Is this a hint to Australia’s nickel sector, led by BHP Nickel, Minara, Western Areas, Independent group, Dragon Mining, MMG and Celsius – an 18% slide in the price of nickel has forced Vale to start a review of the viability of its operation in New Caledonia in the South Pacific.
The mining and processing operations are losing money and the slide in nickel price son the LME, which have accelerated in the past month
In a statement, Vale said its new chief executive Fabio Schvartsman was assessing all of the company’s businesses, with “low-performing assets” such as Vale New Caledonia a particular area of focus.
“The nickel price today is languishing at around $9,000 a tonne with no indication of recovery in the near-term.
Nickel miners are coming under renewed pressure to cut costs or close capacity as a flood of cheap ore enters the market, and Vale has already said it plans to suspend two of its older high-cost Canadian mines this year.
“This has forced us to reassess all areas of the nickel business, including our operations in New Caledonia, which continue to lose money at these prices,” the company said in a statement.
LME nickel slumped to a year $US8,680 a tonne last month and has dropped almost 18% since February as stockpiles have risen and Indonesia partially lifted an export ban. The metal was trading around US9,125 a tonne in London on Wednesday.
Vale has said that it is aiming to cut cash costs to $US10,500 to $US11,000 a tonne at its New Caledonia operations in the second half, as it ramps up production and prices of byproduct cobalt soar.
France in November gave a 200 million euros ($US227 million) state loan to Vale’s New Caledonia unit to help it cope with pressure on nickel prices and remain in business.
Supplies from the Philippines also expected to tip rise up after a hard-line environmentalist was removed from her post as mining minister. That had been the single biggest factor in seeing global prices surge over $US11,000 a tonne in February, only to start the long slide as the situation improved.
Supplies from Indonesia are also now flowing more freely and “With the caveat that Indonesian and Philippine supplies are perennially liable to disruption, weaker demand seems likely to exert downward pressure on prices, with support seen at $US8,700 and resistance at $US10,000,” London commodities and finance broker Sucden Financial said in its third-quarter metals outlook on Wednesday.
Besides Vale’s operations, New Caledonia is home to several large nickel projects, including Eramet’s SLM business and Koniambo, a ferronickel plant owned by Glencore that has been dogged by delays and cost overruns.
Vale operations on the island include the Goro mine, a processing plant and Pronty port. It gained the mines after it bought Inco, the big Canadian miner a decade ago.
Last year, it produced 34,000 tonnes of finished nickel from New Caledonia.
Reuters says Mr Schvartsman has set up working groups to assess each of the business units at Vale, the world’s biggest iron ore miner, and a report is expected within two months, according to analysts.
The Financial Times says he was appointed recently as part of the revamp of Vale to cut the involvement and influence of the Brazilian government in the day to day business affairs of Vale.
In a recent investor presentation, Mr Schvartsman said a “60-day diagnosis” would indicate which parts of Vale should “be enhanced” and those that need “priority actions”. The New Caledonian nickel operations obviously need “priority actions”.
