China’s Wuhan Steel to Pay $400 Million for MMX Stake

Nov. 30 (Bloomberg) -- Wuhan Iron & Steel Group, China’s third-biggest steelmaker, agreed to pay $400 million for a stake in Brazil’s MMX Mineracao e Metalicos SA to broaden its supply of iron ore.

Wuhan Steel, based in Hubei province, will appoint two board members to MMX and become the second-biggest shareholder of the Brazilian company with a 21.52 percent stake, the Asian company said today in a statement. Rio de Janeiro-based MMX, controlled by billionaire Eike Batista, has a market value of 3.7 billion reais ($2.1 billion), according to Bloomberg data.

China, the world’s biggest steel producer, is investing in iron-ore projects globally to reduce dependence on Vale SA, Rio Tinto Group and BHP Billiton Ltd., which control three-quarters of seaborne supply. Wuhan Iron and EBX, MMX’s holding company, also signed an accord today to build a steel plant in Brazil, spokesman Bai Fang said in a phone interview from Wuhan, where the deal was signed.

“We are still studying the steel venture plan,” Bai said. “Approvals are also needed for the plan to go through.”

The mill, to be at the Acu port in Rio de Janeiro state in southeastern Brazil, will have a capacity to produce at least 5 million tons a year of steel products, with the possibility of “significant” future expansion, MMX said in a statement today.

Plant Financing

Wuhan and EBX expect to gain licenses by May 2010 to start building the plant, which may be financed by the China Development Bank and Brazil’s development bank BNDES, MMX said. Wuhan will hold 70 percent and EBX a 30 percent stake in the venture, MMX said, without disclosing the investment value.

Wuhan Steel rose 3.4 percent to close at 8.12 yuan today in Shanghai. The benchmark Shanghai Composite Index gained 3.2 percent. MMX gained 1.8 percent to 12.22 reais at 12:11 p.m. in Sao Paulo, while LLX Logistica SA, which is building Acu port, rose 2 percent to 8.25 reais.

Wuhan Steel originally offered to buy a stake in MMX and its Sudeste mining unit in June.

“There has been some changes in the deal,” said Xiao Jinfa, head of Wuhan Steel’s resource development department. “Now the investment is for the stake of the listed company only,” he said, without providing a reason.

Wuhan will acquire new shares to be issued by MMX in a private sale, MMX said. The $400 million raised will be used to develop MMX’s Sudeste’s mines system, it said.

Ore Expansion

MMX plans to increase its annual iron-ore output capacity to 33.6 million tons by 2014 from 10.7 million tons, Wuhan Steel said. MMX operates Sudeste mine and Corumba mine in Brazil and Minera mine in Chile.

MMX said it also signed a contract to supply at least 50 percent of the ore produced at Serra Azul to Wuhan for 20 years starting in April 2010. Serra Azul is part of the company’s Sudeste system. The accord may involve exports of more than 16 million tons a year of ore.

“MMX needed this to continue to grow,” Gilberto Cardoso, a Rio de Janeiro-based analyst with Banif Securities, said in a telephone interview. Adding a partner with capital plus the supply agreement “guarantees MMX’s future expansion and demand for its products.”

Cardoso’s rating of MMX is under review. He doesn’t own any of the stock.

--Helen Yuan, with assistance from Diana Kinch in Rio de Janeiro