China Sovereign Fund to Pursue Vale Iron Ore Streaming Deal

  • Chinese sovereign fund in talks to purchase future Vale output
  • Miner also talking to other Asian companies on stake sale

China Investment Corp., the $814 billion sovereign fund, is leading a Chinese investor group in talks for a multibillion-dollar iron-ore streaming deal with Brazil’s Vale SA, people familiar with the matter said.

QuickTake Iron Ore Wars

The consortium is negotiating the potential purchase of a portion of Vale’s future iron-ore output for as long as 30 years, two of the people said, asking not to be identified as the information is private. Vale could fetch about $9 billion upfront from the sale, one person said. No agreements have been reached, and the talks may not result in a transaction, according to the people.

Some Chinese companies and Japanese trading houses have also held discussions with the Rio de Janeiro-based company about possible deals, including acquiring a minority stake in Brazilian iron-ore assets owned by Vale, the people said.

A so-called streaming transaction would allow CIC, owned by the government of the world’s biggest iron-ore importer, to profit from a recovery in commodity prices without bearing all the operational risk associated with owning mines. Vale, which has said it will consider the sale of $10 billion of its best assets by the end of next year, would get immediate cash while staying in charge of valuable assets.

Commodity Recovery

CIC didn’t answer calls to its Beijing-based press office seeking comment and didn’t respond to faxed queries. A representative for Vale’s press department declined to provide a comment Friday. On Aug. 3, Reuters reported Vale was considering selling as much as 3 percent of future iron-ore output to undisclosed Chinese companies. In an Aug. 10 response to securities regulator, Vale said the information wasn’t true.

The World Bank expects commodity prices to recover modestly in 2017 as demand strengthens. It forecasts iron ore prices to fall next year, before rising to $65 a ton by 2025, according to a July report. Ore with 62 percent content delivered to Qingdao fell 0.3 percent to $60.71 a dry ton on Thursday, according to Metal Bulletin Ltd.

Vale has joined global miners Freeport-McMoRan Inc., Glencore Plc and Anglo American Plc in selling assets after its net debt swelled to about $27 billion as a commodity rout eroded earnings. Chief Executive Officer Murilo Ferreira raised the prospect of selling some of the company’s most prized assets in February, after the miner reported its first year of losses since 1997.

Top Producer

The world’s top iron-ore producer has exited coal mines in Australia and is in talks with U.S. fertilizer producer Mosaic Co. to sell its South American potash and phosphate assets, which may fetch about $3 billion, people familiar with the matter said this month.

On Thursday, Vale said a Brazilian court dismissed its appeal of a lawsuit in connection with a dam spill at its Samarco joint venture, which includes a lien prohibiting the miner from selling stakes in its iron-ore operations. A streaming deal would sidestep those limitations.

For details of the lawsuit, click here.

Samarco, which Vale owns jointly with BHP Billiton Ltd., is seeking a standstill agreement on about $1.6 billion in bank loans as its owners refuse to cover debt payments until mining resumes, people with knowledge of the matter said this month.

CIC is also part of a group alongside Brookfield Asset Management Inc. and Singapore sovereign wealth fund GIC Pte that is close to buying a stake in a Brazilian natural gas pipeline network from state oil company Petrobras for nearly $6 billion, people familiar with the matter said in June.

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