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Cost over-run puts Goro mine on hold
Geoff Hiscock
TORONTO, Canada (CNN) -- Soaring cost forecasts have forced Canadian nickel producer Inco Ltd. to delay work on its giant Goro nickel-cobalt project in New Caledonia until at least mid-2003. Inco said late Thursday that the latest capital cost estimate for Goro is "30 to 45 percent" above the previous estimate of $1.45 billion, or $2.1 billion at the top end of that range. Inco, the world's No. 2 nickel producer, said it has already spent about $350 million on the Goro project and has another $300 million to $350 million in service and equipment commitments. Inco chief executive Scott Hand said the company now needed to do a "significantly more comprehensive review" of the costs of the project to see what changes could be made. Hand said Goro remained a "fundamental part" of Inco's growth strategy, but the project had to be economically feasible. "We regret that we have to take this action but it is the only prudent thing to do," he said. New Caledonia, a French territory in the South Pacific about 2000 kilometres (1240 miles) northeast of Sydney, Australia, is already the world's third largest nickel producer by tonnage. Before Thursday's review announcement in Toronto, Inco's plan for Goro was to build a low-cost integrated mine that would produce about 55,000 tons of nickel and 4,500 tons of cobalt a year, from late 2004 or early 2005. At current prices of about $3.40 a pound, the annual nickel output would be worth about $375 million. Hand said the new review could take at least until mid-2003 to complete. It would likely determine a revised project schedule, including when initial production might occur. Inco holds 85 percent of the Goro project, with the remainder held by the French government mining agency BRGM. Inco had been planning to buy out the BRGM interest, ahead of a possible sale of a 25 percent stake to a Japanese consortium led by Sumitomo Metal Mining Co. Ltd. The government of New Caledonia was to hold 5 percent, leaving Inco with 70 percent. The Canadian company said the Goro review was not expected to affect the schedule of its nickel-copper-cobalt project at Voisey's Bay, Labrador. First production from that mine is expected in the second half of 2006. Any significant delay of the Goro project will have an impact on the economy of New Caledonia. According to Inco, Goro is expected to provide about 800 permanent jobs and another 1,500 indirect and induced jobs in New Caledonia. It said more than 90 per cent of the positions would likely be held by New Caledonians. Shares in Inco closed 2.9 percent lower at C$32.05 on the Toronto Stock Exchange Thursday, ahead of the announcement.
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