Vale’s Q2 nickel production plunges in Sudbury

Vale’s (NYSE: VALE) companywide nickel production in the second quarter of 2014 was 61,600 tonnes, an 8.6% drop from the first quarter and 5.3% fall from the year-ago period. Vale says the decline mainly reflects the impact of four weeks of planned maintenance work carried out on the acid plant and furnaces in Sudbury, Ont. For the first half of 2014, Vale’s company-wide nickel output was only off 0.7% to 129,200 tonnes.

Vale’s Sudbury operations produced 9,100 tonnes nickel in the second quarter, a 48.4% decline from the first quarter and 49.2% from the second quarter of 2013. For the first half of 2014, Vale produced 26,800 tonnes nickel in Sudbury, off 23.6% from the 35,000 tonnes produced in the first half of 2013.

(Elsewhere in Canada in the second quarter, Vale produced 6,900 tonnes in Thompson, Man., or up 11% year-over-year; and 12,100 tonnes at Voisey’s Bay, Labrador, down -19.7%.)

The low point came on April 6, when millwright Paul Rochette was killed at Sudbury’s Copper Cliff smelter complex. The United Steelworkers Local 6500 and Vale carried out a joint investigation into the fatality.

According to the Sudbury Star, Rochette, 36, and another millwright, a 28-year-old man, were found by their superintendent early in their shift in the casting and crushing area, between the smelter and matte processing areas.

The Star said the men were “unconscious and appeared to have been injured by a moil or large piston that broke under pressure as it was crushing copper–nickel ingots. Rochette died of severe head trauma and the younger man suffered a concussion and facial lacerations.” He was hospitalized.

The Sudbury smelter remained closed during the fatality investigation, restricting feed to nickel refineries at Copper Cliff in Sudbury and Clydach, Wales. The smelter was later reopened and then closed again for the four-week maintenance period, which is needed every 18 months.

Operationally, Vale emphasized that while its surface facilities in Sudbury underwent maintenance in the second quarter, it still describes its mining operations as the “bottleneck of the Sudbury system.” However, it notes its Sudbury mines produced during the maintenance period, which allowed for inventories of ore and concentrate to be built up for processing in the second half of the year.

Vale expects stronger refined nickel output at Sudbury to finish the year.

Vale’s Sudbury operations continue to have a substantial by-product output of precious metals. In the second quarter, they totalled 18,100 oz. gold (down 14% year over year), 27,000 oz. platinum (-17.6%), 66,500 oz. palladium (-17.4%), 269,000 oz. silver (-50.9%), plus 113 tonnes cobalt (-60.6%).

Vale’s platinum group metals production from Sudbury brought in US$115 million in revenue in the second quarter, down 26.3% from the first quarter of 2014, but up 9.5% from the second quarter of 2013.

During the third quarter, Sudbury will temporarily be getting more nickel concentrate from the Voisey’s Bay mine, as its usual destination — Thompson — undergoes a similar annual planned maintenance period.

During a conference call to discuss the second quarter, analyst Amos Fletcher from Barclays asked Vale management about whether there was any progress in discussions with Glencore Xtrata (LSE: GLEN) to achieve operational savings by working together in the Sudbury basin — potential synergies that in 2006 were pegged at US$550 million.

Peter Poppinga, Vale’s executive officer of base metals and information technology, responded: “In terms of Glencore, what we are doing is because we realized we did a strategic break in our bigger discussions and what we are doing now is trying to perform some of the smaller projects individually and incrementally. And we are doing some progress there … and little synergies achieved. That’s where we are today.”

Vale’s Long Harbour nickel plant on the island of Newfoundland achieved its first finished nickel production on July 14. Vale says the facility will initially process a combination of matte from Vale’s Indonesian nickel laterite mine and Voisey’s Bay concentrate before transitioning to processing only Voisey’s Bay ore.

But the bigger technical headaches for Vale have been at its Goro nickel laterite mine in New Caledonia, operated by its subsdiary VNC (“Vale Nouvelle–Calédonie”). The operation suffered a leakage of acidic solution in May, which Vale says “resulted in a discharge into the environment and a shutdown of the complex.”

Vale says that following government investigations and a remediation effort, VNC resumed operations in late June and is now operating with two high-pressure acid leach circuits. Vale produced only 4,600 tonnes nickel in New Caledonia in the recent quarter, off 30.6% year-over-year. At one time before the troubles, guidance for this year had been 40,000 tonnes.

Vale’s other large nickel unit is its new Onca Puma ferronickel operation in Brazil, which cranked out 5,200 tonnes nickel in ferronickel in the second quarter, or 85% of its nominal capacity.

The biggest production highlight for Vale was in its iron-ore business, which reached 79.4 million tonnes of iron-ore output, its best-ever  second quarter.

Vale boasted second-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) of US$4.1 billion on gross sales revenue of US$10 billion. Capital expenditures in the first half of 2014 amounted to US$5 billion, down US$2.2 billion from a year earlier.

Vale’s nickel business generated U$1.2 billion in gross operating revenue in the second quarter, up 11% from the first quarter of 2014 and 9.1% from the second quarter of 2013.

The revenue rise was mostly due to the higher average realized price of US$17,731 per tonne nickel in the second quarter versus US$14,277 per tonne in the first quarter of 2014 and US$15,213 per tonne in the second quarter of 2013. Slightly higher sales volumes also helped, even if actual production was down.

Vale’s nickel business contributed US$438 million in adjusted EBITDA in the second quarter, or just 10.7% of Vale’s company-wide, adjusted EBITDA of US$4.1 billion. Vale’s Canadian and U.K. nickel businesses contributed US$244 million in EBITDA in the second quarter, compared to US$419 million in the first quarter.

Vale notes that the nickel price on the London Metal Exchange averaged US$18,465 per tonne in the second quarter, up 26% from the first quarter, and that demand for nickel across business segments “remained strong” in the second quarter. In particular, European and U.S. nickel markets showed improvements over 2013.

The company comments that “tightness in the nickel supply, due to the Indonesian ore ban, was much more evident in the Chinese nickel pig-iron and ferronickel markets, where a strong level of production has been maintained based on previously imported ore inventories.”

Vale says that “as ore stocks in China are depleted in coming quarters, the impact of the Indonesian ore ban is anticipated to be increasingly felt in the refined nickel market, supporting prices further.”

Vale just paid out a US$2.1 -billion dividend, and ended the second quarter with US$30.2 billion in debt and US$7 billion in cash.

Vale’s ADRs in New York, worth one common share, last traded at US$12.46. The company has 3.2 billion common shares outstanding and 2.1 billion preferred shares, f
or a US$64.6-billion market capitalization.