Preamble

• The Government of Newfoundland and Labrador, Inco Limited and the Voisey's Bay Nickel Company Limited have agreed to a Statement of Principles for the development of the Voisey's Bay Project.
  
  
• This Statement of Principles is the basis for the preparation of the final, legally binding agreements that will be entered into by the Parties.
  
  
• The preparation of the binding agreements will commence immediately and are expected to be finalized by September 30, 2002.
  
  
  
  

Description of the Project

• Inco intends to construct and operate:

1. an integrated mine and mill/concentrator at the Voisey's Bay site;
2. a hydrometallurgical demonstration plant at Argentia; and,
3. a hydrometallurgical nickel/copper/cobalt concentrate processing operation at Argentia.

• An Inco Innovation Centre will be developed and operated in St. John's in conjunction with Memorial University.
  

• The total capital investment required for the project is estimated at $2.9 billion over the estimated 30 year life of the project.
  
  
• The construction phases of the mine and mill/concentrator and hydrometallurgical processing plant will create approximately 1,700 and 3,000 person years of employment, respectively.
  

• The operating phases of the project will create the following estimated annual levels of employment:

• The total direct and indirect employment benefits are estimated to be 76,000 person years over the estimated 30 year Project life with the provincial GDP impact over the same period estimated at $11 billion.
  
  
  
  

Inco's Undertakings

• Infrastructure and Initial Work Program

Inco will spend a minimum of $55 million between June 11, 2002 and March 31, 2003, at Voisey's Bay, Argentia and St. John's. This work program is expected to employ 250 people.

 

• Hydrometallurgical Process Research and Development

Site development at Argentia will begin immediately and continue until design, engineering and construction of the hydrometallurgical demonstration plant commences in 2004. This plant is scheduled to be operational in 2006 and employ approximately 200 people. Total costs for the research and development program at Argentia are estimated to be $130 million.

Inco will provide annual progress reports to government on the results of its research and development program containing sufficient documentation for government to assess the success of this program.

 

• Mine and Mill/Concentrator Processing Plant

Construction is scheduled to begin in 2003 and be completed in 2006 at a cost of $710 million. The capacity of the plant will be 6,000 tonnes of ore per day. Construction of the plant will generate approximately 1,700 person years of employment and 400 people will be employed during operations.

 

• Underground Exploration

The initial phase will be an advanced surface exploration program beginning in 2002 with expected completion in 2006 at a cost of $20 million. This phase will employ up to 85 people. Subsequent underground exploration will employ 85 people at an estimated cost of $75 million.

 

• Underground Mine Development and Mill/Concentrator Expansion

Upon successful completion of an underground exploration program, Inco will commence underground mine development which will require an expansion of the mill/concentrator. The total cost of this program is estimated to be $750 million and will employ approximately 800 people during operations.

 

Inco will construct a commercial processing plant in the province capable of producing 110 million pounds of nickel annually.

By December 31, 2008, Inco will provide government with its decision to either:

(A) Construct a commercial hydrometallurgical processing plant in Argentia.

The capital cost is expected to be about $800 million and construction of the plant will create approximately 3,000 person years of employment. Once in operation, the plant will employ approximately 400 people.

OR

(B) Construct a commercial hydrometallurgical nickel matte processing plant or other such plant using proven, state-of-the-art technology to produce a finished nickel product.

The capital cost of such a plant is expected to be about $670 million. Construction of the plant will create approximately 2,500 person years of employment. Once in operation, the plant will employ approximately 350 people.

Inco's decision will be supported by (i) a feasibility study; and (ii) an implementation plan and schedule for engineering and construction which will confirm that the commercial processing plant will be completed by December 31, 2011.

Government will either accept Inco's decision or engage a mutually acceptable third-party engineering firm and financial expert to review the decision. Government and Inco will accept the determination made by such experts.

 

Inco guarantees that it will commence replacement of the concentrate shipped out of the province prior to the cessation of mining operations at Voisey's Bay .

Inco acknowledges that failure to meet this contractual obligation will cause the province and the economy of the province substantial loss. Consequently, the government will be entitled to claim damages for losses to the province and to the provincial economy.

 

An Inco Innovation Centre will be developed and operated in conjunction with Memorial University. The Centre will focus on education and research in mineral exploration, mining and metallurgical processing. Inco will spend $10 million on the facility and provide an annual endowment of $1 million over 10 years. Work will commence in 2002 with a target completion in 2004.

