Prepared by Stephanie Fried of Environmental Defense

Appendix A: Environmental, Social, Political, Financial and Health Risks Potentially Associated with Inco's Goro Nickel Mine Operations[1]

Unique biodiversity

New Caledonia, or Kanaky, a French Overseas Territory situated in the Southwestern Pacific, is an archipelago identified by leading scientists as one of the world's top ten "biodiversity hotspots." A remnant of ancient Gondwanaland, the main island, La Grand Terre, separated from Australia some 85 million years ago and has existed in isolation from other land masses, surrounded by deep ocean trenches.[2] Surrounded by an extraordinary barrier reef, Kanaky contains one of the world's largest lagoon systems. This little-researched reef and lagoon system is home to a vast number of marine species including many found nowhere else. Recently, marine researchers discovered over 2,700 species of marine mollusks at one site, alone, several times the number of species recorded from any other comparable area in the world. Due to the country's geological history, isolated location and unusual soils, over 75% of the country's plant species are endemic and are found nowhere else on earth. Some of New Caledonia's terrestrial ecosystems have rates of endemism as high as 91%.[3] Kanaky is home to extraordinary "living fossils" including 18 species of the Winteraceae family of plants which date back 120 million years, to the age of dinosaurs.[4]

In January 2002, the French government proposed these reef ecosystems for listing as a UNESCO World Heritage Site. In March, 2002, sixty-two coastal and marine scientific experts identified the reefs of New Caledonia as being of "Outstanding Universal Value" in terms of their biodiversity attributes and placed these reefs at the top of the priority list for World Heritage designation in the Pacific. Many of Kanaky's reef ecosystems are in good to excellent condition owing to their physical isolation and minimal human pressure from fishing.

Risks

Inco plans to utilize an unproven, and apparently risky Pressure Acid Leach (PAL) technology powered by a coal fired plant (using "dirty" coal) to be located in the midst of protected botanical reserves, adjacent to the fragile reef systems proposed for World Heritage Site nomination. Like Japan, the French government – sought by Inco for the provision of public finance -- has committed to the evaluation of environmental impacts as part of the acceptance process for export guarantee requests.[5]

Inco's initial plans for the dumping of toxic mining wastes directly into New Caledonia's world class fragile lagoon and reef system were met by strong protests from indigenous Kanak communities and environmentalists. As a result of public outcry, Inco somewhat modified their plans but still apparently aims to dump millions of cubic meters of decanted mineral-rich liquid effluent into the coral reef ecosystem at the Havannah Passage, which marks the northern limit of the country's largest coral reserve, the 16,000 hectare Yves Merlet Special Reserve, created in 1970. There is concern that the liquid will contain significant heavy metal pollutants, including manganese and hexavalent chromium. This mine presents a tremendous threat to marine biodiversity and to communities dependent on near-shore subsistence fishery resources.

In 2002, Inco submitted an Environmental Impact Assessment (EIA, Installation Classee) to the New Caledonia and French governments. The EIA was extraordinarily weak and was harshly criticized by government scientists, environmentalists and Kanak leaders as inadequate and lacking in credibility.[6] In addition, the EIA barely mentioned the potential environmental impacts -- including acid rain, the clearing of forests for electricity lines and infrastructure -- of building and operating a coal-fired power plant in the middle of protected botanical reserves containing some of the only known populations of certain species on the verge of extinction. The company was forced to rewrite its EIA and the final product came under little public scrutiny which was limited by an extraordinarily brief "public comment" period.

Social Unrest, Political and Financial Risk

As Inco attempted to obtain control over another nickel rich area of New Caledonia, protests -- sending thousands of people into the streets – rocked the tense city of Noumea. In September, 2002, Goro Nickel Chair Peter Alla assured investors that, since the company had completed its environmental impact assessment, French public finance -- including a planned 350 million euro tax subsidy -- would "be in place by the end of the year."[7]

In October 2002, however, a Kanak Senate delegation and NGO representatives traveled to Paris to meet with French Presidential advisors and officials in the Ministry of Economics, Finance, and Industry, the Ministry of Ecology and Sustainable Development, and the Agence francaise de developpement (AFD), and UNESCO.[8] Kanak Senate and NGO representatives underscored to French officials concerns about the Goro Nickel plans and presented a detailed analysis of the deeply flawed Inco environmental impact assessment, including concerns raised by French government scientists tasked with evaluating the mine. They underscored concerns about the role of French public finance, including AFD loans, the proposed tax subsidy, and apparently misleading documents filed by the company in its reports to the U.S. Securities and Exchange Commission.[9] Advisors to the Ministry of Economy, Finance and Industry (MinEFI) assured the delegation that the proposed 350 euro million Inco tax "defiscalisation" subsidy would not be finalized unless the Ministry of Ecology and Sustainable Development had examined and accepted the company's EIA.

