(Bloomberg) -- A major nickel operation backed by Trafigura Group will need support from a new investor after the trading giant declined to contribute more funds as part of a French government rescue package for the struggling New Caledonian mining industry.

The French territory, a remote archipelago in the South Pacific, was once seen as the future of nickel production and attracted billions of dollars of investment. But instead it became a byword for the sector’s exuberance, with projects beset by technical mishaps and high costs. Pressure on the local industry has rapidly increased over the past year as nickel prices plunged more than 40%.

The French government has been meeting with the key shareholders of three processing plants this month — Trafigura, rival miner and trader Glencore Plc, and France’s Eramet SA — seeking to hammer out a rescue deal for an industry that is the territory’s main employer. 

As part of that effort, the French government asked Trafigura to contribute fresh capital to Prony Resources Nouvelle-Caledonie, which it part owns and which in turn owns the Goro mine. The trading house refused, and as a result Prony will need to seek a new investor if it is to secure a government bridging loan, according to people familiar with the matter. 

Trafigura declined to comment. The French Finance Ministry confirmed talks with the firms while declining to comment further. A spokesperson for Prony declined to comment as discussions are ongoing.

A similar bridging loan is being prepared for Societe Le Nickel, where Eramet holds a majority stake, according to one of the people familiar with the matter. 

French Offer

The French government is offering about 200 million euros ($217 million) in relief on energy costs for the New Caledonian nickel industry, two of the people familiar with the matter said. Still, it’s not clear that will be enough: last November, French finance minister Bruno Le Maire put the total financing need of the territory’s three nickel companies at 1.5 billion euros.

The New Caledonia plants, which have long struggled due to high energy costs and social unrest, have had to contend with a wave of new supply from Indonesian smelters that’s caused nickel prices to plummet. The drop has already forced higher-cost operations in Australia to shutter, despite growing demand for the metal from the electric-vehicle sector.

Glencore is looking to remain a shareholder in Koniambo Nickel SAS, which owns nickel mines and a ferronickel plant in the territory. However, it has proposed mothballing the plant while continuing to export ore, which would affect as many as 1,000 jobs, one of the people said. The company said in September it would stop funding Koniambo Nickel, in which it has a 49% stake, at the end of February. The rest of the firm is owned by Societe Miniere Sud Pacifique, a semi-public company managed by local governments in New Caledonia.

Glencore and Eramet declined to comment. A spokesperson for SMSP said it was not discussing closing the plant and protecting as many jobs as possible remained a priority.

Trafigura holds 19% of Prony Resources Nouvelle-Caledonie, which runs the Goro mine and a plant which produces a specialized form of nickel for batteries. Eramet holds 56% of Societe Le Nickel, which owns mines and a ferronickel plant, and has also previously ruled out further bailouts for the subsidiary.

--With assistance from Jack Farchy, Archie Hunter and Thomas Biesheuvel.

(Adds comment from SMSP in penultimate paragraph)

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