Sale of Valemaxes
Vale SA (VALE) announced on July 30, 2015, that it has sold four Valemax ships to China Merchants Energy Shipping Company. The total amount of the transaction is $448 million. Vale will receive this amount upon delivery of the vessels, which is expected to happen in September 2015.
Stake sale in MBR
In addition to the sale of Valemaxes, Vale also announced the sale of a 36.4% stake of Minerações Brasileiras Reunidas (or MBR) for 4 billion Brazilian real, or about $1.2 billion. MBR is a subsidiary of Vale that owns assets for production of ~65 million tons of iron ore, transportation, and port shipment of iron ore.
These MBR assets were integrated with Vale’s Southern System, its transportation and port shipment system. The assets are leased to Vale until 2037. Vale pays lease payments to MBR, which are a function of iron ore prices and volume.
Other asset sales
Vale management maintained during the company’s earnings call that the transaction related to the project finance on the Nacala Corridor is expected to close sometime in 2H15. This should result in an additional $1 billion accruing to Vale.
In 1Q15, Vale divested more than $1 billion. Of that amount, $900 million came from the sale of a 25% stake in the gold stream to Silver Wheaton (SLW). Silver Wheaton forms 4.6% of the VanEck Vectors Gold Miners ETF (GDX). About $100 million came from the sale of a minority stake in the Belo Monte hydroelectric power plant north of Brazil.
In addition to the sales announced, Vale is also expected to sell its entire fleet of Valemaxes and some stake in its fertilizer business. Asset sales are required in order for Vale to cover up its cash flow gap and fund its S11D project.
Divestments and restructuring is the direction other miners, including BHP Billiton (BHP) and Rio Tinto (RIO), are also going. BHP’s spin-off in the form of South32 Limited (SOUHY) is noteworthy in this context. To read more about the spin-off, visit Market Realist’s Highlights of the Potential BHP Billiton-South32 Demerger.
Despite asset sales, Vale’s financial condition is deteriorating. We’ll find out why in the next part of this series.