In a new cycle of strong growth, iron ore prices have attracted two major economic groups to the industry. The holding company J&F — owner of the giant meatpacker JBS — unveiled the purchase of mining company Vale’s assets in Corumbá, Mato Grosso, earlier this month. In August, Cosan, owned by businessman Rubens Ometto Silveira Mello, debuted in mining by buy buying the port of São Luís, Maranhão, with plans to bring ore from Pará.

Although these are still modest mining projects, the two giants are willing to make multibillion investments for this new business division to become relevant for the groups’ revenues, sources say.

J&F’s plans are not restricted to keeping the two mines recently acquired from Vale, with a capacity of 2.7 million tonnes that may be expanded to 6 million tonnes. After buying the mines, J&F mulls new opportunities in the industry, aa source familiar with the group said. “This was the first step,” the source, who spoke on condition of anonymity, said.

Just as it did in the animal protein industry, J&F plans to be a relevant player and build the “JBS of mining,” the source added. Acquisitions have been a regular strategy of the Batista family to advance in the markets in which they are interested in.

Vale confirmed the sale of the mines to J&F, as Valor reported two weeks ago. The deal valued the assets at $1.2 billion by the enterprise value. Considering this EV and the EBITDA of $110 million, the transaction boasts an “attractive” multiple of 10.9 times for Vale, according to Bank of America.

For analysts Caio Ribeiro, Leonardo Neratika and Guilherme Rosito, the sale shows the mining company’s commitment to “enhance and simplify its portfolio and focus on high quality assets.” Compared to Vale’s other operations, the Central-West system represents a lower-quality asset, with EBITDA per tonne of iron ore of $41, compared to the company’s average of $102 per tonne, they noted.

In J&F’s view, however, the deal was not expensive, another source said. A good part of the $1.2 billion attributed to the assets refers to take-or-pay contracts signed with Hidrovias do Brasil until 2039. Therefore, the amount the Batistas will have to disburse effectively will be $150 million, and the debts of the operation total R$1 billion, well below the enterprise value. By closing the deal, J&F indicates that it sees room to increase gains in the operation, which could include expanding production, it said.

J&F decided to enter mining because it considers the industry resilient and because there are assets in the market that can be better exploited. “We are shopping. We will look at growth in all acquired businesses, including but not limited to mining,” one source said.

Also with business fields considered resilient, Cosan intends to advance in mining. The group’s plans for the industry are old — Rubens Ometto Silveira Mello tried to buy pension fund Previ’s stake in Vale, but the deal did not go ahead.

In August last year, Cosan bought the port terminal from China Communications Construction Company (CCCC) with the goal of integrating logistics and mining. At the time, it also unveiled that it had joined businessman Paulo Brito, founder of Aura Minerals, to start mining exploration in Pará and export the production through Vale’s railroad to Maranhão.

The partnership is still being defined — the parties are discussing each other’s stake in this joint venture, sources say. Mr. Brito holds mining rights in the Carajás region, where Vale’s mines are located. The idea is to produce from 2025 on about 10 million tonnes of iron ore a year and triple this volume in the following years.

Cosan picked Juarez Saliba to lead the business. He previously worked with Vale and will also be a minority shareholder in the ore project.

Cosan said in a statement that it is entering the mining and logistics market with a robust project for iron ore exploration in Pará, with distribution through a private port in Maranhão. “The project will rely on the group’s consolidated expertise in the logistics sector (rail and port) and as a strategic partner, with the ambition of becoming a relevant player in the sector in the coming years.”

According to the group, the company that will manage the mining and logistics business will have advisors and executives with experience in the sector, in order to guarantee even more traction to its development.

For Patricia Muricy, a partner at Deloitte Brasil in charge of the mining industry, the high price of mineral commodities is likely to draw both new entrants and private equity funds. “This movement also means an opportunity for large mining companies willing and in need to reorganize their portfolio, focusing on assets with higher performance, lower socio-environmental impact, lower carbon footprint, very much in line with the public commitments made regarding ESG.”

For Ms. Muricy, it is important that new entrants evaluate aspects relevant to all stakeholders and not be restricted to a simplistic economic and financial analysis, because there are many other risks that can make the expected profits unfeasible.

For industry sources consulted by Valor, this new moment of high ore prices is expected to activate projects that were on stand-by attracting investors. Among them, the expansion plans of mining company Bamin, in Bahia.

According to people familiar with the matter, Bamin has been trying to find a financial investor for the project. However, the investment demanded by Bamin is considered high for the entrance of a new partner.

In a statement, Bamin said it has a large integrated project of significant relevance to Bahia, including the Pedra de Ferro mine, in Caetité, the construction of the South Port, in Ilhéus, and section 1 of the Fiol railroad. “These are large-scale projects that arouse the interest of several partners, with whom the company will always be open to talk.”

Another project that was put on stand-by but may be reactivated is the Manabi ore exploration project, in Minas Gerais, according to another source familiar with the matter. Getting this mine off the ground depends on logistics (rail or pipeline) and port facilities. It is close to Anglo American’s mine and Vale’s railroad. No spokesman for the company could be reached for comment.

In iron ore, the big challenge for newcomers is to define if they want to be big – projects above 20 million tonnes per year – and have cash flow to set up the project, said José Carlos Martins, a partner at Neelix Consulting & Metals who worked as head of ferrous metals at Vale for a decade. Many investors prefer to be small and sell their production to Vale or CSN.

Depending on the project, the investment is in the range of billions of dollars and usually takes three to five years to be put in place. There are usually delays because of environmental permits and problems in logistics works (railroad and port). “In Brazil, there are at least 20 projects waiting to get off the drawing board. There is space in the market at the moment. The critical factors are the ones I pointed out, besides the demand scenario, and prices, which must be considered,” the consultant said.

Source: Valor International

https://valorinternational.globo.com