Blow for France as Glencore quits struggling New Caledonia nickel mine

The Swiss mining giant Glencore says it will halt production and divest its share in New Caledonia's Koniambo nickel operations following a significant drop in the price of the metal – a vital component in stainless steel and electric car batteries.

A nickel mine near Voh on the French island of New Caledonia. © Alain JOCARD / AFP

On Monday Glencore said it was seeking a new industrial partner for the nickel mine and processing plant. The operations will be closed, with the possibility of resumption if a new financial supporter is found.

This decision deals a massive blow to the French government's efforts to assemble a rescue package for New Caledonia's nickel industry – a substantial employment sector that accounts for 7 percent of the territory's economic output.

Glencore holds a 49 percent stake in Koniambo Nickel SAS (KNS.) The other partner is the local Société Minière du Sud Pacifique SA (SMSP.) It cited high operating costs and unfavorable market conditions as reasons for the unprofitability of operations. 

"Glencore will fund the operation according to an agreed budget as it begins an orderly transition to a state of care and maintenance," it said in a press release.

"The furnaces will remain hot for six months, and the KNS team will support the critical activities required to maintain the integrity of the asset and keep the site secure."

Apart from increasingly elevated operational costs, the nickel industry faces an influx of supply from Indonesia, the world's leading producer of the industrial metal.

La politique d'attractivité marche moyen en Nouvelle-Calédonie⤵️
Glencore to sell stake in lossmaking New Caledonia nickel operations https://t.co/gRWyJjazfW via @ft

— Bertille Bayart (@BertilleBayart) February 12, 2024

'Unsustainable'

While expressing gratitude for the French government's attempts to rejuvenate and rescue the nickel industry, Glencore said KNS remained unsustainable, adding it could not justify continuing to fund losses at the expense of shareholders.

Benchmark nickel prices have plummeted by 46 percent since the beginning of 2023 to some $16,000 per tonne, mainly caused by the upsurge in Indonesian supply. This downturn has rendered mines in New Caledonia, Australia, and other global regions unprofitable.

Last week, the French government offered €200 million in state aid for KNS, including €60 millon in subsidies for high energy prices and a €100 million loan. It also urged shareholders to contribute more to the rescue efforts.

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France is involved in helping KNS secure a new investor, stressing the strategic importance of the industry for New Caledonia and its potential role in Europe's strategic supplies.

Paris is urging local politicians to endorse a "nickel pact", relaxing export quotas and local restrictions on raw nickel ore. This move is meant to enhance profitability, with additional investments in energy infrastructure planned by the French state.

Commodity trader Trafigura and mining group Eramet, both stakeholders in nickel operations in New Caledonia, face similar financial challenges.

(with newswires)