Vale Reaches Agreement with China's Cosco for Iron Ore Transportation
Brazilian mining company Vale S.A (NYSE:VALE) has reached an agreement with China Ocean Shipping Co. (Cosco) for iron ore transportation, helping the company cut costs amid slumping prices for the metal.
The agreement calls for Vale to transfer ownership of four iron ore carriers (400,000 deadweight tons) to Cosco. The company would then lease them back for the next 25 years. In addition, Cosco will build 10 vessels of similar size to ship Vale’s iron ore.
“The deal makes sense to us as the company frees up some cash (in tough iron ore markets) and partners with Chinese players to help minimize any issue with the docking of very large ore carriers in China,” Banco BTG Pactual SA analysts Leonardo Correa and Caio Ribeiro said in a note to clients.
The deal is part of Vale’s continuing effort to scale back from owning its own vessels and realign its focus on mining and clearing up its balance sheet.
"Cosco's ownership is likely to be beneficial for Vale in terms of facilitating calls at Chinese ports," said analyst Jayendu Krishna of shipping consultancy Drewry. "This of course will help immensely in terms of reducing its overall freight cost."
Vale, which plans to double iron ore shipments to China in the next five years, currently supplies 12 percent to 14 percent of the country’s iron ore.
The agreement with Cosco would potentially pave the way for more productive negotiations with China over docking Vale’s mega-bulk carriers known as the Valemax. Currently, Vale is unable to dock the ships at Chinese ports because ship owners say they could worsen a shipping glut and steal market shares.
According to sources, the ban is expected to be lifted once the deal with Cosco is finalized.
Although Vale has yet to announce the value of the deal, the company plans to announce numbers once everything closes.
Vale invests $150mn to extend life of Manitoba operations
Vale has announced a $150mn CAD investment to extend current mining activities in Thompson, Manitoba by 10 years while aggressive exploration drilling of known orebodies holds the promise of mining well past 2040.
Global energy transition is boosting the market for nickel
The Thompson Mine Expansion is a two-phase project. The announcement represents Phase 1 and includes critical infrastructure such as new ventilation raises and fans, increased backfill capacity and additional power distribution. The changes are forecast to improve current production by 30%.
“This is the largest single investment we have made in our Thompson operations in the past two decades,” said Mark Travers, Executive Vice-President for Base Metals with Vale. “It is significant news for our employees, for the Thompson community and for the Province of Manitoba.
“The global movement to electric vehicles, renewable energies and carbon reduction has shone a welcome spotlight on nickel – positioning the metal we mine as a key contributor to a greener future and boosting world demand. We are proud that Thompson can be part of that future and part of the low carbon solution.”
Vale continues drilling program at Manitoba
Coupled with today’s announcement, Vale is continuing an extensive drilling program to further define known orebodies and search for new mineralization.
“This $150mn investment is just one part of our ambitious Thompson turnaround story. It is an indicator of our confidence in a long future for the Thompson operations,” added Dino Otranto, Chief Operating Officer for Vale’s North Atlantic Base Metals operations.
“Active collaboration between our design team, technical services, USW Local 6166, and our entire Thompson workforce has delivered a safe, efficient and fit-for-purpose plan that will enable us to extract the Thompson nickel resources for many years to come.”
The Thompson orebody was first discovered in 1956 by Vale (then known as Inco) following the adoption of new exploration technology and the largest exploration program to-date in the company’s history. Mining of the Thompson orebody began in 1961.
“We see the lighting of a path forward to a sustainable and prosperous future for Vale Base Metals in Manitoba,” said Gary Annett, General Manager of Vale’s Manitoba Operations.