Editorial: Nickel Cuts Hit Home

The steep fall in nickel prices since July finally translated into production cuts by the majors in Canada’s nickel camps during the week ended Dec. 6, the 49th trading week of 2008.

• Following up on its nickel cuts last month in Indonesia, Brazil and New Caledonia, Vale Inco has announced that it is shutting in January the Copper Cliff South nickel mine in Sudbury (taking 8,000 tonnes per year of finished nickel out of the market), delaying by a year the development of the US$814-million Copper Cliff South Deep project, and shutting the Voisey’s Bay nickel-copper mine and mill in Labrador for one month next July. Vale Inco will move affected employees to other operations, and is encouraging eligible employees worldwide to take early retirement.

The other major in the Sudbury camp, Xstrata Nickel, will shut down its higher-cost Thayer Lindsley and Craig mines earlier than planned and transfer workers to the Nickel Rim South and Fraser Morgan mines, now under development. Xstrata also aims to trim its nickel workforce via early retirement incentives.

In the Dominican Republic, Xstrata is moving its Falcondo nickel laterite mine and ferronickel plant from a three-month-old suspended status into care-and-maintenance mode. With only about 30% of the local workforce expected to be retained, about 900 Dominicans will be laid off.

• Meanwhile, a major showdown is in the works between Chinese steelmakers and the top three iron ore producers Rio Tinto, BHP Billiton and Vale, who account for three-quarters of all seaborne trade.

It’s difficult to make out where the posturing ends and the reality begins, but steel prices and Chinese steelmakers’ profits have plummeted in the past few months, and the Chinese are now demanding deep cuts to iron ore prices, and for these cuts to take effect on Jan. 1 rather than April 1, when existing contracts are due to expire. Any price cut would be the first in seven years.

• Deep cuts are happening in copper, too. The world’s second-largest producer, Freeport-McMoRan Copper & Gold, is responding to the precipitous decline in demand and prices three ways: its US$2 annual dividend has been suspended, saving US$755 million annually; its capital expenditure budget for 2009 has been slashed in half to US$1.1 billion; and mine output will be lowered by about 200 million lbs. in 2009 and 500 million lbs. in 2010 from October 2008 estimates.

• Toronto-based diamond miner and jewelry retailer Harry Winston Diamond made headlines around the world on Dec. 4, when one of its shops just off Paris’s Champs-lyses was the target of one of the world’s largest-ever jewelry heists.

Four armed men — two dressed as women — entered the store near closing time and 15 minutes later fled to a waiting car with almost all the jewelry on hand, worth about $138 million. Some employees were beaten during the heist.

Harry Winston’s insurer, Lloyds of London, is offering up to US$1 million for information leading to the recovery of the loot. According to French media, police suspect the involvement of the Pink Panther gang, a highly disciplined criminal organization that emerged from the remains of the former Yugoslavia.

The store was the target of a similar robbery a year ago that netted about US$39 million in jewelry — a crime that remains unsolved.

• Oil prices ended the week just above US$40 per barrel, in stark contrast to their July peaks above US$145 per barrel. Oil’s tumble has been one bright spot in an otherwise gloomy time for miners, especially ones operating large open pits or remote sites with diesel power generators.

Miners’ bottom lines have also benefited in recent months by declining currencies in commodity exporting countries such as Canada, Chile and Brazil, which have depressed workers’ real wages and other local costs.

• Mexican silver miner Fresnillo launched a controversial hostile bid for junior MAG Silver. The major is offering US$4.54 per share for a stock that traded below US$4 in mid-November but sat in the US$4.70 range just a few days before the bid and at US$10 in July.

Depending on your timeframe and temperament, that’s either a lowball bid taking advantage of a distressed share price or a quick way to get badly needed hard cash in your pocket. How eager MAG shareholders are to hand over ownership to Fresnillo will be a good measure of how desperate junior mining shareholders really are these days.

Send your Letters-to-the-Editor and other op-ed submissions to the Editor at: tnm@northernminer.com, fax: (416) 510-5137, or 12 Concorde Pl., Suite 800, Toronto, ON M3C 4J2.