How Much Fat Does Vale Have Left to Trim?

Add two more assets to the long list of properties Brazilian mining giant Vale (NYSE: VALE  ) is hanging toe tags on this year. Continuing the two-year drive to rein in its sprawling, global portfolio, the world's biggest iron ore producer this week announced the sale of its capital in purified phosphoric acid producer Fosbrasil while also saying it had auctioned off its stake in logistics firm Log-In Logistica Intermodal.

Over the past two years Vale sold off $6.4 billion worth of assets, with some $5 billion worth coming this year alone. The sale of its 44% stake in Fosbrasil will add $52 million to the tally while the Log-In auction, which shed the company's 31% stake in the Brazilian logistics company, is expected to raise another $100 million. Earlier this week it sold more than a quarter of its holdings in another logistics company, VLI, for $850 million -- the second time it's reduced its holding there -- while also unloading the 90% position it held in Chilean copper miner Minera Tres Valles for an estimated $25 million.


Vale Asset Sales 2013
Date Asset Buyer Price
7/16/13 Vale phosphate Eagle Star Minerals Undisclosed
9/18/13 VLI Mitsui & Co $1.2 billion
11/12/13 Norsk Hydro

Norsk Hydro

$1.8 billion
11/14/13 Parnaiba Basin Natural Gas blocks 1 & 2 GDF Suez Undisclosed
12/13/13 Sociedad Contractual Minera Tres Valles Vecchiola $25 million
12/19/13 Norte Energia Cemig $100 million
12/23/13 Fosbrasil ICL Performance Products $52 million
12/23/13 VLI Brookfield Asset Management $850 million

Source: Company filings, Capital IQ.

There was speculation early on that Vale was trying to unload everything that wasn't nailed down to pay off a monstrous $16 billion Brazilian tax bill that was looming on the horizon. But Brasilia initiated a tax amnesty program that Vale accepted at the 11th hour. That left the company with a still-sizable tab to pay, but at just under $10 billion with the bulk of it paid out over 15 years, it was suddenly more manageable. 

Vale said just this week it was still going to challenge parts of the bill related to sales of foreign subsidiaries, arguing it's already paid all the tax due on them, meaning the asset sales still going on indicate it hasn't relented in its drive to contain costs.

Iron-ore pricing remains weak, although over the course of the second half of the years it's recovered much of the lost ground. However, Rio Tinto (NYSE: RIO  ) says new global capacity scheduled to go live next year means the industry will again find itself in the same predicament. Rio and Vale have benefited from the newest surge in buying by China, but Goldman Sachs says with some 400 million tons of new supply to be delivered by 2015, prices are likely to fall another 43% to an average of $80 a ton.

Conceicao Itabiritos Project. Source: Vale.

Fortunately, there's no firm consensus on that, with JPMorgan Chase analysts forecasting a $110-per-ton price in 2015 (although that's 12% lower than the anticipated $125 a ton price for next year). The weakened pricing environment is leading other miners to unload assets as well, including U.K. steel trader Stemcor, which is selling its Indian iron and manganese ore units; BHP Billiton (NYSE: BHP  ) , which is selling its Australian Jimblebar iron ore mine; and Rio Tinto itself, which has been trying to unload its Canadian assets.

Miners in other industries affected by the collapse of commodity prices are also thinning their portfolios, but Vale's response has been the most widespread and therefore the most dramatic. With capital expenditures for 2014 expected to be $14.8 billion, a 4.5% decline from this year's $15.5 billion tab and off 16% from the $17.7 billion it spent in 2012, Vale will be directing the bulk of capital spending toward key iron ore assets, meaning this won't be the last we see of Vale swinging its ax.

Cut through the morass
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report, "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2777721, ~/Articles/ArticleHandler.aspx, 10/30/2014 11:23:55 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement