Press release / Communique de Press: 23 juin 2006

Invitation, conference de presse "L'exploitation du nickel en Nouvelle-Calédonie", CAPE, 116 avenue du Président Kennedy, lundi 26 juin 9:00 [FRANCAIS]

Communique de Presse: Impacts environnementaux, socieaux et financiers du projet GORO NICKEL en Nouvelle Calédonie [FRANCAIS]

Contexte du projet Goro Nickel en Nouvelle Calédonie / Background materials on Inco's Goro Nickel project in New Caledonia

Mines & Communities New Caledonia news update (16 June 2006)

Conclusions: Commissaire du Gouvernement Jean-Paul Briseul sur la légalité d'un arrêté autorisant le fonctionnement d'un complexe industriel dans le Sud de la Nouvelle Calédonie [FRANCAIS]

Decision de la Tribunal Administrative de Nouvelle Calédonie de annulé l'arrêté du 15 octobre 2004 qui a autorisé la société Goro Nickel à exploiter une usine sur le territoire des communes de Yaté et Mont-Dore [FRANCAIS]

Main Securities and Exchange Comission INCO filing index online [ENGLISH]

Inco Subsidiaries [ENGLISH]

Conseil d'Administration de Inco [FRANCAIS]

Canadian Securities home page Note: A search at this link for "inco limited" will go to Inco's U.S. SEC 10K report in both English and French. [ENGLISH]

HTML version of Inco SEC 10k report for 31dec05 [ENGLISH]

Version Francais du Rapport Inco 10K a la SEC (PDF) [FRANCAIS]

Version Francais du Rapport Inco 10K a la SEC (DOC) [FRANCAIS]

Inco Annual Meeting 20 April 2006 - Proxy Circular and Statement [ENGLISH]

Avis de convocation à l’assemblée annuelle des actionnaires Le 20 avril 2006
Circulaire de sollicitation de procurations [FRANCAIS]

Lease agreement between Inco and GNiFi (aka BNP Paribas) [ENGLISH]

Extracts from Inco's SEC 10K report with reference to Goro Nickel

• Introduction
• Cautionary Statement
• Goro Project
• Goro Nickel S.A.S.
• Ownership of Goro Nickel
• Board of Directors
• Executive Officers
• Goro Project
• Project Review Process
• Fiscal Regime
• Girardin Act Financing
• New Caledonia
• Prony West Deposit

Introduction

Inco is also currently developing another major new “greenfield” project, the Goro nickel-cobalt project in the French overseas territorial community (collectivité territoriale) of New Caledonia (“New Caledonia”). We currently hold a 71 per cent interest in the project company, Goro Nickel S.A.S. (“Goro Nickel”), following the capitalization of certain shareholder advances in late February 2005, the sale of shares representing a 21 per cent interest in Goro Nickel to a joint venture between Sumitomo Metal Mining Co., Ltd. and Mitsui & Co., Ltd. of Japan on April 8, 2005 and, taking into account the additional capital contribution we have made to Goro Nickel as a result of the election by Société de Participation Minière du Sud Calédonien SAS (“SPMSC”), a company formed by the three provinces of New Caledonia which acquired an initial 10 per cent interest in Goro Nickel in February 2005, not to make certain pro-rata capital contributions to the project since it became a shareholder in Goro Nickel in February 2005. Having announced our decision to proceed with the project in October 2004 after the completion of our comprehensive review of the project, we have moved the project forward on a phased approach, with the first phase focusing on engineering, contract development and permitting. Engineering was about 70 per cent complete as of year-end 2005 and approximately 900 construction personnel were on site, initially focusing on earthworks for the process plant, the residue storage facility and road realignment. We are also building some 400 process plant modules and pre-finished units for the process plant in the Philippines which are expected to be delivered to the Goro site beginning in April 2006. We expect to have a definitive capital cost estimate by the second quarter of 2006 when engineering is expected to be at least 80 per cent complete and all major contracts are expected to have been awarded. The expected initial start-up of the project remains in late 2007. For further information on the Goro project and related matters, see “Goro Nickel S.A.S.” below.

