The Thompson Citizen, which was established in June 1960, covers the City of Thompson and Nickel Belt Region of Northern Manitoba. The city has a population of about 13,500 residents while the regional population is more than 40,000. email@example.com
Peter Poppinga, who less than a year ago replaced Tito Martins in Toronto as chief executive officer of Vale Canada and became executive director of base metals globally for Brazilian-based mining giant Vale, told company managers Sept. 6 “that every aspect of the base metals business is under review, including our Manitoba Operations, and we may face new challenges and new opportunities in the coming months as a result,” Lovro Paulic, general manager of smelting and refining, Don Wood, general manager of production services and Mark Scott, general manager of mining and milling, said in a jointly-issued letter from the three most senior managers in Manitoba Operations to employees here Sept. 7.
“The most pressing and immediate challenge before us is to reduce costs and increase efficiencies while continuing to strive for Zero Harm—these are complementary,” the trio said.
United Steelworkers Local 6166 President Murray Nychyporuk, elected to his second three-year term last spring, says the “news is not surprising” and the union recognizes the world nickel market has taken a serious downturn over the last year and Vale has to find a way to cut costs. Nychyporuk said the union would work with the company during the review process to protect their common interests.
USW Local 6166 and Vale are just about to enter the second year of their current three-year collective agreement. The last major labour dispute at Vale’s Manitoba Operations was 13 years ago – an 11-week lockout by the company of unionized employees between September and December 1999.
Nychyporuk said while the letter, aside from the possibility of extending the life of the smelter and refinery, is unwelcome, if not unexpected, news, he also noted it doesn’t announce any layoffs or cuts in Thompson – at least not yet – and said if the Nov. 17, 2010 bombshell announcement announcing the closure of the smelter and refinery in 2015 could be rated on a numerical scale as “10 out of 10” for bad news, the Sept. 7 letter from management “rates a two … but that could become a nine out of 10” after the review results are announced later this fall, Nychyporuk added, saying there is simply no way of knowing today what exactly the news, while sounding somewhat ominous, will mean for Thompson.
Vale laid off 24 management and other non-union staff jobs here March 3, 2009 – six months after the worldwide recession of 2008 began.
Nychyporuk, who began working for Inco in the smelter in 1987, observed the mining industry is cyclical with boom and bust cycles and he sees this as a definite down cycle for nickel mining. Nychyporuk said while the union and company may not always see eye-to-eye on the best course of action to take, the USW is not challenging Vale’s contention this is a tough time for nickel mining.
Ron Lemieux, Manitoba’s NDP minister of local government, recently turned down a request by Mayor Tim Johnston to have Linda McFayden, the department’s deputy minister, participate in discussions between Vale Canada and the City of Thompson, Local Government District of Mystery Lake (LGD) and the School District of Mystery Lake regarding the renewal of the letter of understanding that establishes existing arrangements for a voluntary grant-in-lieu of taxes to be paid by Vale Canada.
The current seven-year letter of understanding, which is supplementary to the Dec. 3, 1956 agreement creating Thompson, has been in effect since Jan. 1, 2005 and expires in about four months on Dec. 31. It says:
“In signing this letter of understanding, the parties acknowledge that the voluntary grant-in-lieu of taxes is a gratuitous non-contractual grant made by Inco,” as the company was known in 2005.
The company, however, went on to undertake that it will continue make the grant-in-lieu of taxes payments through Dec. 31, 2012 unless, among other eventualities, its Thompson operations shutdown permanently during the period or “there is a substantial reduction” beyond any planned in 2005 or contemplated in its current Mine Plan.
Thompson, originally a townsite within the newly-created 975-square-mile Local Government District (LGD) of Mystery Lake, within the Dauphin Judicial District, from 1956 to 1966, became a town on Jan. 3, 1967 and a city just 3½ years later on July 7, 1970.
As well, Thompson Unlimited, the city’s economic development agency that was created in 2002 with $250,000 annually for 10 years from what was then Inco, sees its current funding agreement with Vale expire on Dec. 31 and no extension or renewal has yet been announced with just 3½ months remaining until year end.
“The focus right now, as always, must be on SafeProduction,” said Paulic, Wood and Scott in their jointly-issued Sept. 7 letter. “We have made outstanding progress to date, and we are confident that we will continue to do so, in our commitment to the actions of SafeProduction: Plan, accept, care and lead. Now is the time to invest increased effort, attention and emphasis on the four goals of SafeProduction: Profit, cost, margin and compete. It is imperative that we look very closely at these goals in order to further eliminate waste and increase productivity.
