Vale Inco Plans Sudbury Shutdowns

Vale Inco, a subsidiary of Vale (RIO-N), is shutting down its nickel mining and processing facilities in Sudbury, Ont., as well as its precious metals processing facilities in Port Colborn, for eight weeks starting on June 1.

Vale Inco’s operations in Sudbury — which consist of six mines, a mill, a smelter and a refinery — are among the largest in the world.

“The whole Sudbury operation is being shut down in response to the economy and the fact that we have a full product pipeline,” says Cory McPhee, a Toronto-based spokesman for Vale Inco. “We want to clear the pipeline and come back in better shape.”

McPhee says there is currently no intent to extend the shutdown period beyond July 27, but that the company will continue to monitor market conditions.

The eight-week shutdown comes on top of a previously scheduled three-week closure of the facilities in May for maintenance purposes.

In terms of layoffs, McPhee says the two-month closure is taking place during June and July, the “prime vacation period,” and explains that where vacation time for employees won’t cover the period, Vale Inco will make it possible for them to access unemployment benefits. He says the company also has a supplementary unemployment benefit plan that can provide additional funds.

The shutdown prompted a statement from Canada’s Industry Minister Tony Clement. “The government has demanded answers from the company today to explain how its announcement has an impact on the undertakings it agreed to when Companhia Vale do Rio Doce (Vale) purchased Inco in 2006,” the minister said.

“Vale made legally binding commitments under the Investment Canada Act at that time that I expect to be fully respected on behalf of the workers. Over the next few days, we will be exploring all available options, including legal options, to address this situation.”

Pema Lhalungpa, Clement’s press secretary in Ottawa, said she could not confirm or deny local media reports that Clement was meeting with Vale officials to discuss the shutdown and said that the contents of the agreement Vale made when it purchased Inco in 2006 are not available to the public. She added that if the contents were made public it would be a criminal violation of the Investment Canada Act.

McPhee says the government has asked the company to provide some clarification and details around its plans and that Vale Inco is in the process of providing the requested information.

“As a matter of course, we talk to the Canadian government on a regular basis and did so in this instance with respect to our announced shutdown.”

FNX Mining (FNX-T, FNXMF-O), which uses Vale Inco’s nickel processing facilities in Sudbury, said it has had to evaluate several possible production alternatives as a result of the closure.

In a statement, FNX said the alternatives might include continuing production at its Sudbury operations at current levels and stockpiling ore for processing when Vale Inco resumes operations; temporarily suspending some or all production and restarting production closer to the lifting of the shutdown; and sending ore to other processing facilities.

Terry MacGibbon, FNX’s chairman and chief executive, said the shutdown at Vale Inco would not delay key development at its Levack Footwall deposit, which is slated to start production in 2010.

Outside Canada, Vale Inco said the recession has also prompted the company to postpone by at least one year the startup of the Onca Puma nickel laterite mine in Brazil’s Para state. The project had previously been scheduled to come online in January 2010.

At presstime in New York, Vale was trading at US$15.27 per share. The company has a 52-week trading range of US$8.80-44.15 per share.