Vale to Start Sudbury Venture Talks With Glencore by Early 2014

Vale SA (VALE5), the world’s second-biggest nickel producer, will start formal negotiations with Glencore Xstrata Plc (GLEN) by early next year to combine some operations in Canada’s Sudbury basin as it seeks to reduce costs.

The two companies will seek to jointly operate nickel mines, mills and smelters in the area about 400​kilometers (250 miles) north of Toronto, Vale Executive Director for Base Metals Peter Poppinga said today on an earnings conference call. The accord would exclude refineries, he said.

“We now find there’s a healthy environment for this kind of discussion with Glencore,” Murilo Ferreira, chief executive officer of the Rio de Janeiro-based company, said on the same call. “We always worked with the possibility of having an unincorporated joint venture in Sudbury.”

Nickel, used in stainless steel production, fell into a bear market in May and is headed for a third yearly loss as China, the biggest buyer of metals, increases output of a substitute derived from lower-grade ores amid a global production glut.

Vale and Glencore, the world’s largest commodity trader, are in the early stages of discussions and are exploring options including exchanging assets, a person familiar with the talks said last month.

Poppinga said preliminary talks with Glencore are “going well,” adding Vale is finalizing the studies on different alternatives to combine the assets. A spokesman for Baar, Switzerland-based Glencore declined to comment.

Vale fell 2.8 percent to 33.47 reais at 2:25 p.m. in Sao Paulo, declining from its highest close since March 12 yesterday. Shares of Glencore lost 2.9 percent to 332 pence in London. Nickel for delivery in three months declined 1 percent to $13,972 a ton on the London Metal Exchange.

Vale has six nickel mines, a mill, a smelter and a refinery in Sudbury, making it one of the largest integrated mining operations in the world, according to the company’s website. The assets were bought by Vale in 2006 after the company won a $18.2 billion takeover battle for Inco Ltd, with Ferreira leading the acquisition at the time as the company’s head of base metals.

To contact the reporter on this story: Juan Pablo Spinetto in Rio de Janeiro at jspinetto@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net

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