January 28, 2010 2:00 am

Vale in $3.8bn deal for Bunge assets in Brazil

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Vale, the world's largest miner of iron ore, yesterday confirmed it had reached a deal to expand its fertiliser business through the purchase of Bunge assets in Brazil for $3.8bn in cash.

The move for Bunge Participações e Investimentos, the US agricultural trader's Brazilian fertiliser business, includes a 42.3 per cent stake in Fosfertil, a fertiliser group, in addition to phosphate mines and production facilities.

It comes as Vale attempts to diversifyfrom iron ore. The talks are also the latest sign of growing interest in fertiliser markets, particularly in potash, in spite of low prices and a lacklustre demand in key emerging markets. A recovery is expected this year.

Some $1.65bn of the deal money is attributed to BPI's phosphate rock and phosphates assets, with the remaining $2.15bn for Fosfertil shares held directly and indirectly by BPI.

The purchase is subject to regulatory confirmation but Vale said once it gets the green light it will offer to buy out the common shares held by Fosfertil's minority shareholders.

"This transaction is instrumental to the consolidation of Vale's strategy of focusing on Brazil as the main market for its production of phosphates, given the potential of the acquired mines as well as the growth associated [with] our projects around the world, such as Bayovar, which is coming on stream this year, and Evate, in the future," said Roger Agnelli, Vale's chief executive.

The move gives Vale a firmer grip on domestic fertiliser production and helps it towards becoming one of the world's main fertiliser producers by 2017.

Vale mines potassium, a raw material for fertiliser, and the Fosfertil acquisition would allow it to enter the business of fertiliser production, said Gilberto Cardoso, mining analyst at Banif in Rio de Janeiro.

BPI is the second-largest phosphates fertiliser producer in Brazil, with a market share of 14.2 per cent. Fosfertil is the market leader, supplying 22 per cent of Brazil's phosphates fertilisers and 23.4 per cent of its nitrogen fertilisers.

Brazil is the world's biggest producer or exporter of soy beans, coffee, sugar, chicken, beef, ethanol and orange juice, it is the fifth-biggest consumer of fertilisers and one of the biggest importers of phosphates, potash and urea.

Vale said demand for agricultural commodities meant farmers will need more and more fertiliser. But experts said Bunge's readiness to part with its fertiliser unit underlines the crisis in the farming sector following the drop in commodities prices and credit restrictions.

The International Fertilizer Industry Association estimated that demand for fertilisers fell 5.1 per cent in 2008-09 and will grow 3.6 per cent in 2009-10.

Additional reporting by Javier Blas and Jonathan Wheatley

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