This may have been posted already but I'm not sure the entire text was in the Calgary Herald version. Forgive my indulgence Mr. King, this is a text from our friend "art:"
St. John's Evening Telegram
Sat 18 Apr 1998
Final Edition
News Section
Page 1 / Front
Chris Flanagan, Business Editor
Voisey's not viable?: U.S. report doubts return will justify investment
The Voisey's Bay nickel project is no longer economically viable, says one of the oldest and largest investment houses in the United States.
Even if outstanding aboriginal land claims and compensation issues are successfully resolved, it may be impossible for the Voisey's Bay Nickel Company to proceed with the Labrador mining project as it now stands, says a comprehensive market performance report issues by Goldman Sachs, a New-York-based investment banking and securities firm established in 1869.
Low nickel costs, an uncertain tax regime, high electricity costs and huge capital costs have rendered the project unfeasible, said the company's base metals analyst Amy Gassman. Further delays could occur as the project changes, Gassman wrote.
In her Inco report, dated March 30, Gassman recommends several options for the company, including refining and smelting the nickel at existing facilities in Sudbury, Manitoba or Asia; reducing the amount of nickel produced or downsizing and delaying the startup of labor-intensive, underground mining portion of the project.
The report does not mince words.
"Based on the full purchase price, and initial and sustaining costs over the life of the project, the Voisey's Bay project, as it was originally conceived and adjusted to reflect the economic demands of various interest groups, is no longer viable and is incapable of generating adequate returns to Inco, in our opinion," the report stated.
In an interview with The Evening Telegram, the author of the report confirmed her concerns.
"The reason why it is not viable is if you take the acquisition costs, plus initial capital and sustaining capital, you end up with returns that are inadequate to justify the investment,'' Gassman said from New York.
The report did not rank the importance of impediments but Gassman said low nickel prices were probably the most significant factor. Government action appeared to be a close second.
"So when you take all of these factors, plus long-term price forecasts for nickel ... plus uncertainty as to what the royalty costs will be, what the power costs might be, plus what the changes in the mining tax might be ... the project is not viable," she said.
Long-term nickel forecasts have dropped from $3.75 -$4 US per pound in 1996 to $2.75 to $3 US, Gassman said.
The Newfoundland government has carried out its own analysis of the Voisey's Bay nickel project which shows it's both viable and "financeable."
What the study isn't, however, is "releasable" to the public.
Bruce Hollett, an official with the province's Voisey's Bay project office, the lead negotiator in discussions with Ottawa and Inco Ltd., owners of the VBNC and the Labrador mineral find, said Friday the study is confidential.
"It's a standard code of conduct," Hollett said, adding much of the data in the study is corporate information handed over by Inco.
In general terms, Hollett said the project office has consulted widely with mining industry experts and believes the project can work and is one of the lowest costing, "most profitable projects in the world."
But Gassman's report holds a clue as to why the province came up with a different analysis: it left out the $4.3 billion Inco shelled out for the Labrador nickel, copper and cobalt deposit.
"Clearly the exclusion of the acquisition cost would have a significant bearing on the province's perspective on project return levels," Gassman's report stated. "The province may gradually be coming to the realization that outside of the (nickel-rich) ovoid, Voisey's Bay is not the bonanza nickel project that it was once perceived to be."
Resolving the issue will likely require Newfoundland to realize there will be fewer jobs spread over a longer time, and Inco to realize a lower level of production and lower initial returns, the report stated.
VBNC vice-president Rick Gill did not comment on the analyst's report and said the critical path for the company now was the Environmental Impact Statement.
The Voisey's Bay environmental assessment panel received more than 100 written submissions about the EIS, the panel's Brian Torrie said, and was on target to have its review of the EIS complete by May 1.
If the company's several-thousand-page report is determined to cover all environmental guidelines, public hearings will be scheduled. If not, VBNC will be sent back to the drawing board.
St. John's Evening Telegram |
