Glencore Xstrata plumbs new depths at nickel mine – by Neil Hume and James Wilson (Financial Times – May 6, 2014)

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Glencore Xstrata has revealed further problems with one of the “greenfield” projects it inherited through its takeover of rival mining group Xstrata, underlining the difficulties of developing large mines from scratch in far-flung locations.

Koniambo, a nickel mine on the Pacific island of New Caledonia, has been dogged by cost overruns and delays since it was approved by Xstrata seven years ago.

The budget has risen from $3.8bn to more than $6bn, and production forecasts have been revised several times.
Glencore had expected output to reach 26,000 tonnes of nickel this year, rising to 55,000 tonnes in 2015.

But in a trading statement released on Tuesday, the Swiss-based company said Koniambo had produced just 1,000 tonnes of nickel in the first quarter of 2014 because of problems with power supplies and maintenance. “Forecast full-year production levels are being reviewed in light of the quarterly operational performance and the start-up experiences to date,” Glencore said in a statement.

Koniambo is one of several instances where Glencore has had to revise the engineering plans left by the previous Xstrata management team.

Ivan Glasenberg, chief executive, has been a vociferous critic of wasteful spending by the mining sector, slamming his rivals for spending billions of dollars on ‘”greenfield” projects – or mines built from scratch. He has said the company will avoid them for as long as possible, focusing on expansion and mergers and acquisitions. Last month Glencore sold one of its largest unfinished projects, the Las Bambas copper mine in Peru, to a Chinese consortium.
Analysts at Investec said the fresh setback at Koniambo was a slight concern because higher output was “increasingly attractive” against a backdrop of rising nickel prices.

Overall, Tuesday’s production update was in line with market expectations. Shares in Glencore rose 1.2p to 320p.
Nickel, mainly used to make stainless steel, has gained more than 30 per cent this year. The trigger for the sharp jump has been a decision by Indonesia, the world’s leading supplier of high grade nickel ores, to ban exports of unprocessed material.

On Tuesday nickel for three-month delivery on the London Metal Exchange hit $18,502 a tonne, and many forecasts believed it could rise as high as $30,000 if the ban remained in force.

Tuesday’s trading update contained better news on Glencore’s powerful marketing division, where performance was described as “strong” and “in line with expectations”.

On the mining side of the business, copper output rose 24 per cent to 382,000 tonnes. Among its peers Glencore has the biggest exposure to copper, which accounted for more than 40 per cent of earnings last year.

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