Vale Sells $1.2 Billion Cargo Stakes to Mitsui, Brazil Fund

Vale SA, the world’s third-largest mining company, is selling stakes in its cargo unit for about $1.2 billion to Japan’s Mitsui & Co. and a Brazilian government fund as it seeks to focus on higher-return assets.

The iron-ore producer based in Rio de Janeiro agreed to sell a 20 percent stake in the VLI unit to Mitsui for 1.51 billion reais ($675 million) and 15.9 percent to the FI-FGTS fund managed by state-owned bank Caixa Economica Federal for 1.2 billion reais, according to a statement today. Vale said it’s also in exclusive talks with Canada’s Brookfield Asset Management Inc. to sell about 26 percent of VLI. Its stake would drop to less than 40 percent after all the accords, Vale said.

Vale is selling assets, suspending projects and focusing on its more profitable iron-ore business in a bid to recover profit margins amid lower commodities prices. The VLI unit, which controls ports, terminals and more than 10,000 kilometers (6,215 miles) of railroads in Brazil, plans to invest 9 billion reais through 2017 to expand capacity in Latin America’s largest economy.

“Vale reduces its expenditures a bit with the sale and frees up capital to invest in other projects,” Leonardo Brito, an analyst at hedge fund Teorica Investimentos, said by telephone from Rio. “They still have some things to sell.”

Share Sale?

As a result of the agreement, VLI will receive 2 billion reais in cash from Mitsui and FI-FGTS in a new shares issuance, which will be used to finance part of the unit’s investment plan, Vale said. The 709 million reais remaining from the transaction will be paid to Vale by Mitsui in exchange for VLI shares, it said in today’s statement.

“Vale will have a minority stake when the three new shareholders have concluded everything and we are even thinking in the future of holding a public offering” of shares in the unit, Vale Chief Executive Officer Murilo Ferreira told reporters today in Brasilia. “We believe in the next few years we will all perceive a big change in the Brazilian logistics system.”

Vale rose 0.1 percent to 33 reais at the close in Sao Paulo today, reducing its decline this year to 19 percent.

Vale said it is in discussions with a group led by Toronto-based Brookfield, Canada’s biggest manager of alternative assets, for the additional VLI stake sale and there is no guarantee an accord will be reached. Brookfield has $183 billion in assets under management, $21 billion of which are in South America, including 3,200 kilometers of toll roads in Brazil and Chile, according to a company presentation.

‘Attractive’ Valuation

Vale, the world’s largest iron-ore producer, announced $1.47 billion of asset sales last year, including a coal mine in Colombia and 10 large vessels, while putting projects on hold in Canada and Guinea. Today’s transactions value the VLI unit at about $3.4 billion, more than double a $1.5 billion estimate of Banco Itau BBA SA in an Aug. 28 research note.

The VLI valuation is “attractive” and would allow investors to improve their price estimate for Vale’s logistics assets, HSBC Holding Plc analysts Leonardo Correa and Luiz Fornari said.

“Selling a stake in VLI should add visibility to Vale’s logistic arm, poorly priced in by the market,” they said today in a research note. “This is yet another demonstration of Vale’s commitment to unlock value and focus on its core business.”