beyondbrics

Who would have imagined fertiliser could be a hot, exciting issue? Well, it is now, at least in Brazil.

On Wednesday, Vale issued $1.75bn in bonds, saying the money would go towards general corporate expenses. But it got the rumour mills spinning that the Brazilian mining giant was looking to fund expansions in the fertiliser sector, perhaps with an eye to acquiring PotashCorp, despite strong denials from the company.

The issue is hot, of course, after BHP Billiton’s $39bn hostile bid for the Canadian company was rejected.

The general consensus amongst bankers and analysts is that Vale could certainly afford to come up with a strong counter-offer for PotashCorp if they wanted – the question is if that kind of big acquisition is in its best interests at the moment.

Vale has fertiliser plans of its own, to be sure. It set aside $12bn recently for investments in the sector. One analyst at a large bank here in São Paulo says that money is likely to be best spent on organic growth in projects Vale already has, though acquisitions aren’t ruled out. The Brazilians are certainly interested in setting up a giant potassium mine in Argentina.

An investment banker, who chose not to comment because there was a chance his bank might be in on the potential deal, says he believes Vale will take a hard look at PotashCorp, but isn’t so convinced they’ll find it worth their while.

So what of the bond issue? “The debt market for corporations is very good at the moment,” he says. “I think they are just enjoying the market for that.” But they can’t enjoy it without causing more talk of fertiliser. Not now.

In other news on the Brazilian fertiliser front, Potassio do Brazil announced they discovered more than 1bn tonnes of potash in the Brazilian Amazon region. This could cover about a quarter of the country’s agriculture needs, the company said.

“We hear announcements like this all the time in Brazil, and it’s hard to know what they mean,” said one analyst. “This is very preliminary. We won’t know for a while how much it costs to access the potash, and what is economically viable.”

If they really have just made this discovery right now, they are quite lucky, he says. This is especially true considering they plan to use the news to raise money in an IPO.

He says: “There has never been a better time to make an announcement like this, about a fertiliser discovery.”

Related reading:
Vale denies PotashCorp plan amid bond issue, FT
Argentine glacier law threatens Vale’s fertiliser foray, beyondbrics
FT In depth: BHP-PotashCorp