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.

 

• Binding Agreements

The following are required before the Binding Agreements are effective:

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.

1. Discussions between the Government of Newfoundland and Labrador (the "Government") and Inco Limited and Voisey�s Bay Nickel Company Limited (collectively the "Proponent" as defined in Schedule A hereto) have resulted in the following Statement of Principles for the development of the Voisey's Bay Project as described below (the "Project"). 

All dollar amounts referred to in the Statement of Principles are Canadian dollars. All employment levels, economic and related benefits and costs of facilities referred to in the Statement of Principles are current estimates.

2. The Statement of Principles is not intended to and does not create any legally binding rights or obligations between the parties. The parties will use their best efforts to finalize mutually acceptable definitive agreements (the "Binding Agreements") embodying the Statement of Principles as expeditiously as possible and in any event by September 30, 2002, subject to paragraph 47.

3. The principal conditions to be met in order for the Proponent to proceed with the Project are: (a) the passage into law of any changes to the Mining and Mineral Rights Tax Act contemplated by the Statement of Principles, (b) the completion of an Environmental Management Agreement, (c) the completion of required aboriginal agreements, including Impacts and Benefits Agreements and the Voisey's Bay chapter in the respective land claims agreements or other interim arrangements, (d) the issuance of a mining lease from the Department of Mines and Energy, (e) the receipt of the Harmful Alteration, Disruption or Destruction of Fish Habitat authorization from Fisheries and Oceans Canada, and (f) the arrangement of suitable financing by the Proponent to enable the Project to be developed on a financially prudent basis.

4. Commencement of the Project will occur in 2002 with site mobilization work in Voisey's Bay, site preparation work at Argentia, and commencement of the development of an Inco Innovation Centre in St. John's.

5. The Proponent intends to construct an integrated mine and mill/concentrator processing plant at the Voisey's Bay site in Labrador that will process ore from the Voisey�s Bay deposits and a hydrometallurgical nickel/copper/cobalt processing operation at Argentia that will process the nickel/copper/cobalt concentrate from the mill/concentrator processing plant at the Voisey's Bay site to a finished nickel product and be capable of processing concentrate and intermediate feeds containing nickel from other sources around the world. This would give the hydrometallurgical processing plant the capability of operating well beyond the life of the Voisey�s Bay deposits.

6. An Inco Innovation Centre will be developed and operated in St. John's in conjunction with Memorial University of Newfoundland. The Inco Innovation Centre's focus will be on education and research in mineral exploration, mining and metallurgical processing.

7. The projected aggregate capital investment in these and related facilities is estimated to be $2.9 billion over the estimated 30-year life of the Project, including sustaining capital expenditures. The Proponent will prepare comprehensive bankable feasibility studies and, based upon those studies, the Project capital and operating costs and schedule will be finalized. A phased approach to development will be used that will include a significant research and development program to confirm and demonstrate the technological and commercial application of hydrometallurgical technology to sulphide concentrates and will include a demonstration plant to be constructed at Argentia.

8. The Project will create significant employment opportunities in the Province of Newfoundland and Labrador (the "Province"). The construction phases of the mine and mill/concentrator processing plant and the hydrometallurgical processing plant will create 1,700 and 3,000 person-years of employment, respectively.

During the various operating phases, the Project will create the following estimated employment levels: mine and mill/concentrator processing plant � 400 people; research and development program � 200 people; underground exploration � 85 people; underground mine operations � 800 people; and hydrometallurgical processing plant � 400 people.

9. The total employment benefits from the Project are estimated to be 76,000 direct and indirect person-years over the estimated 30-year life of the Project. Provincial GDP impact over the same period is estimated to be $11 billion.

10. The following undertakings by the Proponent, together with those of the Government, provide the framework for the proposed development of the Project.

11. The Proponent is committed to developing the Project in a manner which provides full and fair benefits to the people of the Province; has a solid business footing; provides for a reasonable return to its shareholders; recognizes metals market conditions; can be reasonably and prudently financed and can be completed as intended. The Proponent will use its best efforts to obtain the required financing for the Project in a timely manner. Comprehensive bankable feasibility studies, as referred to above in paragraph 7, will be prepared which must reflect and successfully meet these objectives and the undertakings by the Proponent and the Government contained in the Statement of Principles. The Proponent's objective is to have a world-class, efficient operation which will reflect appropriate employment levels, productivity requirements and other relevant factors.