Cautionary Statement Regarding Forward-Looking Statements and Forward-Looking Information p.2 of html 10k report top

Certain statements contained in this Report are forward-looking statements (as defined in the U.S. Securities Exchange Act of 1934) or contain forward-looking information (as defined in the Ontario Securities Act). Examples of such statements include, but are not limited to, statements concerning:

(10) construction, commissioning, initial start-ups, shipments and other schedules, capital costs and other aspects of the Goro and Voisey’s Bay projects and PT Inco’s latest program start-ups to increase its production, changes in the ownership of the Goro project, capital expenditures, and hydroelectric power generation at PT Inco and the effect thereon of lower water levels; (11) receipt of funds under the necessary financing plans and arrangements for, and partner or similar investment and other agreements or arrangements associated with, the Goro project, and the timing of the start of production and the costs of construction with respect to, the issuance of the necessary permits and other authorizations required for, and engineering and construction timetables for, the Goro project and the additional phases of the Voisey’s Bay project;

p.3 "the timing of the receipt of remaining regulatory and governmental approvals for the Goro project and other operations;

p.21
The total capital expenditures for the Goro project will depend on a number of factors, including receipt of all necessary construction and other permits and the continued availability of certain tax-advantaged financing from the French government. For a discussion of the Goro project, see “Goro Nickel S.A.S.” below.

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Goro Project top
The Goro project company, Goro Nickel, currently holds 69 mining concessions in the Massif du Sud (part of the south province of New Caledonia) covering 20,600 hectares authorizing the mining of nickel, cobalt, chrome, iron and manganese, and approximately 26 surface rights. An additional 10 mining concessions are held by Tiebaghi Nickel S.A.S. (“Tiebaghi”), a subsidiary of Inco, outside the Goro project area in a mining domain called Tiebaghi, located in the north province of New Caledonia. Two other concessions held by Tiebaghi were not renewed in 2005. Of the 69 concessions held by Goro Nickel, the Goro project covers 6,042 hectares within seven mining concessions, of which four are perpetual in term, two are renewable prior to their expiry dates in 2016 and one is renewable prior to its expiry date in 2051. Goro Nickel has the right to renew these three renewable concessions for an additional 25-year period when their initial terms expire, provided a satisfactory technical report is delivered to the authorities five years before the expiry date. Concessions generally represent long term permits (mostly 75 year terms, with some having a term up to perpetuity) granted for mining large deposits which entitle the holder the exclusive right to exploit, extract and mine. A concession applies to one or several minerals defined by the granting decision along with its geographical location. The granting of a concession is based on the delineation of an exploitable orebody made during exploration activities conducted pursuant to permits called “permis de recherches” and “permis d’exploitation”. Surface rights can be granted independently of mineral rights. Goro Nickel holds surface rights, known as “occupation des sols”, which are rights to use surfaces on or outside mining permits for mining-related activities, including surfaces of other owners. All of the present estimated proven and probable ore reserves for the Goro project as at December 31, 2005 are within the mining rights held as concessions.

Reference is made to “Goro Nickel S.A.S. – Prony West Deposit” below for a discussion of our rights to the Prony West area.

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Goro Nickel S.A.S. top
Goro Deposits
Goro Nickel holds a number of claims covering nickel-cobalt properties in New Caledonia, located about 1,500 kilometres east of Australia. These properties have an extensive laterite resource base, including, as reflected in the tables above covering estimated ore reserves on a Company-wide basis under “Ore Reserves and Mining Rights”, an initial mining zone with, as of December 31, 2005, an estimated 96 million tonnes of proven ore reserves grading 1.34 per cent nickel and 0.12 per cent cobalt and 24 million tonnes of probable ore reserves grading 2.01 per cent nickel and 0.09 per cent cobalt which has been outlined as an initial source of feed for a commercial plant7. Given the completion of the comprehensive review of the Goro project referred to below, the capital cost estimate used for this estimate of ore reserves as at year-end 2005 was based on the updated capital cost estimate announced in October 2004. This estimated ore reserve base is to be mined using low-cost open pit methods, which, when combined with Inco’s proprietary pressure-acid leaching and solvent extraction (PAL-SX) technology, will give the project the potential to have one of the lower cash costs of nickel production in the world.

