Vale sees Africa as new raw-materials frontier

Today, Latin America may be the main supplier to Asia’s insatiable demand for raw materials, but in future it will be Africa.

That is the prediction of Roger Agnelli, the outgoing chief executive of Vale, the Brazilian miner, which he gave at an earnings presentation last October.

Asia is expected to account for 80 per cent of revenue this year, but the multinational proposes to invest $15bn-$20bn in Africa over the next five years, up from $2.5bn of projects there now.

By any measure, that is a large commitment to a continent that is known for its high levels of political risk.

Indeed, Vale’s latest investment in Metorex, a small African miner, raised eyebrows. The Johannesburg-listed company’s main asset is a copper mine in the Democratic Republic of Congo, a country hardly known for good governance.

The $1.1bn investment is the biggest in the Congo since the purchase of another copper mine there last year by Eurasian Natural Resources Corporation of Kazakhstan, which ran into controversy, when a Canada-based rival said it already owned the assets.

Metorex has a 75 per cent stake in the Ruashi copper and cobalt mine in the Katanga province of the Congo. The mine has an estimated capacity to produce 36,000 metric tonnes a year of copper cathodes and 4,500 of cobalt, based on proved and probable reserves of 22.2m tonnes.

The acquisition is aimed at helping Vale realise its vision of becoming one of the top three copper miners in Africa.
Vale is also expected to bring on-stream a $1.3bn coal project in Mozambique next year and it has a $2.5bn stake in the Simandou iron ore deposit in Guinea.

Underlining the political risk attached to Africa, the Guinea government said in March that it planned to review mining licences associated with Simandou.

This could re¬open a controversy about the division of the project – one of the world’s richest iron ore deposits.
Rio Tinto once controlled the whole licence, but in 2008 the government confiscated half of Simandou and awarded it to Beny Steinmetz Group. BSG then sold a controlling stake in its half of Simandou to Vale for $2.5bn.

It remains to be seen whether Vale’s new chief executive, Murilo Ferreira, will be as aggressive on African acquisitions as his predecessor. Mr Agnelli’s contract was not extended by Vale’s government shareholders, amid concerns whether he was adding enough value to Brazil’s raw-material exports at home.

But given Brazil’s long-term policy of friendship with African nations, a significant pull-back by Vale could be a setback for the nation’s diplomatic goals.