In December, 2002, the French government refused to sign the 350 million euro finance package which had been prematurely announced by Inco, and the company announced that it was ceasing Kanaky operations for an undetermined period of time. The company repatriated the Filipino laborers that they had brought into the country for mine construction and dismantled their sub-contracting agreements. Inco's press release indicated that they had run into sudden, unexpected cost overruns of up to 45% and that they "did not expect to finalize the terms" of the 350 million euro tax subsidy but would attempt "to continue pursuing this financing program, if available."[10]

Problems with U.S. Securities and Exchange Commission Filings

A November 2002 assessment of Inco's official filings with the United States Securities and Exchange Commission by Environmental Defense, an American NGO, found that Inco, in its 2001 annual report to the U.S. Securities and Exchange Commission, had failed to inform shareholders of material environmental risks and liabilities associated with its New Caledonia and Indonesia operations. The company had only set aside funds for post-mine restoration costs for its Canadian operations, totaling approximately $315 million, with nothing earmarked for work in Indonesia or New Caledonia.[11] After the publication of the NGO report, the company suddenly increased its estimate of environmental remediation liability by $100 million and changed its SEC filing to reflect this, bringing its total estimate of future site restoration costs to $415 million dollars.[12] However, the extent to which these funds are to cover New Caledonia and Indonesia is still not specified.In 2002, Inco informed shareholders that NGOs, community activist groups, and "the possible future independence" of Kanaky should now to be considered shareholder risks.

The company's 2002 SEC statement, published in March 2003, indicated that the shutdown of the Goro Nickel operation – targeted by indigenous Kanak leaders, local and international environmentalists -- had cost the company $62 million, which Inco claimed was offset by a gain of $37 million on "certain forward currency contracts", leading to a loss of $25 million in the last quarter of 2002.[13] The SEC filing indicates elsewhere, however, that the loss due to the Goro postponement was $26 million.[14] In addition, the filing notes that the company suffered a net loss of $1.48 billion in 2002 compared with earnings of $305 million in 2001, linked to both the Goro postponement and "tax asset impairment charges of $1,626 million, or $8.89 per share, to reduce the carrying value of the Voisey's Bay project and certain other assets." On July 20, 2004, the company announced a "non-cash impairment charge" of $191 million associated with "changes in the planned Goro project configuration."[15] They indicated that certain equipment purchased earlier "would no longer have any value for the project or otherwise" and that "capitalized expenditures incurred totaling $201 million before minority interest and taxes have been written off in the second quarter of 2004. After taking into account the minority interest of $9 million and a tax recovery of $1 million, this charge totaled $191 million."[16]

Pollution

A detailed report by Eugène Trombone, New Caledonia's commissaire enquêteur (Commissioner of Inquiry), and Goro Nickel's Environmental Impact Assessment were analysed by local environmentalists and indicate that the proposed Goro Nickel factory will emit:

Airborne emissions:

225 tons (MP10)of dust per year[17], therefore more than a half ton per day;
1.2 million tons of CO2 per year[18] (5 tons of CO2 per person per year);
8000 tons of SO2 per year [19], therefore 22 tons of SO2 per day (5 fois supérieur à la norme française qui nous sert de référence faute de règle locale)[20]. With atmospheric water vapor this gas could produce 28 tons a day of sulfurous acid H2SO3 and sulfuric acid H2SO4.
3000 tons of NO2 and NO3 per year[20], therefore 8.2 tons per day (3 fois supérieur à la norme française qui nous sert de référence faute de règle locale)[20]. With atmospheric water vapor this could produce every day 8.4 tons of nitrous acid HNO2 and 11.2 tons of nitric acid HNO3.
24 kilograms of nickel particles per day.[21]

Water:

According to the commissaire enquêteur study, the Goro Nickel factory will emit in its subterranean canal approximately 17 million cubic meters of liquid effluent per year, therefore about 45,000 cubic meters per day ( between 1200 and 1900 m3 per hour)[22] containing, among other things, 3.4 kilograms of chrome, containing 1.8 kilograms of hexavalant chrome[23] per day (1800 fois la norme européenne de 1 g par jour et par usine) a highly carcenogenic metal.