“Mining is a cyclical industry and we have weathered downward cycles before. It is especially true that during these challenging economic times, we need to manage risk to the business to ALARA, in order to ensure the long-term success of our Manitoba Operations. Everything we do in these areas will further contribute to the prosperity and sustainability of our business and the future of our community.
“We have tried to provide answers to some of the questions and concerns we have already heard below, but we need to stress that no decisions have been made at this time. We will have local teams and employees engaged in various aspects of the base metals review, and it would be unfair to them and to our community to assume the worst with regards to the work they are doing. Since the announcement in November of 2010, we have faced significant challenges with perseverance and courage and we must continue to do so.
“Peter Poppinga and John Pollesel [chief operating officer and director of base metals North Atlantic at Vale and the number two-ranked senior manager in Canada] have committed to communicating the findings and planned actions from the strategic review within four to six weeks and we will continue to be open and available during and after this period. The three of us, along with your managers and supervisors, will be spending time throughout the plants over the coming weeks to share what we know and speak to any questions or concerns that you may have. We encourage you to speak to us and to one another….
“Over the next four to six weeks we will be examining all aspects of our business here in Thompson and looking at options to determine the best path forward. The same process is being undertaken at base metals operations around the world … Peter Poppinga, and our chief operating officer for North Atlantic, John Pollesel, have made it clear that we will need to reinvent the business and do things differently going forward, especially in the short term.
“At a time when we are reducing costs and deferring projects, it is possible that we may not be moving into FEL 3 for 1-D in the short term. There is still work that needs to be done as a result of the FEL 2 tollgate review process, so we will continue to do this work. As Peter Poppinga reinforced at the town hall in Thompson in June, “1-D is coming”. It continues to be an important part of the future of mining and milling in Thompson, so a decision will be made and further communication will come.
“It is possible that some projects may be cancelled, delayed or deferred, especially as we work to ensure that we are cash-flow positive by 2014. We know that we will continue to face serious challenges for the remainder of 2012 and through 2013, so where there are opportunities for savings, these will have to be considered.
“As of right now, some portions of the tailings management area upgrades and the load out facility have been delayed. We will have more information about these and other projects in the next four to six weeks and as the budget process concludes.
“We are currently exploring the possibility of delaying the closure of the smelter and refinery by one to two years to maintain processing capacity and flexibility as operations elsewhere ramp-up. This is a potential positive development for Thompson, however, there are still issues that need to be addressed around feed, regulatory compliance and the condition of the assets before we can commit to a new schedule….”
The Thompson smelter and refinery, which opened March 25, 1961, was the world’s first fully integrated nickel operation and built at a cost of $185 million.
The brief but welcome reprieve for the Thompson smelter and refinery could come about because of construction delays at the Long Harbour processing facility in Newfoundland and Labrador Vale had planned to open next year. Vale is building a $2.8 billion-state-of-the-art processing facility in Long Harbour in southeast Newfoundland on Placentia Bay on the western Avalon Peninsula, about 100 kilometres from the capital of St. John’s. It was scheduled for completion in the first quarter of 2013.
The Long Harbour plant is Vale’s first processing facility in Canada located on tidewater. It will process nickel concentrate produced at the Voisey’s Bay, which has been processed in Thompson, the company says.
“All aspects of the base metals business globally are under review at this time to address the short-term challenges confronting the business – including our mines….,” said Paulic, Wood and Scott in their jointly-issued Sept. 7 letter.
“This situation is not unique to Vale; we know that the cyclical nature of the market is something over which we have no control. Our efforts, therefore, should be focused on those areas over which we can exercise control – namely safety, performance and costs. The best thing we can do for the future of our operations and our community is manage effectively through the current downward cycle and prepare ourselves for a sustainable and brighter future when conditions improve.
“Our senior leadership in base metals has committed to providing additional information on the outcomes of the review process in four to six weeks. In the meantime, we need to support one another, we need to have the courage to continue to ask questions, and we need to exercise austerity and fiscal responsibility in order to achieve improvements between now and the announcement. Thompson still has a long-term future in mining and milling. We have weathered mining cycle downturns before and this will be no different…
“The first phase of TEDWG is wrapping up and the work of implementation will now begin. There will be public engagement sessions over the next while and the work of diversifying the economy is still a significant priority for Vale and for the City of Thompson. Mining will remain a strong economic pillar, and the current situation reinforces the need for Thompson to continue to develop in other areas as a regional hub with a highly diversified economy.”
“Our nickel operations in Canada and around the world face some significant short-term challenges today with the drop in commodity prices – but we continue to view the longer-term outlook as positive,” said Cory McPhee, vice-president for corporate affairs with Vale at its Canadian headquarters in Toronto, in an e-mail to the Thompson Citizen Sept. 7. McPhee joined the old Inco public affairs department in 1989 after studying science at Laurentian University and journalism at Cambrian College. He became director of corporate affairs in May 2007 and was named vice-president for corporate affairs in July 2009.