The following map shows the Goro project concessions and the location of Goro Nickel’s ore reserves and mineral resources, the process plant site and other facilities:

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Ownership of Goro Nickel top

Inco Limited (the Registrant)
International Nickel, Inc. (Delaware)	100%
I.E.L. Holdings (England)	100%
Goro Nickel S.A.S. (France)	71%
Monticello Capital (Barbados) Limited (Barbados)	100%
Inco Asia Limited (Barbados)	100%
P.T. International Nickel Indonesia Tbk (Indonesia)	61%
Inco TNC Limited (Japan)	67%
Voisey's Bay Nickel Company Limited (Newfoundland and Labrador)	100%

 

Ownership of Goro Nickel S.A.S. (France)	sic
Inco	71%
Sumitomo Metal Mining Co., Ltd. and Mitsui & Co., Ltd. of Japan	21%
Société de Participation Minière du Sud Calédonien SAS (“SPMSC”) A company formed by the three provinces of New Caledonia	10%

Inco currently owns approximately a 71 per cent interest in Goro Nickel following the capitalization of certain shareholder advances in February 2005, the sale of shares representing a 21 per cent ownership interest in Goro Nickel to Sumic Nickel Netherlands (“Sumic”), a joint venture between Sumitomo and Mitsui & Co., Ltd. (“Mitsui”) in April 2005, and the election by SPMSC not to make its pro-rata capital contributions to the project as described below.

Under the terms of a share purchase agreement entered into with Inco covering their acquisition of a 21 per cent interest in Goro Nickel, Sumitomo and Mitsui paid a total of approximately $150 million for their interest. This amount included their pro-rata share of certain project capital and other expenditures made since we announced our initial decision in July 2001 to proceed with the Goro project and certain advances made by us to fund the project. Under the terms of a shareholders agreement entered into as of April 8, 2005 (the “Sumic Shareholders Agreement”), setting forth the rights and obligations that Sumic (as well as Sumitomo and Mitsui) have as a shareholder in Goro Nickel, including the right to elect two directors to the board of directors of Goro Nickel so long as Sumic holds at least a 16 per cent ownership interest in Goro Nickel and the right to elect one director so long as it holds at least an eight per cent ownership interest, Sumic is also obligated to make capital contributions on a pro-rata basis, subject to certain limitations and adjustments tied to the actual capital cost of the project, as required to meet the funding requirements of Goro Nickel until such time as the Goro project meets certain minimum commercial production and related performance tests (the “Sumic Threshold Performance Tests”). If Sumic does not make such capital contributions, it will suffer dilution of its ownership interest based upon a penalty dilution formula. If the capital cost of the Goro project exceeds a threshold as specified above a capital cost estimate of $1,878 million, as calculated under the Sumic Sharheolders Agreement, prior to when the Sumic Threshold Performance Tests are met, then Sumic will not have any obligation to provide capital contributions to meet the Goro project’s funding requirements and we would, subject to certain terms and conditions under the Sumic Shareholders Agreement, be required to provide certain funding to meet such requirements, up to a specified level, in the form of interest-bearing debt repayable by Goro Nickel. In addition, under the Sumic Shareholders Agreement Sumic has the right to participate on a pro-rata basis in any future expansion of the Goro project and also has certain rights to approve certain expenditures and other actions relating to Goro Nickel or the Goro project that would be outside the currently planned scope and operation of the project. As of April 8, 2005, Inco, Sumic, Sumitomo and Mitsui also entered into an operations agreement which sets forth Goro Nickel’s role and responsibilities as the operator of the Goro project and its financial and other reporting obligations to its shareholders and a product offtake agreement was also executed under which Sumic has the right and obligation to purchase its pro-rata share of Goro Nickel’s production of nickel and cobalt products based on its ownership interest in Goro Nickel, with a subsidiary of Inco under a separate product offtake agreement having the right and obligation to purchase all of Goro Nickel’s production not purchased by Sumic (which would currently represent 79 per cent of such eventual production).