 

Inco and the government will conclude an Industrial and Employment Benefits Agreement which will cover:

• Aboriginal Participation

Inco has negotiated and will enter into Impacts and Benefits Agreements with the Labrador Inuit Association and the Innu Nation. These agreements contain provisions relating to employment and business opportunities.

 

• Corporate Income Tax

Inco and the province will reach an agreement which is intended to maximize the allocation of corporate income tax to the province.

 

• Force Majeure

In the event that Inco is prevented from performing any of its obligations under the Statement of Principles by reason of one or more events of Force Majeure ( ie. natural disasters, acts of war, labour disputes) the dates for completion of Inco's obligations may be extended for a reasonable period of time.

Government's Undertakings

• Aboriginal Agreements

The government will enter into the following agreements with the Labrador Inuit Association and the Innu Nation: (i) Interim Measures Agreements that embody the Voisey's Bay chapter in the respective land claims agreements, and (ii) an Environmental Management Agreement.

 

• Electrical Rates and Provision of Power

Newfoundland and Labrador Hydro will charge the island industrial rate (or some lower rate that may be provided to customers in similar circumstances) for the demonstration and commercial processing plants.

 

• Mining Lease

The government will issue a mining lease that will establish an initial annual production rate of 2.2 million tonnes of ore and increasing to 5.5 million tonnes of ore when underground mining operations commence.

 

• Exemption Order

The government will issue an Exemption Order allowing Inco to ship out of the province up to 355,000 tonnes of nickel in concentrate.

Inco will not be permitted to ship any concentrate out of the province until the demonstration plant is operational and ready to test.

Inco's right to ship concentrate will be suspended if:

(a) Inco has not delivered to the government its decision on the commercial processing plant by December 31, 2008.

(b) Inco is not proceeding diligently with the engineering and construction of the commercial processing plant scheduled for completion by December 31, 2011. Progress will be determined by an independent third party by December 31, 2009, and December 31, 2010.

During the commissioning and ramp-up of the commercial processing plant, government will permit Inco to ship out an additional fixed amount of nickel in concentrate containing up to 85,000 tonnes of nickel.

If the decision is taken to construct a nickel matte processing plant or other plant:

(a) Government will allow Inco to ship all nickel in concentrate from the province provided that it will be returned for final processing at a rate that will enable the nickel matte processing plant to match Voisey's Bay mill/concentrator output.

(b) Inco's right to ship nickel out of the province will be suspended during periods that the nickel matte processing plant is not operating, other than for routine maintenance and vacation shutdown.

Inco will be permitted to ship out of the province all copper concentrate until such time as additional copper reserves are discovered to permit commercial copper processing in the Province.

 

Should government unnecessarily delay the project by not issuing timely approvals, then Inco's right to ship concentrate will be extended. This may result in the Project being extended or additional shipment volumes being granted to Inco.

 

Government commits not to change legislation or regulations that would affect the project unless these changes are of general application.

• Special Project Order

Government will issue a Special Project Order under the Labour Relations Act to ensure a stable labour relations environment for the construction phases of the project.

 

• Corporate Income Tax

In return for Inco's commitment to allocate corporate income tax to the province, government will provide that the corporate income tax rate will be the lower of the "all provinces average" rate or the provincial income tax rate and will indemnify Inco against double taxation.

 

Government will introduce changes to the Mining and Mineral Rights Tax Act to limit the 10-year tax holiday and make other changes designed to ensure a competitive mining tax regime.

 

Government will seek to obtain approval for the Statement of Principles in the House of Assembly.

 

• Choice of Law

Government and Inco agree that the Binding Agreements will be governed by the laws of the Province and the federal laws of Canada and to accept the jurisdiction of the courts of the Province.

 

• Conditions

The following are required in order for the Proponent to proceed with the Project:

1. passage into law of necessary changes to the Mining and Mineral Rights Tax Act;
2. completion of an Environmental Management Agreement;
3. completion of required aboriginal agreements, including the Impacts and Benefits Agreements and the Voisey's Bay chapters in the respective land claims agreements;
4. issuance of a mining lease;
5. receipt of the Harmful Alteration, Disruption or Destruction of Fish Habitat (HADD) authorization from DFO, and;
6. arrangement of suitable financing by Inco.

 

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