Spotlight: Vale's US$30bn copper and nickel investment plan

Brazilian miner Vale advanced a US$30bn nickel and copper investment plan, but experts highlight some risks.

"Historically, we can say that Vale does not know how to operate assets efficiently outside Brazil. Let's see if now history changes, with a separate structure in the copper and nickel area and with executives on the board with international experience in this area," José Carlos Martins, CEO from 2004-14 and currently the head of iron ore producer Cedro Mineração, told BNamericas. 

Vale will sell 13% of its base metals division VBM, which runs nickel and copper operations, for US$3.4bn to Manara Minerals, a JV between Ma’aden and Saudi Arabia’s investment fund, the company said in a statement.

The JV will provide US$2.6bn and US investment firm Engine No. 1 the rest.

"This strategic partnership will fast-track VBM’s expected US$25-30bn capital program over the next decade and help drive a significant potential increase in VBM’s production from about 350,000t/y to 900,000t/y in copper and from roughly 175,000t/y to more than 300,000t/y in nickel," Vale said in a statement.

"This program will generate jobs, economic growth, procurement and supplier opportunities as well as socioeconomic benefits in communities across the key critical mineral jurisdictions where VBM operates in Brazil, Canada and Indonesia," it said.

"I think it's possible that in the future Vale will sell another minority stake, keeping the control of the base metal unit, to a company that has proven experience in nickel because the company doesn't need partners with a financial profile so much to move forward with its investments, since it has huge cash generation," Felipe Volcato Ruppenthal, a specialist mining analyst at investment house Eleven Financial Research, told BNamericas. 

“Nickel is a chemical and metallurgical operation, with a large industrial component in which Vale does not have much expertise, which is why it has never been able to earn much money from this business,” said Martins.

“In copper, where mining is preponderant, Vale performs better. Anyway, even with these investments that are being announced, I hardly see copper and nickel surpassing iron ore as Vale's main source of revenue,” he said.

Vale started structuring its nickel and copper divisions in 2021 to capture more interest from investors amid the energy transition.

“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 of our stakeholders,” Vale CEO Eduardo Bartolomeosaid in the release.

Vale mainly invests in the development of reserves and deposits it already owns.

Its nickel operations involve the Onça Puma second furnace in Brazil, the Pomalaa and Morowali projects in Indonesia and the Voisey’s Bay mine expansion in Canada.

VBM is a top 10 copper producer in the Americas with an operating base concentrated in Brazil that includes the country’s largest copper deposit at Salobo with 40-plus years of remaining life, complemented by a strong pipeline of development and growth projects from Alemão, Cristalino and Bacaba in Brazil to the large-scale Hu’u project in Indonesia.

CHANGES AT THE TOP 

Bartolomeo is facing increasing pressure from President Luiz Inácio Lula da Silva, who wants leadership more aligned with government priorities.

Vale was privatized in the 1990s, but the government retained influence via a golden share and the 8.72% share owned by development bank Banco do Brasil's pension fund, Previ.

Former finance minister Guido Mantega and former Banco do Brasil CEO Paulo Caffarelli are rumored to be in the running to replace Bartolomeo.

"Changing names is not likely to prompt a new a direction in the company's plans for the nickel and copper division, but if the government succeeds in placing a board and executives more in line with its thoughts, we’ll see Vale trying to invest in a more verticalized operation in Brazil, such as investing also in steel," said Ruppenthal.

"Just as the government wants [oil company] Petrobras to be more vertical, investing in refineries, it will also try to influence Vale, although the task is more difficult at the mining company because the government does not have control," Ruppenthal added.

RESULTS

Vale posted a Q2 net profit of US$892mn, down from US$4.09bn a year ago, and net revenue of US$9.67bn, down from US$11.1bn because iron ore and nickel prices contracted, the company said in its latest report.

Capex totaled US$1.2bn, compared to US$1.29bn a year ago.

"Investments in growth projects under construction totaled US$376mn in Q2, down 16%, driven by lower investments in the Salobo III and Sol do Cerrado projects, which are already in commissioning, which were partially offset by investments in the business solutions projects in iron ore and in the nickel project for the second furnace at Onça Puma," the company said.

"Investments in maintaining our operations totaled US$832mn in Q2, flat year-on-year, as a result of investments for operational improvement and lower investments in waste filtering plants in iron ore solutions operations, following the start-up and commissioning of our four plants in 2022," it added.