Vale delays Long Harbour smelter… again #nlpoli

Earlier this year,  mining giant Vale was saying they’d start production at the new Long Harbour smelter in 2013, but after a meeting with Premier Kathy Dunderdale in Brazil,  the company won’t be ramping up until 2015.

That’s the news from VOCM on the weekend, although they didn’t report the actual news about the delay at Long Harbour.  VO just reported that Dunderdale met with Vale officials and that the start-up date was 2015, as if it had always been two years away.

The premier says she went down a few days early to meet specifically with Vale officials to get an update on the Long Harbour development and the Voisey's Bay mine site.

She says Vale officials indicated that Long Harbour will start to ramp up in 2015, while they're looking to go underground at Voisey's Bay.

According to VOCM, the company officials are concerned about power supplies “in the area”. But the story isn’t clear if the power supply problems are in Labrador or at Long Harbour.

The M-shaped recovery

You’ve heard of the W-shaped recession.

Now think about an M-shaped recovery in the middle. Rather than two dips and then a rise, this would be a rise, followed by a dip, then another rise followed by another big dip.

Regardless of what letter the graph looks like, the latest news suggests the global economy is not ready to go surging back to the world some pundits and speculators would have you believe.

Retail sales in the United States dropped in May, down 1.2 percent from April.  if consumer spending will drive the recovery, then that isn’t good news. Automobile sales and building supply sales were down as well.

Oh yes, and gasoline sales in the U.S. dropped as well.

In some other places, this all might be just another bit of news to skip over on the way to football scores.  But when you live in a province that is increasingly  dependent on exports to the United States, including oil exports, then this isn’t welcome news.

Nor is it welcome to find out that the Chinese have developed a way of producing  a low-cost version of nickel instead of the highly refined version currently in wide use to make stainless steel.  The Chinese output, called nickel pig iron,  is profitable at current world prices for nickel of US$8.50 a pound, according to the Globe and Mail. Compare to the 2007 price of US$24 a pound.

“It does put a cap on world nickel prices. If not in practical terms, at least in psychological terms,” concedes David Constable, vice-president of investor relations at Quadra FNX Mining Ltd., a Canadian company that began as a Sudbury nickel producer but has diversified its production to focus primarily on copper.

BHP Billiton Ltd., the world’s largest mining firm, has already turned bearish on nickel and sold some of its mines. The emergence of NPI was a key factor in the decision, analysts say. They expect the Chinese product’s impact to only get larger with time, as more producers enter the fray.

In Newfoundland and Labrador, Vale Inco workers are still striking against the company.  Production is still going on using replacement workers.  The provincial government recently encouraged both sides to settle the dispute, and with good reason. Government revenue from mining royalties is expected to drop yet again and having the Vale Inco mine at Voisey’s Bay anywhere but at peak production doesn’t help deal with a projected billion dollar cash shortfall. Every nickel counts.

A new low-cost way of producing nickel for steel-making also doesn’t improve the financial picture for the Vale Inco smelter project at Long Harbour.  That project remains the largest capital works project in the province. The provincial government is counting on Vale Inco to help boost the economy in the province both during the construction phase of the Long Harbour project and then with subsequent production of refined nickel.

-srbp-

No word on Long Harbour smelter

Vale Inco had until Thursday to submit its plans for the smelter at Long Harbour.

No word from the provincial natural resources department or Vale Inco on whether or not the company met the target.

-srbp-

Thanks, Roger Grimes

Vale Inco will build a smelter at Long Harbour, as the company announced in its October 16 capital expenditure report and as Bond Papers told you last week (Friday to be precise).

The new smelter will use hydromet technology and will be finished by 2011.

The provincial government issued a news release on Wednesday - now that November polling season is under way - even though the information came from Vale Inco on Friday of last week (read the news release !).

The new facility will deliver about 5,000 per years of construction employment and 450 jobs annually.

On top of that the provincial government forecasts the value of the Voisey's Bay project at $20.7 billion.

Not bad for an agreement the Premier used to say had holes in it so big you could drive a truck through them.

The announcement last month confirms that in January 2007, as reported by the Toronto Star, Vale Inco was looking to fast track Long Harbour to have it in service before 2011.

 

-srbp-

Long Harbour a go!

As much as Danny Williams and his team tried to bad mouth the Voisey's Bay deal, it will deliver just as it has been delivering millions into the public treasury.

He said there were holes in the deal to drive a truck through. 

Well, the only trucks associated with the deal trucks have been loaded with bags of cash for the Premier to spend.

