By 2035, Vale Base Metals plans to double copper production to 700,000 tonnes per year as part of its copper production growth strategy, aiming to become a top-five producer in nickel and copper, chief executive Shaun Usmar told Fastmarkets in an exclusive Q&A session.
Fastmarkets: You founded Triple Flag Precious Metals and had great success; why did you leave to join Vale Base Metals?
Shaun Usmar: I’ve spent most of my career in base metals mining, so in many ways it’s been a return to what I know best.
Here at Vale Base Metals, we have a lot of polymetallic ore bodies. Our operations in Sudbury and Voisey’s Bay [in Canada] are considered nickel mines, but they also have a lot of cobalt, platinum group metals and copper by-product.
The great thing about these base metal mines is that they tend to have great optionality and life extension potential. [Brazilian main shareholder] Vale saw the potential, which is why it carved out Vale Base Metals – to give the business its own autonomy and identity. That allows [our team] to focus on getting the most value from these non-ferrous ore bodies.
And that’s what attracted me to join. As a founder, Triple Flag is my baby. And as a major shareholder I wouldn’t have left it if I didn’t think it was in good hands. But the opportunity at Vale Base Metals is very exciting. The metals we produce are at the nexus of a generational shift in technology – from artificial intelligence (AI) to robotics to electric vehicles (EVs) – and will play a key role in the energy transition. We have so much potential with these assets; we can build a future-facing business and maybe even explore an IPO [initial public offering of shares] down the road.
Since becoming CEO of Vale Base Metals in late 2024, how have you got to grips with the business?
I’ve been here for just over seven months and I think we’ve achieved a lot in a short period of time. The reality is this business has talked about its endowments and potential for years, but the way we can unlock that is through increasing productivity and by making the business more resilient and cost competitive.
And that’s the journey we’ve been on. Six weeks in, we initiated a restructuring focused on reducing overheads and shifting accountability to the operations. We’ve also put more of a commercial overlay on the projects part of the business.
By the end of Q1, we had taken out roughly one third of our global overheads and identified many cashflow improvements. We’ve simplified our structure and, as I said, we’ve made great strides; Q1 was our best quarterly safety performance in about six years, and our best start to the year in more than a decade.
At a higher-level, our strategy with nickel is to be in the lower half of the cost curve, which means improving productivity and effectively managing costs.
When it comes to copper, about 30% of our production comes from Canada, but the rest is based in Brazil. So, there is a focus on Brazil, where we think we can double copper production over the next decade by leveraging the infrastructure and project pipeline that we already have.
You talk about making nickel operations competitive; will the Thompson mine in Canada be closed?
The first thing we have had to do is get our overheads to the appropriate level, simplify our organization so that roles and responsibilities are well defined.
The role of the corporate office, for example, is to effectively allocate capital, set strategy, manage governance and empower the operations so that they can have more of an owner-operator mindset.
The next step is to analyse these operations, evaluate their potential and see how we can maximise that from a capital allocation perspective.
As part of that, we have to see what fits best in the portfolio. Because if we try to be all things to all people then we won’t be successful. Thompson has such a large mineral endowment, so it has great potential. But we have other great assets, too. We’re running a process to see if [Thompson] is something that we divest or partner on. I’m not going to foreshadow the outcome of that process.
We need to look at the best way to invest the incremental dollar in our portfolio. Each operation is on a quest to be as lean, productive and efficient as it can be – without sacrificing safety, it goes without saying – so we can build the best possible portfolio with the capital that we have.
Is there a danger that Western nickel companies are too focused on profitability in the short-term, allowing state-backed Chinese buyers to snap up assets, such as Thompson, that become valuable in the future, when nickel supply goes back to a deficit?
That is a concern. We’ve seen the Chinese very effectively dominate supply chains with rare earths. Likewise with copper, you have negative treatment and refining charges (TC/RCs) and huge oversupply in copper refining capacity from China.
But Western suppliers just cannot continue to subsidize loss makers indefinitely. China manufactures more than the US, Germany, the UK, France and South Korea combined, and seems to have reverse engineered its supply chain very successfully.
The priority for China seems to be abundant access to low-cost, reliable inputs to those supply chains. I think we see evidence of that with cobalt and nickel, for example. Elsewhere, China wants to make sure it has the supplies and can prevent periods where prices could be very favorable for the miner. It just seems to be a different game that China is playing.
