How Much Fat Does Vale Have Left to Trim?

Add two more assets to the long list of properties Brazilian mining giant Vale is hanging toe tags on this year. Continuing the two-year drive to rein in its sprawling, global portfolio, the world's biggest iron ore producer this week announced the sale of its capital in purified phosphoric acid producer Fosbrasil while also saying it had auctioned off its stake in logistics firm Log-In Logistica Intermodal.

Over the past two years Vale sold off $6.4 billion worth of assets, with some $5 billion worth coming this year alone. The sale of its 44% stake in Fosbrasil will add $52 million to the tally while the Log-In auction, which shed the company's 31% stake in the Brazilian logistics company, is expected to raise another $100 million. Earlier this week it sold more than a quarter of its holdings in another logistics company, VLI, for $850 million -- the second time it's reduced its holding there -- while also unloading the 90% position it held in Chilean copper miner Minera Tres Valles for an estimated $25 million.

Vale Asset Sales 2013






Vale phosphate

Eagle Star Minerals




Mitsui & Co

$1.2 billion


Norsk Hydro

Norsk Hydro

$1.8 billion


Parnaiba Basin Natural Gas blocks 1 & 2

GDF Suez



Sociedad Contractual Minera Tres Valles


$25 million


Norte Energia


$100 million



ICL Performance Products

$52 million



Brookfield Asset Management

$850 million

Source: Company filings, Capital IQ.

There was speculation early on that Vale was trying to unload everything that wasn't nailed down to pay off a monstrous $16 billion Brazilian tax bill that was looming on the horizon. But Brasilia initiated a tax amnesty program that Vale accepted at the 11th hour. That left the company with a still-sizable tab to pay, but at just under $10 billion with the bulk of it paid out over 15 years, it was suddenly more manageable.

Vale said just this week it was still going to challenge parts of the bill related to sales of foreign subsidiaries, arguing it's already paid all the tax due on them, meaning the asset sales still going on indicate it hasn't relented in its drive to contain costs.

Iron-ore pricing remains weak, although over the course of the second half of the years it's recovered much of the lost ground. However, Rio Tinto says new global capacity scheduled to go live next year means the industry will again find itself in the same predicament. Rio and Vale have benefited from the newest surge in buying by China, but Goldman Sachs says with some 400 million tons of new supply to be delivered by 2015, prices are likely to fall another 43% to an average of $80 a ton.

Conceicao Itabiritos Project. Source: Vale.

Fortunately, there's no firm consensus on that, with JPMorgan Chase analysts forecasting a $110-per-ton price in 2015 (although that's 12% lower than the anticipated $125 a ton price for next year). The weakened pricing environment is leading other miners to unload assets as well, including U.K. steel trader Stemcor, which is selling its Indian iron and manganese ore units; BHP Billiton , which is selling its Australian Jimblebar iron ore mine; and Rio Tinto itself, which has been trying to unload its Canadian assets.

Miners in other industries affected by the collapse of commodity prices are also thinning their portfolios, but Vale's response has been the most widespread and therefore the most dramatic. With capital expenditures for 2014 expected to be $14.8 billion, a 4.5% decline from this year's $15.5 billion tab and off 16% from the $17.7 billion it spent in 2012, Vale will be directing the bulk of capital spending toward key iron ore assets, meaning this won't be the last we see of Vale swinging its ax.

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