(CBC)

Vale Inco will build a cutting-edge plant at Long Harbour in southern Newfoundland to process nickel extracted from Labrador's gigantic Voisey's Bay mine, the provincial government said Wednesday.

In a statement, the government said Inco planned to use water-based hydromet technology at the plant.

Inco had tested the hydromet technology, which it said had never been used on the type of ore present at Voisey's Bay, at a demonstration plant in Argentia that closed earlier in 2008.

Inco had committed to building a more conventional refinery if it found the hydromet technology would not work.

Natural Resources Minister Kathy Dunderdale called the announcement another benchmark that has been met and said she was delighted with the news.

A nickel processing facility for Voisey's ore has been at the heart of political battles for more than a decade. When the development deal was finally signed in 2002, the Conservatives were in opposition and criticized the agreement as being full of holes.

The government still has very serious concerns about the agreement, according to Dunderdale. However, she said Vale Inco has met every major committment in the deal so far.

"The fact that we are dealing with Vale Inco, which is an ethical company and one that we have a good relationship with and that we work well with, makes all of that easier," she said.

The project is expected to cost about $2 billion. Inco expects to finish construction before 2012.

Vale Inco had committed to make a decision by Nov. 15 on which method it would use.

The question of how to process ore mined at Voisey's Bay — considered one of the world's highest-quality discoveries of nickel and cobalt — has been a pointed issue in Newfoundland and Labrador for more than a decade.

Indeed, former Liberal premier Brian Tobin fought a provincial election in 1999 largely over how the Voisey's Bay bonanza would be developed. Tobin had insisted that every bit of ore at the mine be milled and refined within the province.

Inco's stalemate with the provincial government lasted until a 2002 development deal, in which the company pledged to build a processing plant within the province.

In return, the government allowed the province to ship concentrate for processing elsewhere, on the condition that an equivalent amount would later be processed within Newfoundland and Labrador.

Natural Resources Minister Kathy Dunderdale, shown earlier in the year, said Wednesday she is delighted with Vale Inco's decision. (CBC)

At the time, Danny Williams — then the leader of the Opposition, and not yet premier of the province — had criticized the deal, saying that one could "drive a Mac truck" through loopholes.

Liberal Leader Yvonne Jones welcomed the announcement, and pointed out that Vale Inco is living up to commitments that were made six years ago.

"There have been many critics over the years, including the current premier, who didn't believe that Vale Inco would construct a state-of-the-art hydromet facility in our province," Jones said in a statement Wednesday.

"Ever since the agreement was signed, I had tremendous faith that our business partners at Vale Inco were committed to this project and wanted to see significant benefits accrue to the people of Newfoundland and Labrador. I am pleased that the project can now proceed to the next stage as was intended."

The Newfoundland and Labrador government had advocated for a hydromet-based plant, as it would create more jobs and economic benefits for the province. A traditional smelter would have seen concentrate shipped out of Labrador for processing at Inco facilities in Ontario or Manitoba, and then sent back to Newfoundland and Labrador for final refinement.

Tailings from the hydromet plant will be buried in nearby Sandy Pond. Vale Inco said using an existing pond is far better for the environment than building a new disposal unit from scratch. Environmentalists, including the Sierra Club of Canada, have been strongly critical of the move.