Mining

Closing Time: Last hoist for Thompson’s Birchtree Mine

On the surface, it was an unseasonably warm and brilliant orange early autumn day. Underground, it was closing time. Not last call, but rather the hard rock mining on-the-job equivalent: last hoist.

This day has almost come for Birchtree Mine in Thompson, Manitoba before. In fact, the day did come for Birchtree for most of a decade in the 1980s, as the mine was on “care and maintenance” because of unfavourable market conditions from December 1977 through 1989.

And on Oct. 18, 2012, Vale had announced care and maintenance was being considered for Birchtree Mine in 10 months time in August 2013. After finding $100 million in cost savings at its Manitoba Operations, bringing its cost per metric tonne for finished nickel to under US$10,000, Birchtree Mine would receive on May 6, 2013 a reprieve that lasted almost 4½ years. Until now.

As well as nickel, Birchtree has deposits of copper, cobalt, gold, silver, platinum and palladium. Re-opening of Birchtree was considered in 1981, but was deferred in favour of development of the Thompson open pit mine. Care and maintenance is a term used in the mining industry to describe processes and conditions on a closed minesite where there is potential to recommence operations at a later date. During a care and maintenance phase, production is stopped but the site is managed to ensure it remains in a safe and stable condition.

Preparation to place Birchtree on care and maintenance again some 28 years after its last mining production 12-year hiatus begins two days hence on Monday. Asset recovery is expected to be complete by mid-November, and the plan is for the mine to be officially on care and maintenance by Dec. 31. The current life of mine plan has long anticipated the closure of Birchtree Mine at some point around now. Vale, however, could, as was the case with Inco in 1989, reopen Birchtree Mine should nickel prices rebound more strongly than forecast in the next few years, and the company has said it believes there is a future for the mine.

The current London Metal Exchange (LME) price of nickel per pound would likely have to at least double from US$4.72 to make reopening Birchtree for a second time economically viable. While Thompson is noted for its high quality 99.9 per cent pure electrolytic nickel that is almost free of contaminants such as lead or zinc, resulting in it often commanding a higher price than the LME price, Birchtree has relatively lower nickel grades. Nickel prices peaked at $25.51 per pound on the LME in May 2007, just months after Vale, the Brazilian mining giant, bought Inco in a $19.9-billion all-cash tender takeover offer deal in October 2006. Nickel prices have fallen nearly 70 per cent in the past six years as international supply far outstrips demand.

The nickel find near Manasan Falls, four kilometres east of Birchtree Lake and about five kilometres southwest of Thompson, that would become Birchtree Mine was first announced publicly to the world on April 22, 1964 by Henry S. Wingate, chairman of the board of the International Nickel Company of Canada (INCO) Limited.

There are several other key dates in Thompson’s early mining history: Borehole 11962 – the so-called “Discovery Hole” at Cook Lake, a diamond drill exploration hole – was collared Feb. 5, 1956 and assayed positive for nickel.

There’s also the Dec. 3, 1956 signing of the founding 33-page typewritten double-spaced agreement creating Thompson between the Province of Manitoba’s F.C. Bell, minister of mines and natural resources, and International Nickel Company of Canada Limited’s Ralph Parker, vice-president and general manager, and secretary William F. Kennedy. As well, there was Manitoba Liberal-Progressive Premier Douglas Campbell driving the last spike in the Canadian National Railway (CNR) 30-mile branch line from Sipiwesk to Thompson Oct. 20, 1957, and March 25, 1961, when Progressive Conservative Premier Duff Roblin cut the nickel ribbon to officially open the $185-million smelter and refinery, set to close also next August, as the world’s first fully integrated nickel operation, and with its 1,800 employees, second in size in the “free world” at the time only to Inco’s Sudbury operations. Vale’s Thompson operations, landholdings or mining rights, consist of at least 2,947 order-in-council (OIC) leases, mineral leases and mining claims “negotiated as part of an agreement entered into in 1956 between Vale Inco and the Province of Manitoba covering the development of the Thompson nickel deposits,” noted filings by the company in 2004 and 2008 with the U.S. Securities and Exchange Commission.

