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Vale to consider base metals IPO only if nickel rallies

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(Credit: Reuters) A worker processes nickel at a nickel smelter of PT Vale Tbk, near Sorowako, Indonesia's Sulawesi island, January 8, 2014.Nickel smelter
December 6
6:06 AM 2014

A possible public listing of a stake in the base metals unit of Brazil's Vale SA (VALE5.SA) hinges on a rally in nickel prices of around 20 percent, its chief financial officer said on Friday.

"We want to see nickel prices above $20,000 per ton in order to consider such an option, I would say well above," Luciano Siani said in an interview with Reuters.

Earlier this week Vale, the world's largest producer of iron ore, said it was considering an initial public offering of 30 to 40 percent of its base metals division, because the unit was undervalued by the market.  

Benchmark nickel CMNI3 on the London Metal Exchange closed at $16,825 a ton on Friday after a roller-coaster ride this year.

Siani said that if nickel prices reached $21,000 per ton and copper $6,600 per ton next year, the company would meet the lower end of its 2015 target for the base metals unit of $4 billion to $6 billion in earnings before interest, tax, depreciation and amortization (EBITDA).

If copper and nickel reach those levels, the unit would be worth $30 billion to $35 billion, he estimated. If the price increases do not materialize, the IPO is not an option, he added.

"If the (nickel) prices don't rise, we will not be doing it, definitely not at today's levels. It would not be a possibility."

Nickel prices soared by over 50 percent earlier in the year to a 27-month peak of $21,625 a ton in May.

Investors piled into the market, expecting shortages to develop after top exporter Indonesia imposed a ban on unprocessed ore, but unexpected supply from the Philippines filled the gap, weighing on prices.

"One of the reasons that we are considering such an option (an IPO) is that everyone is predicting deficits and that the price will increase," Siani said.

Vale has been hit by lower iron ore prices .IO62-CNI=SI, which are hovering near five-year lows at around $70 per ton.

Siani estimated that other producers are losing money on around 220 million tonnes of global iron ore mining capacity.

"If it goes maybe another $10 lower than that, it will hurt a lot of other major producers, so that's a strong reason to believe it's not going to happen, unless there's a total collapse in demand that no one has foreseen," Siani said.

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