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Brazilian iron ore miner Bamin up for sale, Vale interested
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Kazakhstan's Eurasian Resources Group has put its Brazilian iron ore miner, Bahia Mineração (Bamin), up for sale, attracting interest from local mining giant Vale.
Bamin is currently developing the Pedra de Ferro iron ore mine, the Porto Sul deepwater port and a section of the west-east integration railway, known as FIOL, which connects the mine in Bahia state to the port.
"The entire project is very good, with the iron ore from this mine being high quality. However, completing the project, including the logistical part, requires a total investment of between US$5bn and US$6bn, and Bamin is having difficulties raising that amount," a source familiar with the matter told BNamericas on condition of anonymity.
According to local suppliers consulted by BNamericas, the logistical projects associated with Bamin are facing some delays, with issues related to payments for services and equipment. Additionally, work on the construction of the section of FIOL, being carried out under a concession contract, is also progressing slowly, as with the works on the port.
The expected sale of Bamin has attracted the interest of Vale, which is in talks with other stakeholders, including privately owned local mining company Cedro Mineração and development bank BNDES, to assess the assets.
"What is being evaluated is that Vale would have a controlling stake in Bamin, while Cedro would have a stake of 20-30%, and BNDESPar [the equity arm of BNDES] would have a smaller interest," a source involved in the talks told BNamericas.
At this moment, the discussions are being coordinated by Vale's mergers and acquisitions area and details of a possible deal have not yet been presented to the directors, another source linked to Vale's board told BNamericas, also on condition of anonymity.
It is not known how much would be paid to Bamin's controller to buy the company, but the negotiations also involve the possibility of Eurasian receiving royalties from the operation of the iron mine when it reaches full production.
In 2022, Bamin announced a plan to invest 20bn reais (currently US$3.6bn) to develop the Pedra de Ferro mine, along with the logistics network to support its operations, including FIOL and the Porto Sul.
Pedra de Ferro’s iron ore production capacity is currently around 1Mt/y, but the forecast is that it will rise to 26Mt/y in the coming years. Meanwhile, construction of the FIOL section is now 60% complete.
Recently, local media reported Vale's interest in purchasing Bamin, attributing talk about a possible deal to pressure from the federal government, which wants to see the country’s biggest miner investing more in projects in Brazil.
However, executives involved in the talks say the main motivations for a deal are financial and operational. By taking on the project, Vale would be investing in greater production after years of stagnant iron ore output.
When contacted by BNamericas, Bamin's press office said the company "does not comment on market speculation." Meanwhile, Vale stated that "there is no relevant information to disclose to the market as a result of this prospecting at the moment."
VALE INTEREST
The first signs that Vale had a genuine interest in acquiring Bamin appeared at the end of last year when the company contacted Cedro Mineração, which currently supplies minerals to Vale.
To divide the risks of the deal, Vale would also like to involve BNDES to finance the completion of the logistics projects, and BNDESPar to own a minority stake in the consortium that would be formed.
A decision on the purchase is not imminent, as Vale is currently in the process of selecting a new CEO to take over next year.
Bamin's controller has been trying to find a partner for the company for several years, with the company previously having been offered to steel companies in China and Japan, which could potentially be interested now.
However, past efforts only considered the sale of a minority stake, while full control of the company is now likely to be sold.
POLITICAL NUANCES
A potential deal involving the acquisition of Bamin also involves important political factors.
"Bamin's mining asset involves significant logistics, railway and port components in Bahia state. In recent years, when investors were sought to join these projects, political differences in Brazil scared off investors," a source who worked on intermediating in a possible sale of the asset in the past told BNamericas.
Between 2015 and December 2022, Rui Costa, an influential member of the now ruling leftist Workers' Party (PT), was Bahia state governor. Costa is now the government’s chief of staff and a close adviser to President Luiz Inácio Lula da Silva. From 2019 to 2022, Brazil’s president was Jair Bolsonaro, an opponent of both Lula and the PT, putting him at odds with Costa.
Now that Lula is president, the political conditions are in place to move forward with the projects, as Bahia continues to be governed by the PT under Jerônimo Rodrigues. Meanwhile, Costa heads the office that oversees the federal government infrastructure program PAC.
Given that Lula has also been pressuring Vale to invest more in assets and projects in Brazil, it seems the stars are aligned for a deal to take place.
"There is an alignment of interests favorable to advance the sale of the asset now. This doesn’t necessarily mean that Bamin's sale will be go ahead, but the conditions are now more favorable," said the source who worked on a possible sale.
The railway and port associated with the Bamin project are considered transformative for Bahia state. With the logistics infrastructure to be built in the region, a series of other mining projects in the state would also benefit.
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