Buyers are Manara Minerals, which will take 10%, and Engine No. 1 Fund
07/28/2023
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Eduardo Bartolomeo — Foto: Leo Pinheiro/Valor
A year and a half after starting work on the spin-off of the base metals business, Vale announced on Thursday that it agreed to sell 13% of the company for $3.4 billion. It is one of the largest M&A deal in the Brazilian industry.
Manara Minerals, a joint venture between Saudi Arabia’s Public Investment Fund (PIF) and state-owned mining company Ma’adene, will own 10% of Vale Base Metals Limited (VBM), the entity that will manage the Brazilian mining company’s base metals business. The remaining 3% of the company will be acquired by Engine No. 1, a California-based fund that invests in energy transition assets.
The binding agreement between the parties was signed Thursday and, according to Vale, the deal is expected to close by the first quarter of 2024, subject to conditions precedent, including regulatory approvals. Vale CEO Eduardo Bartolomeo said in a note, “We see these strategic investments as a major milestone in our path to accelerate accretive growth in our energy transition metals business platform, creating significant long-term value to all our stakeholders.” Mr. Bartolomeo added. “With our high-quality portfolio, we are uniquely positioned to meet the growing demand for critical minerals and benefit from the global energy transition, while remaining committed to sound socio-environmental practices and sustainable mining.”
Given the size of the transaction ($3.4 billion for 13% of VBM), Vale’s base metals business has been valued at $26 billion. This is an amount that represents almost 40% of Vale’s value on Thursday, of $67.7 billion. Mr. Bartolomeo has already said that VBM could be worth more than the parent company in the future. Vale bets that metals such as copper, nickel, cobalt, and lithium are inputs for the production of electric cars. Copper is also used as a feedstock for wind and solar power projects.
The total amount of $3.4 billion will be paid to VBM in cash at closing, subject to usual adjustments. And the money will go into the coffers of the new company, which is expected to be based in Toronto, Canada. The funds will be used to invest in the growth of the company, which will now be a separate entity with its own senior management.
Vale said the strategic partnership will accelerate VBM’s investment program, which is expected to reach between $25 billion and $30 billion over the next decade, much of it in Brazil. In the statement, the company said the funds will help drive a potential production increase from about 350,000 tonnes per year of copper to 900,000 tonnes per year.
Nickel production is expected to increase to more than 300,000 tonnes from 175,000 tonnes per year. The investments are expected to create employment opportunities and economic growth in the countries where VBM operates: Brazil, Canada, and Indonesia.
The superlative numbers of the operation also apply to the buyers. This is the largest Saudi investment in Brazil’s history and the third-largest in the PIF fund worldwide. The transaction was competitive and received offers from GM, Mitsui, and also the Qatar Investment Authority (QIA), sources say. Bank of America acted as the exclusive financial advisor to Manara Minerals in the transaction. Goldman Sachs advised Vale.
Sources who followed the transaction said that during the negotiations it was not discussed when the base metals unit would need a new round of financing, but it is already assumed that it will be necessary. As a result, sources said that an IPO remains on the company’s table, although no date has been set. “This may take two to three years,” said one of the sources.
In the statement, Robert Wilt, chief executive officer of Manara Minerals and CEO of Ma’aden, said: “Manara Minerals’ investment into Vale Base Metals marks our first major investment into the global mining sector. This strategic investment signifies our confidence in Vale’s strategic minerals business and will facilitate growth in VBM’s world-class asset portfolio across all of the countries it operates in.” Chris James, founder of Engine No. 1, said in the statement, “We are proud to support the Vale Base Metals team in driving the next phase of growth for these strategic assets.”
*Por Francisco Goes, Rafael Rosas, Fernanda Guimarães — Rio de Janeiro, São Paulo
Source: Valor International