Inside Story

New Caledonia’s triple opportunity

After weeks of protests, the Goro nickel smelter is up for grabs. Independence groups see the outcome as vital for the French dependency’s future

Nic Maclellan 10 December 2020 3154 words

Independence supporters rallying on 30 October as customary leaders seek local control of the nickel industry. ICAN

The young people gathered early in Noumea, preparing for action. Soon they had blocked the main road along the waterfront in New Caledonia’s capital with barricades, burning tires and rocks. Riot police moved in, firing rounds of tear gas and flash balls to disperse the demonstrators, and hours of running battles between Kanak activists and police began.

The clash on 7 December followed a month of roadblocks and demonstrations across the French Pacific dependency of New Caledonia. The protests were called by the “Usine du Sud = Usine Pays” collective, which unites customary chiefs, environment groups, trade unionists and members of the independence coalition Front de Libération Nationale Kanak et Socialiste, or FLNKS.

The immediate dispute was over which consortium could bid for the Goro nickel smelter and the other assets of Vale Nouvelle-Calédonie. The company, which began nickel smelting in 2010, is the local subsidiary of the Brazilian corporation Vale, one of the largest mining companies in the world, with interests in logistics, transport, energy and steel making. Vale is pulling out of New Caledonia by year’s end, threatening 3000 jobs.

But the battle over Vale’s assets hides a deeper struggle. Can the local people control New Caledonia’s extensive natural resources, including nearly a quarter of the world’s reserves of nickel, as they move towards a new political status?

Vale’s decision to leave New Caledonia was announced in December 2019, between two referendums on self-determination — the first in November 2018 and the second in October this year. In both cases, a majority of registered voters expressed a desire to remain within the French Republic. But the narrow margin of 57–43 per cent in 2018 and the closer 53–47 vote this year suggest the territory will move to the third and final vote by 2022. As New Caledonians decide on their political future, the independence movement believes that increased local control of the mining sector will help underpin a sovereign and independent nation.

Across Melanesia, recent conflicts in Bougainville, West Papua and New Caledonia have reflected concern about environmental management and the role of transnational resource companies. Mining lies at the heart of the political ecology of these Melanesian dependencies, both as a cause of discontent — about environmental damage and the distribution of financial benefits — and as a resource for economic viability in a postcolonial nation.

Kanak nationalists have learnt many lessons from mining operations elsewhere in Papua New Guinea, Nauru and other independent nations in the region, with their tragic history of environmental damage, tax avoidance and unequal distribution of royalties. Facing off against the French state and transnational mining corporations, they have long sought to add value to the islands’ main resources, nickel ore and other strategic minerals, rather than simply ship them offshore unprocessed.

After New Caledonia’s violent conflict of the 1980s, independence leaders sought to open up the nickel sector to foreign companies. Under the 1969 Billotte laws, France guaranteed an effective monopoly over nickel smelting to the French corporation ERAMET and its local subsidiary Société Le Nickel, which operates the Doniambo smelter in Noumea. The French government used its Strategic Investment Fund to maintain a 25 per cent holding in ERAMET, and has subsidised Société Le Nickel in good times and bad.

In the North Province, where the population is majority indigenous Kanak, the provincial administration established a development arm, the Société de Financement et d’Investissement de la Province Nord, or Sofinor, which purchased the mining company Société Minière du Sud Pacifique, or SMSP, in 1990. Led by local entrepreneur Andre Dang, SMSP has developed new smelting capacity over the past three decades, as well as becoming a major global exporter of nickel.

“We don’t want New Caledonia to end up like Nauru,” Dang told me last year. “They were a world leader in phosphate mining, but they abused it and used it all up. They are a sad country. So our strategy is to add value to the resource, which can generate funds for use in sectors beyond the nickel industry, to benefit the country and future generations.”

New Caledonia’s governing agreement, the May 1998 Noumea Accord, created new political institutions and transferred administrative and legal powers from Paris to the territory, opening the way for re-equilibrage (economic rebalancing) between the wealthy South Province and two rural provinces in the North and the outlying Loyalty Islands.

