14 Feb 2024

Mining giant to freeze, sell shares in New Caledonia’s Northern nickel mine

10:10 am on 14 February 2024
Koniambo nickel operation.

Koniambo nickel operation. Photo: Image courtesy of Glencore.

Mining giant Glencore has announced on Monday it has now decided to put its Koniambo nickel mining operation in New Caledonia in "care and maintenance" status and further seek to sell its 49 percent stake after accumulating huge losses over the past ten years.

In a release from its Swiss headquarters, the Anglo-Swiss company announced the transition would involve keeping the furnaces "hot" for the next six months and "initiate a process to identify a potential new industrial partner" for the New Caledonian mining and processing site.

For the next six months, all employees will be retained to aid in the transition, the same sources said.

Koniambo Nickel SAS (KNS) is a joint venture between Glencore plc (49 percent) and Société Minière du Sud Pacifique SA (SMSP - 51 percent - which itself is controlled by New Caledonia's Northern province).

Glencore said its decision comes after several months of extensive discussions with relevant government and other key stakeholders.

In November, French economy and finance minister Bruno Le Maire travelled to New Caledonia and delivered a strong warning regarding the French Pacific territory's nickel industry and its three major players, saying they had accumulated huge losses and were now presenting financing needs to the tune of €1.5 billion.

A French government audit released in August 2023 was also concluding to the same critical situation, citing as factors a lack of competitiveness, a lack of diversification in export markets and high production costs.

€14b in losses

Over the past ten years, KNS alone had accumulated a staggering €14 billion in losses.

Last week, Le Maire asked all French and foreign stakeholders in New Caledonia's nickel industry to "take their responsibilities" and stressed again the the French government could not be expected to subsidise operations that were consistently generating losses.

Since then, Paris has sought to get New Caledonia's nickel industry to agree to a "pact" to salvage operations that are already considered as being on the verge of collapse.

The "pact" would involve relaxing restrictions imposed to raw nickel exports, as was the rule until now, in order to allow miners to sell unprocessed nickel (which is a profitable operation).

Last week, Le Maire however put on the table a financial rescue package of some 205m Euros, a mix of loans and financial assistance to help reduce key production costs such as electricity.

"Even with the French government's proposed assistance, high operating costs and current very weak nickel market conditions means KNS remains an unprofitable and unsustainable operation…and Glencore cannot justify continuing to fund losses to the detriment of its shareholders", Glencore reacted on Monday.

Reacting to Glencore's announcement, the French government said it would continue to "accompany" KNS and other key nickel stakeholders in a bid to implement much-needed in-depth reforms and make New Caledonia's nickel more competitive on the world market.

The other two major players in New Caledonia's troubled nickel industry are Société le Nickel (SLN, majority owned by French mining giant Eramet) and Prony Resources (with a minority shareholding by Swiss commodity merchant Trafigura).

They are both located in the South of New Caledonia's main island.

Glencore  commodities trader logo front of headquarters in Baar, Switzerland,

Glencore commodities trader logo front of headquarters in Baar, Switzerland, Photo: Supplied

A new Chinese investor?

Since Glencore acquired shares in KNS, in 2013, "more than US$4b has been funded by Glencore since 2013, and a total of US$9b since project inception. For over ten years, Glencore has been the primary funder of KNS without ever realising a profit", the company stressed.

The French government added that at this stage, a new "Chinese" investor was being considered to take over Glencore's KNS stake.

The gradual transition process for New Caledonia's KNS could have significant social and political repercussions as it is directly threatening a total of some 1300 local jobs at Koniambo, once the symbol of a process of "re-balancing" New Caledonia's perceived inequalities between the affluent South and the Northern part, where most of the indigenous Kanak population lives.

The decision comes as world nickel prices continue to experience a steep drop, suffering the loss of almost half of its price (-42 percent) over the past year, forcing several operators worldwide to either close, re-sell or halt their activities.

In Australia, Wyloo Metals Pty Ltd., the nickel company owned by mining magnate Andrew Forrest, also announced in January that it was shutting down its Western Australian mines.

The series of closures was also de facto strengthening Asia's dominant position in the global nickel supply chain.

By contrast, China and Indonesia have significantly increased their process capacities to produce cheaper nickel in larger quantities.

Paradoxically, world demand for nickel continues to experience a rise, especially from the car manufacturing industry which transitions into electric vehicles.