Vale SA, the third-biggest mining company by market value, rose for the first time in three days after signing a $1.9 billion gold off-take agreement that boosted speculation of a special dividend payment this year.
Vale, based in Rio de Janeiro, rose 1.1 percent to 38.50 reais at the close in Sao Paulo, the third-best performer on the the MSCI Brazil Materials Index, which rose 0.6 percent.
Vale said in a statement yesterday that it agreed to sell 25 percent of its gold output at the Salobo copper mine in Brazil and 70 percent from its Sudbury nickel mines in Canada to Silver Wheaton Corp. for $1.9 billion in cash and 10 million share warrants of the Vancouver-based precious metals finance company. The deal removes project execution risk and gives Vale more cash to consider boosting dividends or buying back stock, said Jonathan Brandt, an equity analyst at HSBC Holdings Plc.
“This was a great transaction,” he said in a note to clients today. “Proceeds from this transaction, combined with higher-than-expected iron-ore prices year to date, could imply a special dividend or share buyback at some point this year.”
Vale is seeking to boost returns by trimming costs, cutting investments and finding partners for projects as profits are forecast to fall to a three-year low. The company’s agreement with Silver Wheaton values its Salobo gold operations at $5.32 billion plus $400 per ounce delivered, it said in yesterday’s statement. Silver Wheaton rose 1.6 percent to C$36.80.
“The deal unlocks substantial value from our high-quality base metals operations,” Vale said. “Vale is pursuing lower costs and higher productivity.”
Vale produced 165,000 ounces of gold last year, 13 percent less than in 2011, as by-product of its nickel and copper operations in Sudbury, Sossego and Salobo, it said Feb. 1. The company is ramping up production at Salobo after obtaining the project’s operating license in November and output is expected to reach an average of 286,000 ounces of gold in the next 10 years, peaking at 327,000 ounces in 2016, it said.