“Right now, we are dedicating our efforts to controlling costs and improving efficiencies in all aspects of our business – including in Manitoba. This is good practice in all price cycles, but especially so in the current economy,” McPhee added.
Vale’s Canadian operations include six nickel mines, a mill, a smelter and a refinery in Sudbury; the refinery in Port Colborne; a nickel-cobalt-copper mine in Voisey’s Bay; and in Manitoba two underground operations – Thompson Mine and Birchtree Mine – as well as Thompson Open Pit.
The five-compartment production shaft, T-1 on Pip 456, was originally sunk to 2,106 feet in 1958 and levels in T-1 were established below the 400-foot level at 200-foot intervals. Deepening of the T-1 shaft began in 1965 and was completed to 4,427 feet by 1969. Below 2,400-foot levels were developed at 400-foot intervals.
The sinking of the T-3 shaft on Pip 476 started in March 1965 and completed 15 months later to a depth of 2,607 feet. It was put into operation in 1967.
There is extensive lateral development between the 1,600 and 4,000-foot levels of T-1 and between 2,000 and 2,400 feet in T-3.
Thompson Mine produces nickel, copper, cobalt and has associated gold, silver, platinum, sulphur, selenium and palladium deposits.
Birchtree Mine opened in 1968 and was deepened within the last 15 years.
In widely-reported story out of Rio de Janeiro last month, Bloomberg financial news reporter Juan Pablo Spinetto wrote that forecasts Vale will miss base-metals output targets for a second year had fuelled “calls from analysts for the company to sell at least part of the business plagued by strikes and sinking prices.” The story was headlined, “Vale weighing nickel means iron focus: corporate Brazil.”
Murilo Ferreira, Vale’s chief executive officer, “who led Vale’s $18.2 billion takeover of Canadian nickel producer Inco Ltd. in 2006 as head of base metals, said last month [July] the Rio de Janeiro- based miner is studying options for the unit,” Spinetto wrote. “Vale, the world’s second-largest mining company, is refocusing on its more profitable iron-ore business, said Rogerio Zarpao, an analyst at Banco J Safra SA.
“Vale’s base metals assets may be worth as much as $30 billion, Bank of America Corp. estimates. The unit contributed less than five per cent to second-quarter adjusted earnings before interest, taxes, depreciation and amortization. Ferreira said the unit isn’t for sale on a July 26 earnings conference call,” wrote Spinetto.
“Divesting base metals could generate significant value for Vale,” Bank of America analysts led by Felipe Hirai in Sao Paulo said in a July 26 note to clients. “We believe these assets are not currently up for sale, but we think continued weak results could prompt management to revisit this strategy.”
Vale’s profit has missed analysts’ estimates in four of the past five quarters. Nickel prices have declined by about 50 percent from an average of $31,200 per ton in November 2006, when Vale acquired Inco. Dave Robinson, an economics professor at Laurentian University in Sudbury, who closely follows the nickel mining industry in Canada, told Northern Life newspaper in Sudbury last month” he thinks nickel prices would have to get down to $4 a pound before any major problems would arise.” The benchmark price for nickel on the London Metal Exchange (LME) touched $3.97 per pound briefly during the last recession in early December 2008 and closed at $7.38 per pound Sept. 7. In 2007, nickel briefly sold on the London Metal Exchange that May for a record high of $25.51 per pound.
“Should Vale put its base metals division up for sale, there would likely be only one buyer with deep enough pockets – the soon-to-be-merged Xstrata and Glencore,” Sudbury Star reporter Harold Carmichael wrote last month, quoting Toronto-based mining analyst Stan Sudol. “If that merger goes through, the merged Xstrata/Glencore International plc would be a real huge entity,” Sudol said. “Certainly, they could afford to buy the base metal assets of Vale.”
Sudol publishes the Republic of Mining blog, which Mining IQ, a Sydney, Australia-based mining guide and international learning and communications portal, a division of International Quality & Productivity Center (IQPC), named last year to its list of “Top 10 Mining Blogs,” one of only two Canadian sites to be included.
Vale declared force majeure last May – which essentially frees it from liability or obligation because of extraordinary circumstances beyond its control following an accident at its acid plant in its New Caledonia Goro nickel company, where Mike Sylvestre went from here as president in June 2008, before jumping ship to James Bay Resources Ltd. and Castle Resources Inc., while Vale’s Onca Puma nickel plant stopped producing in Brazil in the second quarter after furnace problems.