Vale aims to transform misfiring metals division to win business of Tesla

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Vale is best known as one of the world’s biggest producers of iron ore from its sprawling Brazilian operations — but its chief executive wants to change that.

For Eduardo Bartolomeo, being seen as a “one geography, one mineral company” is dangerous and Vale should be trying to highlight the value of its industrial metals business, which he says has the potential to be a key supplier of battery materials to the North American car industry.

Achieving that will be no easy task. To supply Tesla, Ford, General Motors and others with the necessary copper, nickel and cobalt to scale up production of electric vehicles, Bartolomeo will have to transform the performance of the misfiring metals division.

“We think we can be the supplier choice,” Bartolomeo told the Financial Times during a recent visit to London to meet investors. “But we need to produce. We need to get the production up. That’s fundamental. Then we need to get the reserves and resources.”

He has already made one decisive move, replacing the head of the business, Mark Travers, with Deshnee Naidoo, a former executive at India’s Vedanta Resources.

But this is just a first step after, by his own admission, another challenging year for the division in 2021, with a labour dispute in Canada, a fire at the Solobo copper mine and a temporary halt of nickel production at its Onca Puma project in Brazil. On top of that, 39 workers were rescued after being trapped in the underground Totten mine in Ontario.

While output is forecast to recover next year, Bartolomeo, who ran the base-metals business before he was appointed chief executive in April 2019, knows there is a lot of work to do if Vale is to fulfil its ambition of capturing 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 of them,” he said, pointing out that Vale had already struck a deal to sell 5 per cent of its annual highest-grade Class 1 nickel output to a US carmaker, widely rumoured to be Tesla. A typical electric-vehicle battery pack needs about 35 kilogrammes of nickel, according to the IMF, while charging stations require substantial amounts of copper.

Key to Bartolomeo’s plan are 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 may contain 5m tonnes of nickel.

The company is also evaluating options to build a processing plant capable of producing nickel sulphate, a key component in 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 do that,” he said. “There is an open conversation with the Quebec government.”

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

That sensitivity has been particularly pronounced in 2021 when the steelmaking commodity soared to a record high above $230 a tonne in May before sinking below $100 in November after China slapped output curbs on its huge steel industry in an effort to cool the wider economy and reduce pollution. Iron ore is currently trading at $123 a tonne.

“The way our share price sunk this year was exactly the way iron ore sunk,” said Bartolomeo, bemoaning the fact that investors are yet to look at Vale’s base-metals business the way they do the aluminium assets of rival Rio Tinto or the oil and gas division of BHP, another big iron ore producer.

In local currency, Vale’s share price has fallen almost 26 per cent since the summer, against Rio (off 20 per cent) and BHP (8 per cent).

Bartolomeo said there were several paths that Vale, which has just exited coal, could take to highlight the value of the base-metals division. One way is to create a standalone subsidiary and bring in outside investors as it did with its logistics unit VL in 2013. “That can be an option,” he said.

But before any of that can happen, the business has to fire up. “That’s why it is fundamental to transform base metals next year,” he said.

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

Some investors are cool on Bartolomeo’s plan, saying that Vale should focus on “optimising” the costs of its giant iron ore business and simply demerge the metals business. “It’s never going to matter,” said one Vale investor.

Analysts are more sympathetic. “Nickel is a future-facing commodity and there is a good underlying copper business at Vale,” said Tyler Broda, who values the metals business at $17bn against $75bn for the core iron ore operation. “There’s growth in the portfolio, which you can’t get everywhere.”

Broda expects the metals business to generate earnings before interest, tax, depreciation and amortisation of $3.2bn this year, against $27.7bn for iron one.

For now, the focus of analysts and investors remains on the steelmaking commodity. Bartolomeo believes that prices have bottomed out and that Chinese steel production, which fell sharply in the second half of the year because of the government output curbs, will pick up after the Winter Olympics in Beijing in February.

“They are talking about 1bn tonnes of [steel] production again,” said Bartolomeo. “And the rest of the world will grow next year.”



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