On February 18, 2005, SPMSC acquired all of the shares of Goro Nickel held by a subsidiary of Bureau des Recherches Géologiques et Minières (“BRGM”). These shares represented, after the capitalization by Goro Nickel of certain shareholder advances as of February 18, 2005, approximately a 9.71 per cent interest in Goro Nickel. At the same time, Inco sold shares in Goro Nickel to SPMSC representing approximately a 0.29 per cent interest such that SPMSC would own, as of February 18, 2005, approximately a 10 per cent interest in Goro Nickel. SPMSC also entered into a shareholders agreement with Inco on February 18, 2005 setting forth its rights and obligations as a shareholder in Goro Nickel. Under the terms of that agreement, SPMSC will have a right to nominate and elect one director to the board of directors of Goro Nickel so long as it holds at least a five per cent interest in Goro Nickel. SPMSC will also have the right, but not the obligation, to make capital contributions on a pro-rata basis as required to meet the funding requirements of Goro Nickel until such time as the Goro project meets certain minimum commercial production and related performance tests (the “Threshold Performance Tests”). If SPMSC does not make such capital contributions, then Inco has agreed to provide such capital contributions in addition to its own pro rata contributions, subject to certain limitations, and SPMSC would, accordingly, suffer dilution of its ownership interest, with the dilution formula to be subject to a penalty if SPMSC’s interest by virtue of dilution were to fall below five per cent. If the capital cost of the Goro project exceeds a threshold above a capital cost estimate of $1,878 million, as calculated under the shareholders agreement between SPMSC and Inco, prior to when the Threshold Performance Tests are met, then SPMSC will not have any right or obligation to provide capital contributions to meet the Goro project’s funding requirements and Inco would be required to provide certain funding to meet such requirements, up to a specified level, in the form of interest-bearing debt repayable by Goro Nickel, and SPMSC would also be required to provide its pro rata share of certain administrative and related costs incurred by Goro Nickel up to a specified limit. Once the Threshold Performance Tests are met, to the extent that SPMSC has elected not to make its pro rata capital contributions and, accordingly, has suffered dilution of its interest in Goro Nickel, SPMSC has agreed to purchase from Inco, based upon the price paid by Inco for such shares plus interest hereon based upon a formula tied to Inco’s then applicable long-term weighted average cost of capital, a sufficient number of shares such that SPMSC will then hold a 10 per cent interest in Goro Nickel. Our planned capital expenditures for the Goro project do not assume that SPMSC will make its pro rata capital contributions until it is diluted down to five per cent.

SPMSC will also have the right to participate in any future expansion of the Goro project. In the event that the Goro project were effectively abandoned on a permanent basis or did not meet the Threshold Performance Tests within seven years after the Goro project’s process plant had been constructed and was ready to receive feed for processing, SPMSC would have the right to receive a preferential payment ahead of Goro Nickel’s other shareholders out of the proceeds received from the sale of Goro Nickel’s assets, after the discharge of all of Goro Nickel’s liabilities to third parties, based upon SPMSC’s total capital contributions in, and purchase of shares of, Goro Nickel subject to a ceiling. Inco has agreed to provide, subject to certain terms and conditions, a letter of credit in the future in favour of SPMSC to secure this preferential payment.

Since SPMSC became a shareholder of Goro Nickel in February 2005, it has elected not to make its proportionate capital contributions. Accordingly, Inco has made such contributions, resulting in SPMSC being diluted to approximately an eight per cent ownership interest as of December 31, 2005 and Inco has increased its ownership to approximately 71 per cent in Goro Nickel by virtue of making such additional contributions. Contributions are made in the form of shareholder advances which are then capitalized on a quarterly basis.

Board of Directors top

http://www.sec.gov/Archives/edgar/data/49996/000090956706000403/o30490exv99.htm#106

French Board member: Francis Mer

Paris, France
Common Shares: 778
Director since 2005
Deferred Share Units: 1,130 *
Options: None

Mr. Mer, 66, is the former Minister of Economy, Finance and Industry for the government of France, a position that he held from 2002 to 2004. From 1986 until 2002, Mr. Mer was Chairman and CEO of USINOR, a leading European steel company, and also served as Co-Chairman of the Arcelor Group during this period. Prior to that, he was Chairman and Managing Director of Pont-à-Mousson S.A., a major producer of cast-iron pipe and related products, and Deputy General Manager of the Saint-Gobain Group, responsible for its Pipelines and Mechanical Engineering Division. Mr. Mer has been Chairman of Fédération Française de l’Acier (the French Steel Federation), Chairman of Eurofer (the European Steel Manufacturers Association), Chairman of Association Nationale de la Recherche Technique (the National Association for Technical Research), and Chairman of the International Iron and Steel Institute. He also currently serves as a Director of Adecco S.A., Alstom S.A. and Rhodia S.A. Mr. Mer graduated as a mining engineer from the École des Mines after having attended the École Polytechnique.

