RIO DE JANEIRO, Nov 7 (Reuters) - Brazil's Vale confirmed on Thursday it is in talks with Glencore Xstrata over potential cooperation between the mining groups'nickel operations in Canada's Sudbury basin, in an effort to cutcosts as prices languish.
Vale said on Thursday it was not planning "a corporate jointventure" in Sudbury, but was looking at other options to joinforces in mining, milling and smelting to save cash.
Nickel prices have fallen by around a fifth since Januaryand are languishing around four-year lows, weighed down byoversupply.
"We are looking at the synergies now and plan to startnegotiating next year," Vale's chief executive Murilo Ferreiratold analysts in a quarterly earnings call, adding an eventualdeal would not involve a full merger.
Reuters reported last month that Glencore and Vale hadrevived talks over long-debated cooperation in Sudbury, with thecompanies considering a number of options for their mining andprocessing operations in the area.
Sources familiar with the situation said then that talkswere at an early stage.
"We are looking at ways to create synergies for ournon-ferrous operations," Peter Poppinga, Vale's head ofnon-ferrous metals, said.
The two main operators in Sudbury have held talks on joiningforces on more than one occasion before, both as Inco andFalconbridge and, later, as successor companies Vale andXstrata.
Analysts have long said a tie-up would make sense for twooperators mining the 60 km-long, oval-shaped formation known asthe Sudbury basin.
The sources had said a tough nickel market, pressure on Valeover nickel difficulties at its Goro nickel-cobalt mine in NewCaledonia and elsewhere could make a deal more likely this timethan in the past. Equally, the problems across Vale's nickeldivision could prove distracting.
Vale, the world's second-largest nickel producer, said onThursday it did not expect to have to take a writedown on thevalue of Goro.
The company is targeting 40,000 tonnes of output from Goroin 2014, "mostly refined nickel" Poppinga said, a factor thatwill help the mine break even. That level will be higher thanthe expected 60 percent refined nickel this year.
Poppinga expects Goro, also known as Vale Nova Caledonia, toproduce earnings before interest, taxes, depreciation andamortization (EBITDA) of $500 million to $600 million a yearover the long term.
Another of Vale's trouble-hit nickel mines, Onca Puma innorthern Brazil, is ramping up and should hit 60 percent ofcapacity next year, it said. Vale has faced furnace designproblems and was forced to shut down the operation in June 2012.
Vale took a $2.85 billion writedown on Onca Puma last year.
- Basic Materials Industry
- Sudbury basin