Vale Inco's 2009 capital expenditure commitments contain the news that, as expected, the company will build a new refinery at Long Harbour:

Pursuant to an agreement with the Government of the Province of Newfoundland and Labrador, we will build a commercial nickel processing facility in Newfoundland and Labrador to produce 50,000 metric tons of finished nickel per year, together with up to 5,000 metric tons of copper and 2,500 metric tons of cobalt, utilizing the ore from the Ovoid mine in our Voisey Bay mining site. The decision about the technology to be employed in this project will be made at the end of this year. The investment is subject to Board approval. [Emphasis added]

No word yet on when the truck will arrive to make the announcement.

Don't be surprised if it happens in November poll goosing season with a joint company/provincial government announcement to boot.

-srbp-

First, we assume a smelter...

that might possibly lead to making stuff to make cans that we can assume a can-opener to use on.

Take a deep breath.

We are now in a world where we are not starting a project by assuming a can-opener.
And really we are not even assuming a can.

Nope.

Now Memorial University economist Wade Locke is going beyond his prediction that the provincial government may post a surplus greater than predicted last spring to say he thinks there'll be a major economic development announcement for Labrador shortly.

Now we are fantasising about a plant to make to stuff to make the cans out of.

Speculation centres on an aluminum smelter and Locke's cheshire cat grin in an interview with CBC sure fueled the idea that some company - possibly Vale Inco - will be making the announcement related to the Lower Churchill.

Take another deep breath and let's look at what we know - as opposed to what is pure speculation.

1. The provincial budget will very likely be in deficit on a cash basis and if things financial keep going south, the $544 million surplus forecast on some other basis would also be tough - if not impossible - to achieve. Let's see how close Locke comes on that prediction before we accept the megaproject one.

2. The only Newfoundland and Labrador project - the ONLY project - in Vale's 2009 capex announcement in mid October was the Long Harbour smelter. There's no mention at all of an aluminum project or anything else vaguely like it for Canada.

3. To make it even more unlikely there's a real smelter project in the works from Vale, the company's capex commitment gives Vale's strategic view:

Vale’s strategy for the aluminum business is focused on the organic growth of upstream assets, through the development of its high quality bauxite reserves and the very efficient low-cost alumina operations.
As recently announced, we will build a new alumina refinery, Companhia de Alumina do Pará (CAP), and expand our Paragominas bauxite mine (Paragomias III), both located in the Brazilian state of Pará.

CAP will be responsible for the implementation and operation of an alumina refinery, located in Barcarena, close to the alumina refinery of our subsidiary Alunorte. CAP will be 80% owned by Vale, and 20% by Hydro Aluminium. [Emphasis added]

The initial production capacity of the refinery will be 1.86 Mtpy of alumina, through two lines of 930,000 tpy each. The new refinery has potential for future capacity expansions up to 7.4 Mtpy.

4. How do you spell massive subsidy? Aluminum smelters need huge amounts of cheap power. Lower Churchill power would not be cheap unless the provincial government agreed to sell the power over the long term at or below production costs.

Quebec uses its considerable generating capacity for power from plants that are already paid off to help subsidize aluminum enterprises in that province.

Critics point out that it would far more beneficial to export the cheap power for profit than subsidize aluminum plants.

It's not like the trend has been to build aluminum plants as far from possible as markets.

5. Even if by some chance a project is announced, it's construction would be tied to the Lower Churchill which itself remains a dodgy proposition. Lack of confirmed long-term sales contracts and the current economic downturn have put that project further in doubt.

6. Even if we are talking about an announcement, it would be for a project that, in the most optimistic scenario wouldn't be built and operating until closer to 2020 than not.

7. It's the November poll goosing season. Put that together with Locke's actual comment quoted by CBC and you have the sort of overblown hype coming from insiders that we've usually seen about the Lower Churchill project since 2003:

"There are significant projects being considered, energy intensive ones for the province that will make the earlier start of the project more viable and it will act more like a loan guarantee for the Lower Churchill that will allow them easier access to capital," he said.

Projects are being considered.

That doesn't mean they are confirmed.

The rest of the comment likely reflects the view inside the Premier's Office on what sorts of financial daisy-chains are necessary to keep the $9.0 billion project alive, at least in the minds of its proponents.

Of course, that doesn't mean that even the Lower Churchill is as likely as Locke claims.

After all, it's not like the Premier has refrained from hyping a dead dog before when it suited his purposes.

-srbp-

Friday's "Just Askin'"

With nickel prices down and the markets uncertain, would it sensible for VALE INCO to delay start of the smelter at Long Harbour and pay the penalties set out in the development deal with government?

Not cancel.

Just postpone and take the penalties in the short term?

Just thinking out loud on a Friday.

Just askin'.

-srbp-