After 16 years, Vale’s big nickel bet is looking like a winner

In the heady days of the 2000s commodities supercycle, Brazilian iron ore giant Vale SA made a $17 billion bet on a metal used mainly to make stainless steel. The purchase of Canadian nickel miner Inco Ltd., announced in 2006, was part of then-CEO Roger Agnelli’s goal of turning Vale into a diversified global heavyweight at a time of seemingly insatiable Chinese demand for raw materials.

As the nickel bull run turned into a stampede in early 2007, Agnelli’s aggressive outbidding of rivals for Inco’s sprawling deposits in Canada, Brazil, Indonesia and New Caledonia looked like a stroke of genius. But then prices crashed and the foray into nickel quickly become an albatross around Vale’s neck.

“It was a midsummer night’s dream,” Jose Carlos Martins, a former senior executive at Vale, said in an interview Tuesday. “Prices retreated and were running closer to the cost of production for years.”

But nickel’s fortunes began to change as it became a key ingredient in rechargeable batteries. With the electric-vehicle revolution gaining momentum, the market for battery-grade nickel started to tighten, boosting the value of those deposits snapped up in the Inco deal. Then the invasion of Ukraine saw nickel prices skyrocket, as fears over Russian supplies left buyers exposed to a historic squeeze.

Nickel’s brief spike above $100,000 a metric ton on the London Metal Exchange may not be sustainable. But as the world’s No. 2 producer, Vale stands to benefit from worries surrounding supply from Russia’s MMC Norilsk Nickel PJSC, the top producer.

According to Itau BBA analyst Daniel Sasson, every $10,000 change in the price of nickel translates to $1.8 billion in Vale’s earnings before items. That boosts assets that Vale was already considering spinning off in a bid to unlock value potential that the company calculated last month at $40 billion.

Nickel’s dizzying liftoff this week is a signal for Vale to finally move forward on the base metals spinoff, according to Martins, now a managing partner of Neelix Consulting Mining & Metals. “It’s time to make a bold move in nickel.”

The past week’s nickel market turmoil may help Vale tout the strengths of its base metals portfolio, which is recovering from a series of operational setbacks in Canada and Brazil. Higher prices could also speed up a new joint venture in Indonesia.   

Vale can “make magic happen” in base metals, Deshnee Naidoo,  the company’s new head of base metals, said on an earnings call Feb. 25. “We have the right assets and an unmatched resource base in strong jurisdictions with technical expertise to unlock the value chain to deliver into this demand growth.”