Brazilian giant hunting down resources prey like stealthy jaguar
Brazilian giant strikes again, stalks new prey
BRAZILIAN mining and logistics major Companhia Vale do Rio Doce (CVRD) has started 2007 like it finished 2006 – seeking acquisitions.
By: Keith Campbell
Published: 23 Mar 07 - 0:00
BRAZILIAN mining group Companhia Vale do Rio Doce (CVRD), the world’s second-biggest diversified mining group by market capitalisation since it took over Canada’s Inco late last year, is in South Africa and is hunting for prey. To say that the Brazilian giant is operating covertly in South Africa would be an unfair exaggeration, but it certainly has an extremely low profile and has succeeded in remaining below the local radar.
Since it was privatised in the mid-1990s, CVRD has consistently kept its cards very close to its chest, and has repeatedly surprised journalists and analysts in both Brazil and elsewhere by making unexpected, but clearly carefully planned and prepared, pounces on enticing acquisition targets. It behaves, in short, just like Brazil’s top predator, the jaguar, a stealthy, solitary, intelligent hunter that looks like a leopard but is usually bigger and heavier than the African cat. (CVRD, however, is generally very open regarding its organic growth projects.)
Thus, in the past few months, the group has snapped up Inco – the world’s leading nickel-miner – and, although a much smaller enterprise, Australian coal-miner AMCI. Despite having bought Inco for $19-billion and then AMCI for $650-million, CVRD is on the shortlist to buy a 51% stake in India’s biggest private sector iron-ore-miner, Sesa Goa, which will cost at least $2-billion and probably much more, as the winning bidder will also have to offer to buy another 20% of the company (see Mining Weekly, March 7, 2007).
And yet, even if CVRD were to win Sesa Goa and even if it were to cost the Brazilian miner $3-billion, the Rio de Janeiro-based group would still have more than $12-billion available for acquisitions. The company obtained a credit line of $34-billion to fund its acquisition of Inco, and so has some $15-billion left. It has renegotiated its debts, securing longer terms and lower interest rates. And, in the current commodities boom, it is making cash hand over fist.
Brazilian analysts seem divided into those who think that CVRD is making acquisitions because it finds itself in a particularly favourable position in the international capital markets, and does not want to waste this opportunity, and those who think that the company’s driving force is its desire to diversify away from iron-ore and related products. Thanks to the Inco deal, it has become the world’s number one nickel producer as well as being its number one iron-ore producer. Even though it is already an important producer of copper, bauxite/alumina/aluminium, potassium, kaolin, manganese and iron alloys, it is seeking to increase its production of these latter resources through major organic growth projects, and, perhaps, through acquisitions as well – there is a report in Brazil that CVRD may go after Canadian aluminium giant Alcan (see Mining Weekly March 9, 2007). And, as illustrated by the AMCI purchase, it is moving into coal as well.
So, what is its likely interest in South Africa? Extrapolating from a clue on the company website, the most probable answer is . . . coal. The pattern set by CVRD’s initial entries into China and Australia is likely to be followed in South Africa – that is, the Brazilians will seek a local partner. Given South African government policy, it can safely be assumed that that partner will be a black economic-empowerment company. Such a partner could be small, medium-sized, or large.
The size of the target will be dependent on CVRD’s global plans; if it is going to go for Alcan, an acquisition in South Africa is likely to be relatively small, like that of AMCI, in Australia. If Alcan is not in the Brazilian miner’s sights, then its target in this country could be very big indeed – all the way up to, and including, Anglo Coal – either the South African operations only, or the whole global enterprise – or, perhaps as a long shot, even Patrice Motsepe’s African Rainbow Minerals (Arm). Motsepe said at his last presentation of results that Arm would be a changed company when it reports again. He referred, also, to the “deep pockets” of Arm’s suitor. Three things can be certain: CVRD will dot all the ‘i’s’ and cross all the ‘t’s’ before making its move; not a single clue as to the identity of the target will leak from the company; and nearly everyone will be taken by surprise when it makes its move. |
