Saudi Arabia has made the first big deal in a push to deploy its vast wealth into the global mining industry, agreeing to buy a stake in Vale SA’s base metals unit.
Saudi sovereign wealth vehicle, Public Investment Fund, and Saudi Arabian Mining Co., known as Maaden, will purchase a 10% stake in a company created to house Vale’s base metal assets, Vale said Thursday. Separately, investment firm Engine No. 1 will buy a 3% stake. The total amount to be paid under both agreements is $3.4 billion.
Saudi Arabia has been on a global investment spree in recent years as it seeks to parlay its oil wealth into other sectors. PIF has snapped up stakes in video game makers and electric carmakers, but the Vale deal is the first major investment in mining since it set up a joint venture with Maaden in January called Manara.
In a protracted bidding process, the Saudi venture beat rival bidders including Japanese trading house Mitsui & Co. and the Qatar Investment Authority, according to people with knowledge of the matter. Goldman Sachs Group Inc. advised Vale. Bank of America Corp. worked with PIF and Maaden.
Besides the Vale deal, Maaden recently formed a JV with Ivanhoe Electric Inc. to develop mining projects in Saudi Arabia. The firm has announced partnerships with Barrick Gold Corp. to explore and develop two new areas in the kingdom, where they operate the Jabal Sayid copper mine.
Critical Materials
Engine No. 1 is best known for its stunning victory over Exxon Mobil Corp. two years ago when it placed three directors on the oil giant’s board. Since then, it has started an effort to buy up mining and fossil fuel assets to help companies decarbonize, especially as other investors exit. The San Francisco-based firm last year hired a Blackstone manager for the strategy.
“Our private capital mission is to partner with companies to create value by operating assets in a responsible and sustainable way while delivering critical materials,” said Erik Belz, Engine No. 1’s head of private capital.
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For Vale, the world’s No. 2 iron ore supplier, proceeds for the sale will help finance investments of as much as $30 billion over the next decade to tap growing demand for nickel and copper in the switch to electric vehicles. Establishing a separate base metals unit with Saudi partners may also allow Vale to participate in a wave of consolidation in the industry.
After years of deliberation, Vale created the separate base metals unit largely from assets in Canada, Brazil and Indonesia that were acquired in the purchase of Canada’s Inco Ltd. announced in 2006. Former Anglo American Plc boss Mark Cutifani was recruited to to lead an independent board for the unit, which is valued at $26 billion, according to the transactions announced today.
The base metals spin-off also gives investors an easier way to gauge valuations. The Brazilian mining giant trades at a discount to its main peers given it still earns most of its money from massive iron ore mines in Brazil, the scene of two devastating tailings dam collapses in recent years.
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Besides Cutifani, the base metals board also boasts Jerome Guillen, who spent a decade as lieutenant to Elon Musk at Tesla Inc. Vale is already a direct supplier for Tesla and General Motors Co. and has Ford Motor Co. as one of its partners to jointly develop nickel in Indonesia. Chief Executive Officer Eduardo Bartolomeo sees potential for base metals to become as big as Vale’s iron ore operations.
The sale of the 13% stake is expected to close by the first quarter of next year, subject to regulatory approval. Proceeds would help push up the firm’s annual output of copper to 900,000 metric tons from 350,000 tons and of nickel to more than 300,000 tons from 175,000 tons.
The next steps for Vale base metals are unclear. One option is to taking the unit public. “Obviously an IPO down the road is a liquidity event you could pursue,” Bartolomeo said in April, pointing out that “there are many ways of liquidity” the company could chase.
--With assistance from Jack Farchy, Cristiane Lucchesi, Doug Alexander and Saijel Kishan.
(Adds comment from Engine No. 1 in seventh paragraph)