12. Commencing in 2002, the Proponent will undertake site mobilization at Voisey's Bay, including the establishment of a construction camp, initiation of work on temporary port facilities, and construction of access roads. At Argentia, in 2002, the Proponent will complete lease arrangements for the property and undertake site preparation, including demolition, fencing, security and signage. The Proponent will also construct a warehouse building and establish staging areas and lay down areas in support of Labrador activities and establish a project office and information centre. Site selection, architectural design and engineering work for the Inco Innovation Centre in St. John's will also be undertaken in 2002 with target completion of the Inco Innovation Centre in 2004. This infrastructure and initial work program, in aggregate, is expected to employ approximately 250 persons. The Proponent will spend a minimum of $55 million on this program in the Province by March 31, 2003.

13. Commencing in 2002 with infrastructure development, the Proponent will initiate a hydrometallurgical process research and development program which will include the construction and operation of a demonstration plant at Argentia, at an estimated cost of $130 million. The research and development program will include the evaluation of chemical engineering sub-processes for the hydrometallurgical process as well as the mechanical equipment design for this demonstration plant. The demonstration plant, scheduled to be operational in 2006, will be used to establish the commercial, technical and economic feasibility of the hydrometallurgical process technology for the Voisey�s Bay nickel/copper/cobalt concentrate. The Proponent will ship nickel/copper/cobalt concentrate from the Voisey's Bay mine and mill/concentrator processing plant to the demonstration plant following successful start up of the mine and mill/concentrator processing plant. 

14. The Proponent will provide an annual confidential progress report to the Government on the results of its research and development efforts on hydrometallurgical process technology containing sufficient documentation to enable the Government to evaluate the Proponent�s progress in developing the hydrometallurgical process technology.

15. Site development for the demonstration plant at Argentia will begin in 2002. Following the initial development activities in late 2002 and early 2003, the Proponent will continue to develop the site in preparation for the demonstration plant and ultimately the commercial processing plant. The initiatives in support of this presence will include operation of an information centre, preparation of environmental baseline studies and continued upgrading or replacement of utility services required for the demonstration plant and maintaining staging areas. Additionally, cleanup and civil works on the larger area of the Argentia peninsula will be initiated. This will consist of demolition, grading and earthworks construction. 

16. The Proponent will explore business opportunities for the ongoing utilization of the demonstration plant facilities for the evaluation of other concentrates and intermediate feeds upon completion of the Voisey's Bay hydrometallurgical research and development program referred to in paragraph 13.

17. Construction of an open pit mine and mill/concentrator processing plant at Voisey's Bay, capable of processing 6,000 tonnes of ore per day, is scheduled to begin in 2003. These facilities are estimated to require 3 years to construct at a cost of approximately $710 million. The open pit mine and mill/concentrator processing plant will generate approximately 1,700 person-years of employment during the construction period and will employ approximately 400 people in operations. The mill/concentrator processing plant will produce two separate concentrates: a copper concentrate that will be sold on the open market and a nickel/copper/cobalt concentrate that will be processed initially at the Proponent's operations in Ontario and Manitoba and subsequently at the commercial hydrometallurgical processing plant at Argentia. The Proponent will not ship any nickel/copper/cobalt concentrate out of the Province in accordance with the Exemption Order referred to in paragraph 37 until the demonstration plant referred to in paragraph 13 is operational and ready to test nickel/copper/cobalt concentrate.

18. The Proponent will undertake an underground exploration program at an estimated cost of $95 million, which will employ approximately 85 people. The objective of this underground exploration program will be to confirm underground mineable reserves and develop a mining plan. The initial phase of this exploration program will be an advanced surface program at an estimated cost of $20 million that will start in 2002 with target completion in 2006. Subsequent underground exploration will be scheduled to ensure that sufficient ore is available to sustain full operation of the mill/concentrator processing plant during the transition from the open pit operations to full underground mining operations.

19. Subject to completion of a successful underground exploration program, as part of the long-term plan for the Project, the Proponent will commence underground mine development, which will include a mill/concentrator processing plant expansion, to provide sufficient ore to sustain operation of the mine and mill/concentrator processing plant. This program is currently estimated to cost approximately $750 million. The underground mining operation will result in the employment of 800 people.

20. The Proponent will use the most efficient and cost-effective mining techniques which are intended to include state-of-the-art, automated mining technologies. These technologies will be aimed at lowering operating costs and extending the Project life.

