Selling nickel to Asia – New Caledonian mining challenge to French control
Part 2 of a two-part series
25 February, 2013
Pacific Scoop special report by Nic Maclellan
New Caledonia’s nickel industry is being transformed as new joint ventures and exports to Asia challenge France’s control of the strategic minerals sector.
New Caledonia holds more than 25 percent of the world’s nickel reserves, as well as other strategic metals. The mining, processing and export of these ores are central to New Caledonia’s political as well as economic future, as the country moves to a new political status after 2014.
The FLNKS independence movement sees the control of the islands’ major industry as a key part of their struggle.
Historically, New Caledonia’s nickel sector has been dominated by Société le Nickel (SLN), a subsidiary of the French corporation ERAMET, which in turn is controlled by the French government through its FSI strategic investment fund.
But there has long been tension between the French state and local New Caledonian interests over the management of the industry.
During the nickel boom of the late 1960s and 1970s, SLN lobbied the French government to restrict investment from overseas competitors.
SLN’s dominant position was assisted by the 1969 Billotte laws, which increased Paris’ control of mining regulation, transferred the authority to set export quotas to the French Ministry of Industry and effectively restricted access by Canadian and Australian nickel companies.
For decades, SLN has operated New Caledonia’s only nickel smelter at Doniambo in Noumea, powered by the Yate hydro-electricity scheme. But in a period of European economic woe and expanding Asian economies, times are changing and SLN is not the only game in town.
Today, the Brazilian corporation Vale is building a major processing plant at Goro in the south-east of the main island Grande Terre.
Vale nickel port
The new US$2 billion Vale nickel mine port near Goro, on southern Grande Terre. Image: Aecom
But the major breakthrough in “economic rebalancing”—a central pillar of the 1998 Noumea Accord—is the new industrial activity in the Northern Province, where the population is largely Kanak.
Recognising the importance of the mining sector for economic development, the FLNKS independence movement negotiated to break ERAMET-SLN’s control in the 1990s.
Boom times in north
The Noumea Accord was only signed in May 1998 after ERAMET and the French government agreed to a préalable minière (mining pre-condition), with the signing of the Bercy Accord in February that year.
Under this deal, SLN ceded major nickel reserves at Koniambo to Société minière du sud Pacifique (SMSP), a mining company majority controlled by the Northern Province’s local government.
New Caledonia’s three provincial governments also obtained shares in SLN, as a contribution to economic “rebalancing” that is a core element of New Caledonia’s decolonisation process.
New Caledonia’s capital Noumea and the surrounding Southern Province have long hosted much of the country’s economic infrastructure.
But today, driving north to the provincial capital of Kone, you can see a range of activities which are transforming the rural north.
There are new roads and roundabouts, industrial construction, housing estates and commercial operations along the corridor known as “VKP”, linking the west coast towns of Voh, Kone and Pouembout.
The centre piece of all this change is the “projet du nord”—the construction of a processing plant in the north, which will end SLN’s long-held monopoly of nickel smelting.
But there are spinoffs in all directions, with new cultural, sporting and educational facilities across the province.
In 2012, the Agence de Développement de la Culture Kanak (ADCK) opened a branch in Kone, as did the Chamber of Commerce and Industry (CCI).
In early 2013, the Pentecost group will complete the giant Teari commercial centre with supermarkets and shops at Green Acre (a new subdivision south of Kone), costing 1.4 billion Pacific francs.
The pace of construction is so great that a subsidiary of the Australian corporation BlueScope Steel is building a steel fabrication plant in the Northern Province to complement its existing factory in Noumea.
As the project got underway in 2008, the President of the Northern Province, Paul Neaoutyine, outlined his vision: “Building the Northern smelter has long been an objective of the FLNKS, not only to rebalance the economy between the provinces, but also to show that New Caledonia can be independent.
“We need projects of sufficient weight to turn things around. This is the whole challenge of economic rebalancing, which we started discussing in the Matignon-Oudinot Accords of 1988.”
The driving force of the Northern Province’s transformation is the Société minière du sud Pacifique (SMSP), led by president and CEO Andre Dang.
Friend of Tjibaou
Dang is a long-time supporter of the FLNKS and a close friend of the late independence leader Jean-Marie Tjibaou.
Starting as a garage owner, Dang made his fortune importing cars and trucks to New Caledonia.
He moved into a leading role with SMSP after the November 2000 death of SMSP president Raphael Pidjot in a helicopter crash – an accident that many Kanaks still regard as suspicious.
Controlled by the Northern Province’s holding company SOFINOR, SMSP has diversified its operations through a number of joint ventures and subsidiaries.
The Northern smelter project is run by Koniambo Nickel SAS (KNS), a partnership between SMSP and the major UK-Swiss corporation Xstrata.
Along with Cotransmine (shipping and stevedoring), SMSP also has two joint ventures with the Korean group Posco: the Nickel Mining Company (NMC) and the nickel processing company Société du Nickel de Nouvelle-Calédonie et Corée (SNNC).
Although it relies on overseas technology, capital and expertise, SMSP has retained a 51 percent interest in all its joint ventures.
In recent years, SMSP has become a leading exporter of nickel ore on the global stage, with exports to Australia, Japan and Ukraine.
Since June 2006, SMSP has also been supplying the Chinese market through a deal with China’s Ningbo Corporation.
But the centrepiece of SMSP’s re-alignment of the nickel industry is the Koniambo project. SMSP is developing mineral reserves from the Koniambo massif, with an estimated 21 sq km of high grade nickel in this central mountain range.
The ore is transported over the mountains to a newly constructed processing plant at Vavouto. This complex, located north of the provincial capital Kone, includes a smelter, processing plant, power station, port and industrial zone.
