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Vale to Sell Mozambique Coal Business, Advancing Divestment Plan

Vale to Sell Mozambique Coal Business, Advancing Divestment Plan

Vale SA moved to exit its coal business, furthering a strategy of shedding non-core businesses seen as drains on cash and shifting to lower-carbon assets.  

The Brazilian iron ore giant said Tuesday that it agreed to sell its mine and export railway in Mozambique to Vulcan Minerals, part of India’s Jindal Group, for $270 million plus a 10-year royalty deal.

The deal follows Vale’s strategy to sharpen its focus on giant iron ore and base metal deposits, and return money to shareholders. In the past year Vale has divested from a troubled New Caledonia nickel mine, signed a deal to get out of manganese ferro-alloys in Brazil, cashed in $1.3 billion for its shares in Mosaic Co. and agreed to sell its 50% stake in California Steel Industries Inc. to Nucor Corp. for $400 million.

“This move makes sense from a strategic perspective, and Vale has been vocal about its intentions to divest from its coal assets, in line with its efforts to improve its ESG practices (and ratings) over the past years,” Daniel Sasson, an analyst at Itaú BBA, wrote in a note.

See also: Iron Miner Vale Ends ‘Distractions’ With Manganese to Coal Sales

Over the past decade, the Rio de Janeiro-based company faced setbacks at the Moatize coal project, failing to ramp up output as much as planned. Last quarter, Vale reported about a $2 billion impairment of the assets and said it would rather speed the sale even for a smaller value. Before that, the miner prepaid the $2.5 billion related to the Nacala Logistics Corridor project finance.

The Mozambique coal operation was the last significant asset on the divestment portfolio. The next targets left are a 40% stake in Brazilian bauxite producer MRN, as well as Brazilian steel producer CSP.

“It’s important to mention that a series of these business have been consuming/sinking billions of capital over the years and depressing returns, so we see these latest moves as important,” BTG Pactual analysts Leonardo Correa and Caio Greiner wrote in a note. 

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