Every day, 4500[24] kilograms of manganese (100 fois la norme européenne ), 22.5 kilograms of nickel, 22.5 kilograms of zinc, 2.3 kilograms of aluminium, 42.8 kilograms of iron, 4.5 kilograms of cadmium, 0.2 kilograms of lead, 45 kilograms of hydrocarbures, 2.3 kilograms of arsenic, 0.05 kilograms of mercury, 2.3 kilograms of stain, 0.9 kilogram of copper, 450 kilograms of suspended matter , several kilograms of synthetic organic compounds, such as PCBs and synthetic resins that recuperate metals after dissolving will be released.[25]

Appendix B: Toxicity of Antigorite [Asbestos] at Mine Site

Coverup of Asbestos Risk?

According to recently leaked medical documents, by July 2002, Inco had been notified by New Caledonia's Medical Inspector of the presence of asbestos (antigorite) at the mine's "proposed site of rocky material extraction." The official medical analyst indicated in the letter to Inco that "Different scientific studies show that antigorite presents high biological aggressiveness. Dust containing antigorite has high carcinogenic and mutagenic qualities. Animal studies have shown that antigorite presents higher carcinogenic and mutagenic risks than that of crocidolite. Crocidolite asbestos, even from very slight exposure, can bring about lung and mesotheliomic cancer." (See appended letter, emphasis in original.) Neither the 2002 nor the 2004 Inco EIAs -- nor any account in local, national, or international announcements by the company or in news media articles -- appeared to discuss or address the presence of asbestos at the mining site and the potential health impacts to local communities and laborers, many of whom will be brought to the site from the Philippines.

Unofficial translation of original document (document in French below):

French Republic

======Government of New Caledonia

Noumea, July 12, 2002

WORKPLACE DEPARTMENT

------

MEDICAL INSPECTOR OF

WORKPLACES

------

12 RUE DE Verdun - B.P. 141

98845 NOUMEA CEDEX

Ph. 27-04-87 Fax 27-04-94

E-mail:

No. 2800-07-117 /Mit/JH/mim

File followed by the Dr. Jean HURPIN

THE MEDICAL INSPECTOR OF THE WORKPLACE

To: Mr. Pierre ALLA, President and General Director of Goro-Nickel,

B.P. 218 98845 Noumea Cedex

Mr. Patrick DE LABRUSSE, General Director of BTH

B.P. 4006 98847 Noumea Cedex

SUBJECT: Toxicity of antigorite.

Dear Sir,

Antigorite is a natural fibrous mineral in the serpentine group, it’s structure is similar to that of asbestos chrysotile that is found in the same serpentine group.

NOXIOUSNESS OF ANTIGORITE

Different scientific studies show that antigorite presents high biological aggressiveness.

Dust containing antigorite has high carcinogenic and mutagenic qualities. Animal studies have shown that antigorite presents higher carcinogenic and mutagenic risks than that of crocidolite. Crocidolite asbestos, even from very slight exposure, can bring about lung and mesotheliomic cancer.

THE PRESENCE OF ANTIGORITE AT ANTENNA HILL, the proposed site of rocky material extraction within the framework of the Goro Nickel project, requires that precautions be taken that are adapted to the cancer risks, particularly relating to the risks from asbestos.

Complementary studies and analyses are necessary in order to make a precise evaluation of the risks involved in the operations.

Sincerely Yours,

Doctor Jean HURPIN

Copies to:

Dr. Laurance LE FRECHE, workplace physician Goro Nickel project

Mr. Nicolas BARRET, works director

Mr. Armand LEDER, General Secretary of the New Caledonia Government

Mr. Gilles DE VANSSAY, workplace inspector

Madam Dominique DALBOURG, workplace inspector

For further information, contact:
Fraser Reilly-King

Coordinator, NGO Working Group on EDC

(613) 789-4447

[1] Much of this information is found in reports by Environmental Defense, P.O. Box 520, Waimanalo, Hawai`i 96795.

[2] Identified by scientists as one of the world's top ten biodiversity "hotspots" in Meyers, N , cited in "Radiation of crenobiontic gastropods on an ancient continental island: the Hemistomia-clade in New Caledonia", M. Haase and P. Bouchet, Hydrobiologia 367: 43 – 129. 1998

[3] Jaffre, T, P. Bouchet, J-M Veillon, "Threatened plants of New Caledonia: Is the system of protected areas adequate?", in Biodiversity and Conservation, 7, 109-135 (1998).