21. The Proponent is committed to processing the Voisey's Bay nickel/copper/cobalt concentrate in the Province and to maximizing long-term benefits for the people of the Province. Consequently, the Proponent will use its best efforts to develop a technically and economically viable hydrometallurgical process technology. Upon successful development of the technology, the Proponent will construct a commercial hydrometallurgical processing plant in the Province for the nickel/copper/cobalt concentrate. This plant will have the annual capacity to produce approximately 110 million lbs of cathode nickel, 5 million lbs of cobalt product and 15 million lbs of copper revert. Employment during the 3-year construction period will be approximately 3,000 person-years with approximately 400 persons being employed during operations. The capital cost for this plant is expected to be approximately $800 million.

  22. In the unlikely event that the Proponent's proposed hydrometallurgical process technology for the Voisey's Bay nickel/copper/cobalt concentrate is not technologically or economically feasible, the Proponent will construct a commercial hydrometallurgical nickel matte processing facility or other facility incorporating a proven, state-of-the-art technology to produce a finished nickel product. Such a facility will have the same annual finished nickel capacity as the hydrometallurgical processing plant as described in paragraph 21. The capital cost of such a facility is estimated to be $670 million and will create approximately 2,500 person-years of employment during construction and will employ approximately 350 people. 

23. By no later than December 31, 2008, the Proponent will provide the Government with its decision as to whether it will proceed with the engineering and construction of either the hydrometallurgical processing plant contemplated by paragraph 21 or such other facility referred to in paragraph 22. This decision will be supported by a feasibility study that will include the technical and economic evaluations that are the basis for the Proponent�s decision. The Proponent will keep the Government informed of its progress in reaching this decision so as to enable (1) the Government to determine whether the experts referred to below will be required, and (2) the Proponent to meet the December 31, 2008 date referred to herein. The Government will either accept the Proponent�s decision or, prior to December 31, 2008, engage a mutually acceptable, recognized third party engineering firm and a mutually acceptable, recognized third party financial expert to review the Proponent�s decision and make a determination with respect to such decision. The Government and the Proponent will accept the determination made by such experts with respect to which facility the Proponent will construct. By no later than December 31, 2008, the Proponent will also provide the Government with an implementation plan (reflecting the determination made by such experts, if applicable) that provides the schedule for the completion of the engineering work for, and the construction of, the selected facility. This facility is to be completed no later than December 31, 2011. The Proponent will proceed diligently to complete the detailed engineering for, and construction of, the selected facility. 

24. The Proponent's objective is to operate the hydrometallurgical processing plant for the Voisey's Bay nickel/copper/cobalt concentrate, the hydrometallurgical nickel matte processing facility or other facility beyond the life of the eventual Voisey's Bay mining operations. Accordingly, the Proponent will explore technically and economically feasible opportunities for plant expansion and to secure opportunities to supply the plant with additional feed from around the world to fully utilize the large capital investment in the processing facilities in the Province.

25. In consideration of the Government granting the Exemption Orders referred to in paragraphs 37, 38, 39 and 40, the Proponent guarantees that it will, prior to the cessation of mining operations for the Project, commence shipping into the Province nickel and cobalt concentrate or other form (from one or more sources worldwide, other than the Project) for processing in the Province. The quantities of such nickel and cobalt to be shipped into the Province will be at levels sufficient to enable either the hydrometallurgical processing plant contemplated by paragraph 21 or such other facility referred to in paragraph 22 to operate at no less than 50 per cent of the design capacity of such plant or other facility. These shipments will continue at least until such time as they total the amount of nickel and cobalt in concentrate or other form that was shipped from the Province under the terms of the applicable Exemption Order(s).

The Proponent acknowledges that, if it does not meet its contractual obligations under this paragraph 25 except for one or more events of Force Majeure (as defined in Schedule A hereto), (1) the Province and the economy of the Province will suffer substantial loss if such nickel and cobalt concentrate or other form is not shipped into and processed in the Province, and (2) damages are not an adequate remedy for such breach. However, in the event that damages are awarded, the Government will be entitled to claim damages for breach of contract to reflect such losses to the Province and the economy of the Province for the failure to process such concentrate or other form in the Province and the Proponent expressly waives any right to claim or argue that the Government cannot pursue any such suit against the Proponent.

