Vale to exit coal business, buys Mitsui's Moatize stake in restructuring

London — Brazilian miner Vale said Jan. 21 that it will exit the coal market as part of its commitment to become carbon-neutral by 2050 and reduce 33% of its Scope 1 and 2 emissions by 2030.

As a first step toward divestment of its coal business, Vale has signed a heads of agreement with Japanese company Mitsui, allowing both parties to structure Mitsui's exit from the Moatize coal mine in Mozambique, controlled by Vale, and the related Nacala Logistics Corridor (NLC), Vale said in a statement.

After a financial restructuring of these assets, Vale will seek a third-party buyer for them, it said.

Vale said the transaction was in line with its focus on its core businesses and ESG agenda. Vale currently vies with Rio Tinto for the position of the world's largest producer of iron ore. It is the biggest producer of nickel, and a major producer of copper and other commodities.

Moatize, which Vale brought on stream in 2011, has a capacity of 22 million mt/year of coal, including metallurgical and thermal types.

According to the agreement, Vale will acquire for $1 each Mitsui's 15% stake in the Moatize mine and Mitsui's 50% stake in the equity and other minority credits it holds in NLC. The parties' objective is that Mitsui's exit can be completed throughout 2021.

Vale currently continues to hold coal interests in Australia and in two joint ventures in China, according to information on its website.

Upon closing of the transaction, Vale will consolidate the NCL entities and their assets and liabilities, including Nacala's project finance, which has an outstanding balance of approximately $2.5 billion.

Approximately $300 million per year in operating expenses at the Moatize mine, associated with the Nacala Corridor tariff and which currently impact Vale's coal business EBITDA, will be reclassified to financial expenses, debt amortization, sustaining capital and others, it said.

New mining plan at Moatize

Vale said it has been implementing two initiatives that are expected to produce sustainable results at the Moatize mine: a new mining plan and a new operational strategy for the coal processing plants.

The new mining plan prioritizes ore bodies of better quality and has a better stripping ratio, which is expected to result in a better product mix and cost reduction, as an outcome of investments made in the last three years in an intense drilling campaign, it said.

The two processing plants will be revitalized and adapted to a new flowsheet, which has been under implementation since November 2020. Once fully executed, Vale expects to resume the ramp-up, reaching a production rate of 15 million mt/year in the second half of 2021 and 18 million mt/year in 2022.

Vale said it has worked in partnership with the Mozambique and Malawi governments over the past 15 years to implement the Moatize mine and the 912-km NLC that runs through the two countries to transport coal, in addition to the revitalization of general cargo operations and passenger transportation.

Vale will continue to support the project's ramp-up and maintain all its commitments to society and stakeholders until a buyer is found, it added.