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He can only speculate, but a Laurentian University economist offers several reasons why talks between mining giants Vale SA and Glencore to merge the companies’ Sudbury operations may have broken off.
Jean-Charles Cachon, an economist and a professor in Laurentian’s Faculty of Management, said internal restructuring at both firms, the rising price of nickel and copper, and the complexity of harmonizing the Sudbury operations might have put the brakes on merger talks.
Reuters news agency reported this week the companies had stopped talking about forming a partnership in Sudbury, although neither Vale nor Glencore would confirm that. Vale’s head of base metals, Peter Poppinga, did say in July there had been a “strategic break in bigger discussions” between the two companies.
Cachon, who has taught at Laurentian for decades, has followed the two mining companies in Sudbury through several ownerships.
He recalls the former Inco and Falconbridge, now Vale and Glencore, having a plan to merge in 2005. That plan had to be revised and amended when new harmonization talks began between the rebranded companies last year because some operations had closed and new ones had opened since that plan was developed.
Recent talks may have stopped because a merger may have been too much to absorb as Glencore and Vale undertook reorganizations of their internal structures, said Cachon.
Vale has been working hard to improve its management structure and it may not be finished that globally. It may want to “put their house in order before they get seriously into some type of harmonization with another company,” said Cachon.
Glencore has similar management issues because they “morphed themselves into different companies” in the last 18 months ago and it takes three to four years to settle in to that, he said.
Both companies have so many mines and operations, they would be complex to merge, as well.
Both Vale’s and Glencore’s Sudbury operations are integrated with the companies’ other operations in Canada and elsewhere in the world, so a merger between the two in the Nickel Basin would be “extremely complex and it (would) not happen from one day to the other,” said Cachon.
Copper is selling at well over $3 a pound, and is being produced in large quantity at Vale’s Totten Mine, and nickel is selling at about $8.45 a pound.
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