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Smaller workforce, technology and higher output part of plan to lower unit costs: Vale mine manager

Franco Cazzola, general manager of Vale’s Manitoba Operations, made a virtual presentation to members of the Thompson Chamber of Commerce Nov.
vale manitoba operations

Franco Cazzola, general manager of Vale’s Manitoba Operations, made a virtual presentation to members of the Thompson Chamber of Commerce Nov. 4 about recent job cuts and additional upcoming changes intended to make the company’s mine and mill here more competitive.

Now on his third stint as a Thompson resident – he also lived here in the mid-1960s and later from 2005 to 2009 as an employee of Inco and then Vale – Cazzola said 103 layoffs and position eliminations as well as 41 early retirements announced last month were only the first step in an effort to reduce production costs, though he admitted they were the most painful one.

“We’ve just started our journey and the first part was the workforce reduction unfortunately and it affects people and families in the community,” he said, noting that the workforce now includes about 489 hourly employees and 610 employees overall, nearly 700 less than before the smelter and refinery shut down in 2018 and Birchtree Mine was put on care and maintenance the previous year. “We’ve had a very challenging two weeks in the community and we don’t take those decisions lightly. We do care about people and we know that a lot of people have been impacted.”

The Manitoba general manager also said he was confused by comments made by Thompson MLA Danielle Adams to the Thompson Citizen about Thompson operations being run out of Sudbury.

“Any large global organization has headquarters somewhere,” Cazzola observed. “From time to time, depending on the level of decision making, they are involved.”

On a positive note, injuries at Vale in Thompson, including those that require only first aid up to those that require medical treatment, are down significantly in 2020, at 164 incidents, compared to 299 in 2019.

“We’ve made real big progress although there’s still so much more work to do ,” Cazzola said.

Though Manitoba was the first of Vale’s Canadian divisions to undergo reorganization of its operating model, the same process will be followed elsewhere, Cazzola said. Now that the job reductions are completed, the next steps include introducing new technology and figuring out production bottlenecks as well as producing more nickel concentrate to lower the per unit cost, which is at about $207 per tonne in 2020 and was $200 last year, significantly higher than in 2018, when it was $122.

“You’re spending a touch more money by producing more but you have to remember that most of your foundation, all of your assets, are already in place. Your base cost is the same. That lowers your actual unit costs. As you actually lower your unit costs … the ore that is marginal now becomes profitable. The second piece around it is that when the organization is looking to invest in different projects, then we look fairly attractive  because a) we’re cash-flow neutral or b) we’re creating a profit.”

Production out of Thompson has been declining for the past five years, Cazzola said. Currently, Vale is producing about 3,000 tonnes of ore per day in Thompson and shipping out eight to 12 truckloads of nickel concentrate per day for processing in Sudbury, about half of which is transported by rail, which is more economical. 

“The truck to rail project is probably going to save us about $10 million annually, which is a big huge chunk of cash,” said Cazzola.

Manitoba Operations are 90.4 per cent of the way to the target of 850,000 tonnes of ore for 2020. Next year’s goal is to increase to about 980,000 tonnes and then to 1.1 million tonnes, where they were as recently as 2017, per year by 2022 and 2023. An extended shutdown this year pushed the operation in Thompson below its production targets but Cazzola says it should be achieved by the end of the year and that Manitoba Operations has shown it can increase how much is mined and milled here.

“We’ve demonstrated that a sustainable 50 per cent production uplift is possible,” he said. 

After more than a decade of neglecting physical improvements in Manitoba due to Vale prioritizing projects in Newfoundland and Ontario, Vale has recently increased capital spending in Thompson, investing $100 million on the plant last year and this year with plans to match that amount next year. 

“Our fourth year we’d have about $65 million to spend and then the year after that it drops down to background levels which, for an operating plant our size, is roughly somewhere in the neighbourhood of $30 to $40 million a year for sustaining capital,” Cazzola said. “It’s a huge cash infusion and a vote of confidence for the Manitoba Operation.”

Planned exploration expenses in Manitoba for the 2019-2023 period total about $53 million.

“We absolutely know that here has to be more [nickel] out there,” said Cazzola.

Manitoba Operations is also getting closer to presenting the business case and possible extraction methods for an expansion of mining areas from its existing mines.

“We’re actually in the stage right now where we’re about to pitch to the board of directors probably over the next four to six months.,” Cazzola said. “I hazard to say a date ... sometimes things are not always exactly as per schedule.”

There have been some changes to the expansion proposal, though.

“It’s not the model that was communicated years back where we’re spending $2 billion on a shaft,” Cazzola explained. “It is, however, a sizeable investment and a continuation of an existing ramp that we already have with an infusion of a huge amount of technology. We’re very hopeful that we will get approval.”

Responding to a question about whether this proposed expansion is really any closer to moving forward than it has been in the past several years (the Thompson Foot Wall Deep project, which aimed to extract nickel from as deep as 5,800 feet via a ramp from the existing T3 shaft was at the same development stage as the current project back in 2014), Cazzola said there’s more urgency now.

“When your fridge is full, you’re not that anxious for more food because you’ve got all that you need right there,” he said. “Well, our fridge is getting pretty empty. We know that we need to do something now and that’s why the interest has been garnered in pushing this forward.”

Cazzola also answered questions about the potential impact of increasing electric vehicle (EV) adoption on the market for nickel.

“The number of EV cars, vehicles in the world is somewhere around two million. That was about three years ago,” Cazzola said. “In the span of 10 years it’s anticipated to go to 30 million, which is quite a significant increase. People are expecting this massive explosion around the environment for battery-grade nickel. The price of nickel concentrate on the market from various suppliers has increased and it’s in short supply. I would suspect that the requirement for nickel over the next five to 10 to 15 years is going to increase which is a really good news story for our organization and our community.”

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