New Caledonia’s Nickel Industry Faces Crisis Amid Political and Economic Turmoil
Metal mining and processing are critical resources for New Caledonia, but the sector is on the brink of bankruptcy due to the lack of competitiveness of its factories and recent civil unrest. The nickel mining and processing industry, which is the archipelago's main economic activity, has been severely weakened by riots and is now on the verge of collapse. Mines are at a standstill, and the two operational plants are functioning at minimal capacity, only enough to maintain the industrial infrastructure for potential future recovery.
The Eramet Group, the main shareholder in Société le Nickel (SLN), the historic operator on the Pebble, has refrained from commenting, focusing instead on the safety of its employees. Meanwhile, Prony Resources, the consortium running the southern hydrometallurgical plant at Goro, has activated a crisis unit to prioritize the safety of its employees and the security of its industrial site.
Nickel is not only a major source of revenue for New Caledonia but also a significant employer, providing jobs for 20% to 25% of the population. The industry has been deeply affected by a 45% drop in international nickel prices in 2023, driven by a surge in Indonesian production. Indonesia has rapidly become the world’s leading nickel producer by leveraging ultra-competitive labor and coal-based energy costs to meet the rising demand for electric vehicle batteries, where nickel is a crucial component.
As a result, Australian and New Caledonian nickel producers are facing bankruptcy. The high production costs in New Caledonia, particularly for labor and energy, have made it difficult to compete. Nickel production in the first quarter of 2024 fell by 32%.
The northern plant, operated by the KNS consortium and primarily owned by Glencore, has been mothballed, with a buyer yet to be found. The plant, which has never been profitable, may lead to the redundancy of its 1,750 employees if a buyer is not secured by August. SLN, meanwhile, is surviving on emergency loans from the French government and produces ferronickel, a lower-grade product used in stainless steel.
In Goro, the Prony Resources plant produces battery-grade nickel, some of which is sold to Tesla. However, the consortium is seeking a new partner as Swiss trader Trafigura plans to exit New Caledonia just three years after taking over from Brazilian company Vale.
To address the crisis, the French government has proposed a new "nickel pact," which has yet to be approved by the Caledonian Congress. The pact includes a €200 million subsidy for energy prices, the development of new electrical production capacity, and improved access to nickel resources. It also suggests increasing ore exports to finance the plants.
However, the proposed pact has met with skepticism. Some Caledonians criticize the €66 million contribution required from the provinces, considering it excessive. Others oppose exporting more raw ore, arguing that local processing is essential to retain added value within the territory.
The future of New Caledonia's nickel industry remains uncertain, with critical decisions pending and significant economic and social impacts hanging in the balance. The success of any recovery plan will depend on balancing financial viability, competitive production costs, and local economic benefits.
