Vale says offer for Bunge assets will not exceed $3.8 B

The Bunge interests in Brazil include a 42.3 percent in the equity capital of Fosfertil S.A. Bunge’s assets consist of phosphate rock mines and processing plants of intermediate fertilizers based on phosphorus (phosphates) and nitrogen (ammonium nitrate and urea).

Fosfertil, a Brazilian publicly-traded company, owns 100 percent of Ultrafertil S.A. Fosfertil is the largest phosphate-based fertilizer manufacturer in Brazil, operating a phosphate rock mine and a phosphate processing facility. Ultrafertil is a major nitrogen company that operates two nitrogen plants, a modern port facility at Santos, a phosphate rock mine, and two smaller phosphate processing facilities. The Mosaic Co. owns 19.9 percent of Fosfertil.

Vale and Bunge say these are only negotiations and they may not lead to a deal. Vale said the outcome of the negotiations will be publicly disclosed immediately after their conclusion.

The Brazilian government is seeking to make the country self-sufficient in fertilizer, and it has urged domestic companies to rev up expansion. At the same time, after huge gains during 2008, Bunge saw a loss of $442 million in its fertilizer segment for the nine months ending Sept. 31, 2009, down from a year-ago profit of $610 million (GM Oct. 26, p. 10). While nine-month sales volumes were off only 5 percent, sales were off 44 percent, to $2.7 billion from $4.87 billion.

Last fall the Vale board of directors approved an investment budget for 2010 involving capital expenditures of $12.9 billion dedicated to sustaining existing operations and fostering growth through research and development and project execution. The capex budget for 2010 represents an increase of 29.3 percent over the US$ 10 billion invested in the last twelve-month period ending June 30, 2009. The investment plan continues to reflect the focus on organic growth as the priority of Vale’s growth strategy: 76.6 percent of the budget is allocated to finance R&D and greenfield and brownfield project execution, up from an average of 71.1 percent over the last five years.

Vale said that although iron ore and nickel will continue to be its main businesses, it plans to boost the production capacity of copper, coal, and fertilizers, creating a more diversified portfolio of world-class assets. Given the current project pipeline, Vale expects to reach the following production flows in 2014: 450 million mt of iron ore, 380,000 mt of nickel, 650,000 mt of copper, 30 million mt of coal, 3.1 million mt of potash, and 6.6 million mt of phosphate rock.

Last year Vale paid $850 million for potash deposits in Argentina and Saskatchewan (GM Feb. 9). It also operates Taquari-Vassouras in the state of Sergipe, Brazil, where it produced 607,000 mt of potash in 2008. In addition, it is evaluating the feasibility of potash projects in Brazil (Carnalita) and Argentina (Neuquén), which will involve the use of solution mining. Simultaneously, it is developing the Bayóvar phosphate project in Peru, expected to come onstream in the second half of 2010, with an estimated capacity of 3.9 million mt/y and budgeted capital expenditures of $479 million.

Merger news heated up last summer, when it was rumored that Vale was looking to buy Mosaic (GM July 20, p. 1). However, the news soon fizzled after Vale denied any interest in Mosaic (GM July 27, p. 12).