EXCLUSIVE: Vale to Sell Furnas Copper Asset in Brazil

Issue 166, September 2016

Vale is running a sales process for its Furnas copper and gold deposit in Brazil's Carajas region, offloading a major discovery at the heart of its copper mining district, sources tell Global Mining Observer. A sale is due to be finalised before the end of the year. Twelve companies have looked at the asset and four have been short-listed for bidding, including Australia-listed Avanco Resources, which is based in Brazil and backed by BlackRock in London.

Avanco recently finished building its Antas copper mine in Carajas, which is ramping up to production of 15,000 tonnes per annum. It also owns the nearby Pedra Branca deposit and has the second largest land position in the region, behind Vale.

Vale has shown “interested parties” around other mining assets in Brazil, according to sources, but Furnas is the only asset it has formally tendered for sale. It recently rebuffed reports that it is planning a $10bn streaming deal with Chinese groups, but is under pressure to raise cash. Chief executive Murilo Ferreira has sold over $10bn of assets since 2011 and net debt is still sitting at a record high, as the group invests heavily to build new mines. Vale has spent $6.7bn in the last twelve months on capital investment, down from a peak of $16bn in 2012.

The company opened its Sossego copper mine in the Carajas district in 2004 and its Salobo mine in 2012. Furnas was the next copper mine in its pipeline, but the company is struggling under a debt load of $27.9bn at the end of last quarter, up from $24.9bn in 2015.

Furnas is unlikely to register on Vale's balance sheet, but would be a major deal for a smaller company. Limited public data has been released about the deposit, but GSM Geophysics, a mining firm in Rio de Janeiro, published a paper last year including data on the deposit, having had access to Vale's internal technical reports. Mineralisation at Furnas is 60m thick, according to drilling in 2011, extending from surface to a depth of at least 1,350 metres. In analyst presentations, Vale has labelled Furnas as one of the biggest deposits in its “copper province”. Sources say it is as big as Sossego, which produces over 100,000 copper tonnes per annum.

Avanco has a Portuguese-speaking board and a “good relationship with Vale”, says one source involved in the bidding process, but “doing transactions with large companies can be painfully slow.”

Vale has tried to sell-off infrastructure assets before mining interests, to ring-fence its core operations and avoid selling into a depressed market. Ferreira has told Reuters that he is delaying a sale of the group's base metals business in Canada, which cost the company over $19bn in 2004, until the nickel price recovers. But Vale has sold off smaller operations at valuations close to distressed. In 2013, it sold its Tres Valles copper mine in Chile to a local firm for $25m, having pumped $140m into the operation.

Avanco is backed by private equity groups Appian and Greenstone and fund manager BlackRock, which holds 13 per cent of the stock. BlackRock's mining fund manager, Evy Hambro, flew to Brazil earlier this year for Avanco's mine opening. He is “a very strong follower” of the company, according to sources on the trip, and has previously funded companies looking to roll-up assets, backstopping a deal bonanaza by gold miner Northern Star in Australia three years ago. Avanco declined to comment.

Furnas is as big as Sossego, which produced 100,000 copper tonnes last year
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