Thompson, originally a townsite within the newly-created 975-square-mile Local Government District (LGD) of Mystery Lake, within the Dauphin Judicial District, from 1956 to 1966, became a town on Jan. 3, 1967 and a city just 3½ years later on July 7, 1970.

Wingate, a lawyer, was born in Talas, Turkey, the son and grandson of American missionaries, and was raised in Northfield, Minnesota. He was with the New York law firm of Sullivan & Cromwell from 1929 to 1935, when he joined INCO as assistant secretary. The sinking of the Birchtree Mine development shaft began on Ink 6 in 1964. The three-compartment shaft was completed to 1,373 feet a year later.

Birchtree began production in 1966. Between 1965 and 1967 the production shaft on Pip 301 was sunk to 2,800 feet, with levels between 300 and 2,300 feet at 200-foot intervals. Inco announced plans in 2000 to move ahead with a $70.4-million deepening of Birchtree Mine to be completed in 2002 and help extend the mine’s life by at least 15 years. In its Exploration and Development Highlights 2001 report, the Manitoba Science, Technology, Energy and Mines Department estimated the shaft deepening would access proven reserves of 13.6 million tonnes of 1.79 per cent nickel and “extend Birchtree’s production to 2016.”

As a result of the Birchtree Mine closing, about 200 high-paid jobs are expected to disappear from the local economy over the next few months – a very big though by no means fatal hit to the local economy – including not only Vale employees but other mining sector contractors and support service positions.

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Mining

Will we see the return of Inco Ltd. to TSX next summer as Vale re-thinks base metals?

Iron ore accounts for three-fourths of Brazilian mining giant Vale’s revenue. With economic growth in China slowing and iron-ore production from Vale’s rivals in Australia speeding up, the benchmark price for the steel-making material has fallen to around $70-$75 per metric ton recently, little more than one-third of the 2011 peak of around $190 per metric ton. Mining analysts estimate that it costs Vale $67 to produce a metric ton of iron ore and ship it to China, making for a very tight profit margin at current commodity prices. Vale’s shares as of last week had fallen 42 per cent year-to-date. What to do?

Vale CEO Murilo Ferreira, in an annual presentation to investors Dec. 2, said the company is considering selling shares of between 30 per cent and 40 per cent of its base-metals division. The division is made up primarily of copper and nickel mines in Brazil, in Indonesia’s island province of Sulawesi, an hour’s flight north of Bali, on the southern tip of Grand Terre, the main island in New Caledonia, an overseas territory of France, east of Australia, and Canada, including nickel mining, milling, smelting and refining in Thompson, Manitoba, where copper and cobalt, along with associated gold, silver, platinum, sulphur, selenium and palladium deposits, are also mined.

The Initial Public Offering (IPO) would be intended, Ferreira said, to “unlock” value in the base metals division, although specifics haven’t been worked out nor has the sale been proposed to Vale’s board of directors. The Thompson smelter and refinery, which opened March 25, 1961, was the free world’s first fully integrated nickel operation and built at a cost of $185 million. Mining analysts believe Vale’s base metals division may be worth $30-billion to $35-billion, including the assumption of debt.

Rio de Janeiro-based Vale has mining operations on five continents in 38 countries. Its base metals business is headquartered in Toronto. Vale is the second largest mining company in the world by market capitalization, surpassed only by Melbourne, Australia-based BHP Billiton Ltd. (BHP), and the second-largest nickel producer after Moscow-based OAO GMK Norilsk Nickel. About 75 percent of Vale’s nickel production comes from Canada. Vale is the world’s largest iron-ore producer.

Ferreira said an IPO would hinge on a “fair price” for the base metals shares. Thompson Reuters data suggests such an IPO could raise $5-billion to $8-billion, making it the biggest in Canadian history, eclipsing Manulife Financial Corp.’s record $2.12-billion IPO in 1999.

Vale would use the money realized from an IPO pay for key projects in the midst of sliding iron ore prices. While the base metals business is highly profitable for Vale, analysts see it as a lost division with the larger company focus on iron ore.

