Vale’s Divestment Collapse Underscores Nickel-Mining Challenges

(Bloomberg) -- In the clearest sign yet of the challenges to nickel mining in New Caledonia, a would-be buyer failed to put together a deal that would have seen it paid to acquire a major asset.

New Century Resources Ltd. said Tuesday it was unable to generate a suitable funding package and equity structure to acquire the Goro operation from Vale SA.

Vale’s response was equally telling. The Rio de Janeiro-based miner said it would prepare to mothball Goro while exploring other options, all of which would “contemplate Vale’s exit.” The decision comes even with nickel’s prospects bolstered by growing demand for use in rechargeable batteries as part of an electric-vehicle boom.

The failure to offload the operations comes after a string of financial and operational setbacks at a mine that was brought online late and over-budget in 2010. Goro struggled to hit production capacity in subsequent years.

“Despite significant resources, the operation has continued to disappoint and has never achieved design production rates, remaining a cash drain on the larger group,” BMO Capital Markets analyst Edward Sterck wrote.

Vale picked up Goro as part of its 2007 acquisition of Inco, a deal that led to it becoming the world’s largest producer of mined nickel. But in a decade of production, Goro never reached more than 70% capacity and capital expenditure overruns exceeded $3 billion, showing the difficulties producing nickel from laterite deposits using the high pressure acid leach process, according to BloombergNEF.

In the wake of two deadly waste-dam spills at Vale’s operations in Brazil, the miner has also faced criticism over the use of similar tailing dams facilities at Goro. Acid spills have also interrupted processing operations.

In May, New Century said it was negotiating an arrangement under which it would be paid to take over the operations. Now that an exclusivity period with the Australian company has lapsed, Vale will start to place Goro on care and maintenance. That could be a precursor to a halt in production, unless a solution can be found in the coming months.

The miner continues to discuss the asset’s future with the French state and local authorities, and will approach the closure of the mine with strong commitments to the maintenance of the dam and its social obligations, Vale said.

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