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Vale to Sell Up to 49% of Fertilizer Unit in Second Half

March 04, 2011, 4:40 PM EST

Vale, based in Rio de Janeiro, is in talks with financial institutions including Deutsche Bank AG as part of plans to hire advisers on a sale of between 25 and 49 percent, Mario Barbosa, head of Vale’s fertilizer unit, said yesterday in an interview.

The company will seek to almost triple potash and phosphate rock output to 16.1 million metric tons by 2015 as a rising population’s food needs lead to an increase in demand. Vale plans to invest about $2.5 billion in the fertilizer business during 2011, about 10 percent of the year’s total spending, as it develops projects in countries such as Argentina and Brazil.

“We are taking all the internal measures for the company to be ready to do the IPO,” he said. “There is a big demand from people interested to be part of the company.”

Vale is “unlikely” to buy more assets before the IPO and isn’t talking to Brazilian smelter Paranapanema SA about its Cibrafertil fertilizer unit, Barbosa said. Anglo American Plc’s Copebras SA, a Brazilian phosphate producer, has “tremendous” synergy with Vale operations in the same region of Center West Brazil, Barbosa said in the interview from Sao Paulo.

Vale Chief Financial Officer Guilherme Cavalcanti said in an interview in London Oct. 20 that the IPO wouldn’t be ready before the second quarter of 2011. Delays are due to the “bureaucratic” processes, Barbosa said yesterday.

Share Declines

Vale fell 55 centavos, or 1.1 percent, to 49.05 centavos as of 6:08 p.m. in Sao Paulo after earlier falling as much as 1.8 percent. Before today, the stock gained about 2.3 percent this year, compared with a 1.7 percent decline for the benchmark Bovespa Index.

Usinas Siderurgicas de Minas Gerais SA, Brazil’s second- largest steelmaker, recently postponed plans for an IPO of its mining and railroad business. QGEP Participacoes SA, the energy exploration and production unit of Queiroz Galvao SA, and Brazilian oil and gas company HRT Participacoes em Petroleo SA, both raised less than expected in initial public offerings as investor appetite for emerging market assets waned.

“With every day that goes by, the outlook for liquidity and demand are deteriorating,” Rogerio Freitas, a fund manager at Teorica Investimentos in Rio de Janeiro, said today in a telephone interview. “We’re entering a less optimistic period of global economic growth.”

Consolidating

Fertilizer producers are consolidating as demand for nutrients that boost crops is rising on increased population growth and higher incomes in emerging markets. OAO Uralkali, Russia’s largest potash producer by market value, agreed to buy OAO Silvinit for $8.2 billion in December, after BHP Billiton, the world’s largest mining company, failed in its attempt to buy Potash Corp. of Saskatchewan Inc. for $40 billion.

Vale expects to start working on its Rio Colorado potash project in Argentina this year after getting licenses required by the local authorities, Barbosa, 64, said. The project, which Vale bought from Rio Tinto Group in 2009 for $850 million, will start producing in the second half of 2013 to “mainly” meet Brazilian fertilizer demand, he said.

Vale has an output target of 3.4 million metric tons of potash and 12.7 million metric tons of phosphate rock by 2015. The company produced 662,000 metric tons of potash and 5.3 million tons of phosphate rock last year, according to Vale’s 2010 production report.

Potash Corp., the world’s largest fertilizer producer, more than doubled its potash production last year to 8.1 million metric tons.

--With reporting by Peter Millard in Rio de Janeiro. Editor: Jessica Brice

http://www.businessweek.com/news/2011-03-04/vale-to-sell-up-to-49-of-fertilizer-unit-in-second-half.html