Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
NEW YORK/VANCOUVER (Reuters) – Vale SA (VALE5.SA) has decided to postpone the sale of a stake in its New Caledonia nickel mine after the initial bids for the asset came in at the lower end of expectations, two people with knowledge of the matter said.
The sale may be delayed for up to a year, a setback to efforts by the world’s largest iron ore producer to offload non-core assets. The Rio de Janeiro-based company anticipates a rebound in nickel prices, the sources said, requesting anonymity because they were not authorized to address the matter publicly.
One source said Vale was seeking an investment of $500 million to $1 billion in New Caledonia, which has suffered technical setbacks, a chemical spill and violent protests.
The company has recently reduced its debt burden – one of the aims of recent divestment efforts – and new Chief Executive Officer Fabio Schvartsman is running a broad strategic review.
Vale had been in talks with Chinese battery recycler GEM Co Ltd (002340.SZ) for several months about the stake in the mine, but those talks stalled, the sources said. GEM did not reply to requests for comment.
Makers of rechargeable batteries for electric vehicles are looking to lock in supplies of cobalt, lithium and nickel, which are key battery ingredients.
Vale said it has received bids on the sale process of the stake in the mine. Its adviser on the sale process, Canada’s Bank of Nova Scotia (BNS.TO), did not reply to requests for comment.
Common shares in Vale were up 1 percent in Sao Paulo trading on Friday afternoon, extending their rise this year to 33 percent. Overbudget and years late when it finally started up in 2010, the New Caledonia project accumulated nearly $1.3 billion in losses between 2014 and 2016, according to a June presentation to investors. This has also narrowed the field of potential bidders, the second source said.
At an investor conference in New York this week, Schvartsman said nickel had brought Vale lower returns than expected and vowed to cut new investments in the business.
“We expect nickel to have more demand as it becomes a raw material for car batteries, but prices have not reacted so far,” Schvartsman said.
Murilo Ferreira, whom Schvartsman replaced as CEO in May, had decided to divest the New Caledonia nickel mine as part of a $15 billion asset sale plan announced in 2016 to reduce debt.
Vale’s net debt shrank 18 percent in the 12 months through September to 21 billion reais ($6.4 billion). It stood at 4.9 times earnings before interest, taxes, depreciation and amortization, down from 8.6 times a year earlier, according to Thomson Reuters data.
