December 2, 2014 / 8:48 PM / 3 years ago

RPT-UPDATE 2-Brazil's Vale says mulling spinoff of base metals unit stake

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By Lucas Iberico Lozada

NEW YORK, Dec 2 (Reuters) - Brazil's Vale SA said on Thursday it is considering the sale of a minority stake in its base metals unit in an initial public offering, as it looks to raise funds for key projects in the midst of sliding commodity prices.

Chief Executive Murilo Ferreira told investors in New York that Vale is considering selling 30 percent to 40 percent of the division, which some analysts have valued at between $28 billion and $35 billion.

Ferreira said the company was in discussions with investors and that if the IPO went ahead it would likely first be listed in Toronto, confirming a Reuters story published late Monday.

Ferreira said the IPO would only happen if market conditions were "satisfied," and would not be sold at "any price." Vale will decide whether to go ahead with the IPO by August 2015.

The world's largest mining companies are shedding non-core assets in order to weather an era of lower prices caused by a glut in supply and slowing demand growth in key consumer China.

Vale's profit margins have suffered with the price of iron ore .IO62-CNI=SI, which tends to account for over 80 percent of the miner's profits, down by half this year to $69.70 per tonne.

UBS estimates that it costs Vale $67 to produce a tonne of iron ore and get it to China, a tight squeeze as the company looks to complete its $20 billion Brazilian iron ore project known as S11D.

A mining-focused fund manager in Canada, who asked not to be named due to his firm's policy on such matters, said a Toronto listing of Vale's base metals business would be well received by investors as the Canadian market has a disproportionately large number of listed precious metals miners but is starved of big base metals companies.

Vale said in a separate statement on Tuesday it had cut its planned investments for next year to $10.2 billion, down from previous guidance of $12.5 billion.

News of a potential IPO, follows a similar decision by Australian miner BHP Billiton which said in August it would spin off its aluminum, manganese and nickel assets into a separate company.

Vale's base metals division primarily consists of nickel assets acquired through the purchase of Canada's Inco in 2006, then the world's second-largest producer of the ingredient used to produce stainless steel.

"There might be a virtuous window for this opportunity," Vale's Chief Financial Officer Luciano Siani told investors, referring to the potential IPO, which he valued at $30 billion to $35 billion.

Vale shares shed 2.2 percent in Sao Paulo trading on Tuesday. (Reporting by Lucas Iberico Lozada, additional reporting by Euan Rocha in Toronto; writing by Stephen Eisenhammer in Rio de Janeiro, editing by G Crosse)

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