The Accord could only be signed because contending parties had previously agreed on the préalable minier (mining precondition) posed by the independence movement. The February 1998 Bercy agreement had allowed the transfer of strategic deposits of high-grade nickel ore in the Koniambo Massif to SMSP and Sofinor, opening the way for the US$6 billion Koniambo nickel smelter at Vavouto, in the north of Grande Terre, the main island. Today, this smelter is operated by Koniambo Nickel SAS, or KNS, a joint venture between SMSP and the transnational corporation Glencore. In an unprecedented deal, Dang persuaded the Anglo-Swiss financial conglomerate to grant SMSP 51 per cent controlling interest in KNS, even as Glencore provides finance and technology.

SMSP developed a strategy to raise finance by exporting lower-grade nickel ore to Korea and China through joint ventures over which it had 51 per cent control, keeping higher-grade ore for Koniambo. The company now has two joint ventures with the Korean corporation Posco: one, the Nickel Mining Company, exports tens of thousands of tonnes of ore to Gwangyang in South Korea, for smelting at the other, the Société du Nickel de Nouvelle-Calédonie et Corée.

The next challenge was to export even lower-grade ore to a joint-venture smelter in China. In October 2017, SMSP signed a memorandum of understanding with Yangzhou Yichuan Nickel Industry Co. Ltd. to develop a joint project, once again with a 51 per cent majority for SMSP–Sofinor. Ore exports to China began in 2018, moving beyond traditional markets in Australia and Japan.

Despite technical delays at Koniambo and massive financial inputs, SMSP’s operations in the North can be contrasted with a series of social and environmental disasters at Vale’s Goro plant in the South Province. Since it began production in 2010, the plant’s high-pressure acid-leach technology has generated major environmental problems and the South Province only holds a minority stake in Vale’s operations.

The Goro smelter and Vale’s nickel ore reserves are located in the Kanak customary region of Djubea-Kapumë, which makes up the southernmost portion of Grande Terre. In the two decades since the project was conceived, Vale has engaged in tense struggles with local customary leaders operating through the Rhéébù Nùù committee (“eye of the land” in the local Drubea language), which seeks environmental protection, jobs and opportunities for local subcontractors.

After violent protests in 2006, Vale and Rhéébù Nùù signed a cooperation pact to govern relations with local Kanak tribes. But once operations began, a series of acid spills from the Goro smelter damaged the freshwater ecosystem that provides resources and livelihoods to local villagers. A major leak of acid effluent from Goro in May 2014 sparked violent clashes with unions, neighbouring Kanak tribes and subcontractors, amid calls for the smelter to be closed.

Today, buffeted by these local disputes and the rollercoaster of global nickel prices, Vale wants out.

The value of nickel has fluctuated wildly in the decades since the collapse of the Soviet Union. Russia initially flooded the market with its reserves, sinking the price on the London Metal Exchange; later, when the booming Chinese economy increased demand, new smelters — including the Koniambo and Goro plants — were set up to ride the wave. But overproduction overlaid by technological delays and financial pressure left KNS, Vale and ERAMET–Société Le Nickel struggling with debt and falling share prices.

All three ventures were looking forward to a bonanza when more nickel will be needed for electric car batteries. But the recent slowdown in China’s growth and the impact of the 2020 pandemic has made it hard to maintain existing markets. Vale was the first to crack, announcing in December last year that it would sell its New Caledonian operations. The sale is being managed by the Rothschild bank, which issued a public offer and called for bids.

Nickel smelting is a specialised industry, and relatively few companies have the technical expertise to run the complex acid-leach technology while meeting environmental standards. With the financialisation of the global economy in recent decades, the nickel industry has become the target for speculators rather than long-established metallurgy companies like France’s ERAMET or Canada’s Inco and Falconbridge.

Because of its use as an alloy and for manufacturing stainless steel, and with demand fuelled by China’s remarkable growth, “nickel has become one of the sexiest metals on the planet,” writes natural resources expert Laurent Châtenay. “It has aroused the interest of a large number of financial mercenaries, who bought out the main gems of this industry (notably Inco and Falconbridge) and contributed to a gradual change in the culture of the nickel industry.” Xstrata, Glencore, Trafigura and other “financial nomads” undermined the industry’s culture, adds Châtenay, “enticed yesterday by the development of China and today by the prospect of the development of the electric battery.”

