Done Deal: Vale Stands Firm as 500 Thompson, Manitoba Smelter and Refinery Jobs Disappear by 2015 – by Ryan Flanagan

This article was originally published in the Thompson Citizen which was established in June 1960. The Citizen 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.

Martins asks for Thompson to start looking to the future

January 27, 2011 – by Ryan Flanagan

Tito Martins, president and chief executive officer of Vale Canada, was in Thompson Wednesday night to address the Thompson Chamber of Commerce annual general meeting, where he delivered a blunt message about Vale’s plans for Thompson’s smelter and refinery.

“The past has passed, it’s time to move on,” he said. “Let’s talk about the future. Let’s move on to find something else to be the important pillar of the Thompson economy.”

Although many – including provincial officials such as Dave Chomiak, minister of innovation, energy and mines, and Thompson MLA Steve Ashton – have been holding out hope that a deal could be negotiated to save the processing facilties, Martins was dismissive of that possibility.

“We don’t see any possibilities to actually change our decision, unless something really new comes up,” said Martins. “It was the obvious decision. The picture we have in front of us today doesn’t show us any alternative.” Martins did note that Vale is “obligated” to look at any proposals that might be sent their way, but added that a relaxing of environmental restrictions – the federal standards for sulphur dioxide, or SO2, emissions would require a reduction of 88 per cent from the current Thompson levels – would still not give them enough reason to leave the smelter and refinery open, as the opening of the Long Harbour refinery in 2013 will see feed from Voisey’s Bay sent there rather than Thompson, putting the feed levels at Thompson’s smelter and refinery well below the line of profitability. “Of all the scenarios we ran, there were some where we looking at bringing feed to Thompson,” said Martins. “There’s none available anywhere.”

At a Nov. 24 meeting in Toronto with Vale senior management – including Martins – on one side of the table and representatives of the province, the city, and United Steelworkers Local 6166 on the other, Vale agreed to listen to proposals from the stakeholders. “We were asked for some time – six weeks have passed – we’re still waiting,” said Martins. “I heard that we will have some response from the stakeholders, and some suggestions, probably next week, but we cannot pretend that things will change after those proposals are made.”

Chomiak stated in a Jan. 19 presentation to the Chamber that the province would not consider the closing of the smelter and refinery as an only option, and that their aim was to see Thompson and Manitoba provided with “long-term, value-added sustainability.”

Martins, who also pointed out that he was “just a person who is representing an entity,” called upon his audience to help convince stakeholders that enough time has been spent fighting a decision that won’t change, and that it’s in the best interests of all parties to begin working together for the future of Thompson. “We need you to work with us,” he said. “I ask you to put pressure on stakeholders – we need to come up with proposals, we need to come up with suggestions, we need to move on. It’s about time – we’ve lost two months already.”

On Nov. 17, Vale announced plans to close the Thompson smelter and refinery by the end of 2015, cutting 500 positions – approximately 40 per cent of its local workforce – worth an estimated $50 million to their payroll.

“We have to change the business in Thompson,” said Martins, noting that it was time to transition Thompson into a mining-only operation rather than the integrated operation it has always been, as well as time to begin taking an even stronger look at new economic opportunities.

“We’re still committed with where we are,” he continued. “We’re talking about growing, we’re talking about investing, we’re talking about growing in mining here.” Martins pointed to the proposed 1-D project – which Chomiak has said could be fast-tracked – as the most obvious example of Vale’s future expansion in Thompson. “We haven’t finished yet what needs to be done there, because it takes time,” explained Martins. “Some people have said in the past that we could speed up the process – it’s not because we don’t want to, it’s because it takes time. The average mine-opening project takes eight years, from the beginning of the first research to the point that we can actually start to produce something. The 1-D project started less than two years ago. We’re talking about being able to approve the project in 2012, so we’re talking about between three and four years, which is better than the average.”

“Everybody’s saying we’re going to shut down the smelter and shut down the refinery,” he said. “It’s true – but at the same time, we want to see business here grow. We are not supposed to leave the city as it is. We want to see the city and the community growing with us.”

Martins also told the crowd that his “personal remuneration” for 2011 – as well as that of his management team – was tied to planning for Thompson’s future. “I have to finish 2011 with a group of concrete proposals for the Thompson area,” he said, again seeming to address the official stakeholders at least as much as the general public. “I’m going to do that – you can do it with me, or not, but I can’t deliver it to you if you don’t help me, if we don’t work together.”

“We will not lay off anybody,” said Martins – repeating a position Vale has taken since the initial announcement, and adding that there would be opportunities for phased-out workers to transfer to Sudbury, Voisey’s Bay, or Saskatchewan, as well as retraining for workers who wished to switch to other positions in Thompson – in fact, he noted, there are 160 positions open in Thompson right now that the company has been unable to fill.

In Vale’s view, Martins said, the company did the responsible thing by announcing the closure early enough that the city could prepare for it. “For the first time in North America, an announcement was made four years – more, actually – before it was shut down,” he said. “We decided that as a company who really wants to be the best mining company in the world, we needed to announce what we were supposed to do, and we would be able to work together, not only with our employees but with the community and the different levels of government. We decided to be transparent. We decided to be clear about what we are doing.”

