Australia's New Century Resources (ASX: NCZ) has confirmed rumours of talks with Vale (NYSE: VALE) to buy the Brazilian miner's nickel and cobalt operations on the Pacific island of New Caledonia.
The Melbourne-based zinc producer said on May 26 that it had entered into a 60-day exclusivity period with Vale to complete due diligence and negotiate the acquisition of 95% of Vale Nouvelle Cal?(C)donie (VNC).
VNC owns and operates the troubled Goro nickel-cobalt mine in the French territory, which has proven a financial burden for Vale since it began operations, two years behind schedule, in 2010.
The Rio de Janeiro-based miner first announced its intention to exit operations in New Caledonia in December. The decision came after it had to write down US$1.6 billion in the fourth quarter related to the ailing mines, the world's biggest nickel operations.
In April, Vale cut its 2020 nickel production guidance to 200,000-210-000 tonnes per year from 240,000 tonnes per year to account for the anticipated loss of VNC's 60,000-tonne per year output.
Shortly after, the miner revealed it had received non-binding offers for VNC, which includes the Goro mine, a processing plant, and the port of Prony.
The companies didn't disclose financial details of the deal, but Vale had previously said it would book a US$400 million impairment on any sale.
New Century noted if the transaction goes through, the financial terms would include a fiscal package to help with transitioning VNC's operations from Vale Canada.
Australian nickel miner IGO (ASX: IGO), which became New Century's top shareholder in April after taking an 18.4% stake in the company, was supportive of the deal and intended to discuss MHP offtake arrangements in the future, it said.
Both Vale and New Century also plan to consult France's government, as New Caledonia is among the nation's territories, to confirm its continued financing support for the mine.
Goro's acquisition, New Century said, would make it a major supplier of nickel and cobalt sourced from outside the Democratic Republic of Congo. The African country is currently the world's biggest supplier of cobalt for the electric vehicles (EVs) sector.
While the ailing mine has the capacity to produce 60,000 tonnes per year of nickel in the form of nickel oxide, it churned out just 23,400 tonnes of nickel in 2019. That's slightly over a third of its annual capacity.
The operation has never fully mastered the challenging high-pressure-acid-lead (HPAL) technology used to convert ore to nickel oxides, leaving VNC unable to produce preferential battery material nickel sulfate.
Vale believes the nickel market will enter a surplus in 2020, compared with its previous view of continued deficits. Its long-term outlook, however, remains positive due to factors including demand for nickel in the batteries that power EVs.