Battery Boom Prompts Iron Giant Vale to Mull Base Metal Spin-off

Vale SA, the world’s second-largest iron ore producer, is exploring spinning off of its base metals business as the global transition to clean energy and transport spurs demand for copper and nickel.

“We are in a phase of studying -- analyzing the possibility,” Chief Executive Officer Eduardo De Salles Bartolomeo told analysts on a conference call Tuesday.

The Rio de Janeiro-based miner, which is recovering from an iron-ore tailings disaster in 2019, continues to trade at a discount to its Australian-focused rivals BHP Group and Rio Tinto Group. Housing base metals operations in Canada, Brazil and Indonesia in a separate company may help unlock value as the company expands copper and nickel output and exits coal.

Vale, already the top commercial producer of mined nickel, sees an opportunity to grow in the electric-vehicle supply chain as the world tries to wean itself off fossil fuels.

The company recently signed a “significant” multi-year contract to supply battery-grade nickel, and wants to channel 30% to 40% of its high-quality nickel to the EV space, said Mark Travers, who heads the base metals business. Vale has the “ESG credentials” of low-carbon intensity and the respected jurisdiction of Canada to do so, he said.

In copper, the metal used in wiring that’s trading near the highest levels in a decade, Vale is looking to lift annual output from about 360,000 tons to 500,000 tons in the coming years as it explores the Hu’u deposit in Indonesia.

Iron ore miners tend to trade at a discount to base metals. Perth-based Fortescue Metals Group Ltd., for example, fetches 4.7 times enterprise value over earnings before items compared with Chilean copper miner Antofagasta Plc’s ratio of 6.7, according to data compiled by Bloomberg Intelligence.

“This is not the first time Vale has looked at a spin off,” BI analyst Grant Sporre said. “The company is one of the biggest nickel producers globally but the earnings are dwarfed by iron ore. So this is all about unlocking value.”

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