Vale Inco Halts Concentrate Shipments From Voisey’s Bay

Vale (RIO-N) subsidiary Vale Inco has stopped shipping concentrate from its gigantic Voisey’s Bay nickel mine as part of an agreement with the province of Newfoundland and Labrador, pending the outcome of negotiations on a new hydromet processing plant it has promised to build at Long Harbour, in southern Newfoundland.

Bob Carter, Vale Inco’s manager of investor relations, told The Northern Miner that the company recently agreed not to ship concentrate while negotiations governing the terms of a planned processing plant remain unresolved.

As part of the Voisey’s Bay development agreement inked in September 2002, Vale Inco predecessor Inco committed to build a processing plant capable of processing concentrate and intermediate feeds containing nickel from other sources worldwide, which would give the plant the capability of operating well beyond the life of the mine.

The company also agreed that it would submit an implementation plan for the processing plant to the provincial government by the end of December 2008.

Instead of submitting a final implementation plan, however, Vale Inco submitted a draft implementation plan in late December. The government then postponed its deadline for the final plan to Jan. 22.

That deadline came and went and Vale Inco says it is currently reviewing the draft with the government. Carter declined to comment on the nature of the discussions or what aspects of its draft agreement may be unsatisfactory to the provincial government.

“We have agreed not to ship concentrate while those negotiations are ongoing,” Carter said in a telephone interview from St. John’s. “As a consequence of the initial extension, we agreed not to ship the concentrate and as of today, we are still not doing so.”

Operations at Voisey’s Bay have been unaffected, Carter added, noting that the concentrate is being stored in a large storage facility in Labrador. In the meantime, a vessel ready to ship the concentrate “is in port and is standing by.”

Given the global economic crisis and collapsing nickel prices — not to mention the fact that existing smelters in Sudbury, Ont., are hungry for ore — the future of a technologically complex and very expensive hydromet plant could be in doubt, some observers say.

But if any of those factors are behind the negotiations, neither Vale Inco nor the provincial government of Newfoundland and Labrador, is letting on.

In the initial agreement, the two parties had agreed that if a hydromet plant was not commercially or technically feasible, Vale would build a commercial hydrometallurgical nickel-matte processing facility or other similar facility incorporating a proven, state-of-the-art technology to produce finished nickel product.

But in November, Vale Inco completed its research and development program on the hydromet technology and told the government it would be used for the new processing facility, Carter said.

The proposed hydromet processing plant, which is expected to cost about $2.17 billion, would take about three years to build and create an estimated 3,000 person-years of employment in the province.

Vale, the world’s second biggest nickel producer after Russia’s Norilsk Nickel (NILSY-O, MNOD-L), has suffered a string of bad news in recent months as the global economic crisis continues to deepen.

In December, Vale Inco announced it was shutting down the Copper Cliff South nickel mine in Sudbury (taking 8,000 tonnes per year of finished nickel out of the market), delaying by a year the development of the US$814-million Copper Cliff South Deep project and shutting Voisey’s Bay nickel-copper mine and mill for one month in July this year. It has also cut nickel production in Indonesia, Brazil and New Caledonia.

At presstime, Vale was trading at about US$13.77 per share on the New York Stock Exchange in a 52- week trading range of US$8.80-14 per share.