Vale SA, a Brazilian mining company, this week is attempting a bid to buy out minority shareholders of its fertilizer division company, Vale Fertilizantes SA, to free its hands for major expansion of its fertilizer business worldwide.
According to a MarketWatch report by Diana Kinch, market analysts expect the parent company to be successful in its anticipated bid because most of the shareholders being enticed to sell are small investors.
Vale has announced it wants to create a new fertilizer company that can “facilitate investment decisions,” because the fertilizer company will be delisted from trading on Brazil’s Bovespa stock exchange, MarketWatch reported.
An unidentified analyst was quoted as saying, "Vale's fertilizers strategy won't change with this, but its fertilizers business should gain more value."
Vale Fertilizantes at its current scale was formed from grouping together the Brazilian fertilizer assets of Bunge, Yara and Mosaic, which Vale acquired in 2010 for $5.829 billion, it was reported.
Kinch wrote that Vale announced in late November the company plans to invest 9.6 percent of its total planned 2012 budget of $21.4 billion in the fertilizer area, both in Brazil and abroad. “Vale has defined fertilizer as a strategic growth area along with copper and coal, the company's Chief Financial Officer Tito Martins said this week at a meeting with analysts and investors in London.”
The company is looking to grow its percentage of business related to fertilizer, which was only 6 percent of total Vale sales in the most recent quarterly financial report.
Expansion is likely to be by acquisitions, and history shows a need to be outside of Brazil for the scale of expansion the company wants to accomplish. Vale announced in late November it plans to increase its fertilizer-materials output to 650,000 tons of potash and 8 million tons of phosphate rock in 2012. The company has been putting its fingers into many current and possible fertilizer mining operations around the world, even before the newly defined intent to expand.
MarketWatch noted, “Vale will spend $1.08 billion in 2012 to develop a potash mine at Rio Colorado in Argentina that is expected to cost a total of $5.9 billion and start up in the second half of 2014 to produce 4.3 million tons a year of potash.”
In 2010, the company started producing phosphate rock at a mine at Bayovar in Peru. In northeast Brazil, Vale recently reached a deal that allows it to continue producing potash at a site in the state of Sergipe separate from a potash mine in the same state that might only have nine years of productivity remaining.
Negotiations are underway with the Petrobras oil company for another potash mine in Sergipe but also is a possible oil production site. Another phosphate rock project in Mozambique, Africa, is under a feasibility-study.
MarketWatch quotes sources claiming Brazil’s fertilizer use is expanding at about 6 percent per year, but Vale Fertilizantes is looking to be competitive to greatly expand its sales outside of Brazil, too.