Executive Officers top

In 1999, we completed the construction of an integrated pilot plant in New Caledonia capable of processing 12 tonnes of ore per day to continue with the development of the PAL-SX technology required for commercialization. The pilot plant operated successfully for over two years, both in further proving the PAL-SX technology and in training the core workforce for a future commercial plant.

In April 2001, following completion of a bankable feasibility study, Inco announced that it planned to proceed with the construction of a commercial nickel-cobalt project at Goro.

During 2002, Inco proceeded with the commercial development of the Goro project. In early September 2002, the project experienced labour disruptions by personnel associated with certain project construction subcontractors. As a result of these disruptions, a decision was made to curtail certain activities at the project site to enable Goro Nickel, contractors, subcontractors and other interested parties to develop procedures to avoid future disruptions. Over the September to November 2002 period, a number of procedures were put in place as part of a phased resumption of certain of the project activities that had been curtailed. At the same time that the labour disruptions referred to above occurred, Inco began updating the status of certain key aspects of the project, including the necessary permitting, capital cost estimate, project schedule and organization. Work on certain critical parts of the project, including engineering, continued during this update process.

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Project Review Process

On December 5, 2002, Inco announced that it would be undertaking a comprehensive review of all key aspects of the Goro project. This action was based upon information received by Inco from the engineering, construction and procurement firms acting as the prime construction contractors for the project which, if confirmed, indicated an increase in the capital cost estimate for the project in the range of 30 to 45 per cent above the then current capital cost estimate of $1,450 million. The objective of the comprehensive review was to assess all information on the Goro project, including the various cost estimates and trends, and determine what changes in the capital cost estimate and the project could be made to maintain the project’s economic feasibility. As a result of the temporary suspension of certain development activities and other actions which had been taken by year-end 2002 during this review process, we recorded a pre-tax charge of $25 million in the fourth quarter of 2002. This charge was comprised of pre-tax expenses of $62 million relating to the cancellation or termination of certain outstanding contractual obligations, to accrue for demobilization costs and to reduce the carrying value of certain assets relating to the project, partially offset by currency gains of $37 million as a result of the ineffectiveness of certain forward currency contracts that had been entered into for hedging purposes. As part of the comprehensive review, we also evaluated various contractual and other arrangements covering construction and other work relating to the Goro project and implemented certain actions to suspend or terminate certain of those contractual arrangements.

This review, as discussed above, evolved into two phases during 2003. Phase 1 of the review focused on an orderly suspension of work and identification of opportunities for capital cost reduction. In August 2003, we announced the key results of Phase 1 of the review process and that we were moving to a second phase, or Phase 2, of the review which would involve a structured process intended to (i) further develop the capital cost reduction opportunities identified in Phase 1 and (ii) establish a capital cost control estimate, an updated project schedule and an optimized and clearly defined scope and execution plan for the project.

In late May 2004, we announced the key preliminary findings reached to that date as part of Phase 2 of the review. These findings included (i) an updated preliminary capital costs estimate, taking into account an expected non-cash charge, of approximately $1,850 million for the mine, process plant and related infrastructure, within a minus five per cent to plus 20 per cent confidence level and (ii) changes in the planned Goro project configuration, moving to direct heating of the ore feed and other changes intended to reduce the capital cost estimate and enhance the operating efficiency of the planned process plant and the process itself. As a result of such changes, capitalized expenditures incurred of $201 million were written off as of the end of the second quarter of 2004. These changes related to certain expenditures, principally engineering and related work associated with the original project configuration and equipment purchased for the indirect heating of ore feed, that no longer would have any value for the project or otherwise. We announced the key final results of Phase 2 of the review in October 2004. These final results included an updated capital cost estimate of $1,878 million for the mine, process plant and related infrastructure, within a minus five per cent to plus 15 per cent confidence level. This estimate included about $40 million for assumed escalation in costs during the construction phase of the project, an amount that was not in previous capital costs estimates, and also reflected favourable currency hedging gains realized by Inco of about $31 million which were also not included in previous estimates. The principal reasons for the increase from the $1,850 million estimate which had been announced in May 2004 were higher costs for a range of construction materials and labour required for construction and the incorporation of a new tailings storage area as part of the project. The results of Phase 2 of the review also established an expected annual capacity for the project of 60,000 tonnes of nickel and a current range for cobalt capacity of 4,300 to 5,000 tonnes per year to take into account the optimized mine plan for the project. Having completed and achieved the key objectives of Phase 2 of the review, in October 2004 we also announced the decision to proceed with the project.

