Brazil’s Vale mulling IPO for part of base metals business, say sources-Reuters

(Reuters) – Brazil’s Vale SA is considering listing part of its global base metals business, two sources with knowledge of the matter said on Monday, as the miner looks to fund capital projects amid a collapse in iron ore prices.

The sources, who asked not to be named as they have not been authorized to discuss the matter publicly, said the world’s top iron ore producer is likely to retain a majority interest in the new entity if it proceeds with the plan.

Vale could outline the plan to list a new entity in Toronto and London as early as Tuesday at an investor day event being held in New York, said one of the sources.

The event at the New York Stock Exchange will be webcast.

The second source said there had been significant discussion inside Vale about listing the base metals assets, which have fared better than its iron ore business due to steadier prices.

A Vale spokeswoman in Brazil could not be reached for comment after hours.

Vale’s iron ore business contributed 62 percent of the company’s gross revenue in the third quarter. Outside of iron ore, Vale’s global asset portfolio includes nickel assets in Canada, Indonesia and New Caledonia, coal mines in Australia and Mozambique as well as copper projects in Canada, Brazil and Zambia.

Prices for iron ore have halved this year to five-year lows below $70 a tonne as mining behemoths Vale, Rio Tinto and BHP Billiton have cranked up output at a time when demand from China, the steelmaking ingredient’s chief customer, has waned.
UBS estimates that it costs Vale $67 to produce a tonne of iron ore and get it to China, a tight squeeze as the company looks to complete its $20 billion Brazilian iron ore project known as S11D.

Vale has already said it expects to reduce its 2015 capital budget to below an originally anticipated $12.5 billion. But with S11D vital to Vale’s strategy of protecting iron ore market share and reducing production costs, it has little room to maneuver and is pressing on with investment in the core venture, the world’s largest iron ore project.

Other industry insiders, who have worked closely with Vale in the past but are not privy to any announcement, said selling a minority interest would make sense in the current environment and enable the miner to raise cash.

JPMorgan analyst Rodolfo Angele said in a note to clients on Monday that investors at the analyst day event will likely be looking for updates on Vale’s Mozambique coal divestiture plans, as well as details on other asset sales and a potential IPO of the base metals division.

“We note that lack of details on any of these measures would likely disappoint the market, but a more definitive action would be seen positively,” said Angele.