The Australian nickel sector has shuttered a lot of operations, with the exception of Murrin Murrin. We know we have our nickel supply base in Canada and we have to make sure we don’t overburden our balance sheets. There is a lot of uncertainty from factors such as tariffs, so we focus on what we can control: costs and productivity.
The next few years may not be wonderful, but you know it’s a cyclical industry and you want to be in a position to profit when the market is more balanced.
I think some private equity players are looking at nickel as being a potential countercyclical play – and that’s usually how you make money, right? You want to invest at the low point and really be competitive and benefit when the cycle turns.
Vale Base Metals produces low-carbon nickel; does it get paid a low-carbon premium?
Look, the first thing is, we supply about 50-60% of the high-purity nickel into the aerospace and defence sector in the United States. We’ve got a long-standing relationship supplying the US. And I think 95% of all the nickel consumed by the allies in the Second World War came from our mines – so there’s a long history of being a reliable supplier of high-purity supply into aerospace, defence and elsewhere.
Part of the premium that we get is because of the high purity and reliability of our supply.
Our nickel also has one of the lowest carbon footprints in the world. I think we extract some premium for that, and we expect to get a higher premium in the future.
Possibly there will be bifurcation of the market in the future, where the low-carbon producers get a higher premium. We don’t just think about the premium, we also believe that sustainability is part of how to run a good business for the long term.
I was in Indonesia recently, where we have environmentally-responsible nickel operations. But not all of the producers have been careful, and when you fly over the jungle and see strips of deforestation you imagine that eventually those ESG costs are going to be paid. It might not happen this year or next, but you can’t keep disregarding the environment indefinitely.
Does the make-up of the investors in Vale Base Metals give you a bit more leeway to take a long-term view?
I’d like to think so, but I never take our investors for granted. When Manara bought a 10% stake in Vale Base Metals it wasn’t exactly a day trade. It obviously has a longer-term strategic view. And frankly, when you look at our underlying ore bodies it’s clear that our endowment spans decades. We’ve been operating for more than a century in Sudbury and in Wales, so this is a long-term business.
How do you plan to grow your copper business in Brazil?
For a long time, copper demand has been linked to GDP growth. With analysts expecting moderate, steady increases in line with economic expansion. But now we have a world that is electrifying and that is hungry for data and all of a sudden copper demand looks more exciting. And the supply of copper seems unlikely to meet this demand – it’s hard to find a copper bear at the moment.
That puts Vale Base Metals in a favourable position with our copper endowment in Brazil. We have the largest land position in the country, and because we have been there since 1985 we have good infrastructure, such as railways and ports, in place.
In the short term, we will prioritise our existing assets, where I believe we can boost production. The next step will be a regional plan that looks to develop sites we have around our existing infrastructure and assets. We aren’t looking to build massive greenfield copper mines, which history shows tend to be delayed or never built; instead, this is about optimising existing mines and expanding with brownfield projects.
It might not capture the headlines like a big new project, but I think with this approach we can double our copper production in the next ten years. We are also open to partnering with other mining companies in the area to get the projects built.
It’s also worth noting that, in addition to our current project pipeline, we continue to have encouraging exploratory copper drilling results around our existing assets.
Your copper plan sounds very different to the large mega projects being talked about in Argentina…
Yes, it is different. I think the advantage we have is that we aren’t at 5,000 meters altitude in the Andes and far from any supporting infrastructure. Of course, those large copper porphyries are much bigger projects.
But I’ve seen this before in the mining industry. Developing small, low-cost development projects in a mineral-rich area that is well supported by infrastructure is a pretty successful way to build a long-term, competitive mining business. I like the idea of us concentrating on smaller projects that we can bring to operation quickly because they are the fastest way to boost our copper production.
We also have some big deposits in our portfolio. For example, we have Hu’u, a potential large copper mine in Indonesia from which we look to generate value. But our focus right now is leveraging our existing assets and infrastructure in Brazil.
As an industry, we have a bad track record of delivering projects. I really want our copper business to deliver.
How are you planning to grow Vale Base Metals over the coming years?
Step one is to set the business up to deliver and that’s what we’re doing right now. So we are working on our nickel polymetallic portfolio to get it into the lower half of the cost curve.
We need to unlock the value of our geological endowment because when we do that, it will give us the option to publicly list with an IPO. Once we have a multiple that reflects the true value of the incredible assets we have, it will enable us to go hunting for other companies or assets.
I want us to be in the global top five nickel producers within the decade. And we won’t be far off in copper, where we are looking to double annual production to 700,000 tonnes in the next decade – and I believe we have the potential to significantly exceed that.
