Exclusive: Glencore, Vale in talks over Canadian nickel tie-up – sources – by Clara Ferreira-Marques and Euan Rocha (Rueters U.S. – October 11, 2013)

http://www.reuters.com/

LONDON/TORONTO – (Reuters) – Glencore Xstrata (GLEN.L) and Vale (VALE5.SA) have revived talks over a potential combination of the mining groups’ nickel operations in Canada’s Sudbury basin, in an effort to cut costs as prices for the metal languish, sources familiar with the situation said.

The discussions are still at an early stage but have revived hopes of a long-debated Sudbury tie-up, with the companies considering a number of options for their mining and processing operations in the area, the sources said.

Depending on the details of a potential deal, several of the sources said a tie-up could mean substantial savings for both mining heavyweights, if all or part of their mining, milling and even smelting operations are brought together.

In 2006, a proposed merger of Falconbridge and Inco – the then-players in Sudbury, but later taken over by Xstrata and Brazil’s Vale (VALE5.SA), respectively – expected annual synergies and cost savings of about $550 million.

The sources said talks restarted after Glencore completed its acquisition of Xstrata earlier this year. Discussions have progressed against the backdrop of a nickel price that has fallen by around a fifth since January to around four-year lows, weighed down by over-supply.

But there was not yet what one of those sources called a “meeting of minds”.

“There is material value to be created, but some difficult decisions have to be taken,” said another of the sources.

Both Glencore Xstrata and Vale – whose current chief executive Murilo Ferreira led Vale Inco, later Vale Canada, after the 2006 takeover – declined to comment.

The two main operators in Sudbury have held talks on joining forces on more than one occasion before, both as Inco and Falconbridge and later as Vale and Xstrata. Analysts have long said a tie-up would make sense for two operators mining the 60 km-long, oval-shaped formation known as the Sudbury basin.

But the sources said a tough nickel market, pressure on Vale over nickel difficulties at its Goro nickel-cobalt mine in New Caledonia and elsewhere, make a deal more likely than in the past. Equally, the problems across Vale’s nickel division could prove distracting, they said.

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