Vale SA (ADR) (NYSE:VALE) has announced the sale of its future gold output valued at $800 million as part of its strategy to reduce its $27 billion debt portfolio.
Vale’s debt is load is the second largest debt portfolio after Glencore International PLC, St. Helier (OTCMKTS:GLCNF). Vale’s plan, for now, is to reduce the debt from $27 billion to $15 billion. The Rio-based firm intends to offer up rights to 25% of its production from the Salobo mines to a Vancouver company known as Silver Wheaton Corp. (USA) (NYSE:SLW). The sale will be an expansion of a deal that the two firms made in 2013 for 50% output. Vale reported that it will receive an upfront amount of $800 million as part of the deal.
Vale CEO Murilo Ferreira revealed the new deal with Silver Wheaton roughly one week ago. The CEO also stated that he has two more transaction announcements to make before the end of the year. The new arrangement also means that Silver Wheaton will receive 75% of the copper concentrate derived from the Salobo copper mines. Vale also expects to receive $23 million as option value for lowering the exercise value from $65 to $43.75 out of the 10 million warrants that Silver Wheaton holds. The Warrants were issued in 2013 and had a 10-year maturity.
The Rio-based firm also expects payment from for each ounce of gold delivered to Silver Wheaton as part of their agreement. It may also receive additional revenue for its decision to increase its processing capacity in the Salobo copper ores. The company has been having a hard time trying to lower its debt to $15 billion due to the lack of major asset sales, the construction of a new mine and the prevailing low prices. Silver Wheaton estimated that the Salobo copper mines will be productive for the next 50 years. The Vancouver firm also believes that the deal will increase its cash flow as well as its aggregate production.