Since 2008, the joint venture KNS has been sending local Kanak workers to French-speaking Quebec for training, but now the project is moving from the construction phase to preliminary testing of the smelter, with production to begin early this year.
The ore preparation plant and overland conveyer are in operation, with a second production line scheduled to be complete by mid-2013.
Deals with Korea, China
To raise capital for its share of the US$5 billion Koniambo-Vavouto project, SMSP has struck two major deals, firstly in Korea and now in China.
SMSP has increased exports of lower grade base minerals that are unsuitable for processing by KNS and will use the profits to invest in operations at Vavouto. Dang’s strategy has been denounced by some anti-independence leaders, who have criticised the increased export of ore without value adding.
But SMSP is seeking to provide an alternative to reliance on French capital, by feeding the booming economies of Asia.
So far, the joint venture SNNC project has been a major success for SMSP and its Korean partner Posco.
Through its subsidiary Nickel Mining Company (NMC), SMSP exports up to 1.8 million tonnes of ore to Korea each year from mines at Ouaco, Poya, Nakety and Kouaoua (there are nearly 90 million tonnes of reserves, allowing exports to continue for decades).
SNNC uses these lower grade ores to feed a processing plant at Gwangyang, producing crude ferronickel (which contains about 20 per cent nickel and 80 percent iron).
Although production only began in 2008, SMSP and Posco have already agreed to expand operations at Gwangyang from mid-2014.
Using a $450 million investment to build a second electric smelting furnace and rotary kiln, with extra port and storage facilities, SNNC aims to increase production from 30,000 to 54,000 tonnes of ferronickel each year.
Last June, members of the Northern Province assembly travelled to Korea to inspect the proposed expansion of the Gwangyang plant.
Two months later, a Korean delegation arrived in New Caledonia to inspect new mine sites in the Northern Province.
The rapid growth of the Korean operation has sparked interest in other quarters, leading to a new deal with the state-owned Chinese corporation Jinchuan (the third largest nickel producer in the world, after Norilsk Nickel and Vale).
After nearly four years of discussions, SMSP signed an initial partnership MOU with Jinchuan in June 2011.
In a rare coup, SMSP retains a 51 percent majority in the partnership after Chinese authorities amended a law last year that bans majority control by a foreign corporation in China’s metallurgy sector.
Through the Caledonian Chinese Mining Company (CMCC), SMSP and Jinchuan will build a nickel processing plant in Guangxi, located in southern China near the border of Vietnam.
The plant, scheduled to begin operations in 2017, will use laterite minerals from the east coast of New Caledonia’s Northern Province.
The project, worth US$1 billion, aims to produce 30,000 tonnes of nickel hydroxide and 3,000 tonnes of cobalt a year.
Debate over future
In spite of these successes, there is still extensive debate in New Caledonia about the scale and timing of the SMSP initiatives.
The decision to process more resources offshore has been criticised by anti-independence leaders like Frogier and Pierre Bretegnier of the Rassemblement UMP party (RUMP).
In turn, FLNKS leaders have criticised ERAMET-SLN for its failure to develop processing capacity for lower grade minerals.
In the Northern Province, there is some community concern about the rapid development along the VKP corridor, and how economic benefits will be shared with Kanak tribes along the east coast and in the vast mountain range that divides New Caledonia’s main island.
A key priority is to expand opportunities for local contracting, provide employment opportunities for women and training for young Kanak villagers.
Local NGOs seek better regulation of the inevitable environmental impacts from the mining and industrial production.
Since 2010, the Comité stratégique industriel (CSI) led by French public servant Anne Duthilleul has been looking at strategic options for the future of the nickel industry.
But Duthilleul’s recommendations, issued in late 2012, were widely criticised by a range of New Caledonian leaders for favouring the interests of SLN’s existing operations, rather than the SMSP’s new initiatives.
SLN’s major shareowners are ERAMET (56 percent) and Japan’s Nisshin Steel (10 percent), with New Caledonia’s three provinces controlling the remaining 34 percent through a public company Société Territoriale Calédonienne de Participation Industrielle (STPCI).
To further challenge control by the French government, independence leaders have suggested that the STPCI stake could be increased to 51 per cent. However, according to RUMP’s Pierre Bretegnier: “If the STPCI takes 51 percent of SLN, ERAMET will leave. It won’t have any reason to stay if it is a minority stakeholder.”
French attitudes to the Koniambo project have also been complicated by corporate manoeuvring between Xstrata and the Swiss-based corporation Glencore (the world’s biggest private metals trader), which already owns 34 percent of Xstrata’s shares.
Within months, a merger between Glencore and Xstrata should be finalised (Koniambo will start production regardless of the corporate restructuring).
The newer technology used by KNS and SNNC will produce more profitable results than SLN’s ageing Doniambo smelter in Noumea.
In recent months, President Harold Martin and other politicians have criticised SLN for its plan to construct a new 180-MW coal-fired power station to support Doniambo, at a time when New Caledonia is increasingly concerned about the impacts of climate change on rural bushfires, cyclones or the World Heritage-listed reef ecosystem.
However, SLN has its own expansion plans, looking at the development of new mine sites on the east coast, with the Stamboul mine (near Kouaoua) to feed the Doniambo smelter.
Future expansion of the sector will be governed by the global market for nickel products—a drop in demand in 2012 has raised some tremors.
In spite of all this, the deals with emerging Asian economies have threatened France’s long-time stranglehold over the strategic minerals sector.
This ongoing challenge to French power has significant implications as supporters and opponents of independence head to the polls in 2014.
Nic Maclellan is an independent Australian journalist specialising in Pacific affairs. This article was first published in Islands Business magazine and has been republished with the author's permission.
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