Anglo May Sell Brazil Nickel Unit to Vale, Deutsche Bank Says – by Firat Kayakiran (Bloomberg News – May 8, 2014)

Anglo American Plc (AAL), which is reviewing assets globally as it tries to return to profit, may offer its Brazilian nickel unit to the nation’s largest miner Vale SA as metal prices increase, Deutsche Bank AG said.

Nickel will probably peak at $27,000 a metric ton in 2017, Deutsche analysts Rob Clifford, Anna Mulholland and Paul Young wrote in a report dated yesterday, raising the bank’s forecast of $20,000 a ton in 2018. The metal has surged 40 percent in London trading this year after leading global miner Indonesia barred exports of raw ores in January.

Anglo’s Barro Alto unit, which missed its target of an annual capacity of 36,000 tons at the end of 2012 because of setbacks at its two furnaces, said last month it aims to reach the mark by 2016. It plans to fix one of the furnaces this year and the second one in 2015. The mine produced 25,100 tons of nickel last year, Anglo said in February.

“We would suspect that Vale, having undertaken a similar rebuild program at its Onca Puma, could be interested in acquiring the Barro Alto operations and may consider taking on the assets prior to the completion of any refurbishment program if that were to be reflected in the price,” the Deutsche analysts said in the report. “It would also provide Vale with a competitive advantage in tendering and Anglo with a potentially earlier than expected exit.”

Nickel prices reached a two-year high of $19,433 in London today after Vale was ordered to suspend mining in New Caledonia after a spill, stoking concern supply might fall short of demand.

Asset Review

Anglo Chief Executive Officer Mark Cutifani started a review of worldwide assets after joining the company a year ago. He has set a goal of improving Anglo’s return on capital to at least 15 percent by 2016 from 11 percent in 2013 and would consider disposing of any asset that falls short. Anglo wrote $700 million off the value of Barro Alto in February, reducing the amount of capital it employed on the asset.

“We do not believe the nickel division is of a significant enough scale to be viewed as core,” the Deutsche analysts said. “Current operational challenges at Barro Alto and the appetite for nickel assets has prevented any disposal, but the improving fundamentals of the nickel market are likely to help accelerate the disposal process post a satisfactory rebuild of the first furnace by the second half of 2015.”

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