In a deal worth approximately $950 million, Vale, the Brazilian metals and mining giant is selling a stake in its African coal operations to Mitsui & Company, the Japanese trading company. The sale comes at a time when commodity prices for coal have fallen sharply.
Including the cash and future investment, the Japanese trading company will pay $638 million for a 14 percent stake the Moatize coal mine located in Mozambique and another $313 million for a 35 percent stake in the Nacala Logistics Corridor which is a rail and port network.
Both the companies plan to raise $2.7 billion in project finance capital, of which $1 billion will pay down Vale’s debt and $1.7 billion will pay to complete the Nacala corridor.
Vale, after completion of the deal will own 35 percent of the Nacala corridor and 81 percent of the Moatize mine, a decline from its current stakes of 70 percent and 95 percent.
In the beggining of the decade, Mozambique discovered billions of tons of coal reserves. Besides Vale, Beacon Hill Resources and Rio Tinto, the Anglo-Australian miners and Jindal Steel and Power of India also invested in the country’s coal.
Vale has already spent approximately $4 billion on Nacala and Moatize, and it forecasts another $2.5 billion in investment, making the two project the Brazilian company’s second largest continuing capital expenditure.
Decline in prices for metals have also affected Vale, which in the third quarter, posted a loss of $1.44 billion on $9.25 billion in revenue.
Murilo Ferreira, chief executive of Vale said this month that as part of the company’s plan to raise $5 billion to $10 billion through asset sales in 2015, it might sell a minority stake in its basic metals unit, mostly copper and nickel through an IPO. The company estimates the unit is worth $30 billion to $35 billion.
An analyst with Lopes Filho, the Rio de Janeiro investment consulting firm, Themis Larangeira said that the deal with Mitsui & Company was a way for Vale to increase cash flow and focus more on core operations.
Ms. Larangeira added that Vale’s Mozambique investment was troubled from the start because of a lack of transparency and conflicts with Mozambique’s government.
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