beyondbrics

By Paulina Lichwa of mergermarket

Brazil’s Vale, the world’s biggest producer of iron ore, has been criticised as a one-trick pony – having failed to jump on other base metals. Now the company is pledging to become a major player in copper, with the purchase of Paranapanema, a Brazilian copper miner, for $1.14bn.

With a rally in the price of copper, Vale may now look further afield as it diversifies its assets.

Vale will offer 6.30 reais ($3.59) for each of Paranapanema’s shares in an auction on September 1st. The offer represents a 22-per-cent premium on the 90-day-volume-weighted stock average, and comes after rumours that Paranapanema’s shareholders – pension fund Previ, the investment arm of the state-owned development bank BNDES, and Petroleo Brasileiro staff pension fund Petros – wished to exit.

If successful, the purchase will give Vale access to Paranapanema’s copper smelter and three production plants of downstream copper products. Vale has announced that it would conduct corporate and/or asset reorganisation.

Vale’s strategy is to diversify its revenue streams, on the back of the boom in iron-ore prices. On Thursday, the company announced Q2 profits of 6.64bn reais, up from 1.49bn reais a year earlier. Yet iron ore represented almost 90 per cent of its ebitda.

And diversifying doesn’t just mean going beyond iron ore, it means going beyond Latin America. The continent has the world’s biggest copper producer, Chile’s Codelco, yet its best opportunities are already taken. Analysts say more exciting copper prospects lie in the DRC, Pakistan – and Mongolia, where Rio Tinto and Ivanhoe are currently disputing access.

Vale is making its ambitions clear. In April, it agreed a $2.5bn deal for a majority share of iron-ore miner BSG Resources in Guinea. Then, this month, the company announced a planned investment $400m in African Rainbow Minerals Ltd. to develop a new copper mine in Zambia.

Will the purchase of Paranapanema be prove a springboard to bigger copper acquisitions?

Related reading:
The deal for Vivo: everyone’s a winner, beyondbrics
Vale in copper strike deal, FT