Brazilian mining company Vale has made the curious decision to sell part of its big copper and nickel business – which represents enormous future growth potential, rather than some of its iron ore operations.
Media reports say Vale was in discussions to sell a $US2.5 billion minority stake in its metals business, as a way of financing the expansion of its copper and nickel output to meet growing demand for the energy transition.
Wall Street investment bank Goldman Sachs was reported to be leading the sale discussions which centre on the sale of up to 15% in the business which would put a value on the division of around $US25 billion.
Japanese trading houses, sovereign wealth funds in the Middle East and car companies are sniffing around the assets with first bids due early in November.
BHP is already in the Samarco iron ore pellet joint venture with Vale in Brazil and would no doubt be interested given the way it is hunting for more copper and nickel assets in Australia (OZ Minerals bid) and Canada.
Tesla this year signed an offtake agreement with Vale for nickel from Canada, a sign of how the carmaker is working to secure raw materials supply chains outside China. Tesla also has a nickel sulphate deal with BHP in WA.
Like BHP, Rio and other metal miners, Vale has also discussed long-term supply contracts with other car companies, including Ford, GM and Volkswagen.
Vale has struggled in the past three years to transform its base metals unit, which includes copper and nickel mines in Canada and Indonesia.
Vale’s base metals unit struggled with low output last year, partly because of a lengthy labour dispute in Canada and a fire at a copper mine in Brazil, but production is forecast to rebound this year and next according to updated forecasts released in September.
Vale is the world’s second biggest iron ore exporter behind Rio Tinto and in front of BHP and Fortescue Metals. Based on the former Inco mines in Canada, Vale is the world’s second biggest nickel producer and the largest outside Asia.
Vale last week quietly revamped the corporate structure of its its nickel and copper assets in Brazil, a move that lays the groundwork for its base metals division to be valued separately from its iron ore business.
Vale said in the statement that “there is currently no decision regarding new transactions with [the] base metals business”, a statement that dragged market attention to the very idea and found Goldman Sachs talking to various companies and investors.
Up till now nickel demand has been driven by stainless steel production but car companies and battery producers use high grades of the metal for the most powerful lithium-ion batteries with longer range. More than half of the world’s nickel mines are Chinese-owned.
Nickel faces the largest absolute increase in demand by 2030 out of the battery metals, which also include cobalt, lithium and graphite, according to the International Energy Agency.
Given the growth prospects for nickel and copper are much stronger than for iron ore, you’d think Vale would sell a stake in some of its mines to raise cash to reinvest in copper and nickel.
Iron ore demand and future pricing is tied to the Chinese steel industry and its demand – both for steel from the user side and iron ore from the supply side.
Chinese steel demand will remain problematic until China once and for all cleans up its property and construction sectors and takes huge losses in doing so.
The recent Australian Government resource quarterly forecast rises for copper and nickel (and lithium prices) over the next two to three years but iron ore prices are predicted to fall from around $US110 a tonne this year to $US70 a tonne by 2024.
Australian companies have significant investments in all these metals, especially nickel, copper and lithium, with cobalt emerging quickly and graphite discoveries here and offshore by small operators.
