Friday, 10 July 2009

Canada: Vale CEO calls Sudbury unit 'not sustainable'

Source: The Globe and Mail

Just a few years after snapping up Inco, Brazilian miner's chief issues warning amid contentious labour talks and summer shutdown

Andy Hoffman

Less than three years after winning a $19-billion "dream" acquisition of Inco, the head of Brazil's Vale SA has made a shocking assessment of its Sudbury operations: They're unsustainable at current cost levels.

The comments from Vale chief executive officer Roger Agnelli come amid simmering tensions between the company and unionized workers in Sudbury.

The Brazilian mining giant is demanding major concessions from 3,300 workers there; contract talks have broken off and a potential strike looms as the Sudbury operations endure a two-month summer shutdown in response to dismal nickel prices.

"Sudbury is Vale's highest-cost operation and it's not sustainable," Mr. Agnelli told reporters Tuesday in Rio de Janeiro.

His comments fuelled the sniping that has erupted between Vale and its unionized Sudbury workers, who are to vote on the company's latest contract offer on Friday and Saturday. If they reject the offer, workers could be on strike could be as early as July 12.

Wayne Fraser, Ontario director of the United Steelworkers, said Inco's new owner is using the commodities crash to gut the union's collective agreement. Vale wants to close the defined benefit pension plan to new employees and reduce the so-called nickel bonus, which rewards workers when the price of nickel is high.

"It's unbelievable. It looks like they want a war in Sudbury," Mr. Fraser said in an interview.

He said Vale's Ontario operations have remained profitable despite the downturn, earning $2-million (U.S.) in the first quarter of 2009 and $4.2-billion in profit over the past 21/2 years.

"Mr. Agnelli is smoking something in his pipe, I think, and it's not regular tobacco ? We know there is a blip in the market right now, but to say that Sudbury is not sustainable is a complete falsehood," Mr. Fraser said.

Mr. Agnelli's pessimistic appraisal of Inco's Sudbury mines, smelter and processing facilities marks a sharp contrast to his enthusiasm for the assets in 2007, when Vale, an iron ore producer with backing from the Brazilian government, won a hotly contested battle for the Canadian company.

"Canada is a mining country. It's a country that has the legislation, experience, tradition, and very good people who work inside this sector. So it was very important for us to be in a country like Canada ? we had a dream to be there," Mr. Agnelli said at the time.

Vale made a series of commitments under the Investment Canada Act to demonstrate the foreign takeover was a "net benefit" to Canada, including a pledge that it would not lay off any employees for three years.

Yet as nickel prices have crumbled in the face of the global recession - falling to about $7 a pound from a peak of nearly $25 shortly after it completed the controversial takeover - Vale has cut jobs and imposed shutdowns in the Northern Ontario city.

In March, it announced plans to cut 423 Canadian jobs, including 261 in Sudbury. Then it said it would halt mining and processing nickel in Sudbury during June and July to reduce nickel inventories, as demand for the metal used to make stainless steel remained abysmal.

Federal Industry Minister Tony Clement initially demanded answers from Vale for violating its Investment Canada Act commitments but later said he was satisfied that Vale was not targeting Sudbury with its job cuts and mine shutdowns.

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