Vale Sells Colombia Coal Assets

By Stephen Eisenhammer, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – Vale, the Brazilian mining giant, has sold its coal operations in Colombia to CPC S.A.S., a unit of privately-held Colombian Natural Resources SAS, for US$407 million, the company announced in a statement Monday, May 28th. Vale said the sale is “part of our continuing attempts to optimize our portfolio of assets” and it will “optimize the allocation of capital.”

The sale is for the entire mine-railway-port network, including: one hundred percent of the El Hatillo coal mine and the coal deposits of Cerro Largo; the Rio Cordoba port; and an 8.43 percent stake in the Fenoco mine-to-port railway.

Vale CEO Murilo Ferreira recently told journalists that tight credit was making investment decisions and debt leverage “much more complicated.”

The sale has been rumored for the past month and will help Vale streamline capital into their core iron ore business in the face of more conservative bank lending environment and concerns over the R$34 billion (US$17 billion) of unpaid taxes the government is attempting to claim from the company.

Despite Vale saying it is confident of a resolution to the impasse over the tax bill and a recent court decision allowed the company to avoid paying collateral on the sum, concerns over the potentially huge payment have hurt the the company’s stock price, which has fallen around thirteen percent in May.

Analysts at Barclays Capital described the move as “slightly positive,” saying that while the transaction was small (only 0.4 percent of Vale’s market value) it was “strategically sensible” allowing the company to focus on its main business, iron ore, in which Vale is the world’s largest exporter.

Vale is also set to sell its oil and gas assets which the company estimates are worth between US$1 billion and US$1.5 billion.

With fears that demand in China, which is Vale’s main market, may be entering a stage of decline, Barclays Capital said these moves allow Vale to focus on its core business and free up some cash to keep down debt leverage.

Vale will also take heart from a decision last week that saw Brazil’s National Monetary Council exempt the company, along with Petrobras and Eletrobras, from borrowing limits on credit applications made through BNDES, the country’s development bank.

In its late Thursday decision, the council said the “measure gives special treatment to the stakes held in companies in the oil, electricity and mining” and these companies “will be excluded from the calculation of limits until June 30, 2015.”

This will come as a relief for the the three companies, given the sharp depreciation of the real so far this year, down eight percent since January. This has increased the costs of dollar loans for local companies.

Even though not a state-run company, Vale is eligible for such beneficial government action as the Brazilian state owns both direct and indirect stakes in the private mining company, mainly through the state pension fund, Previ.

President Dilma Rousseff has frequently said that she regards the performance of Vale, along with state-run energy giant Petrobras, to be of paramount importance to Brazil’s overall growth. They are also the two largest non-U.S. companies listed on the New York Stock Exchange.