Latin American Miners, Steelmakers May Invest $100 Billion, BofA Says

Latin American mining companies and steelmakers including Vale SA and Cia. Siderurgica Nacional SA may invest a combined $100 billion during the next five to 10 years to supply growing demand in domestic steel and fertilizer markets, Bank of America Corp. said in a report.

Investment returns should be about 10 to 25 percent, below the more than 30 percent return in recent years, because of higher costs and an expected “collapse” of metal prices over the next three to four years, Felipe Hirai and Thiago Lofiego, analysts at Bank of America, said in a note to clients today.

“Higher investments are coming with lower returns in an environment of a weaker global economic growth and with still significant execution risks,” they said.

Vale, the world’s largest iron-ore producer, may invest $68 billion in 27 projects over the next five years. While Vale has a “solid” track record of executing new projects, it is unlikely the Rio de Janeiro-based company will deliver all of them because of possible environmental license delays, price changes and a lack of skilled labor, Hirai and Lofiego said.

Vale, CSN, Brazil’s third-biggest steelmaker, and Southern Copper Corp., the largest producer of copper in Mexico and Peru, are the best “vehicles” for investors interested in profiting from Latin American growth, the report said.

Mining companies and steelmakers are increasing investments as prices for iron ore and copper remain “well above marginal production cost,” the report dated today said. “Strong” cash flows in the past few years and limited opportunities to merge or acquire companies also explain this boost in investments, the Sao Paulo, Brazil-based analysts said.

‘Reasonable’ Dividends

The growth in earnings before interest, taxes, depreciation and amortization should be more than enough to finance the $100 billion investment plan and still maintain a “reasonable” flow of dividends, the report said. Latin American miners and steelmakers covered by Bank of America invested about $90 billion in the 2005 to 2009 period, it said.

Gerdau SA is Latin America’s largest steelmaker. Usinas Siderurgicas de Minas Gerais SA is Brazil’s second-largest steelmaker.

To contact the reporter on this story: Juan Pablo Spinetto in London at jspinetto@bloomberg.net

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