Sudbury [mining Vale Glencore] merger likely: Analysts – by Carol Mulligan (Sudbury Star – October 15, 2013)

The Sudbury Star is the City of Greater Sudbury’s daily newspaper.

Glencore Xstrata and Vale could and likely will one day merge their Sudbury operations. If and when that happens, it will be a marriage of convenience, not a “Rock Hudson- Doris Day romance,” says a nickel analyst.

It would be complicated to join the companies’ operations, but it may be necessary to compete against record-high production of nickel pig iron in China, says Terry Orstlan. He wasn’t surprised last week when Reuters broke the news Vale and Glencore Xstrata were in talks to explore combining their Sudbury operations.

Orstlan has been advising that for years. “Talks, that is exactly what they are, talks,” said Ortslan of TSO & Associates in Montreal. “Let’s have coffee and talk. Let’s have tea and talk. Let’s go out and talk,” he said. It would have made sense 30 years ago for the nickel giants to join forces, said Ortslan.

When Vale was owned by Inco and Glencore Xstrata by Falconbridge, their vastly differ-e nt cultures and powerful unions made a merger unthinkable.

“Now that’s over. There is no more culture,” nor are unions a hurdle, said Ortslan.

One of the biggest difficulties today would be putting together the two companies’ processing facilities, which are quite different.

“They each have smelters, they own a refinery, their own mills, and there is the question of how this is going to work out,” he said.

It’s a difficult obstacle to overcome, but in the meantime China is “running the show” with its low-cost iron production, made with ore from Indonesia.

“It’s a question of how long it’s going to last,” said Ortslan of Chinese production and how long Indonesia will continue to supply China with ore.

In the meantime, serious investments have to be made in facilities and skilled tradespeople have to be retained in Sudbury, said Ortslan.

Nickel is one of the most complicated metals to mine. “It’s not digging a hole. it’s more high-tech (to produce) than other metals,” said Ortslan.

With both companies needing to make those large investments, it would make sense for them to consider a full or partial merger, or one phased in in the future.

“They can talk, but you know, it’s going to happen,” s a i d Ortslan.” They should do it, otherwise they (will both) have to put a lot of money and skills into this area.”

The current situation, with nickel dropping as low as $6 a pound in recent weeks, can’t go on, and it’s being imposed by China. The demand for nickel is high in China, which is in a building boom, but rather than importing Canadian nickel to manufacture stainless steel, it’s making its own cheaper, and some say poorer quality, nickel pig iron.

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