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Japanese group secures iron-ore supply with stake in Brazilian steel foundry

Thursday, July 1st 2010 - 07:03 UTC
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Brazil and Australia are the world’s leading exporters of iron ore Brazil and Australia are the world’s leading exporters of iron ore

Usinas Siderurgicas de Minas Gerais SA, Brazil’s second-largest steelmaker, agreed to sell a stake in its mining and railroad businesses to Sumitomo Corp. for 1.93 billion US dollars before a possible share offering in the unit.

Sumitomo will buy 30% of unit Mineracao Usiminas SA, the Belo Horizonte, Brazil-based steelmaker said in a regulatory filing. The unit will own 83% of railroad operator Usiminas Participacao & Logistica SA.

Usiminas is seeking to profit from surging iron-ore prices by selling a stake and spinning off the unit, which the company said may be worth 6.43 billion. Cia. Siderurgica Nacional SA, the Brazilian steelmaker known as CSN, also plans to sell shares in its iron-ore operations.

Usiminas will invest 4.1 billion Reais (2.27 billion USD) by 2015 to boost iron-ore output more than fourfold to 29 million metric tons, Chief Executive Officer Wilson Brumer said Wednesday on a conference call.

“Global iron-ore demand is pretty strong, prompting clients to seek partnerships to secure supplies” Brumer said. The company doesn’t yet have a timeline for a public share sale in the unit, he said.

Tokyo-based Sumitomo follows other Asian companies buying assets in South America to secure supplies of iron ore, the main raw material used to make steel, as demand in China rises.

A group that included Posco and Nippon Steel Corp. last year acquired a 40% stake in the CSN’s Namisa unit for 3.12 billion USD.

Sumitomo paid the equivalent of about 247 USD a ton of iron ore, almost twice as much as Usiminas paid in 2008 to buy mining company Mineracao J. Mendes Ltda., Ivan Fadel, a Credit Suisse analyst based in Sao Paulo, said in a note to clients.

“Financially, we believe this was an excellent deal pulled out by Usiminas management,” Fadel said.

The Usiminas unit owns iron-ore mines in the southeastern Brazilian state of Minas Gerais and the Itaguai port project in neighboring Rio de Janeiro state.

The railroad business includes a 20% voting stake in MRS Logistica SA, a rail operator in southeastern Brazil. Vale SA and CSN also hold stakes in MRS. CSN is seeking to spin off its mining unit to sell shares in an initial public offering to finance expansion. The spin-off includes iron-ore mine Casa de Pedra, 60% of the Namisa mine, its stake in MRS and an iron-ore port project in Brazil.
 

Categories: Economy, Investments, Brazil.

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