New Century Resources will get $US500m from Vale to take Goro mine
Brazil’s Vale will pay $US500m to help offload its New Caledonia nickel mine to New Century Resources.
New Century Resources says Brazil’s Vale is prepared to kick in about $US500m to smooth the path to offloading its Goro nickel mine in New Caledonia, as the Australian miner nears a deal on the acquisition of the loss-making operation.
New Century said on Tuesday it has agreed indicative terms for the acquisition of the project, which cost Vale billions to build and is yet to return anything near its construction costs.
The ASX-listed miner said on Tuesday it had signed indicative term sheets for the acquisition, and extended an exclusivity agreement with Vale for another 45 days, and it expected to make a decision on whether it would make a binding offer for the project by September.
While New Century warned that no binding agreement had yet been signed, under the indicative terms of the agreement Vale would leave about $US500m in the local company that controls the mine to complete a “simplification plan” to turn the mine around, with the French government in discussions over the renewal of a €200 million facility.
On top of that New Century would need to find $US100m through its own debt facilities to back Goro’s operations in the short term, along with a partner prepared to kick in another $US100m to take an equity stake in the project, or pre-pay for offtake contracts.
IGO (formerly known as Independence Group) took a 20 per cent stake in New Century as it was negotiating the early stages of a deal with Vale for Goro, and is believed to have expressed an interest in offtake from the nickel mine.
Vale is in the process of shutting Goro’s nickel oxide refinery, the source of much of the project’s troubles, according to New Century managing director Pat Walta.
Last year the Brazilian mining major announced a $US500m plan to decommission the refinery and simplify the operation to include mining and high-pressure acid leach processing to produce a mixed nickel and cobalt hydroxide product, in demand as a key feedstock to the lithium battery sector.
Mr Walta said the money Vale was leaving in the kitty would ensure New Century would be able to complete the simplification work, and have enough working capital available to shepherd the mine to profitability.
In turn, Vale would be freed of the troubled mine, which cost more than $US4.5bn to build and has been bleeding cash at a rate better than $US100m a year ever since. Goro lost $US1.6bn between 2014 and 2016 alone, and is estimated to have cost Vale more than $US9bn since work on the project began.
Mr Walta said New Century would be unlikely to take control of Goro before the end of the year, even if all went well, and said it may still take some time before the operation is generating cash, even though its performance was much improved in recent months.
“We’re looking to achieve production closer to 40,000 tonnes a year which it’s already close to. If you look at its current run rate on a monthly performance basis, it’s only 10 per cent off that,” he said.
“In terms of profitability, that’s going to be triggered by increasing that production rate and also lowering costs – there’s lowering costs. There’s a whole raft of costs that need to be stripped out of the business over time. Depending on where nickel goes, but certainly at the current nickel price it’s pretty attractive, I think you’ll find we can get to that cost-positive status pretty quickly.”
“Even now it’s a long way from where it was six months or so ago, when it was haemorrhaging cash.”
New Century shares closed up 7.7 per cent, or 1.5c, to 21c on Tuesday.
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