Nickel prices peaked at $25.51 per pound on the London Metal Exchange (LME) in May 2007 just months after Vale bought Inco Ltd. in a $19.9-billion all-cash tender takeover offer deal in October 2006. In December 2008, nickel briefly dipped below $4 per pound and was $4.31 per pound on March 9, 2009 when the Dow Jones Industrial Average closed at a 12-year low of 6,547.05 – its lowest close since April 1997, losing 20 per cent of its value in only six weeks.

Scotiabank said in mid-April it now expects nickel to average $7.66 (U.S.) per pound this year. At the beginning of 2014, nickel was about US$6.50 per pound, compared to just under US$8 per pound a year earlier. The LME price today is $7.43 (U.S.) per pound, with the price being supported less by demand than supply restrictions because Indonesia, the world’s largest nickel producer, last January 2014 banned all exports of unprocessed nickel ore. Indonesia’s Constitutional Court recently upheld the legality of the ban. Nickel has risen 19 percent this year, the most among six main metals traded on the LME and has made the third-biggest gain in the Bloomberg Commodity Index of 22 raw materials.

The Wall Street Journal’s Paul Kiernan reported Dec. 2 Vale “failed to round up buyers for some nickel operations in Canada, according to two people familiar with the matter. Last year, Vale tried to get a partner to buy into the sprawling operation at Thompson, Manitoba, which includes two mills and a refinery, and this turned into an attempt to sell assets, one of the people said.” Vale’s Chief Financial Officer Luciano Siani is reported in the same story to have said the “Thompson complex isn’t for sale.”

Poppinga, who had replaced Tito Martins as chief executive officer of Vale Canada and executive director of base metals and information technology in November 2011, led 16 operating sites around the world and in Vale’s quest for asset base optimization over the last three years.

Maki, who has an undergraduate degree in commerce from Queen’s University in Kingston, Ontario, has served as executive vice-president and chief financial officer of Vale Canada since September 2007. Before joining Vale as an assistant controller for financial planning in 2003, she had worked as a chartered accountant for PricewaterhouseCoopers for almost 10 years.

In a March 2013 interview with Upfront, the in-house magazine of PricewaterhouseCoopers, her former employer, Maki observed, among other things, that Vale’s “workforce in Brazil, for example, is much more mobile and they’re much more willing to pursue opportunities outside of their home cities and towns than people are in Canada.” Maki, commenting on how Inco’s culture changed after its 2007 merger with Vale, said, ” We’ve probably become more performance driven by key performance indicators and metrics. You see it right through Vale from their compensation packages to how people are rewarded. I think part of that is coming from a country like Brazil, where there’s a very hungry group of people who have grown up in a developing country. I think they’ve instilled that here and made some major changes across our Canadian operations.”

Since last January, Maki has been the chief financial and administrative officer for base metals, as well as participating in the management of base metals businesses outside Canada. She has been a member of the Board of Commissioners of PT Vale Indonesia Tbk (PTVI) since 2007 and recently became its president commissioner.

Poppinga was born in Rio de Janeiro in Brazil. He holds a master’s degree in business administration from Fundacao Dom Cabral in Brazil. He received a degree in geology from the Federal University of Rio de Janeiro in 1980 and Friedrich-Alexander-Universität Erlangen-Nürnberg in Erlangen, Germany and a post-graduate degree in geology and mine engineering from Clausthal University of Technology in Clausthal-Zellerfeld Germany in 1984, with specialist diplomas in geo-statistics from the Universidade Federal de Ouro Preto in Minas Gerais, Brazil, and strategic mega trends from Asia Focus, Kellogg Singapore.

He speaks four languages including Portuguese, English, German and French. He worked for S.A. Mineracao da Trindade (SAMITRI) from 1984 until it was acquired by Vale in 1999, when he joined Vale as commercial director and general manager of the iron ore business in New York for Vale subsidiary Rio Doce America before moving to Rio Doce International, Belgium where he led Vale’s market and sales activities in Europe from 2000 to 2004. Between 2005 and 2007, he was president of Vale International S.A. in Switzerland, and from 2008 until the end of 2009 he was executive vice-president human resources at Vale (then Vale Inco) in Toronto.

