A potential bid for Vale’s nickel assets
Bloomberg reported a potential bid for Vale’s (VALE) nickel assets. We’ll briefly analyze the potential consequences if the bid goes through. Right now, the bid seems to be far-fetched.
Potential X2 bid
Bloomberg reported that Mick Davis, Xstrata’s former CEO, is considering a bid for Vale’s nickel assets. He’s considering the bid through his new company—X2 Resources. It’s reported that this investment vehicle values Vale’s nickel assets at $5–$7 billion.
Xstrata was acquired by its largest shareholder Glencore plc (GLNCY) in a $30 billion deal in 2012. Since then, Davis raised about $4.8 billion from equity investors. He’s hunting for assets to buy from the world’s largest miners—like Vale, BHP Billiton (BHP), and Anglo American plc (AAUKY).
There hasn’t been an official confirmation from either side. However, $5–$7 billion implies a valuation of close to 2.25x EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization)—based on annualized 3Q14 adjusted EBITDA for nickel, without considering debt. This is quite low for Vale to consider. Even if it gets an offer, this price might not be enough for Vale to part with the assets.
Vale’s key competitive strengths in nickel include its long-life mines and low-cash costs of production—compared to other nickel producers. It also benefits from its sophisticated exploration and processing technologies and its diversified portfolio of products.
To learn more about Vale’s nickel assets, please read Nickel plays an important role in the future of Vale SA.
Vale and other iron ore companies—including Norilsk Nickel, Jinchuan Nonferrous Metals Corporation, Glencore Xstrata (XSRAY), and BHP Billiton—account for ~47% of global refined primary nickel production.
Investors can also consider the SPDR S&P Metals and Mining ETF (XME) to get exposure to this sector.