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Xstrata Approves Koniambo Nickel Project

Wednesday, October 17th, 2007

The Board of Xstrata plc has approved the development of the Koniambo project, a major long-life, low cost, open pit nickel mine, metallurgical plant and associated infrastructure located in the North Province of New Caledonia. Xstrata Nickel owns a 49% stake in Koniambo Nickel SAS (“KNS”); the remaining 51% share is held by New Caledonian joint venture partner Société Minière du Sud Pacifique (“SMSP”). Xstrata Nickel will lead the project implementation and operations development on behalf of KNS and has the right to appoint the President of KNS. Xstrata’s Board approval follows the recent approval by SMSP’s Board of the Koniambo project.
The project development entails investment of $3.8 billion to be majority-funded by Xstrata, in return for a proportionate share of the project’s cash flows in the first 25 years of operation. The project will be funded through Xstrata’s internal cash reserves and ongoing strong cash flows from the Group’s operations.
Koniambo will be among the world’s lowest cost producers of nickel with initial annual production of 60,000 tonnes of nickel in ferronickel per annum and substantial further high-return, brownfield expansion potential. First ore is expected to be processed in the first half of 2011, ramping up to steady state production in 2013.
Koniambo benefits from a world-class resource base, providing a mine life in excess of 25 years from 62.5 million tonnes of saprolite reserves grading 2.40% nickel at a 2.0% cut-off grade. This major resource also has the potential to extend mine life to well in excess of 50 years of economic production. The resource base currently comprises 142.1 million tonnes of measured and indicated saprolite resources at 2.13% nickel at a 1.5% nickel cut-off grade, 140.7 million tonnes of inferred saprolite resource, grading 2.16% nickel (1.5% cut-off) and 104 million tonnes of inferred limonite resources at 1.5% nickel (1.2% cut-off).
Nickel will be produced using Xstrata Nickel’s Nickel Smelting Technology which integrates calcining, reduction and smelting unit operations from the mineral processing industry with dust containment and counter-current gas flow technologies from the cement industry. The benefits associated with this technology include higher metallurgical recoveries, improved dust containment and lower operating costs than conventional ferronickel operations.
The decision to approve the Koniambo project comes after a one-year renewal phase, during which Xstrata Nickel and its partners undertook extensive work to optimize the scope, design and financing of the project. This renewal phase enabled the four major risks associated with the project to be closely defined: execution risk; project stability; socio-political risks; and environmental risks. Comprehensive mitigation strategies have been put in place to address each of these risk areas, including the development of a robust execution plan, a modular approach to engineering and construction, an innovative procurement strategy, comprehensive stakeholder consultation and environmental planning.
Mick Davis, Xstrata Chief Executive, said,”Koniambo represents the opportunity to develop an outstanding nickel operation with cash costs in the lowest quartile and exciting, low-cost growth potential from its vast resource base. The project is based on very strong valuation metrics and will meet Xstrata’s cost of capital at a long-run nickel price of $4.60 per pound. Our decision to develop the Koniambo resource marks an important milestone in the ongoing transformation of our portfolio and in developing our exceptional growth pipeline, which will deliver compound annual growth of 12% over the next five years.”
Ian Pearce, Xstrata Nickel Chief Executive, commented, “Koniambo is the most attractive undeveloped nickel resource in the world and will be a cornerstone asset for the future growth of our nickel business. The project will leverage Xstrata Nickel’s strong project development and metallurgical skills, using proven, low-cost nickel smelting technology and benefiting from the thorough analysis undertaken during the project renewal phase. The decision to proceed with this project underlines our confidence in the outlook for nickel.
“Koniambo enjoys strong support from the New Caledonian and French authorities, and from local communities. Together with our partners, we are excited about the project’s potential to deliver value to stakeholders in New Caledonia and to Xstrata’s shareholders over very many years.”
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