In January 2010, Poppinga moved to Australia when he was named vice-president for base metals operations for the Asia and Pacific region where he was responsible for operations in Indonesia, New Caledonia, China and Japan.

Ferreira is a former CEO of Vale Canada, serving almost two years as the top Vale official in Canada, starting when the Brazilian mining giant finalized its purchase of Inco in January 2007. He had originally joined Vale in 1977. In 1998 he was appointed executive officer of commerce and finance at Vale do Rio Doce Alumínio S.A.-ALUVALE, a holding company of Vale that was merged into Vale in December 2003. Much of his experience is in aluminum and ferroalloys.

He was chief executive officer of Vale Inco, currently known as Vale Canada, in Toronto and executive director of nickel and base metals sales of Vale when he left the company for personal reasons at the end of 2008 and was replaced by Tito Martins. Ferreira rejoined Vale and replaced Roger Agnelli as CEO on May 22, 2011.

Vale is controlled by Valepar SA, which is owned by Previ, the employee pension fund of state-controlled Banco do Brasil SA; Bradespar SA, an industrial holding company; Mitsui & Co, Japan’s second-largest trading company; BNDES Participações SA, or BNDESpar, and Elétron – and the Brazilian government owns 12 so-called “golden shares” in Vale that gives it veto power over corporate decisions. Created on June 1, 1942 by the Brazilian government, Vale was privatized on May 7, 1997.

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Mining

Jennifer Maki takes over as Vale’s executive director of base metals as Peter Poppinga replaces José Carlos Martins as executive director for ferrous minerals; Vale CEO Murilo Ferreira joins Newfoundland and Labrador Premier Paul Davis in Long Harbour to mark nickel production at the new processing plant

Jennifer Maki, a chartered accountant who joined Vale in Canada almost 12 years ago in January 2003, was named Nov. 14 as Vale’s executive director of base metals as Peter Poppinga replaces José Carlos Martins as executive director for ferrous minerals. Martins left the company as iron ore, which is the Brazilian mining giant’s main commodity, continues to slump in price with no end in sight.

Vale has mining operations on five continents in 38 countries. Its base metals business is headquartered in Toronto. Vale is the second largest mining company in the world by market capitalization.

Vale CEO Murilo Ferreira, who joins Newfoundland and Labrador Tory Premier Paul Davis, Minister of Natural Resources Derrick Dalle and Conservative Senator Norman Doyle in Long Harbour Nov. 19 to mark nickel production at the new processing plant, is a former CEO of Vale Canada. Ferreira served almost two years as the top Vale official in Canada, starting when the Brazilian mining giant finalized its purchase of Inco in January 2007. He had originally joined Vale in 1977. In 1998 he was appointed executive officer of commerce and finance at Vale do Rio Doce Alumínio S.A.-ALUVALE, a holding company of Vale that was merged into Vale in December 2003. Much of his experience is in aluminum and ferroalloys.

The event in Long Harbour Wednesday begins at 8 a.m. Central Standard Time at the processing plant in the product packaging area.

The Long Harbour Processing Plant will employ about 475 people at full production. Long Harbour, a state-of-the-art hydrometallurgy, or “hydromet” for short, processing facility in southeast Newfoundland on Placentia Bay on the western Avalon Peninsula, about 100 kilometres from St. John’s, and Vale’s Voisey’s Bay mine and concentrator in Labrador are an integrated operation. Nickel concentrate from Voisey’s Bay will be shipped to Long Harbour to be processed into finished nickel and associated copper and cobalt products.

Hydrometallurgy is a chemical process combining water, oxygen or other substances in a pressurized or other vessel to dissolve a metal from its ore, concentrate or an intermediate product (such as matte).

The nickel industry worldwide has traditionally smelted concentrates produced from nickel, copper and cobalt sulphide ores to make an intermediate sulphide product called matte.

Hydrometallurgy has been used for refining the matte to produce high purity nickel, copper and cobalt for the market. Thus, traditional production of these metals has occurred in two steps: smelting and refining. The new hydrometallurgical process that Vale developed and will use at Long Harbour process the nickel concentrate directly to metal products without first having to smelt the concentrate.

