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Striking workers attend a rally in Sudbury on Jan. 13, 2010Gino Donato

A breakthrough to end a nasty, year-long strike between Brazil's Vale SA and striking miners at the former Inco operations in Ontario comes as the giant miner looks to drive down costs amid a cooling off of nickel prices.

Officials at both the company and the United Steel Workers union remain tight-lipped about details in a tentative agreement announced late Sunday, but concessions are expected.

Vale is the world's fourth largest nickel producer and its Canadian operations in Sudbury and Port Colborne, Ont., as well as Voisey's Bay, Nfld., account for about 10 per cent of world supply.

The strike has kept inventories for nickel, used in stainless steel, low as demand has picked up strongly since the recession.

That has supported nickel prices, which have risen by about 25 per cent since workers first walked off the job a year ago, helping to make nickel one of the best performing metals in recent months.

Today's prices of around $8.50 a pound are down about 30 per cent from year-to-date highs reached in April, but are still at profitable levels for many mining companies. Nickel prices are down sharply, however, from highs of about $24 a pound in 2007 before the global economic crisis.

"Sudbury was the cornerstone for Inco, but it's much less important for Vale and that's been one of the reasons the strike has dragged out for 12 months," said BMO Nesbitt Burns Inc. analyst Tony Robson. What's more, Vale's biggest profits come from its iron ore business, which gave it much less incentive to settle with its unionized workers.

Vale has been seeking to dismantle a bonus paid to employees based on the price of nickel as well as aiming to roll back pension benefits.



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Many are also waiting to see whether the tentative agreement reached Sunday includes any job guarantees for staff. Rival Xstrata PLC has made job cuts to its nickel business in Sudbury at the former Falconbridge operations.

It's not clear how long it would take Vale's nickel production to resume. The union is seeking retraining for some workers to get the mine up and running again after being down for a year.

Vale may be keen to get more production online, but concerns about a drop in commodities prices as a result of Europe's debt troubles and a slowdown in China's economy may limit its push to resume operations too quickly and swamp the market.

"They would rather make money selling a little less nickel at a higher price," said Salman Partners analyst Raymond Goldie.

Vale's nickel production, including its Canadian operations, account for about 17 to 20 per cent of worldwide production, according to company officials.

In 2006, Vale paid $19.4-billion for Inco in a hotly contested takeover battle. Last year, the company's executive Roger Agnelli said its Sudbury operations were "not sustainable" unless workers accepted major wage and benefit concessions.

"They changed the rules of the game," said John Fera, president of United Steelworkers Local 6500, which represents striking workers in Sudbury. "Our members are the ones that are paying for it."

If the union members approve the terms of a new five-year contract, that could set the tone for an agreement with about 120 mine workers at Vale's Voisey's Bay operation, who remain on strike. They first walked out on Aug. 1, 2009.

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Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:10pm EDT.

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VALE-N
Vale S.A. ADR
+0.16%12.19

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