UPDATE 1-CVRD aims to complete Goro nickel project by end-2008
Tue Mar 6, 2007 6:38am ET143
yahoo.reuters.com
By Lucy Hornby
BEIJING, March 6 (Reuters) - Brazilian miner CVRD plans to complete its Goro nickel-mining project in the French territory of New Caledonia by end 2008 to meet growing demand from stainless steel makers in China, its chief executive said.
"We are going to do everything that's possible to finalise the project in the last quarter of 2008," Roger Agnelli said on Tuesday, after visiting New Caledonia last week. "It's a challenge but we are trying to do that."
The final cost of the project is still under review but will likely be "about $3 billion", Agnelli said in an interview with Reuters and a local newspaper. The figures were in line with the company's November projection.
Companhia Vale do Rio Doce (VALE5.SA: Quote, Profile , Research)(RIO.N: Quote, Profile , Research) inherited Goro when it purchased Canadian nickel miner Inco in 2006. In November, it pushed the cost estimate 40 percent higher to $3 billion and said production would start in late 2008.
Rumours had circulated ahead of Agnelli's visit to the South Pacific territory that the company might pull the plug on Goro, as costs rose and environmental activists fought the project.
"When I left New Caledonia Saturday I was very positive that we are going to develop this project there without any major problems," Agnelli said, adding that the government there is analysing proposals to reduce manganese emissions and address other environmental concerns.
"The cost is above the initial budget, but the project is consistent with the ultimate returns that we are expecting."
Nickel futures <MZN3> have soared on growing stainless steel capacity, particularly in China, and delays in key new projects like Goro. Nickel hit an all-time high of $42,200 a tonne on March 1.
A $62 million, 32,000-tonne-per-year nickel refinery in Dalian, China, originally conceived by Inco to offtake from Goro, is slated to begin operations in July 2008. That plant will now process material from Inco's Sudbury complex in Canada, Murilo Ferreira, chief executive of CVRD Inco Ltd, said.
New mines, including Goro, will bring CVRD's nickel output to 500,000 tonnes by 2010, Agnelli said. Production will rise to 283,000 tonnes in 2007, up nearly 15 percent from 2006.
"Today the nickel market is very tight. We are speeding up production but it is not really matching global demand. With this 500,000 tonnes of nickel by 2010, we believe that the market can be more balanced," Agnelli said.
IRON ORE
Agnelli also said his company is talking to ports either in Dalian or in Caofeidian, in Hebei province, about a terminal investment to speed iron ore delivery to China, CVRD's largest market.
In the last five years, CVRD's iron ore output has tripled to 300 million tonnes, but sales to China have quintupled to 100 million tonnes, Agnelli said, highlighting China's importance.
CVRD is talking to Chinese shipyards to build six ships that can carry 380,000 tonnes each of iron ore from Brazil. It is trying to persuade Chinese mills to enter term shipping contracts to smooth out volatility in their landed costs.
CVRD, which has coal investments in China, also is seeking Chinese firms to build coal-fired power plants in Brazil and Mozambique.
But while analysts, including Citigroup's Alan Heap, have forecast the world's iron ore market will move into surplus this year or next, Agnelli was prepared for another long bout of negotiations over next year's term price.
Chinese steel mills set term iron ore prices for the first time ever when they agreed in December to a 9.5 percent rise effective April 1. Many in China believe lead negotiator Baosteel Group was willing to accept a price rise at the high end of the forecast range for 2007, in order to claim the prime bargaining position in the following round.
But Agnelli said strong growth in Chinese steel production meant the iron ore market would still be tight, implying tough negotiations again next time.
"There are many nice rooms and nice tables to keep negotiating the price of iron ore."
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