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Environment, Mining

Agreement-in-principle reached with federal government on environmental sulphur dioxide (SO2) airbone emission standards that will allow Vale’s Manitoba Operations smelter to stay open until 2018, mayoral candidate Luke Robinson and USW Local 6166 president Murray Nychyporuk say

Vale has reached an agreement-in-principle with the federal government that will allow it to continue to operate its 53-year-old smelter in Thompson until sometime in 2018, say mayoral candidate Luke Robinson and USW Local 6166 president Murray Nychyporuk. Pending environmental sulphur dioxide (SO2) airborne emission standards that were due to come into effect in a few months, as applied to Vale’s Manitoba Operations, would have required its closure if Vale couldn’t meet the standards. The new standards would require a reduction in airborne emissions of approximately 88 per cent from current levels at the Thompson operation, Vale has said previously.

More than 30 per cent of Vale’s production employees in Thompson work in the smelter and refinery. Employees hired before Oct. 1, 2011, have the option to transfer to the mill or underground to the mines from surface operations when the smelter and refinery close under the company’s transition plan.

The announcement that the smelter and refinery would close was originally made on Nov. 17, 2010, with Vale saying at the time it was “phasing out of smelting and refining by 2015” in Thompson. Mining and milling operations are slated to continue.

Almost two years later, in October 2012, Vale announced a possible one-year extension for the Thompson smelter and refinery, contingent on federal sulphur dioxide (SO2) emission standards approvals, to no later than Dec. 31, 2015 because of construction delays at the now open state-of-the-art hydromet processing facility in Long Harbour in southeast Newfoundland on Placentia Bay on the western Avalon Peninsula, about 100 kilometres from St. John’s. It will also process sulphide concentrate feed produced at Voisey’s Bay in Labrador, which has been processed in Thompson. The Long Harbour plant is Vale’s first processing facility in Canada located on tidewater. Long Harbour was originally scheduled for completion in the first quarter of 2013.

Robinson, a first-term incumbent councillor, running in the Oct. 22 municipal election for the open mayoral seat being vacated by Mayor Tim Johnston, who is not seeking re-election to council, against Dennis Fenske, another first-term incumbent councillor, who is Vale’s engineering supervisor of support services for central engineering and the project management office here, said Sept. 22 at a regular council meeting Vale has reached an agreement with the federal government on the sulphur dioxide (SO2) emission standards that will allow the smelter to stay open into 2018. Robinson is a mechanical underground worker at Vale.

The Thompson smelter and refinery, which opened March 25, 1961, was the free world’s first fully integrated nickel operation and built at a cost of $185 million.

The Canada-Wide Acid Rain Strategy for Post-2000 was agreed to in 1998 by federal, provincial and territorial ministers of energy and environment to fulfill an earlier commitment in their 1994 “Statement of Intent on Long-Term Acid Rain Management in Canada,” which in turn built on the 1985 Eastern Canada Acid Rain Program. Sulphur dioxide emissions in Canada have decreased 63 per cent since 1985, thanks mostly to a reduction of the amounts produced by base metal smelters due to a combination of a code of practice and implementation of pollution prevention plans, the Winnipeg-based Canadian Council of Ministers of the Environment reported last year. The president of the council is Manitoba NDP Minister of Conversation and Water Stewardship Gord Mackintosh.

Their 2010-2011 progress report on acid rain strategy for after 2000, released early last year, reported that Manitoba was the third-largest emitter of sulphur dioxide (SO2) in Canada in 2010, accounting for 14 per cent of the total, behind only Alberta at 27 per cent and Ontario at 20 per cent.

SO2 emissions from Manitoba in 2010 were down 44 per cent from their 2008 level, to 197,000 tonnes from 350,000 tonnes, thanks in part to the closure that year of Hudbay’s copper smelter in Flin Flon, which was expected to reduce total emissions of SO2 by 185,000 tonnes per year. That was the largest relative decrease in S02 emissions in any province over the same two-year period.

The scheduled closure of Vale’s smelter in Thompson is expected to reduce the amount of sulphur dioxide emitted in Manitoba by another 185,000 tonnes, the report said. Together, those two smelters in Flin Flon and Thompson had accounted for the bulk of the emissions produced by the nonferrous mining and smelting sector, which was responsible for 98 per cent of all SO2 emissions in Manitoba.

