Chinese stake in Vale could help or hinder BHP Billiton – by John Kehoe (Australian Financial Review – June 22, 2016)

The prospect of a cashed-up Asian investor taking a minority equity stake in the iron ore assets of indebted Brazilian mining giant Vale would not have gone unnoticed by BHP Billiton and its shareholders.

The key question for those with an interest in BHP is what are the possible ramifications for Australia’s mining juggernaut from a potential partnership between competitor Vale and China Inc?

In a world where the economic and strategic motivations of China’s state-owned investors can overlap, the answer seems to be a double-edged sword for BHP. On the potential positive side, a more robust Vale balance sheet topped up with Asian – most likely Chinese – cash would probably be welcomed by the Big Australian.

BHP is the stronger financial partner in the beleaguered Samarco iron ore joint venture with Vale in Brazil. Vale is lumbered with $US23 billion ($30.8 billion) in debt and wants to cut the liability by $US10 billion.

More than seven months after the devastating dam spill that killed 19 people, some nagging doubts linger about a debt-laden Vale’s capacity to fully contribute to the continuing restoration and reopening of Samarco in the event that new unforseen costs arise.

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