Vale's Manitoba Operations is "one of the highest cost producers" in Canada and the United Kingdom, USW Local 6166 acknowledged Oct. 19, a day after the company said it was considering mothballing Birchtree Mine again next August. In a news release issued by the local, President Murray Nychyporuk pointed to contracting out as a "contributing factor to our low productivity" at Manitoba Operations.
While it's not easy to say definitively how many contractors are working in Birchtree Mine because a number of contractors often work in multiple locations throughout Manitoba Operations and flow between worksites, Ryan Land, manager of corporate affairs for Vale's Manitoba Operations, said late Friday afternoon there are about 40 contractors working at Birchtree Mine and a "little more than half are miners."
Issues of cost and productivity are not new to the nickel miner. Productivity at Manitoba Operations from all mines for the number of pounds of nickel and copper produced in an eight-hour shift dropped from 320 pounds in 2001 and 315 pounds in 2000 to 198 pounds in October 2008, the company said on Nov. 28, 2008.
Despite the continuing drop in productivity, the Thompson mines were still believed to have some of the lowest nickel "lifting" costs in the world four years ago. To the extent that was the case – and it was cheaper to extract nickel from Thompson than Sudbury – Manitoba Operations were considered likely be one of the last facilities four years ago to see production cutbacks in the face of weaker nickel prices, which briefly fell as low as $3.97 per pound on Dec. 5, 2008.
Nickel prices peaked at $25.51 per pound on the London Metal Exchange (LME) in May 2007, just months after Vale, the Brazilian mining giant, bought Inco in a $19.9-billion all-cash hostile tender takeover offer deal in October 2006. On Oct. 19, nickel was selling for $7.64 per pound on the LME – a 70.05 per cent drop from its high 5½ years ago.
Productivity for the number of pounds of nickel and copper produced in an eight-hour shift at Thompson's mines stood at 246 pounds in 1999, Vale said in 2008. It increased sharply to 315 pounds in 2000 and 320 in 2001 before beginning its steady downward march: 299 in 2002; 277 in 2003; 265 in 2004; 264 in 2005; 254 in 2006; and 230 in 2007. The year-to- date numbers released Nov. 28, 2008 placed the figure for the first 10 months of 2008 at 209.
Former Vale Manitoba Operations spokesman David Markham said at the time the general trend was the deeper Vale had to go the lower grade the ore would be, leading to lower productivity for the remaining life of the mines, which was estimated to be somewhere between 2027 and 2030, although company estimates in the late 1990s had the Thompson mines closing at one point as early as 2004, while the projected date for a considerable period was 2013.
The key to extending the life of Birchtree Mine was a decision to deepen it a decade ago, although regardless if it is mothballed next August or not, the current life of mine plan anticipates closure at some point in the next 10 years in any event.
Lovro Paulic, general manager for the smelter and refinery at Vale's Manitoba Operations here, said June 7 Vale's current mining plan for Thompson runs for another 28 years through 2040.
On Oct. 18, Paulic, along with Manitoba Operations two other general managers, Don Wood, general manager of production services, and Mark Scott, general manager of mining and milling, wrote the productivity declines at Birchtree go back eight years to the Inco era: "Birchtree Mine currently has low nickel grades with virtually no by-product credits. In addition, the mine has shown a steady decrease in productivity since 2004 while costs have increased, resulting in a very high operating unit cost. Birchtree is not generating a profit at today's nickel prices," wrote Paulic, Wood and Scott. Birchtree Mine, which opened in 1968, which is being "considered for care and maintenance" next August, was previously on care and maintenance for nearly 12 years from 1977 to 1989.
While Paulic is often the more public face of Manitoba Operations, the three general managers function as equals with different individual areas of responsibility. Manitoba Operations hasn't had a single senior executive head since Vale abolished the position of president of Manitoba Operations in July 2009, and Brian Maynard, after just 14 months in that job, accepted a job working with Vale Australia's coal operations. Maynard is now group chief operating officer of Ferrexpo plc, a Swiss-headquartered resource company with assets in the Ukraine, while Mike Sylvestre, Maynard's predecessor in Manitoba Operations, went from here as president in June 2008, to Vale's New Caledonia Goro nickel company, before moving to James Bay Resources Ltd. and Castle Resources Inc.
The chain of command from here runs up the line to Vale Canada headquarters in Toronto and John Pollesel, chief operating officer and director of base metals North Atlantic at Vale, and his boss, Peter Poppinga, who replaced Tito Martins in Toronto as chief executive officer of Vale Canada last November, and who is also executive director of base metals globally for Vale.
"As in the past, we will work with management to lower these costs in pursuit of making the Manitoba division one of the leading producers of quality nickel," Nychyporuk said Oct. 19.
"Yesterday, Vale came out with a local announcement on the state of their operation," said Nychyporuk. "Our local and the City of Thompson have been down this road many times over the life of the mine. The difference this time around is we are dealing with a company we are still getting to know.
"We were first impacted with the possible closure of the smelter and refinery two years ago. At that time, we teamed up with the provincial and municipal government to come up with an alternative five-year year plan to keep the doors open in our smelter and refinery Operation. Vale rejected our plan and stayed the course on the closure, until last month's announcement of a possible two-year extension on the life of the refinery and smelter. The announcement was positive for our community and it restored hope for the City of Thompson.
"Yesterday, we learned Birchtree Mine has been in a steady decline of productivity and low nickel grades since 2004. We believe our members have some of the best skill sets in the mining industry throughout Canada. The union has been stating for years that contracting out our mining activities is not cost effective and is a contributing factor to our low productivity. In the past, our members have shown they can rise to the challenge when competing with contractors. When given the chance, we continually have shown we are a much safer and cheaper alternative.
"Our local has a working relationship with Vale management and is prepared to overcome any obstacle or unlock any potential to improve efficiencies, with respect to the confines of the Collective Bargaining Agreement (CBA)," Nychyporuk said. "We have been told our operation has become one of the highest cost producers in Canada and the U.K. Division. As in the past, we will work with management to lower these costs in pursuit of making the Manitoba division one of the leading producers of quality nickel."
Vale's United Kingdom operations include Clydach Refinery, in production since 1902, in Wales, and the Acton Refinery, built in 1924, on the outskirts of London.
"The transition process is on hold and we know it frustrates some of our members who have aspirations of becoming miners," said Nychyporuk. "Patience will be required during this downturn. Vale has stated there could be possible layoffs. The union feels this could be achieved through attrition, if need be. Our position, as a union, is contractors shall be off the property before laying off any member. The CBA is quite clear, no employee will be demoted or laid-off as a direct result of work being contracted out by the company.
"In regards to a transitional work force, the union believes we have only one work force. The transitional workforce Vale speaks of enjoys the same rights and privileges, as the rest of the membership. The membership will not be divided.
"We are disappointed in the deferral of capital expenditure of the 1-D project. We understand these events happen in the cyclical nature of the mining industry. Our reliance on external feeds has had a negative impact in developing future ore resources. We feel the 1-D project had huge potential in securing the future of our operation," Nychyporuk said.