Saudi Arabia Ramps Up Mining Foray in $2.6 Billion Brazil Deal

(Bloomberg) -- 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.

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The kingdom will spend $2.6 billion to buy the 10% holding through a venture between its sovereign wealth fund and state mining company, Maaden. The deal with Brazil’s biggest miner gives Saudi Arabia interests in mines from Indonesia to Canada producing copper, nickel and other industrial metals.

The mining industry, critical to supplying the materials needed for the energy transition, has become a focus of Crown Prince Mohammed bin Salman’s drive to diversify the economy away from oil. He has ambitions to build up a domestic industry as well as make investments abroad.

Through its Public Investment Fund, Saudi Arabia has been on a global investment spree in recent years, snapping up stakes in everything from video game makers to 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.

Beyond 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.

For Vale, the world’s second-largest iron ore producer, the deal will release cash to expand in copper and other base metals. As well as Manara’s acquisition of a 10% stake, investment firm Engine No. 1 will acquire a 3% stake in the base metals unit. The total amount to be paid under both agreements is $3.4 billion.

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.

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 Inc. 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.

Read More: Saudi Arabia Eyes $3.2 Billion of Global Mining Investments

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 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.

Read More: With Miners Freed, Vale Returns to Rescuing ESG Credentials

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 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.

--With assistance from Jack Farchy, Cristiane Lucchesi, Doug Alexander and Saijel Kishan.