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Chinese Consortium Buying Stake in Brazilian Miner

September 5, 2011

“A consortium of five state-owned Chinese companies bought a 15% stake in the world’s largest niobium producer for US$1.95 billion in cash, a move that highlights the race among steelmakers to secure resources amid tightening supply.

Brazil’s Companhia Brasileira de Metalurgia e Mineração, known as CBMM, announced the deal on Friday. The company produces more than 80% of the world’s supply of niobium, which is used to strengthen steel and is widely employed in making cars and natural-gas pipelines.

China, whose steelmaking capacity has recently leapt to over 700 million metric tons a year, is the world’s biggest importer of niobium. Growth in emerging markets has underpinned demand for scarce commodities. World-wide demand for niobium grew 10% annually from 2002 through 2009.”

Source: Wall Street Journal, September 2 2011

Observations:

  • The group of 5 existing clients of CBMM buys 15% of the controlling stake of the Moreira Salles family. The family sold another 15% to a group of Japanese and Korean companies for $1.8bln in March.
  • Niobium is considered a rare earth mineral. Various governments tried to stimulate domestic mining of rare earths because China currently holds over 90% of global rare earth production. In May the new Brazilian government persuaded Vale to look into rare earth production.

Implications:

  • It is not fully clear why the Moreira Salles family sells minority stakes of their company. The almost $4bln the family raised by selling 30% is owned by the family, not by the company, and thus will not be used for expansion of the company. As the family held 55% of the company before this year (the other 45% is held by Unocal), ownership is now fragmented, with 2 or 3 of the shareholder groups required to support any major decision.
  • CBMM is well positioned to be the world’s leading niobium producer in the coming decades, as most of the world’s reserves are located in Brazil. Strengthening ties with this producer is crucial for steel makers in order to control their input prices. It will be a challenge for the large Indian and European steel makers to secure their niobium supplies without buying into a producer too.

©2011 | Wilfred Visser | thebusinessofmining.com

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