Chinese investor group to pursue $9 billion Vale iron ore streaming deal

Hong Kong: China Investment Corp. (CIC), the $814 billion sovereign fund, is leading a Chinese investor group in talks for a multibillion-dollar iron ore streaming deal with indebted Brazilian miner Vale, people familiar with the matter said.
The Chinese 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 in upfront cash 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 wants to raise about $10 billion through 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 immediately respond to faxed queries. A representative for Vale didn’t respond to calls and an e-mail seeking comment outside regular business hours in Brazil.
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 tonne by 2025, according to a July report. Ore with 62 per cent content delivered to Qingdao fell 0.3 per cent to $60.71 a dry tonne on Thursday, according to Metal Bulletin.
Vale has joined global miners Freeport-McMoRan, Glencore and Anglo American 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 US fertilizer producer Mosaic to sell its South American potash and phosphate assets, which may fetch about $3 billion, people familiar with the matter said this month.
A Brazilian court dismissed Vale’s appeal of a lawsuit in connection with a dam spill at its Samarco joint venture that prohibits the miner from selling a stake in its iron-ore mines, the company said in a statement on Thursday. A streaming deal would sidestep limitations imposed by the injunctions, which don’t curb production or commercial activities.
The Samarco joint venture 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 and Singapore sovereign wealth fund GIC 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.