Liz Dykman, programs co-ordinator for the Canadian Council of Ministers of the Environment, told soundingsjohnbarker (https://soundingsjohnbarker.wordpress.com/) Sept. 25 the “2010/11 report is indeed the latest report on the Canada-wide Acid Rain Strategy for Post-2000. A 2012/13 report is currently being drafted. CCME does not have any more recent reports on refinery and smelter mining operation SO2 emissions.”

USW Local 6166 president Murray Nychyporuk said in an interview Sept. 25 with soundingsjohnbarker he believes the deal with Vale the federal government, which was discussed by the bargaining teams during recent contract negotiations, is essentially an agreement-in-principle that would allow Vale to continue to operate the smelter and refinery through some point in 2018 on environmental grounds.

Nychyporuk said it’s not clear to him at this point if the deal would run right until the end of 2018 on Dec. 31.

He also said he understood agreement-in-principle means there will likely be some public comment period, for perhaps written comments or a town hall meeting, where people would have the opportunity to make representations on the issue of the new sulphur dioxide (SO2) emission standards not going into force for Vale next year, as previously expected, before the federal government grants its final environmental approval.

Nychyporuk also said it is important to keep in mind also that environmental approval is not the same thing as a business case for Vale keeping the smelter and refinery open into 2018, although he suggests it is unlikely the company would jump through all the necessary legal regulatory environmental hoops to keep the smelter and refinery open if they didn’t plan to carry on operating it during at least most of the extended three-year period. However, Nychyporuk said nickel is a cyclical market, subject to wide price swing flucations, and a big downturn in nickel prices, or the need to do major capital repairs at the smelter if something big should break down, could influence the company to close it before 2018 even with an environmental green light. Conversely, a strong market and high demand might mean Vale will want to keep the smelter and refinery open even beyond 2018, he added, saying there is just no way of knowning that this far in advance. “I don’t have a crystal ball,” Nychyporuk deadpanned.

Nickel was selling on the London Metal Exchange (LME) Sept. 25 for a spot price of around US$7.82 per pound. At the beginning of 2014, nickel was about US$6.50 per pound, compared to just under US$8 per pound a year earlier. Nickel prices peaked at US$25.51 per pound on the LME in May 2007 just months after Vale bought Inco in a US$19.9-billion all-cash tender takeover offer deal in October 2006. Mining is a cyclical business involving finite resources. Manitoba Operations produces nickel, copper, cobalt and has associated gold, silver, platinum, sulphur, selenium and palladium deposits.

Mark Scott, general manager of mining and milling for Vale’s Manitoba Operations, sounded a cautionary note on the possibility of the smelter and refinery remaining open beyond next year when he spoke to about 30 members and guests at the Thompson Chamber of Commerce’s weekly luncheon May 28, saying the “base case remains” that they both “will close at some point in 2015.” In addition to sulphur dioxide (SO2) emission standards issues, there also remained questions over availability of nickel sulphide concentrate feed, Scott said.

Ryan Land, manager of corporate affairs and organizational development for Vale’s Manitoba Operations, said May 6, “Vale remains very much committed to Thompson. Largely as a result of challenging market conditions, and in order to align with the ramp-up of projects (which at some point may include a concentrate load-out facility for Thompson), there may be an opportunity to keep the smelter and refinery in operation for an extended duration.

“As a result, we do continue to participate in discussions with the federal government and have requested further flexibility on the date for meeting the emissions targets. We did previously receive approval to operate the plants until the end of 2015, which is already very positive for the community and our employees. While we are hopeful that we can further extend the deadline, we will still transition to mining-and-milling-only at some point between 2016 and 2019.”

Land said in an e-mail follow-up Sept. 29, “We have a tentative agreement with the federal government to allow for the operation of the smelter up to Jan.1, 2019, until such time as the concentrate load-out facility is completed. This is subject to the completion of satisfactory terms within an Environmental Performance Agreement with Environment Canada, pending the submission and approval of a performance plan.”

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