Wednesday, September 8, 2010

"Brazil Miner Vale Wants To Be Global Fertilizer Leader" Taps Debt Markets (VALE, BHP, POT, RTP, MOS, IPI, AAUKF)

First up, 24/7 Wall Street:
Brazil’s Vale SA (VALE) is the world’s leading miner of iron ore and wants to become the world’s leading producer of fertilizer. The company’s move into the fertilizer business occurred earlier this year, even before Australian mining giant BHP Billiton plc (NYSE: BHP) made its hostile offer of $38.5 billion for Canada’s Potash Corp. of Saskatchewan (NYSE: POT). The very size of that deal has brought fertilizer in general, and potash, in particular, on everybody’s radar screen.

The third largest mining firm in the world, Rio Tinto Ltd. (NYSE: RTP), has not made any move into potash or other fertilizer because it’s still trying to get a grip on its purchase of aluminum producer Alcan. Other big potash producers such as Mosaic Inc. (NYSE: MOS), which is controlled by privately held Cargill, and Intrepid Potash Inc. (NYSE: IPI) have not indicated any acquisitions to expand potash production.

There’s more to fertilizer than potash, though, and Vale has put up $3.8 billion to buy the Brazilian fertilizer assets of Bunge Ltd., which include phosphate and nitrogen fertilizer operations in the country. The company doesn’t get everything it wants though. Its offer to buy Paranapanema S.A. was rejected by that company’s shareholders. Paranapanema owns a phosphate plant as well as copper refineries. Vale is also reported to be looking at fertilizer assets in Brazil owned by Anglo American PLC (OTC: AAUKF).

Vale’s plan seems to be to become the major domestic Brazilian supplier of fertilizer, expecting to gain as much as 50% of the country’s market for potash. Brazil currently imports about 90% of its potash requirements and half its requirement of phosphates.

Vale is expected to establish this week a new company called Vale Fertilizantes SA to be comprised of the Bunge assets and a second Brazilian firm, Fosfertil SA, which Vale bought for $3 billion earlier this year. Vale is also expected to spend as much as $12 billion on new projects and acquisitions in the next three years to boost its position in the fertilizer business....MORE
And from Mineweb:
Vale taps debt markets
Internal flaws under the spotlight, as the world's most indebted miner shores up cash flow.

Brazilian supergroup Vale, the world's No 2 miner by value, and most indebted miner, today announced that it would be selling ten year notes, and additional 6.875% guaranteed notes due 2039. Market reports indicated that Vale would immediately seek to raise USD 1bn in the shorter end notes, and around USD 500m in notes due 2039.
Vale said that it plans to use the net proceeds from the offering for general corporate purposes, a euphemism for the strong need to shore up its internal cash flows. While other miners have worked fastidiously at paying down debt after heavy mineral price corrections sent panic waves through the global sector in 2008, Vale has battled to generate strong free cash flows.
Vale's capital expenditure is running pretty much at the same level as BHP Billiton, the world's biggest diversified resources stock, and generator of copious amounts of free cash flow.
As the world's biggest individual player in seaborne iron ore, Vale can pack a punch when iron ore prices are good and great; in 2008, Vale delivered USD 17.1bn in operating cash flow (compared to Rio Tinto's USD 14.9bn, and BHP Billiton's 17.8bn). The 20 or so months since 2008 have seen Vale's operating cash flows fall sharply back, but at least the trend line has been rising since early 2009.

Free cash flow

Operating cash flow
Capital expenditure
Free cash flow

Cash on hand
Net debt


In sharp contrast to BHP Billiton and Rio Tinto, Vale's balance sheet generally has been increasingly stretched in the past few years by its very heavy capital expenditure programme, plus acquistions, mainly in fertiliser, over the past year and more.

Vale remains stung by its seriously overpriced 2007 acquisition of Inco, a nickel group, for USD 18.9bn in cash. Vale raised USD 12.2bn in fresh equity during 2008, diluting shareholders.  That only helped stem the slide in Vale's net debt (including cash) from USD 5.6bn at the end of 2008, to USD 17.7bn on 30 June 2010....MORE