SMSP is the largest exporter of nickel laterite ore from New Caledonia and also ranks as the world’s largest ore supplier. SMSP is majority owned (85%) by Société de Financement et d’Investissement de la Province Nord, (SOFINOR), which is the principal investment and development company of the North Province of New Caledonia.

Project development requires investment of $3.8 billion, to be majorityfunded 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 cash flows from the group’s operations.

According to Xstrata, Koniambo will be among the world’s lowest cost producers of nickel with initial annual production of 60,000 metric tons (mt) of nickel in ferronickel per year 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 offers a world-class resource base, providing a mine life in excess of 25 years from 62.5 million mt of saprolite reserves grading 2.40% nickel at a 2% cut-off grade. This major resource also has the potential to extend mine life to more than 50 years of economic production. The resource base currently comprises 142.1 million mt of measured and indicated saprolite resources at 2.13% nickel at a 1.5% nickel cut-off grade, 140.7 million mt of inferred saprolite resource, grading 2.16% nickel (1.5% cut-off) and 104 million mt of inferred limonite resources at 1.5% nickel (1.2% cut-off).

Nickel will be produced using Xstrata Nickel’s Nickel Smelting Technology. The benefits associated with this technology, according to the company, include higher metallurgical recoveries, improved dust containment and lower operating costs than conventional ferronickel operations.

The decision to approve Koniambo comes after a one-year renewal phase, during which Xstrata Nickel and its partners conducted work to optimize the scope, design and financing of the project. This renewal phase, said Xstrata, enabled four major risks associated with the project to be closely defined: execution risk; project stability; socio-political risks; and environmental risks. The company said “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/lb. 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, said, “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 project development and metallurgical skills, using proven, low-cost nickel smelting technology and benefiting from the thorough analysis undertaken during the project renewal phase.”