Vale wields Sword of Damocles over [Thompson, Manitoba] Birchtree Mine – by John Barker (Thompson Citizen – October 19, 2012)

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.

‘Birchtree Mine is being considered for care and maintenance, effective August 2013’

Birchtree Mine, which opened in 1968, is being “considered for care and maintenance” in 10 months time next August, Vale said Oct. 18. The mine was previously on care and maintenance from 1977 to 1989.

“Unless we are able to affect another outcome, operations will be suspended at Birchtree Mine as of August 2013. This will mean that by the end of 2012 there will be no further development of the mine and it will be gradually ramped down until August when it will be placed on standby. The mine may re-open depending on future nickel prices, market dynamics and the viability of doing so. Previously, Birchtree Mine was on standby for nearly 12 years before re-opening in 1989 and the current life of mine plan anticipated closure at some point in the next 10 years.”

The bad news was delivered in a follow-up letter to Manitoba Operations employees in Thompson to an earlier one issued Sept. 7 by Lovro Paulic, general manager of smelting and refining, Don Wood, general manager of production services and Mark Scott, general manager of mining and milling. The three most senior managers in Manitoba Operations also issued the Oct. 18 letter jointly.

“Our Manitoba Operations and our community have been through a great deal over the past two years and throughout our history here in Thompson, so we know that we will persevere through the current downturn in the nickel and global commodities markets.
While we have been here before, we understand that this is taking a toll on you, on your families, and on our community. Our Manitoba Operations will continue to face challenges in the short term as well as in the longer term as we transition to a mining and milling operation,” they wrote.

The news was “cascaded” down to workers in a series of area work group meetings from their local managers a day after an Oct. 17 letter to the company’s global operations by Peter Poppinga, CEO of Vale Canada Ltd. and executive director of base metals globally for Brazilian-based mining giant Vale, said Cory McPhee, vice-president for corporate affairs with Vale at its Canadian headquarters in Toronto, in a telephone interview Oct. 18.

Poppinga had made a commitment Sept. 6 to deliver the first results of the business review within four to six weeks and he kept the commitment – delivering the results exactly six weeks to the day later.

Ryan Land, corporate affairs manager for Vale’s Manitoba Operations, said in an e-mail reply to a query Oct. 18 that about 210 employees work at Birchtree Mine. “If Birchtree Mine is placed into care and maintenance, it is hoped that the necessary workforce adjustment will be achieved largely through retirement, attrition and re-assignment,” Paulic, Wood and Scott wrote.

Vale’s current mining plans for Thompson run through 2040, Paulic said last June.

“Birchtree Mine currently has low nickel grades with virtually no by-product credits. In addition, the mine has shown a steady decrease in productivity since 2004 while costs have increased, resulting in a very high operating unit cost. Birchtree is not generating a profit at today’s nickel prices,” wrote Paulic, Wood and Scott.

In a day when linings of silver, or nickel for that matter, were in short supply, there were at least two pieces of good news for Thompson. Vale now definitely wants to keep the smelter and refinery open here for one extra year, said McPhee, until Dec. 31, 2015. Previously they intended to close Manitoba surface operations by the end of 2014, he said. The closure, which could mean the loss of several hundred jobs, was announced by Vale on Nov. 17, 2010.

The Thompson smelter and refinery, which opened March 25, 1961, was the world’s first fully integrated nickel operation and built at a cost of $185 million.

The brief but welcome 12-month reprieve for the Thompson smelter and refinery would come about because of construction delays at the Long Harbour processing facility in Newfoundland and Labrador Vale had planned to open next year. Vale is building a $2.8 billion-state-of-the-art processing facility in Long Harbour in southeast Newfoundland on Placentia Bay on the western Avalon Peninsula, about 100 kilometres from the capital of St. John’s. It was scheduled for completion in the first quarter of 2013.

The Long Harbour plant is Vale’s first processing facility in Canada located on tidewater. It will process nickel concentrate produced at the Voisey’s Bay, which has been processed in Thompson, the company says.

McPhee said keeping the Thompson smelter and refinery open an extra year will be contingent on getting the necessary approvals from Environment Canada.

The other piece of good news was Paulic, Wood and Scott wrote, “we are close to concluding negotiations for the grant-in-lieu of taxes which will see Vale not only committing to payments significantly greater than those required under the 1956 Agreement, but we have also proposed a new fund specifically targeted at infrastructure renewal.” The current agreement between Vale and the City of Thompson, Local Government District of Mystery Lake (LGD) and the School District of Mystery Lake is set to expire in two months on Dec. 31.

The NDP provincial government introduced The Thompson Nickel Belt Sustainability Act, on June 2, 2011 during the fifth and final session of the 39th Manitoba legislature, and it passed third reading and received royal assent on June 16, 2011. The legislation, which has yet to be proclaimed, calls for the fund’s board to consist of at least five and not more than 11 directors appointed by the provincial cabinet for terms not to exceed three years. In making appointments to the board, the cabinet “must have regard to the desirability” of having a board that includes one or more representatives from the City of Thompson; Vale; organized labour; organizations that represent aboriginal peoples; the federal government and the general public.

Section 4 (a) of the Thompson Nickel Belt Sustainability Act, with its reference to the Thompson Nickel Belt Economic Development Fund, specifies the “operation of the fund is to be supported by amounts appropriated by the legislature for the fund, which amounts are to be determined with reference to the taxes paid by Vale under The Mining Tax Act.”

The money Vale pays now under The Mining Tax Act goes into the province’s general revenues and is not segregated in a fund or otherwise separated out.

Besides Birchtree, there was also disappointing news Oct. 18 on the 1-D project front: “1-D project will not be proceeding along the timeline originally envisioned. The 1-D mineral resources remain, however, an important part of a mining and milling future for Thompson. In the near-term future our plan is to continue drilling at 1-D to better delineate and define the mineral resource at depth, a critical factor in advancing the project. With this additional information in hand, and hopefully a more stable price environment, we expect to be in a better position to make a decision on proceeding in the next two years,” Paulic, Wood and Scott wrote.

Mining is a cyclical boom-and-bust business involving a finite resource, in this case nickel, which is eventually depleted. 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.

Things 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.

USW Local 6166 and Vale have just entered the second year of their current three-year collective agreement. The last major labour dispute at Vale’s Manitoba Operations was 13 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.

Manitoba Operations produces nickel, copper, cobalt and has associated gold, silver, platinum, sulphur, selenium and palladium deposits.

Nickel prices peaked at $25.51 per pound on the London Metal Exchange (LME) in May 2007, just months after Vale, the Brazilian mining giant, bought Inco in a $19.9-billion all-cash hostile tender takeover offer deal in October 2006. On Oct. 18, nickel was selling for $7.85 per pound on the LME – a 69.2 per cent drop from its high 5½ years ago.

Poppinga’s bad news, of course, went out globally to Vale base metal operations around the world Oct. 17, not just here in Thompson. In Sudbury, Vale said Oct. 18 operations at the Frood section of Stobie Mine would be suspended by the end of the year and the Victor Capre feasibility study has been deferred until economic conditions improve. The Clean Atmospheric Emissions Reduction (AER) project timeline has also been extended. Although the suspension of operations in the Frood section of Stobie Mine involves no direct layoffs, employment of 85 workers will be affected, as they will be moved elsewhere in Ontario Operations in Sudbury, the company said. The Frood section of Stobie Mine is considered a remnant area by the company and is more than 100 years old.