Vale informs that it has concluded separate agreements with Wheaton Precious Metals Corp (Wheaton) and with Cobalt 27 Capital Corp to sell an aggregate total of 75% cobalt stream with reference to the cobalt by-product to be delivered from January 1st, 2021, which encompasses the ramp-down from the existing Voisey’s Bay mine (Voisey’s Bay) and from the Voisey’s Bay underground mine expansion project (VBME), for a total upfront payment of $690 million plus additional payments of 20%, on average, of cobalt prices upon delivery.
The streaming deal enables development of VBME, Vale’s first significant investment announcement in recent years. The transaction substantially improves the financial returns on invested capital of VBME to more than 35%/y at market consensus prices. It is aligned with Vale’s rigorous capital allocation process in which projects must be capable to generate returns at current price levels, instead of depending upon future price expectations.
The upfront payment of $690 million will be paid in its entirety upon closing of the transaction with $390 million to be paid by Wheaton and $300 million to be paid by Cobalt 27, and it is equivalent to 40% of the estimated VBME nominal capex of $1.7 billion.
Vale remains exposed to approximately 40% of future cobalt production from Voisey’s Bay, through Vale’s retained interest in 25% of cobalt production and the approximately 20% additional payments on the 75% cobalt stream. The cobalt stream is consistent with Vale’s strategy to preserve optionality in nickel, a key input into electric vehicles. VBME will extend the mine life of Voisey’s Bay, granting Vale access to nickel, copper and cobalt reserves and, thus, increasing to an estimated annual production of around 45,000 t of nickel, on average, about 20,000 t of copper and about 2,600 t of cobalt, in total. In order to secure a smooth transition from the open pit to the underground mine, nickel production from Voisey’s Bay mine will be maintained at 38,000 t/y from 2018 to 2020, ramping up to 45-50,000 t/y of nickel contained in concentrate from 2024 onwards.
Through the streaming transactions Cobalt 27 and Wheaton are entitled to an amount of finished cobalt equivalent to a percentage of the cobalt by-products from VBME and, thus, share the production and geological risks after development and ramp-up, both on the upside and on the downside. As the underground mine is undeveloped, Vale granted a completion guarantee in relation to the VBME project, to be measured by the throughput rate from the underground mine in 2025. The completion guarantee is under Vale’s control, given that licenses, contractors and suppliers have been secured for developing the VBME project. The transaction unlocks important EV optionality for Vale and is consistent with Vale’s rigorous discipline of capital allocation, as it reduces the financial risks of the VBME project.
Voisey’s Bay mine, located in Labrador, Canada, has been in production since 2005 and has produced over 600,000 t of nickel, 400,000 t of copper concentrate, and 12,000 t of cobalt. Copper concentrate is sold on the open market, while nickel concentrate is transported to the Long Harbour Processing Plant. Voisey’s Bay mine is one of the most competitive nickel operations globally, being recognised for its safety records and cash costs in the bottom half of the industry cost curve. Current open pit mining in the Ovoid deposit is expected to continue until 2022.
Exploration around the Ovoid Deposit identified two major deposits (Reid Brook and Eastern Deeps) located from 200 m to 900 m underground. A feasibility study was completed in early 2015 to expand Voisey’s Bay operations underground to mine both deposits via two decline and ramp systems and the project was approved in July 2015 by Vale’s Board of Directors, with installation licenses already obtained. Due to difficult market conditions in recent years, the project was put on hold; now Vale has announced it will restart substantive work on the project allowing for a significant increase in Vale’s exposure to the EV market. The project extends Voisey’s Bay mine life from 2023 to 2034.
“By unlocking the value of the cobalt by-product at Voisey’s Bay through this streaming deal, Vale has found a way to resume substantive work on the underground project in Voisey’s Bay and support the market’s increasing demand for nickel, copper and cobalt, as well as uphold its commitment to the Government, our Indigenous stakeholders and the people of Newfoundland and Labrador, Canada”, commented Eduardo Bartolomeo, Executive Officer for Base Metals.
The scope of the project includes: (i) underground development to access the two deposits; (ii) fresh and return air fans; (iii) increased power generation and fuel storage; (iv) expansion to accommodations, offices, warehousing and maintenance shops; (v) upgrades to water and sewage treatment facilities; and (vi) paste backfill and shotcrete plants. As a brownfield project, the mine expansion will use the existing concentrator, port and support facilities, as well as the Long Harbour Processing Plant, leading to reduced implementation risks. The total capital expenditures are estimated at approximately $1.7 billion: $100-150 million in 2018, $300-350 million in 2019, $450-500 million in 2020 and 2021, $150-200 million in 2022 and less than $50 million in 2023. The first full year of underground production is expected to be 2021, when current open pit mining begins to ramp down.
During 2021 and 2022, the Ovoid open pit is expected to produce an average of approximately 800 t/y of refined cobalt, at average grade of 0.08% cobalt. During the initial ramp-up period of four years, commencing in 2021, VBME is expected to produce an average of approximately 1,800 t/y of refined cobalt, at average grades of 0.15% cobalt. When operating at full scale, from 2025 to 2033, the underground mine is expected to produce an average of 2,600 t/y of refined cobalt, at average grade of 0.13% cobalt.
Voisey’s Bay has total estimated mineral reserves of 32.4 Mt with a nickel grade of 2.13% and a cobalt grade of 0.13%. The open pit reserves and resources consist of the Main Ovoid, the Mini Ovoid and the SE Extension. The underground reserves and resources consist of Reid Brook and Eastern Deeps. Of the total estimated mineral reserves, the underground reserves contain 23.6 Mt with a nickel grade of 2.17% and cobalt grade of 0.14%.