26. The Proponent will establish an Inco Innovation Centre to be developed and operated in conjunction with Memorial University of Newfoundland. Work on the Inco Innovation Centre will commence in 2002 with target completion in 2004. The Proponent will spend $10 million on the Inco Innovation Centre and provide an annual endowment of $1 million per year over a 10-year period to cover operational costs. The Inco Innovation Centre's focus will be on education and research in mineral exploration, mining and metallurgical processing. It will provide world-class education, research and training related to the mining industry to 50-60 students per year engaged in Bachelors, Masters and Doctorate level programs.

27. The Proponent will conclude an Industrial and Employment Benefits Agreement with the Government for the employment of members of the provincial labour force and for providing manufacturers, consultants, contractors and service companies in the Province with a full and fair opportunity to compete for the supply of goods and services for the Project. The Proponent will detail plans acceptable to the Government for monitoring and reporting, on a regular basis, on the efforts of both itself and its contractors in maximizing benefits to the Province. This Industrial and Employment Benefits Agreement will include the Proponent's policies which address principles of full and fair opportunity in procurement from companies in the Province as well as training and employment of residents of the Province. These principles and the Industrial and Employment Benefits Agreement will recognize the Impacts and Benefits Agreements (IBAs) with the Labrador Inuit Association and Innu Nation and, pursuant to these IBAs, the Proponent will encourage the formation of joint ventures or other forms of cooperative business arrangements between aboriginal people or firms and other businesses in the Province.

These principles and the Industrial and Employment Benefits Agreement will highlight:

� Full and Fair Opportunity

How manufacturers, consultants, contractors and service companies in the Province will be given a full and fair opportunity to participate on a competitive basis in the supply of goods and services used in any proposed work or activity.

  � First Consideration � Procurement

How the purchasing practices of the Proponent will provide first consideration for the procurement of services from within the Province and for goods manufactured within the Province where these goods and services are competitive in terms of fair market price, quality and delivery.

� First Consideration � Training and Employment

How individual residents in the Province will be given first consideration for training and employment opportunities in the work program.

� Supplier Participation

That the Proponent will establish as soon as practical, Project information centres in St. John's and Happy Valley-Goose Bay to keep the general public informed about the Project. The centres will also provide information relating to employment and supplier procurement opportunities for all phases of the Project and be receiving points for resumes and tendering/bid documents. The Proponent will also hold information sessions throughout the Province regarding supplier participation programs.

� Engineering

That the Proponent will ensure that Project management, engineering, procurement and Project service activities for the Project will be carried out in the Province to the greatest extent possible. Such work will be undertaken by, or have the significant participation of, Newfoundland and Labrador based firms. When not available in the Province, specialized expertise will be sourced and carried out wherever available. In these instances, such firms from outside the Province will be encouraged to involve Newfoundland and Labrador engineering firms in these specialized engineering activities. Further, the Proponent will provide a human resources plan outlining participation by Newfoundland and Labrador engineers, geoscientists and other technical disciplines, along with a plan indicating the opportunities for them to develop and assume increasingly senior positions as the Project proceeds. 

�Newfoundland and Labrador Construction/ Fabrication Facilities

That the Proponent will make full use of construction, fabrication and assembly capabilities in the Province by requiring potential bidders to bid the work using a qualified facility in the Province in their bid where available. The Proponent will make potential bidders aware of construction and fabrication facilities in the Province and the Proponent will direct potential bidders to the appropriate Government department/official for information on construction facilities and capabilities in the Province.

Where construction, fabrication and assembly services are performed in the Province, the Proponent will require contractors and subcontractors carrying out that work to locate Project management, fabrication engineering and procurement activity within the Province. 

� Adjacency Principle

That the Proponent will apply its adjacency principle policy to the delivery of employment and business opportunities related to the Project, in order to fulfil its commitment made during the environmental assessment of the mine and mill/concentrator processing plant.

� Air and Marine Operations

That the Proponent will require the air operation company or companies retained to provide air transportation for the Project and the shipping company or companies retained to ship nickel/copper/cobalt concentrates and finished nickel, and cobalt and copper reverts, to have a base of operations in the Province and in the case of shipping to destinations in Canada, that the vessels be Canadian flagged and crewed and additionally that the nickel/copper/cobalt concentrate ships be crewed from within the Province.

