Vale may sell part of its base metals division

After paying almost US$20 billion for Inco in 2006, Vale (NYSE: VALE) says it may sell part of its base metals division to unlock value.

CEO officer Murilo Ferreira disclosed at an Investor Day presentation in New York that the company is considering the initial public offering (IPO) of a minority stake in the company’s base metal division “if appropriate market conditions are satisfied,” and would only sell at “a fair price.”

In a press conference after Vale’s presentations, Ferreira said the idea for the IPO had to do with the fact that the company does “not agree with the base metal evaluations” and believes “there is hidden value there [and] that this value needs to be better expressed.”

He confirmed that the notion of an IPO has not yet been taken to Vale’s board of directors and that there is no fixed value or date. But he said it would make sense to list in Toronto, because the company has important base metal operations in Ontario, Newfoundland and Labrador, and Manitoba.

“We’re going to await the behaviour of the market with regard to base metals before we make a decision,” Ferreira noted, adding that the company always does its homework.

“We need to have a stronger and thinner company, one that can run a marathon easily,” he continued. “We have a marathon coming up — we need a lean company. The low ferrous and non-ferrous prices and the low oil and gas prices are a marathon, and we need to be lean and efficient with regards to cost and productivity.”

The Brazilian miner is the world’s largest seaborne iron ore  exporter and its second-largest nickel producer. It also produces copper and coal, plus potash and phosphate rock. In the third quarter Vale’s non iron ore business made up 38% of its gross revenue, according to Christopher Ecclestone of Hallgarten & Co. 

In an article called “If you love them, set them free,” the London-based analyst noted that “the idea of the Inco assets being liberated from the dead hand of Vale and returned to the international markets as a stand-alone nickel play has long been something we have craved.”

The move would allow Vale to “liberate capital while iron ore is in the dumpster,” and fill the void created when Noranda, Falconbridge and Inco were taken out of the market last decade, he says.

Raymond Goldie, senior mining analyst and vice-president of commodity economics at Salman Partners in Toronto, told The Northern Miner that a new Inco would be more of a copper producer than the old Inco because it would hold Vale’s copper assets Sossego and Salobo in Brazil.

Nevertheless, he said, “it would be only the second TSX play on nickel production — the other being Sherritt,” and noted that “despite being, perhaps, two-thirds owned by Vale, it would be a more likely takeover play than Sherritt.”

In a separate press release, Vale said its board of directors had approved the company’s capital expenditure budget for next year. The Brazilian miner expects to spend US$6.4 billion on project execution and US$3.8 billion on sustaining existing operations.

Seventy-one percent of the US$6.4 billion on project execution will go to growth initiatives in its iron ore business, with the lion’s share dedicated to expanding its integrated iron ore operations in Carajas, namely the S11D and CLNS11D projects.