Since October 2004, project execution has been based on a phased approach, with the first phase focusing on engineering, contract development and permitting. Engineering was about 70 per cent complete as of year-end 2005 and approximately 900 construction personnel were on site initially focusing on earthworks for the process plant, the residue storage facility and road realignment. We are also building some 400 process plant modules and pre-finished units for the process plant in the Philippines which are expected to be delivered to the Goro site beginning in April 2006. Taking into account these cost pressures for such construction materials and other input costs, the currently anticipated trends in such costs and the latest regulatory requirements for the configuration of the project’s tailings area, we currently believe that, if we were to formally update our latest estimate for the capital cost for Goro’s mine, process plant and infrastructure of $1,878 million with a minus five per cent plus 15 per cent confidence level, such updated forecast would be expected to be at the high end of the plus 15 per cent confidence level. As part of our ongoing work on the project, we have implemented a number of systems to monitor all key costs trends which could affect the capital cost forecast. We currently expect to be in a position to have a definitive cost estimate, reflecting all relevant factors at that time, and which is currently expected to be subject to a confidence or accuracy level developed as part of that estimate, sometime in the second quarter of 2006 when engineering is expected to be at least 80 per cent complete and all major construction contracts will have been awarded. The expected initial start-up of the project remains in late 2007. Reference is made to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Development Projects Segment” under Item 7 of this Report for a discussion of the status of the Goro project as of year-end 2005. top

Fiscal Regime

The New Caledonian authorities enacted a fiscal regime in 2001 which provides a nominal 15-year tax holiday plus an additional five years at tax rates that are 50 per cent of the prevailing tax rates for qualifying metallurgical companies. If the project achieves an internal rate of return in excess of a cumulative threshold rate during this 20-year period, the applicable tax rates or levels for the project would then be adjusted prospectively to be equivalent to the general rates or levels then in effect for mining and processing companies. top

Girardin Act Financing

On December 30, 2004, we entered into agreements for the Goro project covering the Girardin Act tax-advantaged lease financing program (“Girardin Financing”) sponsored by the French Government. The Girardin Financing is subject to a ruling issued by the French Minister of Economy, Finance and Industry (the “Ruling”). The Ruling provides that certain investors who are French qualified investors under the Girardin Financing (“Tax Investors”) may utilize certain tax deductions in connection with assets representing a portion of the Goro project’s processing plant which are financed by the Girardin Financing (“Girardin Assets”). The Ruling requires that Goro Nickel and Inco satisfy certain conditions, including operating the Goro project for a minimum of five years.

As part of the Girardin Financing, a special purpose entity (“SPE”), a variable interest entity, was formed by the Tax Investors to finance the purchase, construction and installation of the Girardin Assets. As we are the primary beneficiary of the SPE, our consolidated accounts include the accounts of the SPE. The purchase, construction and installation of the Girardin Assets by the SPE is funded by a combination of (i) non-refundable loans (“Tax Advances”) provided by the Tax Investors pursuant to a tax loan agreement (the “Tax Loan Agreement”) between the Tax Investors and the SPE, and (ii) loans provided to the SPE by a subsidiary of Inco pursuant to a loan agreement (the “Loan Agreement”).