28. The Proponent will develop and implement training initiatives for all phases of the Project in co-operation with governments, aboriginal groups, labour organizations, suppliers and training institutions in the Province. These initiatives will include pre-employment and employment training programs utilizing in-house and external training organizations throughout the Province. Specific programs will be established for training at the Voisey's Bay and Argentia sites. Maximum use will be made of existing provincial education facilities near the Project sites.

29. The Proponent acknowledges that the Labrador Inuit Association and Innu Nation assert aboriginal rights and title to the Project area containing the nickel, cobalt and copper deposits. The Proponent has negotiated and will enter into Impacts and Benefits Agreements with both aboriginal groups. These Agreements, when executed, will provide specific industrial and employment opportunities for certain aboriginal groups residing adjacent to the mine and mill/concentrator processing plant.

30. The Proponent will implement a Project employment strategy that is consistent with the Canadian Charter of Rights and Freedoms, ensures that individuals
resident in the Province are given first consideration for training and employment opportunities associated with the Project, and recognizes the adjacency principle referred to in paragraph 27.

31. Subject to revisions required to reflect the current scope of the Project, the Proponent will abide by and implement the terms and conditions contained in the Voisey's Bay Nickel Company Limited Mine and Mill Undertaking Order, which are applicable to the mine and mill/concentrator processing plant.

32. The Proponent will reach an agreement with the Province on arrangements which, to the extent permitted by law, will result in an allocation, for the purposes of Part IV of the Federal Income Tax Regulations, of the Proponent's gross revenues from the sale or disposition of nickel/copper/cobalt products, whether in intermediate or final form, from the Project to the Province. 

Force Majeure

33. If the Proponent establishes that it is prevented from performing any of its obligations under the Statement of Principles by reason of one or more event(s) of Force Majeure (as defined in Schedule A hereto), such obligations will be suspended for the period during which the event(s) of Force Majeure is/are in effect and the Proponent will be entitled to an extension of any dates referred to in the Statement of Principles for a reasonable period of time. However, even though the Proponent�s obligation(s) will be suspended for the period of time during which the event(s) of Force Majeure remain(s) in effect, when such event(s) of Force Majeure is/are no longer in effect, the obligation(s) will become operative until such obligation(s) are fulfilled.

Aboriginal Agreements

34. The Government acknowledges that the Labrador Inuit Association and Innu Nation assert aboriginal rights and title to the Project area containing the mineral deposits. The Government will enter into interim measures agreements or other alternative agreements with both aboriginal groups that will include the Voisey's Bay chapter of the respective land claims agreements. The Government will also enter into an Environmental Management Agreement with the Labrador Inuit Association and the Innu Nation with respect to the Project. The Government will use its best efforts to conclude negotiations on these agreements in a timely manner.

35. The Government will commit to cause Newfoundland and Labrador Hydro to charge the island industrial electrical rate, or such lower electrical power rate that may be offered from time to time to customers in comparable circumstances, for the Proponent's processing facilities located on the island portion of the Province and that a sufficient power supply will be available when the commercial hydrometallurgical processing plant provided for in paragraph 21 or other facility provided for in paragraph 22 commences operation.

36. The Government will issue a mining lease pursuant to the Mineral Act which will provide, among other things, that the annual production of the mine will be no more than 2.2 million tonnes of ore during the first 10 years of mining operations and no more than 5.5 million tonnes of ore thereafter and that primary processing will take place in the Province. 

Exemption Orders

37. The Government will issue an Exemption Order that will become effective upon the shipment of first concentrate to the demonstration plant at Argentia. This Exemption Order will allow the Proponent to ship out of the Province a fixed volume of nickel/copper/cobalt concentrate containing a total of up to 355,000 tonnes of nickel from the date that the demonstration plant is operational and ready to test nickel/copper/cobalt concentrate to the date of the commencement of the commissioning and start up of the hydrometallurgical processing plant at Argentia contemplated by paragraph 21 or other facility contemplated by paragraph 22. This Exemption Order will expire upon the Proponent reaching the volume limit as set out in the Exemption Order.
This Exemption Order will provide that shipping of nickel/copper/cobalt concentrate out of the Province will be suspended if (a) the Proponent has not delivered to the Government the decision referred to in paragraph 23 by December 31, 2008, or (b) the Proponent is not proceeding diligently with the detailed engineering work for, and construction of, the hydrometallurgical processing plant or other facility thereafter for completion no later than December 31, 2011, unless the Proponent�s failure to perform is by reason of one or more event(s) of Force Majeure (as defined in Schedule A hereto). The determination as to whether the Proponent is proceeding diligently will be made annually on the anniversary date of the decision referred to in paragraph 23 by a mutually acceptable independent licensed engineer certifying whether the actual construction of the selected facility is on schedule with the accepted implementation plan. 

