Vale SA (VALE3), the world’s largest iron- ore producer, agreed to sell 10 vessels for $600 million and lease them back from South Korea’s Polaris Shipping Co. as it seeks to raise cash amid declining commodity prices.
The ore carriers with a capacity of about 300,000 deadweight tons each were bought between 2009 and 2010 as Vale sought to build a maritime fleet to serve its clients, the Rio de Janeiro-based company said in a regulatory filing today. The ships were oil tankers converted into ore carriers, Vale said.
Chief Executive Officer Murilo Ferreira is selling asset in Brazil, Colombia and Europe as production costs rise and prices for minerals and metals decline. The vessels sale allays concern Vale was spending too much on ships at a time freight rates are falling, Barclays Plc (BARC) analysts led by Leonardo Correa said in a note to clients today.
“Vale’s freight strategy has been a source of concern for some investors, who questioned the strategy in a world of overcapacity and depressed freight rates,” the analysts said.
The sale of the ships raises the value of assets being sold by Vale this year to about $1.2 billion. The company also sold a thermal-coal project in Colombia for $407 million, its ferromanganese alloy businesses in Europe for $160 million and exited the kaolin mineral business.
Vale is spending more than $8 billion to control a fleet of 35 of the so-called Valemax ore carriers, the world’s largest, to cut costs on the 35-day voyage to Asia, the destination of about 45 percent of the steelmaking commodity from Brazil. Ferreira said in December that the company planned to sell 19 of its Valemax vessels.
The price of about $60 million Vale received for each vessel sold to Polaris is “well above” their market value, according to Nigel Prentis, director of HSBC Group Plc’s HSBC Shipping Services Ltd.
The converted ore carriers are worth about $16.1 million according to VesselsValue.Com, an online valuation service owned by London-based shipbroker Seasure Shipping Ltd.
“Vale is hardly cash-strapped but with the price of iron ore low and demand wobbling, it may look like a good move for their shareholders to sell assets they don’t need while they are still able,” Prentis said in a telephone interview from London. “When the markets are down miners tend to exit shipping.”
Vale purchased at least eight of the tankers it converted to ore carriers from Vela International Marine Ltd., a unit of Saudi Arabian oil company Saudi Aramco, paying $176.5 million in total for the ships, according to reports from London-based shipbroker Galbraith’s Ltd.
Conversion costs of the tankers were estimated at between $25 million to $30 million for each at shipyards, according to estimates in 2007 from shipbrokers Mcquilling Services LLC and Fearnley Consultants AS.
A Chinese government circular in January blocked Vale’s fleet of its newest and largest vessels, each able to carry 400,000 metric tons of iron ore, citing safety issues, Vale said in an information book about the ships e-mailed in June. Ports need permission for ships larger than 300,000 deadweight tons calling in China, according to the notice from the Ministry of Transport.
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