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NOUMEA, New Caledonia (Oceania Flash, Jan. 5) – Canadian mining giant Inco yesterday announced it had reached an agreement with the French government and obtained significant tax rebates for its US$1.8 billion nickel and cobalt mine project at Goro, in the Southern part of New Caledonia's main island.

In a release from its Toronto headquarters, Inco said it had obtained an initial US$500 million in tax rebates and more were to be drawn in 2005 and 2006.

"This program is currently expected to involve the lease financing of a total of about U.S. $500 million in equipment and other assets for the process plant ... This French legislative program provides certain tax incentives for French qualified investors to extend financing to companies like Goro Nickel who sponsor investments or projects in French overseas territorial communities like New Caledonia", the release said.

Inco Chairman and CEO Scott Hand on Tuesday expressed his company's gratitude to the French government.

"We continue to make steady progress in achieving the key milestones needed to make our Goro project a reality", he said.

The financial montage of Goro-nickel, one of the world's largest nickel mining projects, is also undergoing changes, with Inco currently making provisions for New Caledonia's three provinces to become shareholders in the venture.

This would take place by reducing French Government agency BRGM, France's geology and mining research office (Bureau de Recherches Géologiques et Minières) share from the current fifteen percent to ten percent.

The five percent would be re-allotted to the three provinces.

Inco currently owns some 85 percent of Goro-nickel.

It also seeks to get Japanese companies Sumitomo Metal Mining Co., Ltd. and Mitsui & Co., Ltd. on board as shareholders, as part of "a required realignment of the equity ownership" whereby the Japanese interest would reach 21 percent.

"The purchase of this 21 per cent interest will be completed by the late January - early February 2005 period", Inco said.

Both agreements on shares transfers and re-allotments were earlier expected to have been completed before the end of 2004.

After two years of "pause" due to an unexpected overrun in capital costs, the Goro Nickel project has last month entered a new construction phase.

A firm, Goro Construction Team (GCT), has been set up locally to implement the re-start.

Local companies have been told they can respond to the call for tender either on their own, or "in conjunction with international firms".

The total value for the local contracts is estimated to reach some forty million US dollars.

About three hundred local companies are believed to be interested, according to an earlier survey conducted by GCT.

Works involve quarry, a water processing facility, construction of the main mining site and nearby wharves.

The previous implementing company, BTH (a consortium between local and Brisbane-based engineering companies) has been sidelined when Inco decided to "pause" the Goro project, two years ago, due to "unacceptable" overrun in capital costs in the order of forty percent, compared to the initial budget.

In November 2004, Inco announced that Frenchman Pierre Alla, who held the position of Executive Chairman for Canadian Inco's local Goro-Nickel company, under the old configuration, had been sidelined.

He was replaced by Peter Jones, who is Inco's group President and Chief Operating Officer, and Australian executive Ron Renton, who recently worked on major mining projects in Africa.

Renton has already arrived in New Caledonia, where he is now based.

Alla's position has now been split into two: Jones becomes Goro Nickel's Chairman and Renton is the new Chief Operating Officer.

As part of the project review decided in Toronto, Alla will remain a "senior advisor" to Goro-Nickel and Inco.

For the past two years, the Goro project had been frozen to undergo a drastic cost review.

Actual construction on the Goro site is expected to last for an estimated 35 months and become operational in September 2007, assuming it actually resumes early 2005, Inco said.

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 company anticipated.

As for cobalt, the capacity of the New Caledonia plant has been revised to a current range of 4,300 to 5,000 metric tonnes per year.

Inco said its decision to go ahead with the Goro project was also based on its conception that "sufficient progress has been achieved, including appropriate understandings or arrangements with local labour unions and other key stakeholders in New Caledonia on a basis that will help to ensure a clear dispute resolution process designed to avoid any potential labour or other disruptions".

Combined with the upgrade of existing projects (one from Société Le Nickel, a subsidiary of French mining giant Eramet) and other planned projects (including one, In New Caledonia's North, so far driven by Inco's Canadian competitor Falconbridge), New Caledonia's nickel production capacity could reach some 200,000 tonnes per year within the next three to four years.

It is currently estimated that New Caledonia holds about a quarter of the world's nickel reserves.

January 5, 2005

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