Vale Considers Selling Stakes in Coal, Fertilizer Businesses, Steel PlantCompany Mulls 15%-25% Shares for Strategic Partners, Seeks Exit From Ailing Steel Plan
PAUL KIERNAN And
ALEX MACDONALD
Updated Dec. 5, 2013 5:44 p.m. ET
Brazilian mining giant Vale SA VALE5.BR +0.97% said Thursday it might sell stakes in its global fertilizer and coal businesses to strategic partners to lighten project costs and build up those nascent operations.
The company also plans to sell its stake in an ailing Brazilian steel plant that is majority-owned by German conglomerate ThyssenKrupp AG TKA.XE +1.69% , although the timing is uncertain, a senior Vale executive said.
Vale and ThyssenKrupp invested more than 5.2 billion euros, or $7 billion, to build CSA, a 5 million-metric-ton a year steel-slab plant that began operating in 2010 but has yet to turn a profit.
The world's largest iron-ore producer said it considers coal and fertilizers as part of its long-term core and isn't targeting the divisions for divestment. But the two segments accounted for a tiny portion of Vale's revenue—a combined 7.9% in the third quarter—and have weighed on cash flow.
Roger Downey, head of the fertilizer and coal operations, said Vale is considering selling a minority equity stake of between 15% and 25% in the global coal division, adding the company doesn't want "to chain ourselves to any number."
Mr. Downey said Vale has confidentiality agreements with several interested parties and is targeting users and buyers of coal who can improve the company's access to the main markets. "What we're trying to do is to unlock a lot of value we have in this business by bringing in joint-venture partners."
The coal operations have been beset by low prices, with revenue from the division declining 6% in the third quarter even as production rose by one-third. "It's a bit ugly out there, with market prices being very low indeed," Mr. Downey said at an investor presentation in London. He added that the business has "been making money since September," however, on increasing production at its Moatize mines in Mozambique and on declining costs at its Australian operations.
The company expects to invest around $2.83 billion in its coal business next year, mostly to expand the operation at Moatize and to finish building major railway and port infrastructure in Mozambique's Nacala corridor. Executives said earlier this week they hope to sell about half of Vale's 70% stake in the Nacala project.
Meantime, Vale's efforts to become a major player in fertilizers took a hit this year when it suspended a $6 billion potash project in Argentina. The company manages to supply only a fraction of the fertilizer ingredients demanded by Brazil's agribusiness, which imports up to 90% of some nutrients, and it has a meager $52 million set aside for investing in new fertilizer projects next year.
Vale previously has talked about joint ventures for individual fertilizer projects but said on Thursday that it could also bring partners in "at the holding level."
"We are looking for a win-win solution because if we were merely looking to lighten burdens on cash flow, we would be looking for a financial investor, which is not the case," Chief Executive Murilo Ferreira said.
With mining shares under pressure globally amid an uncertain outlook for many commodities and tens of billions of dollars in investments planned for the coming years, Vale has sold some $6.4 billion in assets during the past two years.
Jose Carlos Martins, head of Vale's Ferrous division and Strategy, said that Vale has invested $2 billion in the ailing CSA plant, which has suffered from cost overruns and technical difficulties. ThyssenKrupp built the plant alongside another steel plant in Alabama with the intention of shipping raw steel from the Brazil plant to process into higher-value finished steel products at the U.S. plant.
However, rising labor costs and a strengthening Brazilian currency made the venture unprofitable, prompting ThyssenKrupp to announce 18 months ago plans to exit the two plants altogether.
Mr. Martins said that Vale typically has invested in Brazilian steel plants to increase domestic steel production and thereby sell more iron ore at home.
"When the company [or steel plant] is completely feasible and can work by itself, we normally sell," he said.
Mr. Martins didn't provide details about the conditions under which Vale would sell out of its CSA stake, although he indicated that steel prices are depressed and would need to recover beforehand.
The company is also in talks with Glencore GLNCY +2.16% Xtrata for the two companies to integrate their nickel operations in Canada's Sudbury basin in hopes of gaining synergies. Peter Poppinga, head of Vale's base metals division, said the company expects to have "concrete results in the first half of next year," and that the value of a potential deal would be "very expressive."
"It's about, mainly, the mines where one party has the access and the other party has the ore, or vice versa," Mr. Poppinga said. "You combine that, and you also combine the surface facilities."
Write to Paul Kiernan at paul.kiernan@wsj.com and Alex MacDonald at |
