Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

Exclusive: Brazil's Vale considers ThyssenKrupp mill venture exit - sources

Published 04/01/2016, 12:08 PM
Updated 04/01/2016, 12:10 PM
© Reuters. File photo of Thyssenkrupp AG's new company logo adorning its headquarters in Essen
TKAG
-
VALE
-

By Tatiana Bautzer and Guillermo Parra-Bernal

NEW YORK/SAO PAULO (Reuters) - Vale SA is finalizing a proposal to exit a money-losing Brazilian steelmaking venture with Germany's ThyssenKrupp AG, two sources told Reuters, as the world's largest producer of iron ore seeks to focus activities on mining.

Under the draft plan, which has yet to be approved by Vale's (SA:VALE5) board, the company would sell its 26.87 percent stake in CSA Siderúrgica do Atlántico to partner ThyssenKrupp for $1, said the first source, who requested anonymity to speak freely about the issue.

The iron ore miner would also agree to assume 10 percent of CSA's contingent liabilities, the same source said. CSA, which, like Vale, is based in Rio de Janeiro, reported 2.6 billion euros in total liabilities at the end of the 2015 fiscal year.

ThyssenKrupp (DE:TKAG) is aware that a proposal is underway, and negotiations with Vale are in "their final stages," the second source said. Both companies declined to comment.

Vale's planned exit from Brazil's most costly foreign investment project ever is the latest sign the steel mill has become a liability for both Vale and ThyssenKrupp, which tried unsuccessfully to sell the venture in recent years.

Once considered a showpiece for Brazilian industry, the CSA mill has seen production costs soar amid high inflation, currency volatility and political instability that have pushed Brazil's economy into a deep recession.

The sources said that Vale's exclusive rights to supply iron ore and pellets to the mill will be maintained. Vale also wants a so-called tail period, a time during which a partner is entitled to payment in the event of a sale or the disposal of assets in a company, for 10 years, the first source noted.

FANFARE

Vale bought into the CSA project after facing political pressure to diversify into value-added activities like steel and fertilizer.

In 2009, Brazil's ruling Workers' Party government pushed Vale to boost its CSA stake from an initial 10 percent, as the project faced cost overruns and delays. The plant, built for $10 billion, was inaugurated with much fanfare the following year in a ceremony attended by former Brazilian President Luiz Inácio Lula da Silva.

Since it began operating in 2010, the CSA mill has been affected by a global glut in steel slabs that pushed down its margins and hindered factory capacity usage.

The exit from CSA comes as Vale wrestles with the impact of slumping iron ore prices. Chief Executive Officer Murilo Ferreira said in February that a sale of about $10 billion in assets was under analysis to help reduce Vale's debt.

The plant, which has total production capacity of 5 million tonnes a year, exports slabs that can be further processed at another ThyssenKrupp plant in Alabama.

© Reuters. File photo of Thyssenkrupp AG's new company logo adorning its headquarters in Essen

In the 12 months through September, CSA lost almost 400 million euros, company data showed.

(With additional reporting by Georgina Prodhan in Frankfurt; Editing by Christian Plumb and Andrew Hay)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.