Agreement

Usiminas to sell $1.93 billion mine stake to Sumitomo

Usinas Siderurgicas de Minas Gerais SA, Brazil's second-largest steelmaker, agreed to sell a stake in its mining and railroad businesses to Sumitomo Corp. for $1.93 billion ahead of a possible sale of shares in the unit.

Sumitomo will buy 30 percent of unit Mineracao Usiminas SA, the Belo Horizonte, Brazil-based company said today in a regulatory filing. The unit will own 83 percent of railroad operator Usiminas Participacao & Logistica SA.

Usiminas is seeking to profit from surging iron-ore prices by selling a stake and spinning off the unit, which the company said may be worth $6.43 billion. Cia. Siderurgica Nacional SA, the Brazilian steelmaker known as CSN, also plans to sell shares in its iron-ore operations.

"Sumitomo agreed to pay a considerable amount," Marcos Assumpcao, an analyst at Itau Unibanco Holding SA, said in a telephone interview from Sao Paulo. "That reflects strong global demand for iron ore."

Tokyo-based Sumitomo follows other Asian companies acquiring assets in South America to secure supplies of iron ore, the main raw material used to make steel, as demand in China rises.

A group that included Posco and Nippon Steel Corp. last year completed the acquisition of a 40 percent stake in the CSN's Namisa unit for $3.12 billion.

'Strong' Demand

"Global iron-ore demand is pretty strong, prompting clients to seek partnerships to secure supplies," Usiminas Chief Executive Officer Wilson Brumer said today on a conference call. He said the company doesn't yet have a timeline for a public share sale in the unit.

The Usiminas unit owns iron-ore mines in the southeastern Brazilian state of Minas Gerais and the Itaguai port project in neighboring Rio de Janeiro state. Usiminas plans to boost annual iron-ore output more than fourfold to 29 million metric tons by 2015, Brumer said today.

The railroad business includes a 20 percent voting stake in MRS Logistica SA, a rail operator in southeastern Brazil. Vale SA and CSN also hold stakes in MRS.

CSN is seeking to spin off its mining unit to sell shares in an initial public offering to finance expansion. The spinoff includes iron-ore mine Casa de Pedra, 60 percent of the Namisa mine, its stake in MRS and an iron-ore port project in Brazil, the company said Nov. 4.

Usiminas shares fell 65 centavos, or 1.3 percent, to 49.05 reais at 12:23 p.m. in Sao Paulo trading. The stock has fallen 0.7 percent this year, compared with a 9.2 percent drop for Brazil’s benchmark Bovespa index.

(Published by Bloomberg – June 30, 2010)

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