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.
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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.
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)