Vale to exit New Caledonia nickel operation

Market: Metals
05/12/19

Brazilian mining firm Vale plans to exit its nickel operation in New Caledonia in the South Pacific and will announce its final decision in the first half of next year.

The exit is part of the evaluation for all non-performing assets in the group and Vale is in talks with the local government in New Caledonia about the plan, Vale's chief financial officer Luciano Siani said at the company's investor event in London.

"We realised we do not have the competence to raise the production levels with this technology to where we want it to be. Others may have this competence," Siani said.

Vale's New Caledonia operation has struggled with technical setbacks, industrial accidents and protests. Output from the mine fell by 23.1pc year on year to 186,000t in the first nine months of 2019.

Vale announced in late November that it will write down the New Caledonia asset and record a non-cash impairment charge of $1.6bn in the fourth quarter.

Vale is one of the world's largest nickel producers with output of 244,600t in 2018. The group's production guidance in 2019 has been revised downwards to 232,000-236,000t.

Vale emphasised at the investor day that it has no concerns about its Canadian and Indonesian assets and plans to ramp them up to offset the potential New Caledonia exit, which would increase the group's nickel production to 240,000t between 2019 and 2022.

The company is working with Japanese mining group Sumitomo Metal Mining in Pomalaa, Indonesia, to develop a 40,000 t/yr nickel HPAL processing plant. The group also has a joint venture with Chinese partners in Bahodopi for 700,000 t/yr ferronickel project.

Production in Asia-Pacific could boost nickel output to 360,000t in 2023 when Vale's assets reach full operation, the firm said.

Under the agreement with the Indonesian government to extend the mining contract of Vale's operation in Sulawesi beyond 2025, Vale will divest 20pc of subsidiary PT Vale to state-owned firm PT Inalum in the coming months. This divestment sharehold to PT Inalum will increase to 31pc in the longer term.

Vale also emphasised that "base metal is a core business" for the firm and that it plans to increase copper production to 460,000t in the next three years.

The group's Salobo copper mine in Brazil will continue to ramp up production with a new plant starting up in 2022, which would boost Vale's output to 460,000 t/yr. Vale expects copper output to continue to grow to 480,000t in 2023.

Vale's refined copper output reached 395,500t in 2018 and guidance for 2019 is 407,000-417,000t.

The group is under pressure to regain investor confidence following the environmental disaster when the Feijao iron ore tailings dam in Brumadinho, Brazil, collapsed in January this year. Vale has incurred charges of $1.6bn in indemnification and expenses this year for the incident.

By Yoke Wong

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