Saudi Arabia makes mining bet with stake in Vale’s base metals division

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Saudi Arabia has launched its first significant foray into the global mining industry, with a deal to become a minority shareholder in Vale’s $26bn-valued copper and nickel unit.

The Brazilian group said on Thursday evening it had reached two separate agreements to divest a combined 13 per cent slice of its base metals operations for a total $3.4bn in cash.

A joint venture between Saudi Arabian Mining Company and the country’s Public Investment Fund will own 10 per cent of the division, which supplies materials required for the transition to cleaner energy. Investment firm Engine No. 1 will have a 3 per cent equity interest.

Vale said the base metals business would deploy up to $30bn on new projects across Brazil, Canada and Indonesia over the next decade, as it expands production of copper and nickel. Demand for both metals is expected to rise because of their use in electric vehicles.

“The unit will have its own life now,” Vale chief executive Eduardo Bartolomeo told the Financial Times. In two or three years, the business may consider an initial public offering or a merger, he said, but the more immediate focus will be on growth and execution.

The Saudi investment comes as the Gulf kingdom seeks to diversify its economy away from oil, with bets on alternative energy sources and a range of other sectors.

Alongside ambitious targets for solar and wind power installations, Saudi Arabia is planning lithium processing facilities as part of efforts to develop a battery supply chain. 

“[It] marks our first major investment into the global mining sector,” said Robert Wilt, executive director of Manara Minerals, the Saudi joint venture set up in January.

Iron ore provides about 80 per cent of revenues at Vale, a giant of the global mining industry with a market capitalisation of $67bn.

Bartolomeo has previously said the base metals division could one day outgrow its parent and float on the stock market. He told the Financial Times in a recent interview he had held talks with potential partners including carmakers and pension funds.

Vale said the deal gave the base metals unit an implied enterprise value of $26bn. It is expected to close in early 2024 subject to conditions such as approval by regulators.

The deal price is equivalent to an enterprise value of 9.3 times 2023 earnings before interest, tax, depreciation and amortisation, according to calculations from RBC.

Chris James, founder of Engine No. 1, said: “Vale base metals is best positioned to supply the responsibly sourced raw materials needed to build the infrastructure of the future.” The activist hedge fund shook Wall Street two years ago when it waged a successful proxy battle against oil company ExxonMobil, winning three board seats.

On Thursday evening Vale also posted a near-80 per cent slump in second-quarter profits compared with a year earlier. On the back of lower iron ore prices, its net income of $892mn came in well below analyst expectations.

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