Inside Story

Palmer’s folly and the road to New Caledonian independence

The closure of Clive Palmer’s Yabulu nickel smelter affects workers – and the political system – in New Caledonia as well as Townsville, writes Nic Maclellan

Nic Maclellan 26 May 2016 1432 words

Economics entangled with politics: the $7 billion Koniambo nickel smelter in New Caledonia’s Northern Province. Nic Maclellan


The crisis at Queensland Nickel’s Yabulu smelter in Townsville – owned by flamboyant businessman and politician Clive Palmer – is not just a problem for former workers, local suppliers and Australian taxpayers. It is also buffeting the French Pacific dependency of New Caledonia, one of Australia’s closest neighbours, which is moving towards a vote on self-determination in late 2018.

Nearly 800 of the smelter’s employees have lost their jobs this year, and are relying on the federal government’s Fair Entitlements Guarantee for unpaid entitlements. Legal battles are looming over who controls Queensland Nickel and how much the company’s debts to staff and creditors will end up costing taxpayers.

But Palmer’s woes extend to New Caledonia, just 2000 kilometres from Townsville, which has long been a major supplier of laterite ores to the Yabulu smelter. The mining and export of ores bearing nickel and cobalt provides a range of economic benefits to the French Pacific territory, which holds an estimated 25 per cent of global reserves. The minerals and metallurgy sector is the largest private employer in the island nation of 265,000 people.

In March, as Queensland Nickel went into liquidation, New Caledonia’s president, Philippe Germain, announced a new plan to tackle the current downturn. “Our mining framework has always prioritised traditional partners like Australia and Japan,” Germain said. “But if Australia can no longer buy the same levels from us, we need an alternative in the current circumstances, because we have mines, miners and sub-contractors who are dependent on this activity.”

Although New Caledonia has long looked to Japan and Australia for exports, it has mostly avoided selling high-grade ore directly to other countries, including China, in the hope of protecting the local smelting industry’s metal exports. As part of what he called a “temporary” plan, Germain announced that his government will allow increased exports of ore to China for twelve to eighteen months.

The recent fall in the price of nickel on the London Metals Exchange has come at a bad time for the French Pacific dependency. Globally, over 400,000 tonnes of nickel were stockpiled as production boomed with China’s economy still brisk. Now, the slowdown in Chinese steel production has contributed to falling prices. Beyond this, the island nation’s Asian competitors, Indonesia and the Philippines, have also been transforming their nickel policies. Jakarta banned the export of unprocessed ore in early 2014, and Manila has announced a floor price for the export of ore.


Many of New Caledonia’s east coast mines, along with the ageing Doniambo smelter in the capital, Noumea, are run by the dependency’s largest producer, Société Le Nickel, or SLN. Through its Strategic Investment Fund, the French government holds a minority stake in SLN’s parent company, ERAMET; the balance is owned by private investors.

Local New Caledonian leaders have criticised SLN for issuing more than €900 million (A$1.4 billion) in dividends in 2012 and 2013, but then seeking government support now that times are tough. SLN lost nearly €250 million last year and Doniambo continues to lose hundreds of thousands of euros each week.

“Metal markets, and nickel markets especially, are going through a very deep crisis; one that we have not known for at least fifteen years,” ERAMET chief executive Patrick Buffet said during a recent visit to Noumea. “For the most part, the crisis is due to a very unfavourable change in demand in China, as well as excess capacity over the last few years. Moreover, for a variety of reasons, and especially local ones, SLN is faced with higher production costs than those of its main competitors.”

Earlier this month ERAMET’s board of directors agreed to provide additional financing of €40 million to ensure that SLN operates until the end of June. (ERAMET has already provided temporary financing to SLN amounting to €150 million.) This will allow time for a decision on a €200 million loan foreshadowed by French prime minister Manuel Valls, who visited New Caledonia in late April.