Martins also noted that Vale – which operates in 20 countries, is the world’s largest hard metal producer and may soon be the world’s largest nickel producer – has designs on becoming even bigger worldwide, but that this does not preclude social responsibility. “We’re not a global company yet,” he explained. “We’re an international company. We do intend to become the largest mining company in the world. We also want to be the best company. When I say best, we want to be a profitable company, one in which everybody wants to invest. Being the best is not about being the largest or being the most profitable, it means being a company which has a social license. A social license is being invited to participate in the production in different areas, different sites, different cities, different countries.”

“It would not be rational or logical to believe that a company that wants to be the largest in the world is not ready to invest more and spend more money,” he added, again mentioning opportunities to do that investment and spending in Thompson.

Martins also took questions from the floor, during which several Thompsonites asked pointed questions about the past, present, and future of Inco and Vale in Thompson.

One question came from Paul Therrien, who noted that many viewed Vale’s announcement with “hesitancy and skepticism,” and questioned the timing of the announcement, which came one day after a provincial throne speech and on the first day of the Manitoba Mining Conference. “What can you tell this audience tonight that will take away that skepticism?” asked Therrien. “What can you tell us tonight that will reassure the people in this room, the citizens of Thompson, that we can truly believe that Vale is committed to our community?”

Martins acknowledged that this was a “very good question,” and repeated his assertions that Vale was committed to finding jobs to replace those lost by the closure. “What we are trying to convey to the stakeholders is that we do believe that the impact of the shutdown of the smelter and refinery on Thompson can be mitigated, and actually, can be completely disregarded,” he said.

“It’s not a matter of shut down and send people away, that will not happen,” continued Martins. “We’re talking about five years – plenty of time to plan that. It’s not a matter of sit down, wait and see, they will reduce 500 jobs. You have to work together, say ‘okay, how are we going to attract people and attract businesses?’ Instead of thinking that the 500 positions will be taken off Thompson, we should be working on options and alternatives that will bring in new business to use more than 500 positions.”

Chomiak has also stated that on the subject of the 1956 founding agreement between the province and the company, then known as Inco, and whether it binds the company to a fully-integrated operation complete with ore processing, “their lawyers will say no, and our lawyers will say yes.” Martins, questioned in a media scrum by John Barker, editor of the Thompson Citizen and Nickel Belt News, after his dinner speech, agreed that yes, Vale’s lawyers would say no.

Martins, also in response to a question from Barker, said he’s not overly concerned about any saber-rattling by Chomiak or Minister of Infrastructure and Transportation and Thompson NDP MLA Steve Ashton over the fact Vale leases the mineral rights to the nickel deposits, while the Province of Manitoba retains ownership of the commodity.

All of the Thompson area order-in-council leases, according to a March 15, 2004 U.S. Securities and Exchange Commission 10-K SEC filing by Inco, “were initially surveyed and made effective over a six year period over the 1957 to 1962 period.”

In a May 13, 2008 Form 20-F filing with the United States Securities and Exchange Commission in Washington, Vale said its Thompson operations, landholdings or mining rights, consist of 2,947 order-in-council (OIC) leases, mineral leases and mining claims “negotiated as part of an agreement entered into in 1956 between Vale Inco and the Province of Manitoba covering the development of the Thompson nickel deposits.”

The United States government requires Vale to file the Form 20-F annually as a matter of public record, pursuant to the Securities Exchange Act of 1934.

“We currently hold a total of 2,947 OIC Leases, 29 of which are held by Mystery Lake Nickel Mines Limited, which is owned 82.6 per cent by Vale Inco and 17.4 per cent by Newmont Exploration of Canada and the remainder of which are held by Vale Inco,” the company said in the 2008 filing.

All of the order-in-council leases, according to a similar March 15, 2004 U.S. Securities and Exchange Commission 10-K SEC filing by Inco, “were initially surveyed and made effective over a six-year period over the 1957 to 1962 period.”

The leases “entitle the lessee to explore for, and mine, all minerals in the subsurface (except hydrocarbons, industrial minerals and superficial deposits that are not incidental to the mining, milling, smelting and refining processes).”

The leases provide for an initial 21-year term and two subsequent guaranteed renewals of 21 years each, for a total guaranteed lease period of 63 years. Subsequent lease renewals beyond the three guaranteed 21-year terms can be granted at the discretion of the provincial government.

“All of our current OIC Leases have now been renewed twice (each is in its third guaranteed 21-year term) and remain in effect through the 2022-2024 period,” Companhia Vale Do Rio Doce says in its filing.

“Mineral leases are issued by the Province of Manitoba and convey (i) the exclusive right to the minerals (other than quarry minerals) that occur on or under the land covered by the lease and (ii) access rights to erect buildings and structures (including shafts) to mine within the limits of the lease. The duration of mineral leases is 21 years and they are renewable at the discretion of the province’s minister of science, technology, energy and mines. We hold six mineral leases that cover 4,151.21 hectares in the Thompson nickel belt. These mineral leases remain in effect until April 1, 2013.”

Vale goes on in the filing to note, “We also hold 37 mining claims, a right issued by the Province of Manitoba under provincial legislation, which conveys to the holder exclusive rights to the minerals (other than quarry minerals) that occur on or under the land covered by the claim and access rights to explore for and develop minerals owned by the province.

“A mining claim does not, however, entitle the holder to extract minerals from the land covered by the claim. In order to extract minerals from the land covered by a mining claim, the holder must obtain a mineral lease from the Province of Manitoba.”

Martins was accompanied on this night by other Vale corporate personnel from Toronto, including vice-president of corporate affairs Cory McPhee, as well as local Vale management. The federal and municipal governments were also represented, but the provincial government was not.