Franco-Nevada

Vale Royalty Debentures (Iron Ore, Cu, Au & Other)

Vale_Royalty


Location: Brazil, South America
Operator: Vale S.A.
Royalty: 0.264% Iron Ore, 0.367% Copper/Gold, 0.147% Other

In April 2021, Franco-Nevada acquired 57 million Participating Debentures (“Royalty Debentures”) for $538 million, providing holders with effective net sales royalties on Vale S.A.’s (“Vale”) Northern and Southeastern Iron Ore Systems and on certain copper and gold operations in Brazil (together, the “Royalty”). The acquisition represents 14.7% of the total issued Royalty Debentures by Vale and was made through a secondary offering held by the Brazilian Development Bank and the Government of Brazil.

The Royalty terms, on a 100% basis, provide for a 1.8% (0.264% attributable) net sales royalty on: (i) iron ore sales from the Northern System and (ii) approximately 70% of sales from the Southeastern System. Both systems are fully integrated, allowing strong margins and low cost position.

  • The Northern System covers Serra Sul (i.e. S11A-D), Serra Norte and Serra Leste and represents one of the most profitable mining complexes globally with long-life reserves and excellent potential for mine life extensions. The Northern System produced 192 Mt of premium +65% iron ore in 2020. Production capacity is expected, by Vale, to be 206 Mt in 2021 and to increase to 260 Mt long term through the approved expansion of Serra Sul and other growth projects.
  • The Southeastern System is a key global producer of pellet feed and will start contributions to the Royalty once a cumulative sales threshold of 1.7 Bt of iron ore has been reached, expected during 2024. The Royalty covers three iron ore complexes: Itabira, Minas Centrais (Brucutu), and Mariana (Fazendão and part of Capanema) which are expected to cover approximately 70% of total Southeastern System capacity. Vale expects the Southeastern System to increase capacity from current reduced levels to 101 Mt capacity in 2022.

The Royalty also provides for a 2.5% (0.367% attributable) net sales royalty on certain copper and gold assets. The Royalty applies on a 50% basis (i.e. 1.25% of net sales, 0.183% attributable) to Sossego, reflecting Vale’s ownership at the time of issuance. Additionally, the Royalty provides for a 1% (0.147% attributable) net sales royalty on all other minerals (covered mining rights include prospective deposits for other minerals including zinc, manganese, amongst others), subject to certain thresholds. A 1% (0.147% attributable) applies to proceeds in the event of an underlying asset sale. In total, the Royalty covers approximately 15,600 km2 of prospective geology.

Royalty payments are made on a semi-annual basis on March 31st and September 30th of each year reflecting production in the preceding half calendar year period.

ASSET HIGHLIGHTS

  • World class iron ore mines producing high quality iron ore for low emission steel
  • Strong potential for growth and multi-decade mine lives
  • Fully integrated production provides cost advantage
  • Large land package of approximately 15,600 km2

Vale_Map