38. The Government will also issue an Exemption Order allowing the Proponent to ship out of the Province an additional fixed volume of nickel/copper/cobalt concentrate containing a total of up to 85,000 tonnes of nickel, during the commissioning and ramp up of the hydrometallurgical processing plant contemplated by paragraph 21.

39. In the event that the Proponent proceeds with the commercial hydrometallurgical nickel matte processing facility or other facility provided for in paragraph 22, the Government will issue an Exemption Order, which will become effective on the date that such processing facility commences commissioning and ramping up, that will allow the shipment of all nickel/copper/cobalt concentrate from the Project out of the Province, subject to the continued operation of the hydrometallurgical nickel matte processing facility or other facility at an operating rate capable of processing the amount of nickel contained in the nickel/copper/cobalt concentrate produced by the Voisey�s Bay mill/concentrator processing plant.

This Exemption Order will provide that shipping of nickel/copper/cobalt concentrate out of the Province will be suspended during such period(s) that such facility is not operating, unless it is not operating by reason of one or more event(s) of Force Majeure (as defined in Schedule A hereto) or it is not operating temporarily due to routine maintenance or vacation shutdown. 

40. The Government, through the issuance of an Exemption Order, will allow the Proponent to ship out of the Province all copper concentrate produced from the Project for the duration of the Project or until sufficient copper reserves are discovered by the Proponent to permit commercial processing in the Province. Should commercial processing of copper be established in the Province by a third party, the Proponent will offer for sale its available copper concentrate to such third party for its facility on prevailing commercial terms and conditions subject to availability and the Proponent�s existing contractual obligations. 

Issuance of Approvals

41. Where the Proponent has submitted all information and data in compliance with applicable legislation, regulatory provisions and policies required by the Government for it to issue or grant necessary permits, authorizations, orders and other approvals in accordance with the Statement of Principles, the Government will issue or grant such permits, authorizations, orders and other approvals on a timely basis.

If the Government does not issue or grant such permits, authorizations, orders and other approvals on a timely basis, the Proponent will be entitled to (a) an extension of any dates referred to in the Statement of Principles for a reasonable period of time, and (b) an amendment to the Exemption Order referred to in paragraph 37 to allow additional amounts of nickel/copper/cobalt concentrate to be shipped out of the Province, which amount will be calculated on the basis of the extension referred to in clause (a) and provided that the Proponent establishes that it will likely ship out of the Province the fixed volume of nickel in such Exemption Order prior to the revised completion date of the hydrometallurgical processing plant or other facility. 

Legislative Framework

42. The Government acknowledges that the Proponent is relying upon the good faith of the Government to maintain substantially the legislative and regulatory framework applicable to the Project as at the date of execution of the Statement of Principles (the "Framework"), subject to legislative amendments contemplated in the Statement of Principles and legislation of general application. The Government will maintain the Framework consistent with the Statement of Principles, subject to governmental responsibilities, including responsibility for ensuring proper management of the Province�s resources, the protection and maintenance of public health and safety and the protection of the environment. The Government acknowledges that the Statement of Principles is consistent with current public law and governmental responsibilities.

The Proponent acknowledges that the Government, in consideration of agreeing to maintain the Framework, has relied upon the good faith of the Proponent to carry out its undertakings as enumerated in the Statement of Principles and its obligations to be contained in the Binding Agreements.

43. The Government will issue a Special Project Order or Orders under the Labour Relations Act to ensure a stable labour relations environment throughout the construction phases of the Project. This Order or these Orders will include, without limitation, such provisions as no strikes and lock-outs and the ability to designate the union organization and employer's representative that will be involved in collective bargaining.

44. The Government will provide that the rate of provincial corporate income tax applicable to the Proponent will be the lower of the "all provinces average" or the provincial income tax rate.

45. The Government will undertake to indemnify the Proponent for any double taxation resulting from an agreement regarding the allocation of gross revenue for purposes of Part IV of the Federal Income Tax Regulations.

