Vale Steve Wood Speech to Sudbury Area Mining Supply and Service Sector (SAMSSA) – August 9, 2011

We cannot accept fatalities like the recent tragedy we experienced with the loss of Jordan Fram and Jason Chenier at Stobie Mine, and must do everything in our power to work together to honour their memories and those lost before them to prevent future injuries and fatalities in everything we do. – Steve Wood: Vale Vice-president Mining and Milling North Atlantic Operations

Speech to the Sudbury Area Mining Supply and Service Sector (SAMSSA)
Howard Johnson Hotel – Sudbury, Ontario,
August 9, 2011


Thank you and good morning everyone. It’s a pleasure to see you here today.

As Dick said, my name is Steve Wood — and not Jon Treen — but as Jon’s boss hopefully I will do okay as his ‘stand in’! But seriously, Jon sends his regrets and apologizes that he can’t be here today to speak to you.

Before I begin, I would like to thank Dick Destefano for inviting Vale to be here this morning.

Dick is an outstanding advocate of the mining industry, and an effective ambassador of the mining supply and service sector, and we have enjoyed a very positive relationship with Dick over the years. He certainly isn’t afraid to stand up for you, his members, and at Vale we truly respect that. Thank you, Dick.

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Today, I am here to speak to you about Vale and our future in the Sudbury Basin. We have a great journey in front of us, and as our key partners, it’s a journey that we want you to be a part of…and many of you are already well on board.

Our journey will continue to be guided by our vision, which is clear and simple: to be the biggest, and more importantly, the best mining company in the world.

In order to understand our journey going forward you should understand where we’ve come from. As most of you well know, Vale is a growth company, with a remarkable story if you look at what’s happened over the past ten to fifteen years.

In 1997, Vale was the eighth largest mining company in the world, and primarily a Brazilian exporter.

Today, we are a major global diversified mining company with more than 119,000 employees, and operations and offices on almost every continent.

In achieving this growth, Vale has consolidated its position as the world’s second largest mining company by market capitalization… with a market cap of more than $160 billion.

A couple of weeks back, Vale released its 2nd quarter results for 2011 and reported record operating revenues of more than $15 billion, the highest quarterly result in Vale’s history…

…and we were recently named the world’s 13th most profitable Company by Fortune Magazine’s Fortune 500, something we are very proud of.

Clearly, Vale has the solid foundation required to respond to the inherent volatility in commodity markets by virtue of our financial strength, access to capital markets and our global reach.

At a time when significant investments are required to sustain and improve our operations in Ontario, Vale’s leading market position bodes very well for Sudbury’s long-term future, and the ongoing success of Sudbury’s local supply and service sector.

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While we have come a long way, our journey hasn’t been without its obstacles over the past few years.

We don’t have to look very far back to understand how quickly economic circumstances can change.

It wasn’t that long ago that our industry – like the rest of the world – found itself battling to survive an economic downturn the likes of which hadn’t been seen since the Great Depression.

It was a time marked by closures, layoffs and government bailouts. Access to capital was scarce and growth projects gave way to retrenchment, as many of you know all too well.

 And of course, the labour dispute which ended just over a year ago was very difficult for everyone involved, and the healing process continues.

This past February, we faced another major obstacle when our #2 flash furnace failed. Driven by the need to best ensure the safety of our employees, a decision was taken to re-build the furnace, requiring that we run as a one-furnace operation for more than four months.

This resulted in a loss of production of more than 12,000 metric tons of finished nickel, representing approximately 4% of Vale’s total nickel production planned for 2011.

The decision to re-build the furnace also meant it was necessary to move up our 2011 Planned Maintenance Period by six weeks in order to align with the #2 Furnace re-build.

Approximately 170 projects were completed as part of the PMP. This required a tremendous amount of effort in terms of planning, engineering and working to expedite materials and supplies.

The sense of urgency and commitment displayed by everyone involved to accelerate the PMP was nothing short of outstanding, and I would like to thank and commend all SAMSSA members and local suppliers involved for their efforts in this regard.

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While it was challenging for all involved, our PMP proved to be a significant opportunity for our local suppliers.

We estimate that direct charges associated with the PMP amounted to approximately $133 million, and that we peaked at some 1,200 additional construction workers at our surface plants alone.

In terms of local spending, almost 70 per cent — or $91 million — of our PMP expenditures was spent through local businesses here in the Sudbury area.
On this point, let me say two things.

First, there is no doubt that we have one of the best local mining supply and service sectors in the world today. Having access to the highest quality supplies and services in our own backyard gives us a significant competitive advantage, especially when circumstances require us to be nimble, as we saw with the PMP.

Second, although we have embarked on a global procurement strategy, buyers are encouraged to check first with local vendors, and the numbers associated with the PMP prove that.

In fact, between September 2009 and August 2010, 97% of purchases for goods  alone for our Sudbury operations were from vendors located in Ontario.

 In 2009, we spent some $384 million on supplies and services from Sudbury and Area vendors, and in 2010, that number increased to more than $471 million.

Over the past six months of 2011, we are already tracking near what our total spend with local suppliers was for the entire 2009 year. When you think about the positive spin off effect for our community – that number is truly staggering.

 I say all of this to get across one simple message – and that is, Sudbury matters to Vale. Our employees matter, our operations matter, our community matters – and you, as SAMSSA members, matter to our future.

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Moving forward on our journey, Vale is committed to continued investment in Sudbury and more broadly in Canada, and has the resources required to help us reach our full potential.

