Brazilian iron ore giant Vale (VALE) said on January 15 that it’s in talks with Bunge (BG) to buy that company’s fertilizer assets in Brazil.
The deal, for as much as $3.8 billion, would relieve Bunge of a unit that showed a loss of $127 million in the third quarter, and give the company cash to pay down debt that stood at $4.1 billion at the end of September 2009.
For Vale, the deal would give the company, which already produces potash fertilizer at Taquari-Vassouras in northeast Brazil and is developing new projects in Brazil, Argentina, Canada, and Peru, additional scale in the short-term and in the longer-run a potential path to dominating Brazil’s fertilizer market.
The deal would include, Vale said in a regulatory filing, Bunge’s 42.3% stake in Fertilizantes Fosfatados or Fosfertil, Brazil’s largest supplier of raw materials for fertilizers.
The deal would also take some of the political heat off Vale to invest more in Brazil. On October 20 Vale said it would invest almost two-thirds of its 2010 capital budget in Brazil after Brazilian President Luiz Inacio Lula da Silva urged the company to invest more in the country.
“Urged” may be too weak a term. Brazilian Agriculture Minister Reinhold Stephanes has noted that Vale might have to give up rights to two fertilizer deposits if it didn’t start exploration soon.
In 2008 Brazil imported 70% of its fertilizers. The government has said that the country wants to be self-sufficient in fertilizer by the end of the decade.
Viwi:
BG is already a Jubak pick, and Vale is looking to buy that company’s fertilizer business. If you’ve been following Jim’s advice you already own the stock. This deal will potentially relieve BG of much of it’s debt.
Jim,
As usual, I have a naive question … VALE is $150 bln gorilla, so adding $3.8 bln company to its assets does not seem to be a lot. Sure, it gives VALE access to a very important segment, but it will take time, and it will take even more time before this segment becomes a significant contributor to VALE’s profits.
So, what is a big deal?
Update to Moly prices:
Molybdenum prices on a sustainable upswing: JP Morgan
By Liana B. Baker, MarketWatch
Last Update: 1/14/2010 7:11:00 PM
SAN FRANCISCO (MarketWatch) — Prices for molybdenum, a base metal used to make
stainless steel, will likely rise 55% in the next two years, JP Morgan analysts
said Thursday.
“We also see more sustainability in the recent surge in moly prices compared to
the spike this summer,” analysts led by Michael Gambardella wrote in a report on
Canadian molybdenum miner Thompson Creek Metals (TC)(CA:TCM).
“Moly inventories remain very lean,” they wrote.
The price for the metal is currently about $15.5 a pound, which is up from $10.70
in November.
Gambardella anticipates prices will climb to $21 by the end of this year and $24
by the fourth quarter of 2011 as global industrial output expands.
Based on the expected rise in molybdenum prices, J.P. Morgan expects Thompson
Creek will make $2.25 a share in 2011, up 68% from an expected $1.34 a share this
year.
The brokerage kept its 12-month price target for Thompson Creek shares at $19 a
share.
Shares rose 6.7% Thursday, to $15.20 on the New York Stock Exchange.
In stainless steel, molybdenum is used along with chromium to raise corrosion
resistance, according to the International Molybdenum Association.
Around 10% of world stainless steel contains molybdenum.
The metal’s prices have been on the upswing since November, driven by demand from
China, Japan, Korea and the U.S., as well as limited availability of scrap
material.
Metals in general (From Dow Jones)
Molybdenum prices on a sustainable upswing: JP Morgan
By Liana B. Baker, MarketWatch
Last Update: 1/14/2010 7:11:00 PM
SAN FRANCISCO (MarketWatch) — Prices for molybdenum, a base metal used to make
stainless steel, will likely rise 55% in the next two years, JP Morgan analysts
said Thursday.
“We also see more sustainability in the recent surge in moly prices compared to
the spike this summer,” analysts led by Michael Gambardella wrote in a report on
Canadian molybdenum miner Thompson Creek Metals (TC)(CA:TCM).
“Moly inventories remain very lean,” they wrote.
The price for the metal is currently about $15.5 a pound, which is up from $10.70
in November.
Gambardella anticipates prices will climb to $21 by the end of this year and $24
by the fourth quarter of 2011 as global industrial output expands.
Based on the expected rise in molybdenum prices, J.P. Morgan expects Thompson
Creek will make $2.25 a share in 2011, up 68% from an expected $1.34 a share this
year.
The brokerage kept its 12-month price target for Thompson Creek shares at $19 a
share.
Shares rose 6.7% Thursday, to $15.20 on the New York Stock Exchange.
In stainless steel, molybdenum is used along with chromium to raise corrosion
resistance, according to the International Molybdenum Association.
Around 10% of world stainless steel contains molybdenum.
The metal’s prices have been on the upswing since November, driven by demand from
China, Japan, Korea and the U.S., as well as limited availability of scrap
material.