When John Rodriguez became Mayor of Sudbury in November, 2006, things had never looked better for the city whose economic fortunes have always been inextricably linked to the price of nickel.
The price of the metal was rocketing to record levels and Mr. Rodriguez saw opportunity for Sudbury to spiff up its image and shed its reputation as a hardscrabble mining town beholden to the vagaries of the boom and bust commodity cycle.
He unveiled plans for a massive recreation complex and a $167-million performing arts centre. Mr. Rodriguez planned to tap the new foreign owners of the region's major nickel operations for cash. Brazil's Companhia Vale do Rio Doce and Swiss-based Xstrata PLC had just shelled out nearly $40-billion combined to buy in to the Sudbury Basin. "I was going to ask for big bucks," Mr. Rodriguez said in an interview.
Yet the mayor's dreams of building a world-class performing arts centre are now on hold. Vale and Xstrata are cutting production in Sudbury and closing mines because of a sudden and severe crash in base metal prices brought on by the global financial crisis.
"This is not the time to do it because the economy is falling apart," he said.
For Sudbury, the rapid nosedive in commodity prices could spell the loss of major opportunity. Just as the city was finding its economic groove, it is suddenly staring down the barrel of what could prove a dreadful downturn.
Mines are being shut down around the world in response to plunging prices and mining centres such as Sudbury are bracing for the fallout. Trading at all time highs in July, the price of copper has been cut in half. Nickel has been hit even harder, falling 65 per cent this year.
Yesterday, the grim reality of the global financial crisis and the commodity collapse took a further toll on Sudbury. Vale Inco Ltd., the city's largest employer, with more than 5,000 workers, confirmed it will close its Copper Cliff South mine for an "undetermined period." The company's Voisey's Bay mine in Newfoundland, which ships nickel to facilities in Sudbury for processing, will be shut down during the entire month of July. The company also put off the development of its Copper Cliff Deep project, deferring the expenditure of $138-million (U.S.) for at least a year.
Copper Cliff South's 365 employees will be redeployed to other operations but eligible Vale Inco employees will be offered early retirement as the company reduces the number of employees in Sudbury over all. "There is no point having production if there is no demand," Vale's chief executive officer, Roger Agnelli, said at an event in Sao Paulo yesterday. "In Sudbury, there are deeper mines that have a higher cost."
Those comments stand in sharp contrast to the gushing praise for Sudbury and Canada that Mr. Agnelli expressed on a conference call to sell Vale's all-cash bid to Toronto-based Inco Ltd. shareholders in August, 2006.
"Canada is a mining country. It's a country that has the legislation, experience, tradition, and very good people who work inside this sector. So it was very important for us to be in a country like Canada ... we had a dream - we had a dream to be there," he said.
Now Mr. Agnelli's dream has become a headache for his company. At the Vale Inco offices in Toronto yesterday, 55 temporary, part-time and contract workers lost their jobs and another 12 positions in areas such as corporate strategy and legal affairs were declared "redundant."
Sudbury is also preparing for a dramatic reversal of fortune. But the head of the city's largest union believes the contagion created by the Wall Street greed and the subprime mortgage meltdown are the cause, not Sudbury itself.
"It's the world. It's not just Sudbury, it's not just Inco, it's the whole world," said John Fera, the president of United Steelworkers Local 6500, a union that represents some 3,500 Inco workers in Sudbury.
Before the crash, local housing prices had jumped to record levels and the once-dismal Sudbury real estate market had even begun to attract speculators.
In 2007, it wasn't uncommon for Sudbury miners to earn more than $150,000 (Canadian) a year, thanks to their nickel bonuses which are based on metal prices and company profits. Pickup trucks, ATVs, motorcycles, boats, snowmobiles and jet skis were selling briskly to Vale Inco and Xstrata miners who were flush with cash. An estimated 12,000 other people in the region with jobs servicing the then-booming mining sector were also enjoying unprecedented good times.
"There are some people, young and old, who have made purchases that they are concerned about. But we're going to help them through it," Mr. Fera said.
The nickel price had been trending down for much of the year but things didn't really begin to unravel until October. That's when First Nickel shut its Lockerby mine, laying off 150 workers. FNX Mining then closed its Levack mine and Xstrata announced plans to shutter two mines ahead of schedule. Perhaps most alarming for the local economy, Xstrata's Sudbury workers didn't get a nickel bonus in the third quarter, the first time that's happened in years.
"We were disappointed that we couldn't pay it but the conditions weren't right," Marc Boissonneault, vice-president of Xstrata Nickel's Sudbury operations, said in an interview at the company's Nickel Rim South project.
Nickel Rim South and the Fraser Morgan mines are slated to replace the Craig and Thayer-Lindsley operations, which will both close next year. The new projects will be lower cost, in part because they also contain plenty of copper and precious metals such as platinum and palladium, Mr. Boissonneault said.
In the meantime, Xstrata has had to scramble for feed for its smelter and has even begun shipping ore to Sudbury from its nickel operations in Australia. The Xstrata smelter had processed the ore from mines that are now closed such as Lockerby and North American Palladium Ltd.'s Lac des Iles mine near Thunder Bay.
To some, a key question is whether Xstrata and Vale will ever be able to reach a joint venture agreement that could save hundreds of millions of dollars a year and help cement Sudbury's future as a viable mining camp for decades to come.
Before they fell to Vale and Xstrata, Inco and rival Falconbridge Ltd. had proposed their own merger. At the time, they said cost savings from sharing resources in Sudbury could top $550-million (U.S.) a year.
With smaller mines and more challenges keeping its smelter at full capacity, Xstrata has more to gain from a joint venture deal. But the two sides haven't talked for months and it is unclear whether the metal price downturn will spur renewed discussions. "Is there opportunity? Yes, there is. Are we open to acting on some of those opportunities that increase value? Of course we are," Mr. Boissonneault said.
Mr. Rodriquez, meanwhile, believes that while Sudbury won't be able to dodge the impact of the commodities crash, the city's more diversified economy, which now includes major contributions from health care and post secondary education, will soften the blow. "If the mines suffer a flu, we don't all get pneumonia now," the mayor said.