Yahoo Finance 'Nickel and copper's time': Vale to split off metals group to capitalize on battery demand
Brazil-based Vale SA plans to separate its base metal operations into a distinct entity from its main iron ore business sometime in mid-2023, a move that will affect its nickel operations across Canada.
Executives cast the announcement, which came Wednesday at an investor day in New York, as a way to ensure its base metal operations — which include nickel mines and plants in Sudbury, Ont.; Thompson, Man.; and Voisey’s Bay, NL — are fully valued and can access capital.
Demand for nickel and copper, the base metals Vale primarily produces, are expected to surge as the energy transition picks up speed and more people switch to electric vehicles.
But Vale executives said that in order to capitalize on this opportunity they need to ensure base metals operations receive appropriate investment and aren’t neglected in favour of the company’s much larger iron ore business.
“It is fundamental for us to create a (base metals) vehicle here that can fund itself without competing with the use of proceeds of iron ore,” Gustavo Pimenta, chief financial officer of Vale, said at the presentation. “We all know that this enterprise should trade at a substantially higher multiple as compared to the iron ore.”
Initially, the base metal assets, which include mines in Brazil and Indonesia in addition to the operations in Canada, will sit in a separate entity governed by its own board. The board will include Vale’s chief executive as well as other professionals with expertise in electric vehicles.
Pimenta said Vale would look for a minority partner to help shoulder the billions of dollars in capital investments needed to optimize those assets.
He described the move as the first step in a years-long process, and left open the idea that the entity could eventually go public.
“This initial transaction allows us to keep all the optionality to do other deals down the road,” said Pimenta, “To grow the business, go public, do different things.”
Vale has set an ambitious goal of increasing annual nickel production from 180 kilotonnes in 2022 to more than 300 kilotonnes per year by 2030. It hopes to more than triple its copper production from 260 kilotonnes this year to 900 by 2030.
Pimenta estimated this would require $20 billion of investments.
The company said it is looking to more than double its mineral exploration expenditures, which includes iron ore as well as base metals, from US$170 million in 2022 to US$350 million by 2026.
Still, base metals accounted for only about 14 per cent of roughly US$55 billion in revenue in 2021 whereas the lion’s share — 80 per cent — came from its iron ore segment.
'They see stability and calm here': Canada looks like a good place to invest to some EV producers
How Volkswagen's interest in Canada shows auto sector dynamics are shifting in country's favour
Global nickel cartel off the table as Canada's trade minister rebuffs Indonesia's approach
“We all know this is nickel and copper’s time, on the back of decarbonization,” Deshnee Naidoo, executive vice-president of base metals for Vale in Toronto, said during the presentation.
Vaidoo also said “a positive push,” in which automakers search for lower-carbon battery grade nickel, is creating a price premium for such products, adding that Vale is well positioned to capitalize on the trend.
“Given our geographical location in North America, we are uniquely positioned to take up the demand that we are seeing from (battery) gigafactory growth just down the road from us,” she said. “All of this translates into a bright future for nickel and copper.”
Correction: An earlier version of this article misspelled the name of Vale‘s executive vice president of base metals. It is Deshnee Naidoo.
• Email: gfriedman@postmedia.com | Twitter: GabeFriedz
