Diversified miner Anglo American has agreed to acquire, from Brazilian iron-ore miner Vale, the high-quality Serra da Serpentina iron-ore resource and integrate it into its contiguous Minas-Rio mine.

Anglo will continue to control, manage and operate the Minas-Rio operation, including any future expansions that relate to Serpentina.

"The opportunity to partner with Vale to secure a high-quality iron-ore resource of this scale and quality, right next door to Minas-Rio, is compelling – particularly given all the physical synergies of our mining and processing infrastructure to create a single optimised operation, combined with the option to access Vale's rail and port logistics.

“The sheer scale and quality of the Serpentina orebody offers significant value, including through the scope to expand the production of the premium-grade pellet feed products we sell to steelmaking customers as they focus on decarbonising their own processes for decades to come. The Minas-Rio direct reduced iron-grade product sells into one of the most attractive growth segments available in our industry today," Anglo CEO Duncan Wanblad said on February 22.

Serpentina contains a mineral resource of 4.3-billion tonnes of iron-ore, with a significantly larger total endowment upside that reflects the total strike length of the orebody of more than twice that of Minas-Rio.

The project is also of a higher iron-ore grade than Minas-Rio's already high-grade ore and contains predominantly softer friable ore. These factors are expected to translate into lower unit costs and capital requirements for its extraction.

The combination of the two resources also offers considerable expansion opportunities, including the potential to double production, which Anglo and Vale will assess under the transaction's terms.

“Minas-Rio is a tier one asset that will benefit from great synergies with Serpentina's deposit and Vale's logistics and we are confident this partnership will unlock significant value . . . We plan on allocating our share of the high-quality pellet feed to our pellet plants in Brazil and in the future to the megahubs producing iron-ore briquettes," Vale CEO Eduardo Bartolomeo said.

TRANSACTION TERMS

Under the terms of the transaction, Vale will contribute Serpentina and $157.5-million in cash to acquire a 15% shareholding in the enlarged Minas-Rio.

If the average benchmark iron-ore price remains above $100/t or below $80/t for four years, a purchase price adjustment payment will be made to Anglo or Vale, respectively, in line with an agreed formula.

Following completion of the Transaction, Vale will receive its pro rata share of Minas-Rio production. Vale will also have an option to acquire an additional 15% shareholding in the enlarged Minas-Rio for cash if and when certain events relating to a future expansion of Minas-Rio occur, including the receipt of the requisite environmental licence for an expansion, following the completion of a prefeasibility study (PFS) and feasibility study, at fair value calculated at the time of exercise of the option.

Anglo said the enlarged Minas-Rio will have the option to use Vale's nearby rail line and Tubarão port to transport expanded output as an alternative to the construction of a second pipeline to Anglo's current port facility at Açu. All viable logistics solutions will be considered and evaluated during the PFS stage.

The existing Minas-Rio pipeline crosses the Vale rail network downstream from Minas-Rio, enabling a far shorter second pipeline to connect with the rail corridor to the Tubarão port. The transaction does not include nor affect Anglo's 50% interest in the iron-ore export facility at the Port of Açu.

The transaction is expected to be completed in the fourth quarter of this year.