In April, the North Province’s development arm, Sofinor, announced a preliminary bid for Vale Nouvelle-Calédonie’s assets, in partnership with Korea Zinc. The Korean corporation is one of the world’s leading producers of zinc and other metals, and has extensive industrial experience in hydro-metallurgy. Under the bid, the three provinces would jointly hold a majority shareholding in a new venture, giving control of the smelter to New Caledonia. Some 20,500 hectares of mining titles would be returned to local control, amounting to nearly 8 per cent of the mining area of the territory.

But conservative politicians in Noumea opposed any expansion of Sofinor into the South Province. “This is unfeasible economically and unthinkable politically,” provincial president Sonia Backes, a leader of the anti-independence coalition Avenir en Confiance, told journalists. “Those who propose this have a desire to economically colonise the southern province.”

Vale began discussions with the Australian company New Century Resources, but after widespread local opposition New Century withdrew from talks on 8 September. By then, Vale Nouvelle-Calédonie’s managing director, Antonin Beurrier, had revealed details of Sofinor’s bid, indicated it was not acceptable and sought other partners. He offered exclusive negotiations until 4 December, with the aim of closing the sale in January 2021.

Then, in a late October surprise, Beurrier announced the creation of a new company, Prony Resources Nouvelle-Calédonie. Half of the shares in this entity would be held by New Caledonian interests, while the Swiss commodity trading house Trafigura would hold another quarter. FLNKS leaders were angered that Trafigura would be given priority over the bid from Korea Zinc. “Trafigura is only an intermediary,” said the FLNKS’s Victor Tutugoro. “It’s only interested in buying the smelter and the mining titles in order to resell them when the market for nickel is more active, drawing down the maximum amount of profit.”

Daniel Goa, president of the largest independence party, Union Calédonienne, entered the fray, calling for France to intervene in support of the Sofinor–Korea Zinc project. Nearly 3000 jobs would be saved, he said, “but much more than that” — in the spirit of the Noumea Accord, he asked France to “fulfil its role as a partner, regaining through control of the southern smelter all of the social and environmental impacts that are vital for the future of our country, whatever its political or constitutional future.”

For Goa, Vale’s announced withdrawal is “a triple opportunity” for New Caledonia. “It’s an opportunity to salvage the southern smelter. It’s an opportunity to hold 56 per cent of the capital in the enterprise instead of the current 5 per cent and to do this without becoming indebted. Thirdly, it’s an opportunity that would allow the return of the Goro holdings to the country and to protect its status as metallurgical reserves in a similar manner to the Koniambo reserves.”

In October, leading anti-independence politician Philippe Gomes told me that violent clashes were likely if the sale of Vale’s assets was rushed through without proper consultation. “There is the danger of mobilisation on the ground, something we’ve already lived through in the South,” he said. “I was president of the southern province between 2004 and 2009 when there were violent protests by the Rhéébù Nùù committee. They plundered the site, causing three billion Pacific francs in damage, they destroyed equipment, some fired on police vehicles. These were real clashes and it took hundreds of hours of discussion in order for work to begin again.”

Calling for Vale to reopen dialogue with local Kanak leaders, Gomes stressed that “you just can’t hand over a smelter that’s in the middle of four Kanak tribes, who live through hunting, fishing and agriculture. It just can’t be done and we are saying, hang on, you need to be transparent and open up dialogue. The more people are fearful, the more they will drag their heels.”

To press the case for Vale to delay the sale, customary leaders in the South formed a negotiation structure, the Instance Coutumière Autochtone de Négociation, or ICAN. This body includes the eight high-chieftainships and the customary council of Djubea-Kapumë, together with the Rhéébù Nùù committee. ICAN’s call for protests was echoed by the Usine du Sud = Usine Pays collective.

In early November, Union Calédonienne’s Daniel Goa called on his members to support the protests. As part of the month-long series of protests, rallies and blockades were held in the North, leading to the closure of some municipal services. In the South, protesters gathered outside the Blue House, the imposing headquarters of the South Province on Noumea’s waterfront. At the urging of provincial president Sonia Backes, the police moved in on 17 November, firing tear gas to disperse the crowd. Young protesters hurled stones at the police, then faded away to fight another day.

