Vale to decide on base metals sale: Brazilian paper

M&A

| Nickel producer may sell 10% stake to funds, automakers

BY COLIN MCCLELLAND

At press time on May 23, Vale (NYSE: VALE) was said to be on the cusp of deciding on the sale of a minority stake of its base metals business to automakers, pension funds and sovereign wealth funds, according to Brazilian news outlet Valor

The board of the world’s largest nickel producer, was reported to be analyzing binding offers for a 10% stake that could be valued at US$2.5 billion, Valor said on May 18, with a decision to come on May 25. The outlet cited unnamed people familiar with the matter who aren’t allowed to speak publicly about it.

The base metals sale could be to a single investor or a consortium, one of the people told Valor. Candidates could be GM, the Canada Pension Plan, Saudi Arabia’s Public Investment Fund, the Qatar Investment Authority, and trading company Mitsui & Co. of Japan, Valor said it was told.

The Valor report updates news of the base metals sale first reported by The Financial Times in January.

Vale and GM didn’t reply to emails seeking comment, while a spokesman for Canada Pension Plan told The Northern Miner by email on May 19 that it doesn’t comment on speculation in the media.

Vale, which bought Sudbury, Ont.-focused nickel producer Inco in 2006 and operates the Voisey’s Bay mine in Labrador among its global assets, said last year it might seek a strategic partner for the copper and nickel unit. It wants to unlock value from the surging electric vehicle market where Tesla is already a major client. The unit could be spun off in a stock listing next year, sources told Valor

The global transition to clean energy is increasing demand for battery metals such as lithium, copper, nickel and cobalt. This year, GM already promised a US$650-million investment in Lithium Americas’ (TSX: LAC; NYSE: LAC) Thacker Pass project in Nevada. Tesla has been one of the leading investors in the battery metals space over the past decade, according to data collected by Bloomberg. Automaker Stellantis, formerly Fiat-Chrysler, promised a $5-billion battery plant in Windsor, Ont., though it’s now in a dispute with the federal government over funding.

“If I move the green metals, copper, nickel, cobalt, to a separate entity, that makes it easier for people to understand the criticality and the growth that’s coming,” Vale CEO Eduardo Bartolomeo said on a February conference call about earnings. “That’s the next reason why we’re doing that. Because if you understand the needs of cash for this business, we’re talking a huge amount of money. We’re talking US$20 billion.”

The company is aiming to nearly triple copper output to 900,000 tonnes a year in 2030 from a range of 335,000 to 370,000 tonnes this year. The goal is to almost double nickel production at the same time to 300,000 tonnes per year from 160,000 to 175,000 tonnes in 2023.

Shares in Vale fell more than 5% in May to US$13.35 each, following the wider market lower on concerns over stalled negotiations about U.S. government debt. The stock, valuing the company at US$60.8 billion, has traded in a 52-week range of US$11.72 and US$19.31. TNM meet surging demand from electric vehicle makers, saying that it was assessing lithium assets in Canada and other countries to boost its capacity.

“With a combined portfolio spanning from extraction to chemicals over multiple jurisdictions and resource types, and a healthy pipeline of expansions and greenfield projects, it will be one of the largest and most resilient lithium producers globally by the end of the decade,” Fastmarkets NewGen’s Roberts said.

The consolidation also enables the sharing of know-how, the analyst noted. Livent has been a leader in direct lithium extraction production, which it has used for 15 to 20 years.

“Allkem’s brine operations will now be able to benefit from this and Livent’s interest in Nemaska Lithium will be able to benefit from Allkem’s hard rock expertise,” Roberts said.

Lithium M&A surges Australian lithium miners have been fending off takeover approaches this year. In March, Liontown Resources (ASX: LTR) rebuffed a US$3.7 billion (A$5.5 billion) buyout bid from Albemarle, and has since turned down two previous offers by the U.S. producer.

“We see Canada as a core part of our expansion capacity. We have to get bigger. We can’t just sit still,” Graves said in a November interview.

Allkem gets the lion’s share of its profit from its Mt Cattlin mine in Western Australia, but it has flagged growth plans in Argentina and at the James Bay spodumene project in Canada.

The wave of deals in the lithium sector come as prices of the battery metal fell by more than 50% from almost US$90,000 per tonne at the end of 2022 to about US$24,000 per tonne in April, on weak demand from the Chinese EV sector, according to Benchmark Mineral Intelligence. Prices have recovered over the past few weeks and are now above US$33,000 a tonne. While the drop has been dramatic, Benchmark analysts note lithium prices were only about US$10,000 a tonne before the Covid-19 pandemic hit worldwide markets. TNM

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