Our objective is to create a sustainable, profitable and long-term operation in Sudbury – contributing further decades of employment, economic growth and community support.

Vale is contemplating investments of approximately $3.4 billion in the Sudbury Basin from now until 2015… part of an overall five-year investment package in excess of $10 billion in Canada.

These dollars are focused on rebuilding and modernizing our assets, reducing emissions, extending the life of existing mines and finding new sources of ore to prolong our future.

This is significant good news for Sudbury’s economy, and especially for you as members of Sudbury’s mining supply and service sector…and we are relying on you in order to be successful because we simply can’t do it without you.

At our Clarabelle Mill, for example, we have embarked the CORe, or “Challenging Ore Recovery” project, a $200 million investment that will change our flowsheet and increase recoveries by approximately 4 per cent.

A four per cent increase in recoveries means Vale generates more nickel for every pound of ore mined. This increases the ability to maximize the value of the resource in the ground and, consequently, increases the resource base we have to choose from as borderline ores become more attractive.

This investment in our future includes the construction of a brand new building at our current mill site and the implementation of a new floatation system with state-of-the art technology. We broke ground on the project in March 2011, with a view to completion in 2012.

The project will create 150-200 jobs at peak construction. So far, 60% of the value of the contracts associated with the CORe project has been sourced locally, with more expected as the project moves forward.

We are also continuing work on our investment in Totten Mine – the first new Vale mine in Sudbury in almost 40 years. The mine will have an expected lifespan of approximately 20 years and will provide employment for roughly 130 people.

We are also developing a new copper strategy to increase copper production to respond to increasing global demand in developing countries. We are looking for an additional 100,000 tonnes of copper per year, and we’re currently formulating the strategy to meet this target – with Sudbury playing a pivotal role.

In fact, an aggressive exploration drilling program is underway in zones of high copper and precious metals including the Victor and Capre properties in Sudbury.

We are also looking at a number of near surface deposits across the Sudbury basin.

One of the largest and most visible initiatives is our Atmospheric Emissions Reduction project, now called our “Clean AER” project – the most significant environmental investment ever contemplated in the Sudbury Basin.

At a cost of almost $2 billion dollars, the Clean AER project will reduce emissions of sulphur dioxide by more than 80 per cent over current levels – resulting in cleaner air for the community and generating significant economic spin-off benefits to Sudbury and Northern Ontario.

It will be like performing open heart surgery on our smelter while we continue to operate uninterrupted – not an easy feat to say the least!

The project is currently in the final stages of feasibility, with a view to seek Board approval in late 2011. Construction is scheduled to begin in early 2012, with completion in late 2015. Once approved, we expect approximately 1,400 additional workers on-site at any given time.

 I know this project is of great interest to SAMSSA and its members, and we are committed to keep you informed of our progress as we move forward with this exciting project.

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Of course all of this is very exciting, but our journey moving forward will present us with no shortage of challenges.

We are not the only game in town, and our need for talent and local suppliers is not unique with the likes of Xstrata, QuadraFNX and First Nickel in the Basin, let alone our competitors around the world.

For you, this challenge translates into great opportunity, and in my view, a requirement for substantial growth in our local supply and service sector over the next few years.

I mean it when I say we can’t be successful without you, our local SAMSSA members. You are truly integral to our success moving forward, and one of our key competitive advantages.

We need to work together to attract young talent to Sudbury, and to keep and retain the workers we have now. We need to work together as an industry to tell our story…to talk about the massive investments we are making, and what that will mean in terms of employment opportunities and Sudbury’s future potential.

We need to work together to address the many challenges we will face as we mine deeper in the basin and try to access ore at depths never reached before.

We need to find newer and smarter technologies, because traditional means of mining will not be feasible as we go deeper. We need to bring new life to our old mines, and engineer smart and sustainable solutions to create the next 100 years of mining in Sudbury.

We need to work together to ensure we meet ever tightening environmental targets and regulatory limits, and ensure we maintain our license to operate well into the future. In a mining centre like Sudbury, that means adapting 21st century technologies to 20th century processing plants, and we need your help in order to do that.

 We need to work together to find efficiencies and stay competitive. No longer are we simply concerned with the competitor on the other side of town . . . but with the competitor on the other side of the world, which means we need to reduce costs wherever it makes sense and be smarter about how we do business.

And last but certainly not least, we need to work together to maintain safety as our number one priority, and to find ways to minimize risk in our operations in the pursuit of zero harm.

We cannot accept fatalities like the recent tragedy we experienced with the loss of Jordan Fram and Jason Chenier at Stobie Mine, and must do everything in our power to work together to honour their memories and those lost before them to prevent future injuries and fatalities in everything we do.

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In closing, I want to thank those of you who have worked together with us on our journey so far, and invite you to continue on our journey moving forward.

I know there have been some bumps along the way. As we moved to integrate our operations after the acquisition a few years back, I know centralizing our procurement processes was challenging for many of you in the room, and I want to thank you for your patience and persistence in this regard.

Sudbury’s mining supply and service sector has much to offer to Vale, and Vale has much to offer to Sudbury’s mining supply and service sector. We plan on being here for a very long time and leading the industry in embracing and succeeding in the new economy.

Your success is our success, and while our journey won’t always be easy, I am confident the destination will be well worth the effort.

On behalf of Vale, I look forward to continuing to work with SAMSSA and with all of you to maximize our collective potential, and to achieve our vision of becoming the biggest and best mining company in the world.

Thank you.