Not just new, improved, too!

Executive Council
Natural Resources
January 29, 2009

Province Reaches Improved Development Agreement with Vale Inco

The Provincial Government has negotiated improvements to the development agreement with Vale Inco for the construction of a commercial hydromet processing plant at Long Harbour. The improvements include more certainty that the project will proceed on this new schedule, enhanced local employment benefits and greater protection of the province’s resource.

In exchange, government has agreed to a later construction completion date of February 2013 due to the increased size and complexity of the project’s construction. The Provincial Government and Vale Inco reached an agreement-in-principle Thursday on amending the original 2002 Development Agreement.

“In its draft Implementation Plan, Vale Inco requested an extension of 14 months beyond the original completion date of December 31, 2011, contained in the 2002 Development Agreement,” said the Honourable Danny Williams, Premier of Newfoundland and Labrador. “When we entered into discussions four weeks ago, it was important to us that we reach an agreement that provides greater assurances around the project, protects the public interest and gives us enhanced benefits. We are confident we have achieved that.”

Vale Inco was to have submitted an Implementation Plan for the hydromet facility on December 31, 2008, that met the terms and conditions of the original 2002 Development Agreement. The province extended that deadline to January 22, 2009, to have further discussion with the company when it became clear the completion date was not going to be met. Discussions with the company continued after the extension expired under the understanding that no nickel concentrate would be shipped out of the province while negotiations were ongoing.

The company cited the larger size and complexity of the project, and the lengthy process for receiving federal approval for residue disposal at Sandy Pond for the extended completion date.

“There is no change in the project beyond a new completion date of February 2013,” said the Honourable Kathy Dunderdale, Minister of Natural Resources. “It will still be a hydromet facility at Long Harbour processing nickel concentrate from Voisey’s Bay. The company will not be able to export any more than the 440,000 tonnes of nickel they were granted in the 2002 Development Agreement, despite the longer construction period. They will be required to maintain a maximum annual export average from Voisey’s Bay over the next four years. The province has achieved significant increased benefits and controls in this negotiation and greater certainty that the project will proceed on schedule.”

Vale Inco will now submit its final Implementation Plan on March 31, 2009. Initial work for this project will start in April of this year with site clearing and port demolition work.

To improve certainty around the schedule, Vale Inco has also agreed to change the original development agreement to remove a clause that would have allowed them to delay the project schedule for such reasons as a shortage of labour or supplier interruptions.

As part of the new arrangement, Vale Inco commits to a target of 77 per cent of total project employment – 8.9 million person hours – in Newfoundland and Labrador. This translates into roughly 4,500 person-years of work between now and February 2013, and includes 460,000 hours of engineering work. Under the previous agreement, the commitment was to full and fair opportunity and first consideration for local employment.

“The construction of the hydromet facility at Long Harbour is a tremendous boost for the entire area and the increased certainty that now accompanies this project is a great relief to businesses and families who have been waiting for this project to start for some time,” said Felix Collins, MHA for Placentia & St. Mary’s.

The Provincial Government took this opportunity to solidify certain aspects of the original Development Agreement. Under the new agreement, the company is now required to complete its second-stage feasibility study for underground mining by June 30, 2011.

For the hydromet plant, the company must also meet six project milestones on specific dates in the first half of 2009, and three more milestones during the life of the project. This allows government to measure the company’s progress. If the milestones are not met, the province can shutdown any further export of nickel or copper concentrate. In addition to the milestones, they are pledging financial security in the event of a default.

The company has also agreed that it will pay the island industrial rate for its power supply, surrendering its option to have a better rate should other industrial customers obtain a better rate for whatever reason.