Under a construction agreement between the SPE and Goro (the “Construction Agreement”), Goro has been appointed the construction agent on behalf of the SPE and is responsible for the purchase, construction, installation and commissioning of the Girardin Assets. The costs for the construction, installation and commissioning of the Girardin Assets total approximately $500 million and are payable in three instalments. In the event of a cost overrun, a fourth instalment would be made to Goro Nickel with the additional funds provided pursuant to the Loan Agreement. Goro Nickel is required to give notice of substantial completion of the Girardin Assets to the SPE by December 31, 2008 or such later date as may be approved by the French tax authorities. Upon such substantial completion, the SPE will lease the Girardin Assets to Goro Nickel under an agreement between the SPE and Goro Nickel (the “Lease Agreement”). While the term of the Lease Agreement is 12 years, the related agreements covering the Girardin Financing extend certain call and put options to Goro Nickel and the SPE, respectively, covering both the Girardin Assets and the ownership interests in the SPE whereby, assuming no default by Goro Nickel under the arrangements covering the Girardin Financing, one of these options will be exercised after five years, resulting in the termination of the Lease Agreement and the ownership of the Girardin Assets reverting to Goro Nickel.

The Construction Agreement and the Lease Agreement contain certain events of default and termination rights for the benefit of the SPE, including the failure of Goro Nickel to meet certain terms and conditions of the Ruling. Following any termination of the Lease Agreement, (1) certain termination compensation could be payable by Goro Nickel to the Tax Investors pursuant to the Add-Back Indemnity (as defined below) and (2) Goro Nickel would be required to either (a) repay the entire then outstanding amount drawn under the Loan Agreement or (b) assume all of the SPE’s obligations under the Loan Agreement. Upon the occurrence of such events, Goro Nickel would continue to have the right to use the Girardin Assets, with the SPE retaining ownership thereof until all termination payments due by Goro Nickel under the Lease Agreement were paid. In addition, each of the Lease Agreement and the Construction Agreement provides that Goro Nickel must indemnify the SPE and the Tax Investors with respect to (1) the Add-Back Indemnity (as defined below), (2) increased taxes incurred by the SPE or Tax Investors in respect of certain changes in tax laws or the imposition of certain unanticipated taxes in New Caledonia and (3) certain operational losses incurred by the SPE or Tax Investors arising out of third party claims in their capacity as owners of the Girardin Assets. In the event of a termination of the Construction Agreement or the Lease Agreement or in the event that the Tax Investors exercise their put option upon the occurrence of certain material adverse environmental events relating to Goro Nickel prior to the fifth anniversary of substantial completion of the Goro project, it is possible that the Tax Investors could lose their tax deductions in respect of the Girardin Assets, thereby triggering an indemnity whereby Goro Nickel would be required to reimburse the Tax Investors for the denial or reversal of their tax deductions under the Girardin Financing by the French tax authorities and for any interest and penalties levied thereon by such authorities (the “Add-Back Indemnity”). In connection with any termination event, the Tax Investors will receive certain priorities relating to Goro’s assets over other creditors.

As at December 31, 2005, Goro Nickel had received $307 million in Girardin Financing, of which $79 million was in the form of Tax Advances. The SPE expects to receive the balance of the Tax Advances in December 2006 pursuant to the terms of the Tax Loan Agreement. It is currently estimated that such Tax Advances will total $148 million, before fees to be paid to the Tax Investors, with the balance of the Girardin Financing to be provided under the Loan Agreement. Of the remaining Tax Advances to be made in 2006, approximately 65 per cent of these amounts has been committed by the Tax Investors, with the balance expected to be placed with additional investors prior to the end of 2006. If sufficient commitments from additional investors are not obtained prior to year-end 2006, this will reduce the total Tax Advances referred to above available to Goro Nickel.

In connection with the Girardin Financing, Inco Limited provided certain guarantees on behalf of Goro Nickel covering payments due from Goro Nickel of up to a maximum amount of $100 million (the “Maximum Amount”) in connection with the Add-Back Indemnity. Inco Limited also provided an additional guarantee covering the payments due from Goro Nickel of (a) amounts exceeding the Maximum Amount in connection with the Add-Back Indemnity and (b) certain other amounts payable by Goro Nickel under the Girardin Financing relating to certain possible operational or other developments applicable to the Goro project. top

