Will Vale sell [base metals divison]? – by Harold Carmichael (Sudbury Star – August 18, 2012)

 The Sudbury Star is the City of Greater Sudbury’s daily newspaper.

Six years after buying Inco Ltd. for $19.4 billion, speculation is growing that Brazil-based Vale may be considering unloading its base metals division, which includes nickel operations in Greater Sudbury.

Such a dramatic development can’t be ruled out, said Stan Sudol, a mining analyst who also operates the mining news website Republic of Mining.

Vale’s base metals division could be worth about US$30 billion, almost a third of Vale’s estimated $95-billion total market capitalization, said Sudol. Yet the base metals division may only contribute as little as 5% to the company’s profits.

That’s a scenario Vale executives in Brazil may not be inter-e sted in continuing much longer, especially if world nickel prices and demand continue to slump, he said.

“(Vale) might be saying, ‘This is a complicated business. We are dealing with underground mines. But our specialty is open pit.’ Then, there’s the fact that while Sudbury mining technology is among the best in the world, there’s a whole different culture (with Vale), as much of their business is open-pit mining versus underground mining.”

Sudol said Vale could just decide to concentrate on what it does best: Iron ore, coal, and phosphates.

“If they were to sell the base metals, they might want to invest in deposits like iron ore or coal,” he said.

Nickel Investing News has come to the same conclusion on its website. In a story posted this week (‘Canadian Assets Drag Down Vale’s Nickel Production; Base Metals Sale Rumored’), Nickel Investing News said Vale’s weak second quarter results have “added to speculation that the company may put its base metals business, including its nickel operations, up for sale.”
Nickel Investing News noted Vale management now says it is undertaking a strategic review of its investment plans, leading analysts to speculate on a possible sale of the base metals unit.

“Divesting base metals could generate significant value for Vale,” it quotes from a Bank of America note to clients on July 26. “We believe these assets are not currently up for sale, but we think continued weak results could prompt management to revisit this strategy.”

Vale spokeswoman Angie Robson said Friday that “we don’t speculate on rumours, but there’s no truth to that, to my knowledge.”

Vale is the world’s second-biggest producer of nickel, behind Russia’s Norilsk Nickel. Sudbury produces about a third of Vale’s nickel output.

David Davidson, a senior analyst of metals and fertilizers with Paradigm Capital Inc. in Toronto, said Vale executives may have had enough of its venture into the world of nickel and decide it’s time to get out.

“It’s something that has been rumoured,” he said. “With the nickel side of their base metals, they do have copper production in Brazil, it’s doing well, but the nickel side has been a major distraction for management.

“They have speculated in the past that it may not be a good fit with what they are trying to do. Iron ore is their bread and butter.”

Davidson said in addition to low prices and poor demand for nickel, Vale went through a bitter labour dispute at its Canadian operations, including Sudbury, in 2009-10 and “they found the Brazilian management style can’t be transplanted ever ywhere in the world.”

As well, Vale’s Goro nickel operation in New Caledonia remains down due to problems with its acid plant, and the Onca Puma nickel operation in Brazil has experienced run outs of molten material that damaged two on-site furnaces.

“The only thing that has operated rather smooth for them is PT Inco (in Indonesia),” said Davidson. “It has been less than a stellar run (for Vale) in the nickel market. We are seeing nickel under $7 (a pound) and no immediate relief in sight.”