×

UPDATE 1-Eramet plans more nickel cost cuts, to target lower grades

* French miner's nickel unit posted more losses in H1

* Plans to enter nickel pig iron segment

* Group operating profit rose on strong manganese unit (Recasts with CEO comments from conference call)

PARIS, July 27 (Reuters) - Eramet pledged further cost cuts after its nickel division suffered more losses in the first half of the year and said it would shift strategy by entering the lower-grade nickel pig iron market via a mining project in Indonesia.

Like other nickel miners, Eramet has been grappling with persistent weakness in market prices, partly due to moves by Indonesia and the Philippines to go back on restrictions targetting the mining sector.

In an interim results statement on Thursday, Eramet reported an operating loss of 104 million euros for its nickel branch, against an 89 million euro loss a year earlier, although a strong performance at its manganese unit helped it post group current operating profit of 256 million euros.

Nickel prices were higher than in the first half of last year but below the production costs of Eramet's nickel unit in New Caledonia, while depreciation of inventories and ramp-up costs at a refining plant in France also weighed on the division's results, it said.

Eramet has set a target to cut its nickel production cash cost to $4.50 a pound by the end of 2017, after already reducing it to $5.06 in 2016 from $6 in 2015.

However, the cash cost edged up in the first half to $5.17, reflecting the impact of two cyclones and local protests in New Caledonia, it said.

"We're working flat out to reach $4.50 which is still our cost target for the end of the year," Chief Executive Christel Bories told reporters.

"With a market price that languished below $4.50 in the first half and for some time before that, we're convinced we have to go beyond $4.50 and pretty quickly."

She declined to give a new figure but said it would be "significantly below" the current target.

Eramet is also changing its marketing strategy in nickel - chiefly used for stainless steel - by expanding its offer to include lower-grade nickel pig iron (NPI) heavily used in China, in addition to the higher-grade alloys it currently produces.

The French group will produce NPI from 2020 in its Weda Bay mining project in Indonesia which it recently revived through a joint venture with Chinese steelmaker Tsingshan.

"NPI production capacity is being developed because industry needs it. I think it's better to be part of it than not, because in any case we would feel the consequences," Bories said.

The expected Indonesian production would support a projected rise in Eramet's processed nickel output to 88,000 tonnes in 2020 from 55,000 tonnes last year, the group said.

Eramet declined to give guidance for full-year results, with Bories saying it was not possible to make projections based on its first-half operating profit after very favourable conditions for manganese earlier this year.

Eramet shares were down 1.6 percent by 0847 GMT, after reversing an early gain. (Editing by Bate Felix and Mark Potter)