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
‘Vale will continue to invest in Thompson without a strategic partner,’ spokesman says
Vale Canada Limited’s Manitoba Operations has a green light from federal environmental officials on keeping its Thompson smelter and refinery open until the end of 2015.
Pending new federal sulphur dioxide (SO2) emission standards, pursuant to The Canada-Wide Acid Rain Strategy for Post-2000, set to come into effect in 2015, could have required a reduction in airborne emissions of approximately 88 per cent from current levels at the Thompson operation.
The Canada-Wide Acid Rain Strategy for Post-2000 was agreed to in 1998 by federal, provincial and territorial ministers of energy and environment to fulfill an earlier commitment in their 1994 “Statement of Intent on Long-Term Acid Rain Management in Canada,” which in turn built on the 1985 Eastern Canada Acid Rain Program.
Not only is the smelter and refinery – where about 32.1 per cent of Vale’s Manitoba Operations current workforce – or 450 of about 1,400 employees – safe from closure for another 19½ months, they could potentially stay open until 2019, says Ryan Land, manager of corporate affairs and organizational development for Vale’s Manitoba Operations. The closure, which could mean the loss of several hundred jobs, was originally announced by Vale on Nov. 17, 2010 and set for Dec. 31 – this year.
The Thompson smelter and refinery, which opened March 25, 1961, was the free world’s first fully integrated nickel operation and built at a cost of $185 million.
“Vale remains very much committed to Thompson,” Land says. “Largely as a result of challenging market conditions, and in order to align with the ramp-up of projects (which at some point may include a concentrate load-out facility for Thompson), there may be an opportunity to keep the smelter and refinery in operation for an extended duration.
“As a result, we do continue to participate in discussions with the federal government and have requested further flexibility on the date for meeting the emissions targets. We did previously receive approval to operate the plants until the end of 2015, which is already very positive for the community and our employees. While we are hopeful that we can further extend the deadline, we will still transition to mining-and-milling-only at some point between 2016 and 2019.”
Vale is also prepared to go it alone investing in Thompson, as it has come up empty to date in its more than yearlong search to secure a strategic investor for its Manitoba Operations. In a May 6, 2013 letter to employees, Lovro Paulic, vice-president of Manitoba Operations, the highest ranking local company official, wrote: “Vale is taking steps to secure a strategic investor to further ensure a long-term future for our Manitoba Operations, and by extension our community.”
Land now says that in a business update presentation to the Thompson Chamber of Commerce next month, Vale will tell members it “will continue to invest in Thompson without a strategic partner … We will continue to reduce costs and increase productivity in order to further unlock the value and potential of our Manitoba Operations and attract investment from Vale.”
Vale had been hoping to find a strategic investor to partner with on Thompson (1D). Vale in recent months has tested ore samples in Thompson (1D) about 3,800 to 4,200 feet underground at the north end of the company’s T-3 mine shaft. Vale spent an estimated $18 to $20 million in exploration here last year.
Vale has two likely options it can choose to proceed with to continue exploring and eventually develop Thompson (1D) into a fully functioning mining operation. It can conservatively spend about $350 million in building more ramps and tunnels further underground, with air and ventilation going in over the next few years, and mining starting in 2018 or 2019, or go big and drop another shaft underground in a seven-year project that would cost about $1.2 billion.
Vale has also begun to dig deeper in a largely untapped section of the deposit extending as much as 6,800 feet underground in some places, with three exploration drills working at the surface, to a depth of 6,500 feet. Vale is sitting on top of a large high-grade nickel-bearing ore body, that is around two per cent nickel, Lands says.
It is a larger ore body than both T-1 and Birchtree and will be focus of business here for Vale for the next 10 to 20 years. Geologists reported high levels of confidence, based on exploration results, says Land, that Thompson (1D) contains at least 10 million tonnes of nickel ore. Some media outlets have done some quick math, estimating Thompson (1D) could produce $2 billion to $3 billion worth of nickel if it is developed, but Land says that calculation doesn’t “reflect the cost to develop the mine, or the cost to produce” the nickel.
The catch is the cash. And extended downward pressure on world nickel prices over the last several years due to producer oversupply and weak consumer demand hasn’t helped. The ramp-up in production of nickel units from nickel pig iron (NPI) production and the commissioning of conventional capacity have been major factors behind the oversupply. Nickel prices were around $6.50 per pound at the beginning of the year, compared to just under $8 per pound a year earlier. Nickel prices peaked at $25.51 per pound on the London Metal Exchange (LME) in May 2007 just months after Vale bought Inco in a $19.9-billion all-cash tender takeover offer deal in October 2006.
