Birchtree: Vale sheaths the Sword of Damocles – Editorial (Thompson Citizen – May 15, 2013)

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. editor@thompsoncitizen.net

It was one of the rare good news announcements to come from Vale, still Thompson’s most important employer, in the last 2½ years: Birchtree Mine, which opened in 1968, is “no longer scheduled to be placed on care and maintenance in August,” Lovro Paulic, vice-president for Vale’s Manitoba Operations, told employees in an internal Manitoba Operations update circulated May 6.

Still, it must be seen in perspective for what it is: good news by virtue of not being bad news. The status quo hasn’t changed and there is no net gain here. The good news is that for the time being at least there is no loss either. Still, it must be seen in perspective for what it is: good news by virtue of not being bad news. The status quo hasn’t changed and there is no net gain here. The good news is that for the time being at least there is no loss either. About 185 Vale employees work at Birchtree Mine, along with approximately 25 non-Vale contractors.

Kelly Strong, Vale’s vice-president of Ontario and UK operations since last November, told a packed luncheon last month in Sudbury that nickel prices of a little more than $7 a pound are comparable to $2.50 a pound a decade ago, and are creating huge challenges for Vale. Nickel prices were under $7 last week. Strong said several factors have substantially increased mining costs, including oil prices that have increased by 350 per cent, and the Canadian dollar, which has increased in value by 60 per cent compared to the U.S. dollar.

“Today’s prices are actually as low as historical recessionary prices,” Strong said. “And those of us who lived through those price cycles know how challenging they were.”

Strong has argued while Vale is generating value from its nickel mining, when the cost of paying for capital projects is added in, the profit equation looks very different.

Rio de Janeiro-based Vale is the world’s largest iron-ore producer and second largest nickel produced after Moscow-based OAO GMK Norilsk Nickel. Strong says the company’s vision now is rather than striving to be the biggest nickel producer in the world, Vale wants to be the best.

The company had announced last Oct. 18 care and maintenance was being considered for Birchtree Mine in 10 months time, leaving Thompson in a state of suspended animation of sorts over the last seven months. The mine was previously on care and maintenance from 1977 to 1989. The current life of mine plan anticipates closure of Birchtree Mine at some point in the next 10 years.

Vale, which is trying to find $100 million in cost savings at its Manitoba Operations in Thompson to help bring its cost per metric tonne for finished nickel to under US$10,000, says they have achieved 90 per cent of that goal over the last eight months – a cost savings of $90 million with $10 million still to go. The reprieve for Birchtree Mine is “as a direct result of our collective efforts” to achieve that cost savings, Paulic wrote to employees.

Vale is also looking to “secure a strategic investor” to more quickly develop its 1-D Lower ore body, a project first announced almost eight years ago on Aug. 19, 2005, and studied for close to a decade before that to determine if it could be mined profitably. The ore body is a complex structure and traditional bulk mining methods will not produce ore economically. The 1-D Lower ore body is located between the 3,600-foot and 4,160 foot levels at the north end of T-3.

“Pursuing an investment partner will enable us to move forward with unlocking the full potential of the resource more quickly than otherwise would be possible,” Paulic wrote. Drilling at 1-D continued over last winter to better delineate and define the mineral resource at depth, a critical factor in advancing the project.

The one-page May 6 update from Paulic makes no mention of the smelter and refinery, which could close as early as January 2015 – or a year or so later – depending on several factors. Vale is on record as saying they want to keep the smelter and refinery open here until Dec. 31, 2015.

The two biggest factors determining whether the smelter and refinery will stay open beyond January 2015 are whether pending new federal sulphur dioxide (SO2) emission standards, expected to come into effect in 2015, which would require a reduction in airborne emissions of approximately 88 per cent from current levels at the Thompson operation are delayed, and how quickly Vale’s Long Harbour processing facility in Newfoundland and Labrador ramps up over the next few months. The lights and power are going on in Long Harbour now and some limited processing as early as September is possible.

Vale is building a state-of-the-art processing facility in Long Harbour in southeast Newfoundland on Placentia Bay on the western Avalon Peninsula, about 100 kilometres from St. John’s. 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.

Cost overruns with construction delays are expected to drive the originally estimated $2.8 billion construction cost to more than $4 billion by the time it is ready to go into full operation. Long Harbor was originally scheduled for completion in the first quarter of 2013.

The closure of the Thompson smelter and refinery, the world’s first fully integrated nickel operation, which opened March 25, 1961, was announced by Vale on Nov. 17, 2010.

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