Inco, Newfoundland gov’t spent 1998 at loggerheads

To no one’s benefit except overseas nickel producers, the past year saw the Newfoundland government square off against Inco (N-T) in an increasingly bitter dispute over development of the Voisey’s Bay deposit in Labrador.

The province continues to insist that Inco build a $1.1-billion smelter-refinery complex at Argentia to process the nickel-copper-cobalt ore, in accordance with the company’s initial intention. Inco, however, is refusing to commit to construction on the grounds that a smelter-refinery complex in the region would be uneconomic at today’s depressed nickel prices.

Looking back over the year, there has been little progress in the impasse: * In January, the smelter-refinery complex was still the company’s preferred option, and the obstacles to its development were chiefly bureaucratic. At that time, Inco President Michael Sopko predicted that negotiations among Inco, the federal and provincial governments and aboriginal groups would be completed by year-end, allowing construction to begin after spring breakup in 1999.

* In February, with the Asian crisis continuing to push nickel prices south, Inco stated that the smelter-refinery might not be economically viable and that the company required more flexibility in its capacity to develop the project. Inco said Voisey’s Bay would be more viable if the company were to ship concentrate for smelting and refining at Sudbury and Thompson, where Inco has extra capacity.

At the Voisey’s Bay site, Inco continued to be handcuffed by a court order quashing the company’s rights to explore for and develop new reserves (ironically, an activity that might lead to discoveries that would justify construction of a smelter-refinery complex in the province).

* In March, Newfoundland Premier Brian Tobin stated his government’s position: “No smelter-refinery; no mine-mill.” With a provincial mining act requiring companies with mines in Newfoundland to process their ores at home, if economically feasible, the government and Inco settled into a dispute over what would warrant a satisfactory return on investment.

Meanwhile, Inco continued to expand its operations in the South Pacific and pushed on with its plan to close unprofitable Canadian mines and slash its workforce by 1,700. The outlook for nickel prices darkened, with Australian competitors racing to complete their nickel laterite projects.

* In an interview with the Canadian Broadcasting Corp. in July, Tobin said the province might seek another partner to develop Voisey’s Bay. Inco and the government broke off talks.

* In August, Inco posted losses of US$39 million for the first half of the year. A proposal by the company to create 550 jobs in Argentia by building a multi-million-dollar nickel-oxide plant at Argentia to process roughly half of Voisey’s Bay concentrates was rejected by Tobin and William Rowat, deputy minister responsible for the project. They argued that Inco had “promised” about 850 jobs at the proposed smelter-refinery.

That same month, an environmental assessment panel decided to start public hearings on the project, against a request by the government to halt the process. To cancel the hearings, the panel would have required the consensus of all concerned groups, including Inco.

International nickel prices sunk to US$2 per lb., about half their value when the Voisey’s Bay deposit was discovered. Inco’s share price tumbled to below $14 from $43 a year earlier and speculation grew that Inco might become a takeover target.

* In November, the standoff intensified when the Newfoundland government tabled amendments to its Mineral Act. The move was intended to strengthen the government’s 1995 legislation, which stated that companies must process their ore in the province if it is economically viable to do so. The amendments give the government the right to order further processing of minerals under a mining lease “if it is in the best interests of the province,” as well as the right to exempt lease-holders from the new provisions.

Two new provisions restrict the rights of licence-holders and lessees.

First, the province’s Mineral Rights Adjudication Board is being stripped of its jurisdiction in any dispute arising out of the act’s new section.

Second, the bill provides that legal action cannot be brought against the Crown over an order to complete primary processing.