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New Caledonia

New Caledonia is currently an overseas territorial community (collectivité territoriale) of France having special legal status under the French constitution, including significant autonomy except in foreign relations, defence, justice, currency and certain other related areas. As part of the objective of increasing New Caledonia’s autonomy from France and to implement arrangements to address political and other issues that New Caledonia had experienced, in 1998 the French government, the New Caledonian government and two New Caledonian political movements representing the native population entered into the Noumea accord. This accord sets forth a process and timetable for increasing the autonomy of New Caledonia over the coming years, culminating in a referendum to be held by 2018 on whether New Caledonia would become fully independent from France. As part of the initial phase of the accord, steps have been taken, and will be taken over the next few years, to develop the form of provincial governments to be part of the New Caledonian government structure and to pass local legislation, including the enactment of a new mining law, that will provide for the transfer of certain authority in a number of areas still maintained by France to the New Caledonian government. We do not believe that these developments will have an adverse effect on the Goro project but there can be no assurances in this regard. Provincial elections were held in May 2004 for the election of members of the three provincial assemblies in New Caledonia. Each assembly has elected its president who is part of the province’s executive board. The members of the newly elected provincial assemblies also serve as members of the Congress of New Caledonia. This Congress is responsible for the selection of the President of New Caledonia.

In late 2005, a number of boycotts and other related actions in New Caledonia affected the operations of Eramet and its subsidiary, Société Le Nickel, and other local businesses as a result of labour and other disruptions and other developments. While those actions and developments did not affect the construction of the Goro project to any significant degree, such disruptions could have a substantial adverse effect on the project’s construction schedule and capital costs if they were to resume and continue for any extended length of time. top

Prony West Deposit

In September 2001, Goro Nickel applied for an exploration permit for an area next to the Goro deposit known as Prony West. Several other companies applied for the same exploration permit. After an assessment of the various applications, the government of the South Province of New Caledonia recommended to accept Goro Nickel’s application based upon its approach to the development of this deposit. The South Province’s recommendation to accept Goro Nickel’s application was discussed at a government mining committee (Comité Consultatif des Mines) level in April 2002 and the recommendation to accept Goro Nickel’s application was subsequently approved by the provincial mining council (Conseil des Mines). In July 2002, after a public debate on the awarding of this exploration permit, the legislative assembly of the South Province voted to award the Prony West exploration permit to Goro Nickel. As soon as this decision was made, several companies challenged the South Province’s decision. The administrative tribunal which considered this challenge released its decision on December 24, 2003. The administrative tribunal decided that the legislative assembly of the South Province did not have the authority to make the award as this authority had been previously delegated to the Executive Committee of the South Province and that the delegation had not been withdrawn. As a result of this decision, the exploration permit previously awarded to Goro Nickel was cancelled. However, after the cancellation of this permit, on December 27, 2003 the Executive Committee of the South Province met and re-awarded the exploration permit to Goro Nickel. This decision to re-award the permit to Goro Nickel was open to challenges until late April 2004. A number of challenges were filed by several different parties and on November 21, 2005 the administrative tribunal rendered a decision annulling the Prony West exploration permit. The tribunal annulled the permit on procedural grounds, ruling that there was a material change in circumstances between the first and second awards given that the Goro project was suspended in December 2002. Goro Nickel has appealed the tribunal’s decision. The respondents to this appeal have not yet filed their responses and the hearing of the appeal has therefore not yet been scheduled. If the tribunal’s decision to annul the permit is upheld on appeal, it is expected that the Prony West exploration rights would then be subject to the submission by Goro Nickel and any other interested party of a new application for an exploration permit and a new process for the review and approval of such an application would be undertaken by the Comité Consultatif des Mines and the Conseil des Mines. top

 

Lease agreement between Inco and GNiFi (aka BNP Paribas)
http://www.sec.gov/Archives/edgar/data/49996/000090956705000568/t15872exv10wl.htm
See p.41-42 (original numbers) re BNP Paribas being a party to their contract as representative of the lessor (GNiFi)

BNP Paribas-Capstar Partners
http://bnpparibas.us/en/corporate_institutional_services/business_line.asp?Bus=SBUS-5THHMV

Capstar Partners LLC:
Capstar Partners engages in structuring, placing and closing U.S. tax leases, and is also active in French and U.K tax leases under the Capstar Partners Paris and Capstar London offices. Capstar Partners advises clients, primarily lessees under U.S., U.K. and French tax leases in order to minimize the after-tax cost of asset acquisition. Areas of activity within the U.S. include Domestic Corporates, Municipalities, Power, European Multinationals, Media and Telecom, and Energy. BNP Paribas tax-lease activities under the Capstar Partners name are conducted in the U.S. by a staff of 35 New York-based personnel.

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