* Nickel prices up more than a third this year
* Talks on partnership unlikely to resume -sources
* Inco, Falconbridge tried in the past to combine assets
By Silvia Antonioli
LONDON, Sept 2 Vale and Glencore
have broken off talks over combining their nickel
assets in Canada in a deal that could have produced over $1
billion in annual cost savings, sources close to the matter
The discussions over linking the two companies' neighbouring
nickel mining and processing facilities in the Sudbury basin in
southeast Canada broke down partly due to disagreement over how
to share the costs and savings and to worries about government
and labour union reaction to potential job cuts and shutdowns,
the sources said.
At the same time, a recovery in nickel prices has made cost
rationalization less urgent, they added.
"Both sides more or less agreed on what the optimum
structure of a combined Sudbury business would look like, but to
enable that to be created, very difficult decisions needed to be
taken, and the appetite or the ability to take those decisions
was not there," a source with knowledge of the situation said.
Glencore and Vale declined to comment.
One of the sources said differences in corporate culture --
with Swiss-based trader and mine operator Glencore more willing
to take risk and Brazilian miner Vale more conservative -- also
played a role.
A combination of the nickel assets in Canada had already
been attempted by their previous owners, Inco and Falconbridge,
which in the mid-2000s came close to an agreement before they
were acquired by Vale and Xstrata.
The talks between Vale and Glencore, which bought Xstrata
last year, started in late 2013, when the nickel price
was hovering around a four-year low.
The companies were at the time hoping to seal a deal in
In January, major exporter Indonesia imposed a ban on the
export of nickel ore to boost downstream investment in the
country. This was a game-changer for the nickel market, pushing
the price up by more than a third so far and making the need for
cost-savings and restructuring less pressing.
At the end of April, Vale Chief Executive Murilo Ferreira
said it was still discussing a partnership with Glencore.
Since then, comments on the deal from executives on both
sides have turned pessimistic.
Vale's head of the base metals division, Peter Poppinga,
said in July that there had been a "strategic break in bigger
discussions" and the companies were focusing on a tie-up on
smaller projects to begin with.
Glencore Chief Executive Ivan Glasenberg said in August at a
results presentation that the talks "were very slow and very
With the Indonesian ban in place for the foreseeable
future, the talks between Glencore and Vale are unlikely to
resume, the sources said.
"If the nickel price were still weak, then a lot of these
operations would be under water, and the imperative to cut costs
acts as a very great focus for management," Bernstein Research
analyst Paul Gait said.
"But the nickel price has recovered and that makes any kind
of restructuring much harder to achieve. It becomes very
difficult to persuade the government and a highly unionised
workforce that restructuring is needed when you have
(Additional reporting by Stephen Eisenhammer in Rio De Janeiro;
editing by Jane Baird)