Spotlight: Financing and M&A transactions in Brazil's mining sector

Brazil’s mining sector has seen important M&A and financing transactions recently, with companies navigating a challenging capital market.

Some operations are taking place as companies struggle to access the local equity capital market due to high interest rates, pushing them to sell assets to raise funds. Other options in light of global turbulence include deals with shareholders.

"The environment for raising funds through the equity markets is currently very challenging, so companies that need capital are opting to sell stake or private deals operations with their shareholders," Carlos Daltozo, an equity analyst, told BNamericas.

"This strategy is likely to persist in the coming months because financing options in the equity market at the moment aren't financially advantageous for companies, as investors are demanding a very high premium."

The latest transactions

CSN

Steelmaker CSN approved the sale of 11% of its iron ore division CSN Mineração to Japanese conglomerate Itochu Corporation.

Itochu, which currently owns 9.26% of CSN Mineração through Japan Brasil Minério de Ferro Participações, will pay 4.42bn reais (US$776mn) and the proceeds will be used to reduce CSN’s debt, a person familiar with the strategies told BNamericas on condition of anonymity.

"Itochu paid 7.50 reais per share for CSN Mineração, while the company's stock price is currently quoted at 6.19 reais. The Japanese company agreed to pay this price per share only because, as a significant existing shareholder of CSN, it's well acquainted with the quality of the asset it is purchasing. If CSN had opted to raise funds through a public share offering, it would not have achieved as high a premium as in this transaction because investors are generally more conservative right now," said Daltozo.

CSN Mineração is developing the Itabirito P15 iron ore project, also known as Casa de Pedra, in Minas Gerais state. Production at the 15Mt/y project should start in the first quarter of 2027. Itabirito is considered transformative, as ore quality is expected to improve with iron content rising to 65% from 58% by 2028.

The higher quality ore is expected to see greater demand and fetch higher prices due to the need for steel mills in Asia to use raw materials that reduce carbon emissions.

Itaminas

Earlier this month, antitrust body Cade approved the sale of local iron ore firm Itaminas. The firm, formerly controlled by the Paz family, was acquired by Brazilian business group AVG for 2.2bn reais.

Under new control, the company aims to invest 1.5bn reais by 2033 to expand annual iron ore production from 6.5Mt to 9Mt, a person with knowledge of the plans told BNamericas, requesting anonymity.

Cerrado Gold

Canada-listed Cerrado Gold announced the completion of the sale of its US$181mn Monte do Carmo gold project in Tocantins state. The project was sold to Hochschild subsidiary Amarillo Mineração do Brasil.

"In connection with the closing of the transaction, Cerrado received cash payments totaling US$30mn from Amarillo, in addition to the US$15mn previously received in connection with granting the option, for a total consideration of US$60mn," the firm said in a statement.

Cerrado Gold sold the project to raise cash and focus on its gold projects in Argentina, Don Nicolás and Las Calandrias.

G Mining

Canada-listed G Mining Ventures raised additional cash through an agreement with shareholder Franco-Nevada Corporation to develop its Tocantinzinho project in Brazil’s Pará state. Franco-Nevada agreed to exercise 11.5mn common share purchase warrants issued to them as part of the project financing package announced in 2022.

As part of this exercise, G Mining will issue 2.88mn common shares to Franco-Nevada for gross proceeds of Cdn$21.9mn (US$15.7mn).

"We deeply appreciate Franco-Nevada's steadfast support and confidence in our vision. Their partnership was instrumental in achieving the milestone of [Tocantinzinho’s] first gold pour and reaching commercial production in 2024, on schedule and within budget," G Mining CEO Louis-Pierre Gignac said in a statement.

So far, Franco-Nevada has invested US$352mn in development capital in the Tocantinzinho project. This investment included a US$27.5mn equity investment, a US$250mn gold stream, and a US$75mn senior secured term loan.