[4] Lowry, P. "Diversity, Endemism, and Extinction in the Flora and vegetation of New Caledonia," Missouri Botannical Garden, 1996.

[5]According to COFACE, compliance with local regulations and standards for the protection of the environment is required for their projects. However, in a "significant number of developing and emerging countries" where the level of regulation is "still below international standards" and "the environmental legislation of the country concerned is still underdeveloped, COFACE's environmental assessment is then based on the environmental standards recognized at an international level. In accordance with the Common Approaches of the OECD, these are the 'standards developed by the relevant International Financial Institutions, e.g. the World Bank Group, Regional Development Banks or other internationally recognized environmental standards' such as those laid down by the World Health Organisation (WHO), or the World Conservation Union (IUCN)." ( Under COFACE rules, "the impacts considered include air quality, use of natural resources, emissions of greenhouse gases, water consumption, discharge of effluents, noise, waste management, the impact on ecosystems and biodiversity, and impacts on the socio-economic environment. Where necessary, the risk of cumulative impacts, industrial risk management and the potential impact of secondary infrastructures are also taken into account. The environmental assessment carried out by COFACE concerns the whole project of which the export is part, not just the exported goods. This is one of the important features of the OECD Common Approaches. It is justified by the reputational risk carried by COFACE and the exporter, which goes beyond the export alone."

on 1/10/04

[6] See Fried, S, "A Done Deal? Inco/Goro nickel, the Environmental Impact Assessment Process and Public Finance in Kanaky/New Caledonia: A Brief Examination of INERIS and Park Service Analyses of the Inco/Goro Nickel Mine EIA," Environmental Defense, 11/02. Scientists found that the EIA contained "unverifiable data," was "systematically favorable to the project," featured unacceptably vague, dangerously insufficient waste storage and disposal plans and that the mine and power plant would yield unacceptable, predictable extinctions of highly endangered species, all supported by public finance.

[7] "Work on Goro, New Caledonia Nickel Site Could Resume Next Week: Chairman Alla," Pacific Islands Report, 9/21/02.

[8] The delegation consisted of a Kanak Senator, and a Senate spokesperson, representatives of Kanaky's Action Biosphere (now PointZero), Environmental Defense's Hawai`i/Pacific Islands field office and Amis de la Terre.

[9] Fried, S.G. "A Done Deal? Inco/Goro nickel, the Environmental Impact Assessment Process and Public finance in Kanaky/New Caledonia: A Brief examination of INERIS and Park Service analyses of the Inco/Goro Nickel Mine environmental impact assessment." October 2002 draft; Notes on Inco's $400 Million Public Offering in the United States

September, 2002

[10] Inco, "Inco Limited to undertake comprehensive review of Goro project based upon latest cost data and trends," December 5, 2002.

[11] Fried, S. "A Done Deal?". In the SEC report, Inco estimated that the company's total liability for post-mine closure restoration costs for its worldwide operations -- which include Indonesia and New Caledonia -- was approximately $315 million, of which $290 million were likely to be costs associated with reclamation of mines and other facilities in Ontario, Canada.

[12] Inco, "Index to Inco Limited 2002 Annual Report on Form 10-K, pg.52, March 2003.

[13] Inco, "Index to Inco Limited 2002 Annual Report on Form 10-K, pg.85. March, 2003.

[14] Ibid, pg 82 "$26 million... relating to the temporary suspension of certain development activities and other actions concerning the Goro project, as discussed under "Goro Suspension Costs" and "Outlook-Goro Project"."

[15] Inco, "News Release: Inco reports results for second quarter of 2004," July 20, 2004.

[16] Ibid. pg. 9

[17] EIA Goro Nickel, avril 2004, T3/V2/chap1, table 1.2,

[18] Rapport Eugène Trombone, Commissioner of Inquiry ( 6 août 2004), chap 8.5, pg. 31/47

[19] ibid chap 1.3.3, pg 24

[20]

[20] EIA Goro Nickel, avril 2004, T3/V2/chap1, table 1.2

[20]

[21] EIA Goro Nickel, avril 2004, T3/V2/chap1, table 1.2

[22] Rapport Eugène Trombone, commissaire enquêteur ( 6 août 2004), chap 1.6, pg. 9/47

[23] ibid chap 1.4.3, pg 7/47. (between .03 and .05 mg/l per day). Note: Hexavalent chrome was featured in the film, "Erin Brockavitch".

[24] ibid chap 1.2 pg 5/47

[25] EIA Goro Nickel, avril 2003, (Dimensionnement et positionnement du diffuseur) table 3.2 page 3.5