Vale aims to transform failed metals division to win Tesla business

Vale is best known as one of the world’s largest producers of iron ore from its sprawling operations in Brazil, but its CEO wants to change that.

For Eduardo Bartolomeo, being seen as “one geography, one mining company” is dangerous and Vale should try to highlight the value of its industrial metals business, which he believes has the potential to be a supplier. key to materials for batteries in the North. American auto industry.

Achieving this will not be an easy task. To supply Tesla, Ford, General Motors and others with the copper, nickel and cobalt needed to increase production of electric vehicles, Bartolomeo will need to transform the performance of the failed metals division.

“We believe we can be the supplier’s choice,” Bartolomeo told the Financial Times on a recent visit to London to meet with investors. “But we have to produce. We need to increase production. It is fundamental. Then we have to get the reserves and the resources.

He has already taken a decisive step by replacing the company’s boss, Mark Travers, with Deshnee Naidoo, a former executive of the Indian Vedanta Resources.

But this is only the first step after, by its own admission, another difficult year for the division in 2021, with a labor dispute in Canada, a fire at the Solobo copper mine and a temporary shutdown of the production of nickel on its Onca Puma project in Brazil. In addition, 39 workers were rescued after being trapped in the Totten underground mine in Ontario.

While production is expected to pick up next year, Bartolomeo, who ran the base metals business before being appointed CEO in April 2019, knows there is a lot of work to be done if Vale is to achieve its ambition. to capture 30-40 per cent of the North American market for battery-grade nickel in five years.

“We are talking to Ford, GM, we are talking to all,” he said, noting that Vale had already reached an agreement to sell 5% of its annual production of the highest grade Class 1 nickel to a automaker. American automobile, widely rumored to be Tesla. A typical electric vehicle battery needs around 35 kilograms of nickel, according to the IMF, while charging stations require substantial amounts of copper.

Key to Bartolomeo’s plan is Vale’s Canadian operations, including Sudbury – one of the largest integrated mining complexes in the world – and its Thompson mine in Manitoba, which he says could hold 5 million tonnes of nickel.

The company is also evaluating options to build a processing plant capable of producing nickel sulfate, a key component of lithium-ion batteries that power electric cars.

“We are an upstream company. We don’t want to go downstream, but if there is something that is economically reasonable, we will, ”he said. “There is an open conversation with the Government of Quebec.

If Bartolomeo can deliver his vision, it could reduce the sensitivity of Vale’s share price to the volatile iron ore market, which in turn is inspired by the health of the Chinese economy and policymakers in Beijing.

This sensitivity was particularly pronounced in 2021 when steel raw materials peaked above $ 230 per tonne in May before falling back below $ 100 in November after China imposed production restrictions on its huge steel industry with the aim of cooling the wider economy and reducing pollution. . Iron ore is currently trading at $ 123 a tonne.

“The way our stock price fell this year was exactly the way iron ore sank,” Bartolomeo said, lamenting the fact that investors have yet to watch Vale’s base metals business. in the same way they view the aluminum assets of rival Rio Tinto or the oil and gas division of BHP, another major producer of iron ore.

In local currency, Vale’s share price has fallen nearly 26 percent since the summer, against Rio (by 20 percent) and BHP (8 percent).

Bartolomeo said there were several paths Vale, which just left coal, could take to highlight the value of the base metals division. One solution is to create a stand-alone subsidiary and bring in outside investors, as was the case with its LV logistics unit in 2013. “This can be an option,” he said.

But before all of this can happen, the business has to get started. “This is why it is fundamental to transform the base metals next year,” he said.

Vale is targeting copper production of up to 350,000 tonnes next year, up from 300,000, and up to 190,000 tonnes of nickel, up from 170,000 tonnes.

Some investors are cold on Bartolomeo’s plan, saying Vale should focus on “optimizing” the costs of its giant iron ore business and simply de-merge the metals business. “It will never matter,” said one Vale investor.

The analysts are more sympathetic. “Nickel is a forward looking commodity and there is good underlying copper activity at Vale,” said Tyler Broda, who values ​​the metals business at $ 17 billion versus $ 75 billion for the main exploitation of iron ore. “There is growth in the portfolio, which you cannot achieve everywhere. ”

Broda expects the metals industry to generate earnings before interest, taxes, and depreciation of $ 3.2 billion this year, compared to $ 27.7 billion for iron.

For now, analysts and investors remain focused on the steel commodity. Bartolomeo believes prices have bottomed out and Chinese steel production, which fell sharply in the second half of the year due to government production restrictions, will resume after the Beijing Winter Olympics in February.

“They talk about 1 billion tonnes of [steel] production again, ”Bartolomeo said. “And the rest of the world is going to grow next year.”

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