Vale’s Manitoba Operations has reached 95 per cent of cost savings goal, Lovro Paulic says – by John Barker (Thompson Citizen – September 18, 2013)

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.

But smelter and refinery “base case” is still to close sometime in 2015

Vale, which is trying to find $100 million in cost savings at its Manitoba Operations in Thompson, has achieved 95 per cent of that goal over the last year – a cost savings of $95 million with $5 million still to go, vice-president Lovro Paulic told the Thompson Chamber of Commerce Sept. 11.

Paulic said $60 million was saved last year and $35 million has been saved so far this year. Ninety per cent of the money was saved between September 2012 and last April, while anther five per cent has been saved since then. That leaves another five per cent to go to reach the $100 million target.

The result of the collective cost-savings effort across the operation was a reprieve for Birchtree Mine from being mothballed again for a second time. Birchtree Mine, which was discovered for its nickel deposit in 1963 and opened in 1968, was previously on care and maintenance for nearly 12 years from 1977 to 1989, although regardless if it is mothballed or not, the current life of mine plan anticipates closure at some point in the next 10 years in any event.

While the $95 million cost savings sound good, Paulic said, low nickel prices in the range of $6.25 per pound aren’t helping generate the revenue required to make Manitoba Operations “self sufficient.”

Nickel prices have dropped about $2.25 per pound from around $8.50 per pound at the time last year and the metal is hovering at prices last seen in June 2009.

Total employment – union and non-union – has dropped by about 175 employees at Vale’s Manitoba Operations over the last few years from about 1,675 to around 1,500, Paulic said, although the company is looking for dozens of skilled trades to hire right now.

Nickel is a key raw material in steel-making and heavily tied to economic activity in China, where the economy has been growing at about six per cent, rather than nine per cent, as it had in recent years. Analysts, however, say much of nickel’s price slide is the result of weak stainless steel production outside China, namely in Europe, Japan, Korea and Taiwan. While nickel prices are hovering at four-year lows, some analysts forecast the price to almost double by 2017, which would be welcome news in Thompson.

Nickel prices around $10 per pound are really what’s needed here, Paulic told the chamber lunch audience of two dozen members and guests. Over the last year, the local “executive team” is “beginning to understand what the value of our ore body is worth and, you know, we’re really competing against ourselves; it’s our ore body, it’s what it can sustain,” Paulic said. “We don’t have the ore body Voisey’s Bay has. We don’t have the ore body Sudbury has. We have the ore body that we have and it can only sustain a certain amount of cost pressure against it and we need to understand that.”

How does Manitoba Operations get its costs where they need to be to be sustainable over the longer term? By looking at everything, including what at one time would have been thought minor expenses too small to bother about. “Like, making ice for example,” Paulic, said. “We spend $6,000 a year on ice. We could probably buy a machine for a thousand bucks and make it for nothing.”

In terms of the 1-D and Pipe-Kipper exploration projects, Paulic said Sept. 11 nothing is going on with the latter at Pipe Lake right now in terms of new studies, but the potential for a new open pit ore body is there. “It’s not going anywhere. Technology continues to improve,” he said, adding, however, Vale still considers Pipe “high-risk” in terms of potential payoff, at least until technology advances further. Paulic also said other companies are trying to finance the development of ore bodies similar to Pipe elsewhere in the world. Pipe-Kipper is a metallurgically complex ultramafic potentially high-volume, low-grade ore resource.

The 1-D Lower ore body, a project first announced almost eight years ago on Aug. 19, 2005, was studied for close to a decade before that to determine if it could be mined profitably. The ore body is a complex structure and traditional bulk mining methods will not produce ore economically. The 1-D Lower ore body is located between the 3,600-foot and 4,160 foot levels at the north end of T-3.

Other areas of 1-D being explored now, with three exploration drills working at the surface, are 6,500 deep, Paulic said, but Vale believes it is sitting on top of a large high-grade nickel ore body with 1-D.

In terms of the grand scheme of things at Vale’s Manitoba Operations, said Mark Scott, mines general manager, who accompanied Paulic, and Ryan Land, manager of corporate affairs and organizational development, to the chamber, and the question of where 1-D fits in, “The answer is that it’s the heart of the equation.” 1-D is a larger ore body than both T-1 and Birchtree, he said, and will be focus of business here for Vale for the next 10 to 20 years, Scott said, adding he expects to some areas of 1-D ramped with air and ventilation going in over the next few years with mining starting in 2018 or 2019. However, Vale said last May 6 it is also looking to “secure a strategic investor” to develop 1-D with.

Scott said Vale would spend $18 to $20 million in exploration here this year.

In terms of the refinery and smelter, Land said Sept. 12, in response to a query, from the Thompson Citizen, “the base case is still that we will transition to mining and milling only at some point during 2015. However, we continue to work with the federal and provincial governments to ensure flexibility with regards to the emissions targets going forward … even an extension to the end of 2015 would require government approval.”

As it stands now, with Environment Canada’s current emission targets for sulphur dioxide (SO2) emissions slated to come into effect in 2015, pursuant to The Canada-Wide Acid Rain Strategy for Post-2000, which was agreed to in 1998 by federal, provincial and territorial ministers of energy and environment – fulfilling an earlier commitment by them 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 – Vale would be unable to meet those targets, which would require a reduction of 88 per cent from the 2010-11 Manitoba Operations sulphur dioxide (SO2) emissions levels.

“Any change to this plan for a longer term is also contingent not only on finding a strategic partner to invest in our Manitoba Operations, but also on the interests of the investor in the continued operation of the smelter and refinery,” said Land. “We expect to have a clearer sense of the plan within the next six months.”