OREANDA-NEWS. Vale informs that it entered into an investment agreement with Mitsui & Co., Ltd., whereby Mitsui will own 15% of Vale´s stake in Vale Moçambique - the owner of 95% of the Moatize mine - and 50% of Vale's 70% equity stake in the Nacala Logistic Corridor (NLC).

Upon completion of the transaction, which will involve capital increases and the partial transfer of Vale's shareholder loans in the Moatize mine and in the NLC to Mitsui, Vale will indirectly own 81% of the Moatize mine and approximately 35% of the NLC, sharing its control with Mitsui.

The transaction is subject to some conditions precedent. The closing of the transaction is expected for 2015.

Valuation and Future Capex Funding

Moatize Mine

The value attributed to Mitsui's 15% stake in VM is USD 450 million. In addition, Mitsui may pay a further USD 30 million as per an earn out clause. A claw-back clause worth up to USD 120 million is embedded in the USD 450 million. Both the earn-out and the clawback values are conditioned to yield and production targets agreed upon by Vale and Mitsui. As a result of these clauses, the final value attributed to VM's 15% stake could range from USD 330 to 480 million.

The transaction amounts will be used to fund the Capex of the Moatize mine expansion.

Mitsui will be responsible for funding future capex to complete the Moatize mine expansion, pro-rata to its equity participation of 15% and estimated at an additional USD 188 million. This value includes 15% of the capex associated with rolling stock, whose funding responsibility is of VM.

Nacala Logistic Corridor

The executed capex of the total investment in the Nacala corridor of USD 4.0 billion[1] is comprised of equity and debt in the form of Vale's bridge shareholder loans. Up to the end of 2Q14, the executed capex of USD 1.9 billion[2] was funded by Vale through USD 313 million of equity and quasi-equity instruments, with the remaining balance funded through Vale's bridge shareholder loans[3].

Upon completion of the transaction, Mitsui will contribute USD 313 million in equity and quasi-equity instruments and will therefore hold 50% of these instruments, sharing control of the corridor with Vale. Until that time, Vale will continue to fund the NLC with shareholder loans.

Vale and Mitsui are in negotiations for non-recourse project finance to fund the remaining capital expenditures and to take-out part of Vale´s bridge shareholder loans. The project finance target amount is USD 2.7 billion, of which approximately USD 1.7 billion will be used to fund the remaining of the Nacala corridor investments and about USD 1 billion will be returned to Vale through the take-out of the existing bridge shareholder loans. A smaller part of the existing shareholder loans will remain with Vale after the take-out with the project finance funds.

When the transaction is completed Vale will share control of the NLC with Mitsui and therefore will not consolidate the NLC's debt in its balance sheet.

Cash Flow Impact

The total cash outflow avoided by Vale with the transaction is USD 3.651 billion4, broken down as follows:

USD 638 million invested by Mitsui in VM, composed by the: (i) USD 450 million upfront investment by Mitsui for the 15% stake in VM and (ii) USD 188 million of Mitsui pro-rata contribution to fund the capex still required to complete the Moatize project.

USD 3.013 billion[4] composed by the: (i) USD 313 million upfront contribution from Mitsui to the NLC; and (ii) USD 2.7 billion of debt raised by the NLC through project finance.

Strategic rationale

The transaction is essential for the continuity of our investment in Mozambique and Malawi as it provides the funding for the completion of the Moatize project and of the NLC. It also supports Vale's strategy of operating world class assets, improves Vale's balance sheet and eliminates future funding needs, whilst reducing Vale's exposure to the project risk.