Streaming deal could pay Vale $9 billion

August 22, 2016

Vale is reportedly in discussions with China Investment Corp. (CIC), about a commodities streaming deal that could see the company fetching about $9 billion upfront for the sale of future iron ore output.

Bloomberg reported that CIC, the $814 billion sovereign fund, is leading a Chinese investor group in the talks with the Brazilian mining company.
The consortium is negotiating the potential purchase of a portion of Vale’s future iron-ore output for as long as 30 years, two of the people said, asking not to be identified as the information is private.. No agreements have been reached, and the talks may not result in a transaction, according to the people. If the transaction does happen, CIC, owned by the government of the world’s biggest iron-ore importer, would profit from a recovery in commodity prices without bearing all the operational risk associated with owning mines. Vale, which has said it will consider the sale of $10 billion of its best assets by the end of next year, would get immediate cash while staying in charge of valuable assets.

On Aug. 3, Reuters reported Vale was considering selling as much as 3 percent of future iron-ore output to undisclosed Chinese companies. In an Aug. 10 response to securities regulator, Vale said the information wasn’t true.

The World Bank expects commodity prices to recover modestly in 2017 as demand strengthens. It forecasts iron ore prices to fall next year, before rising to $65 a ton by 2025, according to a July report.

Vale has joined global miners Freeport-McMoRan Inc., Glencore Plc and Anglo American Plc in selling assets after its net debt swelled to about $27 billion as a commodity rout eroded earnings. Chief Executive Officer Murilo Ferreira raised the prospect of selling some of the company’s most prized assets in February, after the miner reported its first year of losses since 1997.

The world’s top iron-ore producer has exited coal mines in Australia and is in talks with U.S. fertilizer producer Mosaic Co. to sell its South American potash and phosphate assets, which may fetch about $3 billion, people familiar with the matter said this month.

Vale said a Brazilian court dismissed its appeal of a lawsuit in connection with a dam spill at its Samarco joint venture, which includes a lien prohibiting the miner from selling stakes in its iron-ore operations. A streaming deal would sidestep those limitations.

Samarco, which Vale owns jointly with BHP Billiton Ltd., is seeking a standstill agreement on about $1.6 billion in bank loans as its owners refuse to cover debt payments until mining resumes, people with knowledge of the matter said this month.

 

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