UPDATE 1-Xstrata to make Koniambo decision in August

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NOUMEA, New Caledonia, March 28 (Reuters) - Anglo-Swiss miner Xstrata Plc (XTA.L) said on Wednesday it would make a final decision in August on its Koniambo nickel project in New Caledonia, with first production possible by the end of 2010.

"We could see production starting by the end of 2010, ramping up to full production over the next several years," Kevin Brown, project director for the Xstrata-owned Koniambo project, said at a nickel mining conference.

Koniambo is expected to yield around 60,000 tonnes of nickel, which is used to toughen and add shine to stainless steel.

Xstrata, 40 percent owned by commodities trader Glencore, also said the cost of developing the project would be significantly above the US$2.2 billion estimate made in 2004, when project financing costs were much lower.

Shortages of labour, as mining companies ramp up production to meet a surge in global demand for industrial metals, have seen a sharp increase in costs across the sector.

The company acquired the rights to the project in the French island territory when it bought Canadian miner Falconbridge last year for $16 billion.

Looking to increase its exposure to booming nickel prices -- which have soared to nearly 50,000 a tonne from just 13,500 at the start of 2006 -- Xstrata earlier this week launched a C$4.6 billion ($4 billion) offer for LionOre International LON.TO LON.AX.

Lionore produces about 35,000 tonnes of nickel a year from mines in Botswana, South Africa and Australia.

((Reporting by James Regan, writing by James Thornhill, editing by Jonathan Standing; Reuters messaging: james.regan.reuters.com@reuters.net, tel: +61 (02) 9373 1817)) Keywords: XSTRATA KONIAMBO/

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