46. The Government will introduce and support legislation to amend the Mining and Mineral Rights Tax Act (the "Act") and will undertake that the tax rate, tax base, and tax credit provision in the amended Act will be no more onerous to the Proponent than the following:

MINING TAX

Tax Rate

� 16% effective rate

� 15% on 80% of net income 

� 20% of 20% of net income less taxable royalties paid for the grant of the right to engage in mining operations

Tax Base

 

� Gross revenue (including hedging gains or losses related to mine output)

� Less:

� Reasonable operating expenses directly attributable to mining and processing 

� Depreciation

� 25% declining balance 

� 100% for new mine assets

� Pre-production expenses over estimated mine life 

� Exploration expenses incurred in Province � carry forward indefinite period 

� Processing allowance

� 8% of milling and concentrating assets in the Province 

� 15% of other processing assets in the Province 

� Maximum of 65% of net income before processing allowance

Tax Credits

� Provincial corporate income tax paid in respect of mining income may be used to reduce mining tax payable for the first 10 years of operation. Maximum annual credit of $2 million.

Non-deductible Expenses

� Income and capital taxes 
� Mining tax 
� Professional fees related to tax appeals � Interest and other costs of financing 
� Donations 
� Social and recreational costs not incurred at a remote mine site 
� Payments made pursuant to an IBA 
� Amounts in excess of the actual cost of non-arm's length transactions

Approval by the House of Assembly of the Province

47. The Proponent acknowledges that the Government intends to submit the Statement of Principles to the House of Assembly for its consideration and approval. In the event such approval is not given, the Statement of Principles will be void ab initio and neither the Proponent nor the Government will be liable to the other for any loss, damage, cost or claim whatsoever resulting therefrom. The Government acknowledges that any delay in such approval could significantly affect the timing and other aspects of the Proponent�s commitments under the Statement of Principles, including those set forth in paragraph 12. 

Choice of Law and Forum

48. The Government and the Proponent acknowledge that (1) the Binding Agreements will be governed by, and construed in accordance with, the laws of the Province and the applicable laws of Canada, and (2) they will attorn to the courts of the Province.

 

Statement of Principles
Voisey�s Bay Project
Schedule A

 

1. For the purposes hereof:

"Person" includes any individual, partnership, limited partnership, firm, trust, body corporate, unincorporated body of Persons or association.

"Proponent" means collectively, Inco Limited, Voisey�s Bay Nickel Company Limited, their respective affiliates as such term is defined in the Corporations Act, and any Person which together with any of them by way of partnership, joint venture, subcontract or otherwise is an owner, operator or developer of the Project as defined in Paragraph 1 of the Statement of Principles.

"Processing Related Reason" means any situation where the Proponent is unable to meet its obligations under paragraph 25 of the Statement of Principles as a result of either (i) the unavailability, for whatever bona fide reason, of concentrate or other form from any external or other source, or (ii) the unavailability of concentrate or other form from any external or other source on terms which are reasonable commercial terms, including, without limitation, where the terms relating to price or specifications would make it uneconomic or technically not feasible for processing in order to meet the requirements of paragraph 25 of the Statement of Principles. Subject to the exceptions and qualifications below, "Force Majeure" means one or more of the following events:

2. Subject to the exceptions and qualifications below "Force Majeure" means one or more of the following events:

(a) acts of God or natural disasters, adverse weather conditions or other similar occurrences; 

(b) acts of war (declared or undeclared) or conditions arising out of or attributable to any such acts of war, revolutions, insurrections, civil strife, formal or informal hostilities, mob violence, riots and similar disturbances, blockades or any other unlawful acts against public order or authority; 

(c) strikes, lockouts, work stoppages or labour disturbances, unless directly and proximately caused by an unlawful act or omission of the Proponent;

 (d) delay or failure by suppliers or transporters of materials, parts, supplies, services or equipment; contractors� or sub-contractors� shortage of, or inability to obtain, labour, transportation, materials, machinery, equipment, supplies, utilities or services; or breakdown of equipment, machinery or facilities, unless caused by or resulting from an unlawful act or omission of the Proponent; 

(e) accidents; and 

(f) in respect of the Proponent�s obligation in paragraph 25, a Processing Related Reason, provided that, a Processing Related Reason will not be an event of Force Majeure at any time after 3 years following the cessation of mining operations for the Project.

2002 06 11                            10:35 a.m.