New Century's Goro push not stupid

IT seems to go against the natural order of things when a company like New Century with its A$225 million market cap is able to secure a 60-day right to negotiate the acquisition of a project like Vale’s Goro nickel operation in New Caledonia with its US$9 billion in sunk capital, writes Barry FitzGerald.
New Century's Goro push not stupid New Century's Goro push not stupid New Century's Goro push not stupid New Century's Goro push not stupid New Century's Goro push not stupid

New Century managing director Patrick Walta

Barry FitzGerald

That is even more so when there is agreement on both sides that the potential acquisition is to be of the negative consideration type in that Vale is to continue funding a $500 million makeover of the operation, as well as jointly lobbying France for a rollover/extinguishment of a €200 million state project loan.

But it has to be remembered that New Century has built a brand around securing such deals, and that mining majors like Vale have form in moving on from big-ticket projects for little or no return when, for one reason or another, the projects are determined to have become non-core.

New Century's reason for being was its 2016 acquisition of the Century zinc mine in north Queensland on its closure by China's MMG, with MMG supporting an economic rehabilitation concept based on a tailings retreatment operation which became a reality in August 2018.

That support was in the form of A$46.6 million in funding from MMG which also continued to cover the project's $194 million environmental bond.  On the other side of the deal, New Century picked up more than $2 billion in sunk capital across a treatment plant, an ore transport pipeline and a port.

All the sunk capital in the world doesn't matter much if there is not a profitable and sustainable project to be had on the other side of a negative consideration deal.

After some hard yards, and with some more work to do, New Century's tailings retreatment project is poised to deliver those objectives, certainly once zinc prices recover from the COVID-19 hit.

Goro is different to the Century pick up in that it is an active mine and processing operation, with 50 years of ahead of it. But only if it stops losing money hand over fist, as it has been since production started in 2011.

Built as a truly world-scale 57,000tpa nickel producer, Goro has never got close to capacity. Its best production year was in 2017 with output of 37,400t. Last year output was less than half of capacity at 23,400t.

Vale is not alone amongst the major miners to have built an expensive and poorly performed laterite nickel project. BHP spent more than $3 billion on Ravensthorpe in WA only to close it early in 2009 after one year of operation.

The written off Ravensthorpe was sold to Canada's First Quantum for all of US$340 million which returned a modified version of the project to production before the nickel price slump forced its closure 2017, with production now resuming.

BHP caused a lot of bad blood with the way it handled Ravensthorpe's initial closure. The local communities were rocked by the 1800 job losses, with workers and small businesses feeling abandoned by the company.

It was the type of bad blood that Vale is keen to avoid with its other option for Goro - its closure.

That's particularly so given Goro's importance to New Caledonia's fragile economy, and Vale's own pursuit of a new social compact in light of its two Brazilian iron ore tailings dam disasters, the first of which was at the Samarco joint venture with BHP.

While Vale's potential exit from Goro - first flagged last year - is said to have been a competitive process amongst potential buyers, New Century's success in north Queensland post MMG's exit across the ESG issues that matter nowadays would be what it wants for Goro after it is gone.

And like MMG, it is willing to financially assist to make it happen.

But again, there is no point in New Century securing the keys to Goro if the project continues to bleed cash. That's why there was clear nervousness in the New Century market on Monday, with its shares down 8% to A23c.

Initially at least, the market did not care much that New Century had secured the chance to be funded in to a project that has had US$9 billion spent on it. Goro has been a dog and its problems are insurmountable, such is its reputation. After all, why else would Vale be selling?

New Century managing director Pat Walta acknowledges all that but does so with a grin as it been Goro's woes that has created the opportunity in the first place.

"We are not stupid. We are not going in to this saying we think we can churn the butter harder and we will make it a success, or that we are hoping for nickel to go to US$20,000t and we'll be right," Walta told MNN.

He said New Century had its eyes wide open, and that it would be bringing the elbow grease required under a Vale hatched plan to establish Goro as a sustainable mid-cost producer over coming years.

The Vale plan is one of elimination in the flowsheet, with processing at the HPAL plant switching to lower grade but low impurity limonite ore feed only, and the troublesome refinery decommissioned, taking Goro from a 80:20% mix of nickel oxides and mixed hydroxide product (MHP) to 100% MHP, the preferred intermediate product for the nickel sulphate used in batteries.

Apart from removing the need for the complex refinery, moving to 100% MHP product plugs Goro in to the revolution in electric vehicles and the storage of renewable energy.

While the EV revolution is currently stalled due to COVID-19, the longer-term demand trend has increased the nickel payability of MHP, making the pivot from mainly producing nickel for the stainless steel industry towards the battery revolution - Goro is also a big cobalt producer - all the more appealing.

Permission for the long-term export of 2Mtpa of saprolite ore from the layered orebody is to be sought and the project's environmental and safety credentials are to be enhanced by switching to the dry stacking of tailings.

The simplification plan sounds easy when said quickly. But it won't be, and it will require all the elbow grease New Century can bring to the challenge.    

"It's a massive prize if we get it right," Walta said.

"It is the New Century deal on steroids." Maybe so, but first New Century has to clinch the deal.