These actions by indigenous activists were backed by members of the pro-independence trade union confederation USTKE, who launched a series of strategic strikes that disrupted the economy and raised the stakes for president Thierry Santa’s government of New Caledonia.

Christopher Gygès, who is responsible for the economy, trade and finance in the government, expressed reluctance to accept any delay in the sale. “The offer from Sofinor and Korea Zinc has been rejected by Vale and by the Rothschild bank, which is in charge of the negotiations,” he said. “The relentlessness shown by the partisans of this process reveals that it is designed to allow the independence movement to take control of the southern smelter. This is not what one might call a national project.”

Tough words, but the ongoing protests and blockades eventually forced the French government to intervene. On 26 November, France’s overseas minister, Sébastien Lecornu, announced that he would organise a roundtable to discuss the future of the Vale smelter and more broadly the prospects for the nickel sector in New Caledonia. Lecornu stressed that the priorities for the French state include “respect for the law, the protection of employment at the site and the preservation of the environment.”

In a letter replying to Lecornu, Union Calédonienne’s Daniel Goa said that the independence movement would add another priority beyond jobs and the environment: “Respect for the general interests of the Kanak people and New Caledonians more broadly, who today are trying to build a country free from the pangs and torment of colonial dependency.”

The tense debate amplified long-running differences between the conservative party Calédonie Ensemble and the three other anti-independence parties that make up the Avenir en Confiance coalition. Under leader Philippe Gomes, Calédonie Ensemble announced it was open to a visit by technical experts from Korea Zinc to clarify their preliminary bid. Given the difficulties for travel and quarantine during the pandemic, Gomes called for Vale to delay a decision on the sale of its assets until major bidders could present equally detailed submissions.

An initial online discussion with Lecornu was followed by a formal roundtable in Noumea on 3 December, the day before Vale was due to sign an agreement with Trafigura and Prony Resources. After discussions late into the night, the participants agreed to approach Vale to delay the proposed sale to Trafigura, suspend blockades and protests, and allow Sofinor–Korea Zinc to conduct due diligence of Vale’s nickel assets before making a definitive bid.

Within three days of the roundtable, however, stone-throwing youth were again clashing with police at the entrance to the Goro smelter. The French high commission in Noumea ordered riot police to break up any protests, echoing the law-and-order rhetoric of the South Province leadership: “The damage and stone throwing that have caused several injuries in the ranks of the police must be condemned, and those responsible will face the full force of the law.”

In response, French loyalists armed with hunting rifles mounted roadblocks, leading the French authorities to ban the transport or carrying of weapons.

Angering his conservative counterparts, Calédonie Ensemble’s Philippe Gomes joined key FLNKS leaders to write to French president Emmanuel Macron on 6 December, calling on him to intervene and calm rising tensions in the South. On social media, Gomes argued that Vale “was acting like a conqueror, imposing its timetable for the sale between the two referendums. This is unacceptable. For Vale to withdraw is one thing. But setting fire to the country as they leave is another.”

Protests and clashes surged again in Noumea on 7 December. But the culmination of a troubled day came that evening, when Korea Zinc, in a shock decision, formally withdrew its bid. A day later, Vale accepted the offer from Prony Resources and Trafigura.

ICAN vowed to maintain its opposition, worried that when Vale walks away at year’s end, New Caledonians will be left to clean up after the company. “We call on Vale to assume full responsibility for its decision to withdraw from New Caledonia,” said John-Rock Tindao, chair of the Djubea-Kapumë customary council. “This responsibility involves the environment, especially in terms of the acid effluent tailings pond which should not be exposed any longer.” Possible breaches of the dam “could lead to forty-five million tonnes of toxic waste spilling into the lagoon.”

It was one more round in the quest for a sovereign and independent Kanaky-New Caledonia, built on a sound economy. The anger evident in the South has been exacerbated by fighting words on law and order from the authorities, and the deployment of riot police. Government rhetoric about the “independent decisions” of overseas investors won’t calm the growing tension, nor mask the failure of the French state to resolve the crisis. •

Reporting for this article was supported by a Sean Dorney Grant for Pacific Journalism through the Walkley Public Fund.