Regional News: Voisey's Bay
Will smelter stand stall Voisey's Bay? 2/5/98
(By CHRIS FLANAGAN, Business Editor )
Inco is involved in intense negotiations with the province of Newfoundland over the future of the Voisey's Bay project, Inco Vicepresident David Allen said from Toronto Wednesday.
Allen, speaking on the day the world's largest nickel company announced it is losing money on its worldwide nickel operations and is looking to cut costs everywhere, said the price of electricity and the provincial tax regime are the major issues being discussed with Newfoundland.
"There is an internal review going on and there are intense negotiations with Newfoundland going on," Allen said, "on issues like power, taxes (and) a whole range of issues. They are some weeks away from being completed."
Newfoundland's minister of energy, Chuck Furey, and Premier Brian Tobin were not available for comment Wednesday and officials of both departments said they knew nothing about any high level talks.
Furey said several months ago that the Voisey's Bay Nickel Company must pay the full cost of developing a new source to generate the 180 megawatts it needs to operate a smelter and refinery at Argentia.
But everything has changed since then, Allen said.
"This morning the price of nickel is $2.40 US as opposed to $3.50 and $4 US when we were planning this initially," he said Wednesday. "It's sure making it look like a different kind of project in terms of the return we have to get investors and the expectations on the rate of return."
Toronto mining analysts say the news that Newfoundland would be charging full fare for power development may have surprised Inco.
"There was a bit of a shock to see the prospects for power costs - we're talking 37 mils, maybe more," said Research Capital Corp. president Manford Mallory. "On any kind of world competitive basis that's totally uncompetitive power costs."
Large industrial customers in Newfoundland pay between 35 and 40 mils (3.5 to 4 cents per kilowatt/hour), which is somewhere in the middle of the pack for industry in Canada.
But since a smelter requires so much power, mining companies usually search specifically for a site with cheap power and deep water, Mallory said.
Without political pressure from Newfoundland, Inco wouldn't even consider a smelter in the province, he said.
"We don't know when Voisey's Bay itself is going to be developed, but also if economic logic prevails, you would not build a smelter in Newfoundland," he said. "No harm intended, but the parameters that we are seeing from the smelter project would not justify the smelter project in itself."
Investors may have naively thought the project could benefit from cheap Labrador power, but that's not the case, Mallory said.
Tobin is involved in trying to start formal negotiations with HydroQuebec to harness the 3,100megawatt Lower Churchill hydroelectric project and build a transmission line to the island of Newfoundland.
But any development of the Lower Churchill would take a decade, and with a transmission line alone costing $2 billion, it won't necessarily be cheap.
"Ten years is a long time, that's a bit of a quandary," Mallory said.
Allen maintains Inco's original plan to produce 270 million pounds of nickel per year at an Argentia smelter is still on the books, but quickly adds the company is looking to cuts costs everywhere - including at the 70 person Voisey's Bay office in Newfoundland.
"The whole company's under scrutiny and there will be reductions in office operations in a number of places," Allen said. "I think you'll begin to see things within the next two weeks."
Inco laid off about 10 per cent of its workforce at Thompson, Man. and plans to reduce numbers at Sudbury, Ont. through retirement and attrition.
In its annual report on earnings issued Wednesday, Inco announced a profit of $75 million in 1997, down from $179 million in 1996. But analysts are more concerned with fourthquarter results, which show Inco lost $4 million, down from a $26million profit in 1996.
"Right now if you read the release we're not profitable," Allen said. |
