Exclusive - Vale seeks up to $10 billion with iron ore streaming deal, sources say

By Tatiana Bautzer

SAO PAULO (Reuters) - Brazil's Vale SA (VALE5.SA) is considering raising as much as $10 billion from the sale of up to 3 percent of future iron ore output to undisclosed Chinese companies, two sources with direct knowledge of the matter said.

Under terms of the deal, Vale, the world's biggest iron ore producer, would receive streaming financing from the companies, said the sources, who asked to remain unidentified because the discussions are still private.

The idea is to sell part of the company's future output over a 30-year period, the sources said. The Rio de Janeiro-based company has not yet reached a decision to complete the iron ore streaming financing deal, the sources said.

The deal, along with a series of planned asset sales, could help Chief Executive Officer Murilo Ferreira reach his goal of reducing Vale's $27.5 billion net debt by one-third over the next 18 months.

Vale's preferred shares accelerated their rise after the Reuters report. In mid-afternoon trading in São Paulo, its shares were up 4.5 percent at 15.32 reais from 15.10 reais before the report was published.

Streaming allows mining companies to raise cash during times of low prices, locking in sales contracts while keeping control of their mines. Several other leading miners, such as Glencore (GLEN.L), Barrick Gold (ABX.TO) and Teck Resources (TCKb.TO), have also turned to such deals to raise cash as they grapple with a slowdown in China, the biggest metals consumer, and a subsequent decline in commodity prices.

Vale itself on Tuesday tweaked an existing streaming agreement it had reached in 2013 to sell future gold output from its Salobo copper mine, boosting the portion sold to Canada´s Silver Wheaton Corp (SLW.TO) to 75 percent from an initially agreed 50 percent. Vale will receive an upfront $800 million payment.

Iron ore prices reached their lowest level in 10 years last December and are currently down more than 50 percent since the beginning of 2014.

Vale expects to sell 340 million tonnes of iron ore this year, compared with 346 million tonnes last year. Annual sales of the commodity, the main ingredient for steel, reached $16.8 billion last year.

The average price of iron ore in the second quarter this year was $48.30 a tonne.

A spokeswoman for Vale declined to comment.

Even if the iron ore streaming transaction reaches $10 billion, the sources said Vale would keep on with a slew of asset sales.

They include a sale of Vale's fertilizers business, which is being negotiated with Mosaic Co (MOS.N), the world's top producer of concentrated phosphate. A transaction could be announced in the following months, the sources said.

Reuters reported in June that both companies were negotiating a cash-and-stock deal that would turn Vale into Mosaic's biggest shareholder.

On Tuesday, Mosaic Chief Executive Officer Joc O'Rourke said that diversified miners may be willing to sell fertilizers assets to pay down debt. "We think some of these opportunities might come to fruition, and if they do, they may add some long-term value to us,” he said.

Speculation that Vale might be considering selling some iron ore assets, which contribute 65 percent of annual revenue, had mounted in recent weeks.

According to Rene Kleyweg, an analyst at Deutsche Bank Securities, "monetizing a small stake" in iron ore operations could help Vale raise between $7 billion and $10 billion.

(Reporting by Tatiana Bautzer; Additional reporting by Nicole Mordant in Vancouver, Gustavo Bonato and Guillermo Parra-Bernal in Sao Paulo; Editing by Christian Plumb and Phil Berlowitz)