Prices, market prompt belt-tightening at company
Although it is confident base metal prices will rebound in the medium- to long term, Vale Canada's CEO has issued a statement to its Base Metals employees worldwide that it is taking steps to keep the company profitable in the short term.
Peter Poppinga's letter sets what Cory McPhee, the company's vice-president of corporate affairs, describes as a “broad direction” for Vale's base metals division.
This direction focuses on ensuring the continued safety of workers, prioritizing value over volume and pursuing a directive Poppinga terms “standing on our own two feet.”
“Basically, we want all of our divisions to be self-sustaining,” McPhee explained to Northern Life Oct. 18.
The letter issued this week precedes more discussions, both face-to-face and by letter, with the company's base metal employees to keep them in the loop of Vale's plans.
The first step was announced today when the company revealed it will be suspending operations at its Frood site of the Stobie Mine as of the end of the year.
Although 85 jobs will be affected by the decision, no layoffs are in the works, said Angie Robson, manager of corporate affairs for Vale's Ontario operations, in a statement today.
“Those employees working at Frood will be deployed to other areas of the operation, and all commitments under our collective agreements will be honoured,” Robson wrote in a statement issued to the media.
Rick Bertrand, president of Steelworkers Local 6500, confirmed no union jobs would be affected by the Frood closure.
“This is the news we've all been waiting for,” he said.
“There have been quite a few rumours of closures and layoffs. To hear about Frood closing, you hate to see any closure. But on the positive side, there are no layoffs. They were very clear, no layoffs.”
Vacancies in other areas of the operations will be filled by the 85 affected workers. Bertrand said if there are any job cuts, contractors would be affected first.
“There are still a lot of contractors on the property,” he said. “If there are any cuts, that's where it would start.”
In terms of putting value before volume, Poppinga said the company will be focusing its efforts on areas of the business “delivering the greatest return.”
“It means asking ourselves what ore source, what processing stream and what materials flow creates the most value — and daring to challenge 'business as usual',” Poppinga wrote.
Vale's days of growth for growth's sake are gone, McPhee explained.
“You can grow yourself to the point where it's not sustainable,” he said. In the current climate, “growth will be an extension of finding value.”
The challenges with a mine like Frood, McPhee said, is that it is old, the ore is of a reduced grade and is at depth — all of which contribute to increased costs and thereby decreased value.
Basically, we want all of our divisions to be self-sustaining.
Vale vice-president of corporate affairs
That being said, Vale remains committed to its $2-billion Clean AER project, although the time frame has been slightly altered. The company is now looking at a 2016 completion date instead of late 2015, which is part of efforts to defer what can be deferred as a way of improving efficiency and keeping costs down.
The Totten Mine, the first new mine to open in the Sudbury Basin in around 40 years, is still set to open in 2013.
“Totten will proceed according to plan,” McPhee said.
The Victor-Capre project, however, is being affected. Back in June, Vale announced a new nickel-copper-PGM mine 25 kilometres northeast of Sudbury, near Skead, with the potential for a 10-year life and an estimated production of 5,000 tonnes per day. It is expected to employ about 500.
“Victor-Capre is still part of the plan, but it will be postponed,” McPhee explained, but for how long, he couldn't say.
When it comes to being self-sufficient, Poppinga said Vale Base Metals will now be expected to “deliver a business model that is simpler, self-funding and self-sustaining.”
No more can Base Metals expect to rely on financing from Vale's larger iron ore business, he said. By the end of 2013, the division is expected to fund itself entirely. The new direction of placing value over volume feeds directly into the standing-on-our-own-two-feet objective.
“At the same time as we are looking to reduce spending, we are also looking to improve efficiencies and secure alternative revenue streams for the business, especially for 2013,” Poppinga wrote. “We have set for ourselves a concrete goal ... of becoming cash-flow positive on a stand-alone basis in 2013 and not dependent on large infusions of funding from other Vale business lines anymore.”
Although the union understands the company has to make certain decisions given the current state of the market, nickel at $7 a pound is still profitable, Bertrand said. The positive news, he added, is there are no layoffs at the moment and the company is expecting prices to rebound in the medium and longer term.
“We remember prices under $2 a pound, so it's wait and see,” Bertrand said. “It's very cyclical. Prices go up and they go down, and at this point they're down. I don't think we'll see nickel at $20 a pound again.
“As always, it's hard to hear this kind of news, but on the positive side, no one is losing their job.”
Greater Sudbury Mayor Marianne Matichuk issued a statement this afternoon in regards to the decision to close Frood Mine, saying it is “reassuring” the company has committed to relocating the 85 employees.
“Vale has made it clear in recent weeks that the metals market is hampered by weak prices,” Matichuk said. “The company has always been up front that that it needs to improve efficiencies and control costs.”
Vale has also made it clear its commitment to investing in its Greater Sudbury operations remains strong, Matichuk said. In the long term, analysts predict demand and prices for metals will improve.
Nickel and copper prices currently sit at just over $7 and just over $3 a pound, respectively.