Vale recently announced the sale of its entire stake in Vale Florestar Fundo de Investimento em Participações (FIP Vale Florestar) to Suzano Papel e Celulose (Suzano), for around $92 million. FIP Vale Florestar is a fund for investment in reforestation, which operates in the state of Pará, Brazil. Suzano is engaged in the production of eucalyptus pulp.
The sale of Vale’s stake in FIP Vale Florestar closely follows its announcement to idle its Integra Mine Complex in Australia, which produces metallurgical coal. Vale believes that operations are currently not economically feasible under the prevailing weak coal pricing environment. Technically, the Integra Mine Complex has been put under “care and maintenance,” a status that will allow the mine to be reopened quickly if market conditions improve. These events are a part of Vale’s strategy to optimize its portfolio as well as adopt discipline in capital allocation.
Following such a strategy is imperative, given the subdued iron ore pricing environment. The sale of iron ore and iron ore pellets accounted for around 73% of Vale’s net operating revenues in 2013. Thus, iron ore prices have a major impact on the prospects of Vale, the world’s largest iron ore producer.
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