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Vale Prepares to Start Glencore Nickel Combination Talks

Nov. 7 (Bloomberg) -- Vale SA, the world’s second-biggest nickel producer, will start formal negotiations with Glencore Xstrata Plc 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 produced 192,000 metric tons of nickel in the first nine months of the year, 11 percent more than a year earlier, as it expands operations in Indonesia and ramps up its New Caledonia project, it said late yesterday. Glencore boosted its output of the metal 1 percent to 75,600 tons during the same period, according to a Oct. 31 statement.

Early Stages

Vale and Glencore, the metals producer and 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 3.3 percent to 33.32 reais at the close in Sao Paulo, the most since Oct. 18. Shares of Glencore lost 2.6 percent to 333 pence in London. Nickel for delivery in three months declined 0.8 percent to $14,000 a ton on the London Metal Exchange, extending its 2013 decline to 18 percent.

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.

Output Growth

The global nickel market is in a “large structural oversupply” due to the output growth of nickel pig iron, a lower-grade substitute known as NPI, by Chinese companies, Vale said yesterday in an earnings release.

“In spite of the strong demand for nickel, inventories are estimated to be equivalent to 25 weeks of consumption,” it said. “Supply cuts have been limited, which is explained by the high costs of closure due to the environmental clean-up and redundancy expenditures.”

Vale also said yesterday it expects to start two new nickel projects in Canada this quarter, including the $4.25 billion Long Harbour hydrometallurgical integrated plant and the $759 million Totten nickel-copper mine in Sudbury.

Glencore, which acquired the Canadian nickel operation through its $29 billion takeover of Xstrata Plc in May, has written down the value of Xstrata assets by $7.7 billion to reflect “the broader negative mining industry environment,” it said in Sept. The company on Oct. 3 said it would immediately halt production at the Falcondo nickel mine in the Dominican Republic due to a slump in prices for the metal.

To contact the reporter on this story: Juan Pablo Spinetto in Rio de Janeiro at

To contact the editor responsible for this story: James Attwood at

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