Vale eyes possible return of ‘Inco’ to Canadian market as it mulls IPO for part of base metals unit – by Peter Koven (National Post – December 3, 2014)

The National Post is Canada’s second largest national paper.

TORONTO – Eight years after it disappeared, Inco Ltd. could be poised to return to the public markets in some form.

Brazilian mining giant Vale SA, which paid nearly $20-billion for Inco in 2006, said Tuesday it may sell part of its base metals unit in an initial public offering, likely on the Toronto Stock Exchange. That confirmed an earlier report from Reuters, and follows years of speculation that Vale could divest the business.

There are two logical reasons to consider it now. First, Vale wants liquidity as it plans a huge capital spending program next year amid low iron ore prices. More important, these assets are completely lost inside the huge Brazilian company.

“We believe there’s hidden value there,” chief executive Murilo Ferreira said in a press conference in New York. “We believe this value has to be better expressed.”

Vale calls itself a diversified mining company, but the vast majority of its profits come from iron ore. Even with iron ore prices plunging this year, that one commodity made up 80% of the company’s adjusted pre-tax earnings in the third quarter. It accounted for 97% of adjusted earnings in the same quarter a year ago, when prices were much higher.

The base metals unit is highly profitable — it generated US$781 million of adjusted pre-tax profit in Q3. But analysts and investors pay little attention to it. Vale believes the business may be worth US$30 billion to US$35 billion, which is not much less than its current market value of US$43 billion. The company is looking to sell a minority stake in the business, maintaining a controlling interest.

“I think it’s eminently logical for Vale to spin back Inco, and for Rio Tinto to spin back Alcan,” independent analyst John Tumazos said in an interview.

“The iron ore business has grown so much over the past decade, both in volume and price, that it dominates those companies.”

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