Nickel prices, however, are again on the upswing, at more than $9 per pound. Scotiabank said in mid-April it now expects nickel to average $7.66 (U.S.) per pound this year, up from its earlier estimate of $6.75 – and raised its outlook for 2015 to $9 from $7; and for 2016 to $10 from $7.50.
Mining is a cyclical business involving finite resources. Manitoba Operations produces nickel, copper, cobalt and has associated gold, silver, platinum, sulphur, selenium and palladium deposits.
Thompson’s first mining bust came in 1971, scarcely a decade after the town was born, when Inco announced the closing of the Soab mines; Pipe Number 1 Mine was closed; and work was slowed down at the open pit as all production was cut and more than 200 jobs shed. By the end of 1971, Inco had laid off 30 per cent of its workforce here.
“The Greens” on Nickel Road, part of the eight-building apartment complex made up also of “The Pinks” and “The Yellows,” as old-timers still sometimes call them, built by Malcolm Construction in the 1960s, wound up back in the hands of mortgagor Canada Mortgage and Housing Corporation (CMHC) and sat vacant for more than two years.
Economic conditions improved in the mid-1970s but got tough again in both 1977 – with major job cuts at Inco – and again in 1981 with a bitter strike. Nickel prices continued to slide, selling for just over $3 per pound, while worldwide demand in 1981 had sagged 12 per cent below 1974 levels. The company was reporting a record third quarter loss in 1981 of $US 29.4 million – its worst performance in 50 years, as Canada and the rest of the world slid into a brutal recession.
Paulic, last Sept. 11 at the Thompson Chamber of Commerce, used $10 per pound when he was talking about the price needed to make things really go here in Thompson.
USW Local 6166 and Vale are nearing the end of the third and final year their current three-year collective agreement, which expires in mid-September. Departmental meetings to set bargaining priorities for USW members are about to get under way.
The last major labour dispute at Vale’s Manitoba Operations was 15 years ago – an 11-week lockout by the company of unionized employees between September and December 1999. The company midway through the dispute threatened to reduce its annual grant-in-lieu by $1.7 million over the next three years.
Former mayor Bill Comaskey estimated a reduction of that magnitude of the grant-in-lieu would be equivalent to a 10 per cent municipal tax increase. Eliminating the grant altogether would have resulted in 2000 of a property tax increase of 144 per cent, Comaskey estimated at the time.
In February 2000, a provincial mediator was brought in to help resolve the dispute.
As well, the long-delayed arbitration between USW Local 6166 and Vale over the nickel bonus, being adjudicated by Bill Hamilton, the vice-chairperson of the Manitoba Labour Board, began April 28. After serving as a part-time vice-chairperson from 2002 to 2005, Hamilton served as the full-time chairperson of the board from Nov. 1, 2005 to Oct. 31, 2012. Effective Nov. 1, 2012, he was appointed as a part-time vice-chairperson serving on a half-time basis. He holds a B.A. from the University of Winnipeg and a LL.B from the University of Manitoba. Hamilton has years of experience as in practice as an interest and grievance arbitrator and mediator in Manitoba.
Land says the willingness of Vale’s Manitoba Operations management to go it alone and continue to invest in Thompson without a strategic partner results largely from “the remarkable efforts of our community and our employees relating to the $100 million challenge.”
Vale began looking for $100 million in cost savings at its Manitoba Operations to help bring its cost per metric tonne for finished nickel to under US$10,000 on Sept. 6, 2012, when Peter Poppinga, who less than a year earlier had replaced Tito Martins in Toronto as chief executive officer of Vale Canada, and also became executive director of base metals globally for Brazilian-based mining giant Vale, told company managers “that every aspect of the base metals business is under review,” including Manitoba Operations.
In the first eight months, Vale’s Manitoba Operations achieved 90 per cent of that goal – a cost savings of $90 million – which resulted in a reprieve for Birchtree Mine, “as a direct result of our collective efforts” to achieve that cost savings, Paulic wrote to employees May 6, 2013. Birchtree had a Sword of Damocles hanging over it for almost seven months – from Oct. 18, 2012, when it was scheduled to be placed on care and maintenance as of last August, Paulic, Don Wood, general manager of production services, and Mark Scott, general manager of mining and milling, had written in a joint letter to employees – until Paulic’s subsequent letter May 6, 2013.
Land said in an e-mail May 11 “we not only exceeded the $100 million target through cost reductions alone, but we also increased productivity and further improved our SafeProduction numbers. All in all, it was an impressive year and the challenge now is to keep the momentum going in order to remain competitive in all market cycles.”