UPDATE 1-Vale invokes force majeure at nickel project

Thu May 10, 2012 7:05pm EDT

* Declaration prompted by sulfuric acid plant accident

* Vale was raising output at New Caledonia nickel project

* Company seeks to become No. 1 nickel producer in 2012

* Vale's Goro nickel mine seen becoming world's largest

SAO PAULO, May 10 (Reuters) - Vale, the world's second-biggest nickel producer, said on Thursday it would suspend sales and purchase agreements at its Goro project on the French Pacific island of New Caledonia after an accident at the mine's sulfuric acid plant.

Rio de Janeiro-based Vale declared "force majeure" after the accident, a legal term allowing a company to ignore contractual obligations when faced with events outside of its control.

The declaration affects shipments to a single Vale client and shipments from a group of suppliers, Vale said.

No one was hurt and no ecological damage resulted from the accident, the company said. Sulfuric acid is used in the high-pressure acid-leaching process of refining nickel ore.

The company is evaluating the conditions at the plant and will only be able to give additional information when that evaluation is complete, Vale said.

The Goro project, which is expected to become the world's largest nickel mine, is designed to produce as much as 60,000 tonnes a year of nickel and 4,600 tonnes of cobalt a year.

The project's output would then be 3.5 percent of estimated global output of about 1.7 million tonnes of nickel this year.

Vale is counting on the mine, and new production at nickel mines in Canada, Brazil and Indonesia, to help it overtake Russia's GMK Norilsk Nickel as the world's largest nickel producer, Chief Financial Officer Tito Martins said earlier this year.

Vale began ramping up output at Goro in the fourth quarter and produced 4,000 tonnes of nickel in the first three months of 2012, Vale said.

Goro's start-up was delayed several years and costs soared to more than $4 billion from $1.9 billion, after protests by local islanders raised environmental concerns and soaring commodities prices boosted equipment and engineering costs.

Nickel is primarily used to make steel harder and rust-resistant and is a product, along with iron ore and coking coal, that Vale sells to steelmakers.

Nickel for delivery in three months was little changed, falling 0.17 percent to $17,165 a tonne in London trading on Thursday.

Cobalt is used in the preparation of magnetic, high-strength metal alloys and is one of the main byproducts of nickel mining.

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