Vale Signs Agreement To Acquire Mitsui's Stake In Moatize And CLN

On January 20th, Vale signed a Memorandum of Understanding (HoA - Heads of Agreement) with Mitsui, allowing the parties to structure Mitsui's exit from the Moatize coal mine and the Nacala Logistics Corridor (CLN), as the first step towards Vale's divestment in the coal business. The transaction is in line with the company's focus on prioritizing its main businesses and its ESG (Strategy, Social and Governmental) agenda, committed to becoming carbon neutral by 2050 and reducing 33% of its emissions by 2030.

Heads of Agreement

The agreement establishes the main terms for the acquisition by Vale of the totality of Mitsui's interests - 15% in the Moatize mine, together with a 50% interest and all other minority credits that Mitsui holds in CLN. The parties' objective is that Mitsui's exit can be completed during 2021, which is subject to the execution of the definitive contract and the usual precedent conditions in this type of transaction.

The HoA predicts that Vale will buy, for US $ 1.00 (one US dollar), the stake in each of the mine and logistics assets owned by Mitsui. After the closing of the transaction, Vale will consolidate the CLN entities and, therefore, all its assets and liabilities, including the Project Finance of the Nacala Corridor, which has approximately US $ 2.5 billion of the balance remaining. Project Finance consolidation will involve approximately US $ 300 million per year in operating expenses at the Moatize mine, associated with the CLN tariff. Currently, these expenses impact the EBITDA of the Coal Business, with reclassification as financial expenses, debt amortization, investment in maintenance of operations and others, with an equivalent increase in the EBITDA of the Coal Business.

With the agreement for the acquisition of Mitsui's interests and, consequently, the simplification of asset management, Vale will start the process of divesting its participation in the coal business, which will be marked by the preservation of the operational continuity of Moatize and CLN, looking for a third party interested in these assets.

Operational improvement initiatives

Vale has been implementing two initiatives that are expected to produce sustainable results at the Moatize mine: a new mining plan and a new operational strategy for coal processing plants.

The new mining plan prioritizes ore bodies of better quality, with a better sterile / ore ratio, which can enable a better mix of products and reduce costs, as a result of the investments made in the last three, aiming at a better knowledge of resources and reservations.

The two processing plants will be revitalized and adapted for a new flowsheet (flow), in implementation since November 2020. Once fully completed, Vale expects to resume the ramp-up, reaching a production rate of 15 million tons in 2021 and 18 million tons in 2022.

Divestment process

Over the past 15 years, Vale has worked in partnership with the governments of Mozambique and Malawi, in the implementation of the Moatize mine and the 912 km railway of CLN, for the transportation of coal, in addition to the revitalization of general cargo and transportation operations passengers. These investments represent a relevant legacy for these countries and are an important vector for local development.

In line with its strategic pillar of the New Pact with Society, while it seeks to conduct a responsible search process for those interested in the coal business, Vale will continue to support the project's ramp-up and maintain all its commitments to society and stakeholders, including obligations already assumed regarding labour rights and resettlements.

The signing of the agreement with Mitsui, as an initial step for the divestment of the coal business, is in line with the strategy of discipline in the allocation of capital and simplification of the company's portfolio. It also reinforces Vale's ambition to become a leader in low-carbon mining, assuming its commitment to the Paris Agreement.

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