Brazilian iron ore exporter Vale could be facing a period of turmoil with a new player muscling its way on to the giant’s share register – a move that may prove immensely advantageous to Australian iron ore miners BHP, Rio Tinto and Fortescue Metals.
Brazilian conglomerate Cosan SA has acquired 4.9% of Vale SA’s common shares and intends to further increase its stake in the mining company to 6.5% when it gets approval to do so.
That would make it the single largest shareholder.
Cosan is a transportation and sugar conglomerate and much smaller than Vale. It is involved in petrol and other fuels in a JV with Shell, in the growing and processing of sugar and production of ethanol, ports and transport. It is also involved in the food industry in Brazil.
The deal marks a major breakthrough in Cosan’s push out of rural-based businesses and into the much larger iron ore industry.
Vale is Brazil’s second biggest company by market value at around $US69 billion, Cosan is much smaller, worth around $US6.5 billion and the 27th biggest company in the country.
Cosan’s stake in Vale is worth roughly 17 billion reais ($US3.27 billion).
Cosan revealed it had borrowed around $US4 billion to invest in Vale.
Cosan is controlled by Brazilian billionaire Rubens Ometto. He obviously – like a lot of wealthy business people (think John Elliott and Alan Bond in Australia in the past), doesn’t want to use his own money to expand. Either that, or Cosan doesn’t have the capital to do so.
A period of instability could be ahead for Vale which in turn could impact its investment plans for iron ore and its base metals business, all of which would be of benefit to BHP, Rio and Fortescue if it happened.
In a securities filing, the firm said it made the purchase “through a subsidiary and a combination of direct investments, equity and derivative operations.”
The company will request approval from Brazil’s antitrust regulator to raise the stake to 6.5%.
Until then, Cosan “will be exposed to an additional and exclusively financial position of 1.6% of Vale’s equity through a derivative transaction that is different from the one used for the acquisition,” it said.
Following the announcement, shares in Cosan fell while Vale’s shares rose.
Cosan said the Vale acquisition is part of a strategy to diversify its portfolio and add assets in sectors where Brazil has a clear competitive advantage.
Vale is “exactly the type of company we seek to invest in, a unique global asset, active in a sector that is fundamental for Brazil and strategic for the world’s energy transition,” Luís Henrique Guimarães, chief executive officer of Cosan was quoted by Reuters as saying.
“The quality of its iron ore and base metals reserves, including nickel and copper, is essential to enable steel decarbonization and electrification.”
Cosan made its debut in the mining sector last year, when it formed a joint venture with Aura Minerals’ controlling shareholder, obtaining exploration rights for mining assets in three mineral projects in the northern Brazil state Para, near Parauapebas, where Vale also operates.
Aura Minerals is a small is a multi-national mining company that owns and operates gold and copper mines in Honduras, Brazil and Mexico. It is registered in the British Virgin Islands and its presence might see Vale drop a proposal to sell a stake in its copper and nickel mines to outside shareholders.
At the time, Cosan had also acquired the Sao Luis port company in northern Brazil for from China Communications Construction Company, with the aim of using it to transport iron ore.
Cosan’s move onto Vale’s share register came a few days after Vale revealed it had restructured its copper and nickel businesses with hints from the market that it is talking to groups about selling 20% to 25% of its copper and nickel operations (In Brazil, Canada and Indonesia) to outside groups to help finance a more rapid expansion of these ‘green metals of copper, nickel and cobalt.
US analysts wonder if the move by Cosan to grab the largest single shareholding in Vale will change that intention.
