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Nickel miner Vale continues to cut costs
Major nickel producer Vale Indonesia (INCO) continues to cut costs to prevent further loss as nickel prices have yet to show signs of recovery
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ajor nickel producer Vale Indonesia (INCO) continues to cut costs to prevent further loss as nickel prices have yet to show signs of recovery.
The publicly listed firm has taken short and long term efficiency measures, said chief financial officer Febriany. Business travel reduction and a hiring freeze are some of the short-term measures the firm has implemented so far.
“We will delay whatever plans that can be delayed without lowering the company’s core quality,” she said after a recent annual general shareholders’ meeting.
In the long term, the firm — which is owned by Vale Canada Limited, Sumitomo Metal Mining Co. Ltd., Vale Japan Limited, Sumitomo Corporation and the public — seeks to significantly diversify fuel use to reduce costs.
It already owns three coal-based power plants with a combined capacity of 365 megawatt in Sorowako, South Sulawesi, where it operates its major mining and smelter site.
The plants have enabled Vale to generate the electricity required to operate a furnace at its smelter, cutting its dependence on state-owned electricity firm Perusahaan Listrik Negara (PLN).
However, several parts at the smelter, such as reduction rotary kilns and dryers, are still highly dependent on oil and thus remain a burden on the firm’s finances.
The firm has been conducting tests on some of the kilns and dryers using both oil and coal since last year, Febriany said. “We want to be able to fuel them using oil and coal to diversify fuel choices. Coal is now cheaper than oil”.
In addition, Vale is also planning to repair existing equipment and to purchase any new equipment required to lower future production costs.
All works will be funded by the firm’s capital expenditure, currently set at US$90 million to $100 million. The figure is still open for review in accordance with the nickel price.
Bloomberg reported last week that the price of nickel had fallen to an eight week low. Nickel, for delivery within three months, slipped 4.8 percent to settle at US$9,705 per metric ton last Tuesday on the London Metal Exchange, the biggest loss since May 9.
The fall was attributed to the concern that shipments from the Philippines to China would be disrupted due to standards enforced by the new Philippine government. The Philippines is the biggest supplier of nickel ore to China.
“We will delay whatever plans that can be delayed without lowering the company’s core quality.”
From January to March this year, Vale sold its nickel matte for $6,618 on average, almost half the selling price of $11,745 reported during the same period last year.
Free-falling prices have left Vale in the red with $15.42 million in net losses reported for the first quarter, reversing its first quarter of 2015 net profit of $25.06 million.
Vale also sold a lower volume of nickel matte in the first three months as several facilities were shut down for maintenance, reducing capacity. Its nickel sales volume stood at 16,427 tons in the first quarter, 8.9 percent lower than a year ago.
Vale currently exports all of its nickel matte to its parent companies Vale Canada Limited and Sumitomo Metal Mining under a permanent contract that allows the firm to lower business risk during economic slowdown, Febriany said.
As the global situation remains uncertain, Vale is targeting a production of 80,000 tons this year, from 81,177 tons last year.
Its 118,435 hectare mining concession area is located in Sorowako, South Sulawesi, Bahodopi in Central Sulawesi and Pomalaa and Suasua in Southeast Sulawesi. Currently, Sorowako is the firm’s only active site. Vale has yet to be granted operation permits for the other sites.
