Friday, May 7, 2010

Vale stays in aluminum with Norsk Hydro deal

Reuters reported that Brazilian miner Vale's purchase of 22% stake in Norsk Hydro will give Vale long term access to aluminum markets even after it exits the aluminum industry as an operator.

Mr Ricardo Carvalho director of Vale Aluminum said that the company would sell its aluminum assets to Norwegian aluminum maker Norsk Hydro in a surprise USD 4.9 billion deal that lets Vale keep exposure to the aluminum value chain from bauxite to aluminum products.

He said that this is a strategic repositioning in which Vale stops being an operator and becomes a major partner of a global aluminum company and makes that company much more competitive in the future.

Mr Carvalho denied the company was reducing aluminum exposure to boost iron ore investments, saying the deal was structured such that the principal compensation to Vale came in the form of Norsk Hydro shares rather than cash. In addition to shares, Vale will receive USD 1.1 billion of cash for assets including the world's largest alumina refinery and one of the world's biggest bauxite mines. The Norwegian company will assume USD 700 million of debt. He said that the deal was unrelated to that dam auction and had been negotiated long before it.

Analyst of HSBC said that we see the sale of aluminum and bauxite assets as strategically positive for Vale. The aluminum division has always had weak performance and the capital freed up can be applied to develop more lucrative assets in iron ore.

Analysts for UBS Investment Research said that this transaction provides with the flexibility to exit the assets in future through a liquid instrument, but also provides a strategic stake in Hydro should Vale turn more constructive on aluminum longer term.

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