The new financing to SLN will be issued through the Société Territoriale Calédonienne de Participations Industrielles, or STCPI, a holding company for New Caledonia’s three provinces in the mining and smelting sector; in return, STCPI wants to increase its shareholding in ERAMET from 34 to 51 per cent.

In Noumea, government policy since 2009 has tried to add value to the country’s vast nickel stocks by expanding nickel smelting rather than exporting raw laterite ore. Despite this, ore exports grew by 24 per cent between 2013 and 2015, with the growth focused on Japan and Korea. Exports to Japan alone grew from 26 per cent of the market in 2013 to 32 per cent last year; over the same period, exports to Australia halved from 27 to 13.6 per cent.

SLN’s exports of nickel metal have faced competition from two new smelting operations in New Caledonia, though both are experiencing problems with debt, technology and markets. The Goro smelter in the Southern Province, managed by Brazil’s Vale Corporation, has also made significant losses, amounting to US$400 million in 2015. Following major technical problems, which led to releases of acidic pollutants into nearby rivers and bays in April 2009 and May 2014, Vale is reviewing its strategy in New Caledonia.

Production delays and falling international prices have hit the Koniambo nickel smelter, in New Caledonia’s Northern Province, too. This project is managed by Koniambo Nickel SAS (KNS), a joint venture between New Caledonia’s SMSP nickel company (51 per cent) and the Anglo-Swiss corporation Glencore (49 per cent). Glencore inherited its stake in KNS in a May 2013 merger with Xstrata, and CEO Ivan Glasenberg has previously said “we are not married” to the Koniambo project.

Last August, protesting truckers blockaded Noumea for weeks, calling on the government to expand exports to China and other countries. And in February this year the government formally declared a crisis in the industry, opening the way for the allocation of grants from New Caledonia’s Nickel Fund, a subsidy scheme to assist miners and related sectors like transport and energy.

Even if new management can help Palmer’s Yabulu smelter revive production, President Germain said that “no one has a crystal ball to see if this is a sustainable solution. Today there is no calendar of boats scheduled to come from Australia to New Caledonia, so there is a danger for miners to transport the ore from the mountains to the coast.” For the next eighteen months, Germain said, “the mining companies are invited to prioritise exports to Chinese steelmakers, and not pig-iron manufacturers, in order not to undercut New Caledonian metal producers.”


Maintaining stability in the nickel sector has crucial political, as well as economic, importance for New Caledonia. In the 1980s, the French dependency was riven by violent conflict between the French state, the independence coalition Front de Libération Nationale Kanak et Socialiste, or FLNKS, and opponents of independence among the territory’s large European population.

The signing of the Noumea Accord in May 1998 set out a twenty-year transition to a referendum on self-determination. Today, New Caledonia’s politics are marked by a level of intercommunal engagement that is quite different from the era of violent clashes that divided the country between 1984 and 1988. But in spite of fifteen years of multiparty government, economic restructuring and extensive funding from the French government, a significant gulf still exists between parties supporting political independence from France and those opposing it.

Before the Noumea Accord was signed, the Bercy Accord of February 1998 had opened the way for the transfer of nickel reserves and the construction of the Koniambo smelter in the Northern Province, where the population is mainly indigenous Kanaks and pro-independence parties dominate. The deal on Koniambo was a crucial precondition for the political settlement that came a few months later between supporters and opponents of independence.

The future for nickel once again weighs on Noumea’s political class, as New Caledonia moves towards its late-2018 referendum to decide whether to remain within the French Republic or achieve full independence and sovereignty. As Philippe Gomes – leader of the conservative Calédonie Ensemble party – says, “There can be no exit from the Noumea Accord without a consensus amongst us on nickel.”

Daniel Goa, president of the pro-independence Union Calédonienne, has stressed the importance of support for SLN and other nickel operators at a time New Caledonia is moving to a decision on its future political status. “We need SLN to maintain the peace,” he says. “The French state must act on its responsibility to ensure the future of employees and of the subcontractors who rely on SLN.”

For New Caledonia, the economic and political stakes could not be higher. •