Sudbury nickel mining and processing operations into a joint venture in order to cut overlapping operations and trim costs.
If nickel prices fall much lower, Inco may consider other alternatives, including the sale of a minority stake in Voisey's Bay to a competitor.
Indeed, Falconbridge and Inco once considered a joint venture during their takeover battle for the Labrador property in 1996. Inco could approach Falconbridge again, or it could join forces with other competitors. Another candidate, sources said, is Japan's Sumitomo Corp., which considered joining Inco's bid for Diamond Fields in 1995 before the takeover price went into the stratosphere.
To further reduce costs, Inco may also consider scaling back or delaying its initial plans for the Voisey's Bay mining and smelting complex. Under review, sources said, is the $1-billion smelter slated to be built in Argentia, Nfld.
Inco agreed to build the smelter largely as a concession to Brian Tobin's government, which is under intense local pressure to deliver jobs to the poor province from the rich discovery. But the grim outlook for nickel prices, government delays with native land claim negotiations and strict environmental rulings have changed the economics of building a smelter.
Until Inco's executives can reassure investors that they can manage Voisey's Bay without further squeezing shareholder profits, a cloud will remain over the nickel project. But there is a silver lining. As long as Voisey's Bay is threatened by so many political and economic uncertainties, the Labrador ore serves as a kind of poison pill to ward off unwanted Inco suitors.
"Only a major foreign mining company has the financial clout it would take to bid for Inco. I find it hard to believe that a British, Australian or South African conglomerate has the ability or interest to tackle all the political headaches in Newfoundland," observed one Toronto investment
banker.
If he is right, then Inco may have some breathing space to make its gamble work. It could be years before shareholders know whether Mr. Sopko and his team made the right move by staking the company's future on the remote Labrador rock.
"Voisey's Bay will have to be judged over the next 20 to 25 years," Mr. Sopko said. |
