Is it time for Vale to spin off its copper, nickel operations?

Brazilian mining giant Vale is examining the possible division of its operations, in order to put the company's nickel and copper production units on the radars of investors interested in a green economy. 

The company, one of the world’s largest iron ore producers, is looking at spinning off its base metals unit, which comprises the company's nickel, copper and cobalt operations.

"We always look at the options, and we see that there is a discrepancy, which already existed in the past, of [investors] not perceiving the value of Vale's base metals operations," said CEO Eduardo Bartolomeo during a webcast to discuss 1Q21 results. 

According to Bartolomeo, the division of the company's operations would likely improve the perception of investors about the importance of Vale to provide materials for a green economy, mainly in terms of electric vehicles. 

The plans described by the executive come at a time when Vale is celebrating huge growth in its Q1 net profit, thanks to the surge in iron ore prices. 

Vale posted a net profit of 30.6bn reais (US$5.6bn) in the first quarter, up from 984mn reais in the same period of last year, when its results were impacted by compensation paid to victims of the 2019 collapse of its Brumadinho tailings dam.

The company's revenue reached 69.3bn reais in the first quarter, more than double the 31bn reais reported in 1Q20.

The strength of these results indicate that although the company's CEO has admitted that the company is looking into spinning off operations, it would likely be a gradual process. 

"Vale has a very strong cash flow generation that will remain strong in the coming quarters due to the high prices of iron ore, they don't need to rush to make any operational changes in the short term. Any measure, if it happens, will only be in the medium-term," Valdir Farias, executive director at mining consultancy Fioito, told BNamericas.

According to Farias, Vale's assessment of spinning-off its copper and nickel operations does not mean that the company will increase investments in these two segments in the short term.

Vale and other major international mining players are focusing efforts on sustainability issues considering the growing demand from global investors for the adoption of ESG practices among companies.