Billionaire Batista Wins as MMX Profits From Port Delay: Freight

Billionaire Batista Wins as MMX Profits From Port Delay
The roadblocks to building the Area do Meio terminal at the Port of Itaguai will boost MMX Mineracao & Metalicos SA, the mining company of billionaire Eike Batista , which is readying its own terminal in the same location. Source: MMX Mineracao & Metalicos

Rio de Janeiro’s port authority said in August 2011 that it expected to publish the bidding rules for a new iron-ore terminal in weeks. The subsequent delay is benefiting Brazil’s richest man.

The roadblocks to building the Area do Meio terminal at the Port of Itaguai will boost MMX Mineracao & Metalicos SA, the mining company of billionaire Eike Batista, which is readying its own terminal in the same location. Scheduled to start up in the second quarter of 2013, it will be the only new port for miners in the region for as many as five years, according to Alan Glezer, an equity analyst at Banco Bradesco BBI SA.

“In a scenario of scarce port assets, the MMX port is very valuable,” Glezer said in a phone interview from Sao Paulo. The port “is the main catalyst for the MMX shares because it means at least doubling the selling price of the company’s ore by having access to the international market.”

The delay in building Area do Meio occurs as Brazil tries to accelerate infrastructure spending following years of underinvestment. President Dilma Rousseff will soon announce plans to auction concessions to operate 15 ports and build others as part of an effort to attract 50 billion reais ($24.8 billion) of investment, a government official familiar with the plan said last month. In August, Brazil announced a road and rail program that seeks to lure as much as $66 billion in investment over 30 years.

MMX’s Sudeste terminal will allow the producer to tap demand from Asia, where iron ore prices are higher than in the Brazilian market. The company, which is spending 2.4 billion reais to build Sudeste, will also benefit by selling port access to rival mining firms, including Usinas Siderurgicas de Minas Gerais SA, the Brazilian steelmaker known as Usiminas that is boosting its iron-ore output by 50 percent this year.

Notes Rally

While shares in MMX have fallen 14 percent in Sao Paulo this year through yesterday, the notes linked to future royalties from Sudeste that the company issued in 2011 when it bought the project have gained 16 percent. That beat all of Batista’s six publicly traded companies. The four analysts covering the notes recommend investors buy the securities, according to Bloomberg data.

MMX advanced 3.8 percent to 5.72 reais at the close in Sao Paulo today. The notes linked to Sudeste gained 0.6 percent to 3.32 reais.

The Rio state government has been trying to lease Area do Meio since 2005. The delay in issuing the rules means the auction of the project isn’t expected until next year, said Adriano Pires, head of Rio consulting firm Brazilian Center for Infrastructure, or CBIE.

Transport Costs

After years of underinvestment, Brazil ranked 121 out of 183 countries for ease of trading across borders in the World Bank’s “Doing Business 2012” survey. It declined five places in relation to last year’s ranking and is in between Cambodia and Syria.

At $2,215 per container, Brazilian export shipping costs are 76 percent higher than the average across Latin America and the Caribbean and 115 percent more than the average of Organization for Economic Cooperation and Development countries, according to the World Bank’s survey. The costs rose 252 percent in the past six years from $630 per container in 2006.

Setting up a new port in Brazil may take as many as 10 years including a learning curve of two years after starting operations, said Peter Wanke, professor of logistics at the COPPEAD business school at the Federal University of Rio de Janeiro, adding that private terminals may be quicker.

“That’s the typical delay from all the bureaucratic deadlocks, licenses and approvals needed here for things to work,” he said in a telephone interview. “It’s a critical situation, there is a collapse in capacity.”

Area do Meio

Cia. Docas do Rio de Janeiro, Rio’s port authority, said last year that it expected to announce in September 2011 the bidding rules to lease the Area do Meio to a private dry-bulk operator to move 25 million metric tons a year, with capacity to expand to 44 million tons. The lease would last 25 years with an option to renew for 25 more, Docas President Jorge Luiz de Mello said at the time. The investment required in the project was estimated at 1.5 billion reais.

Docas says now that it expects to publish the auction rules in the “short term” after the lease received initial approval by Brazil’s National Accounts Tribunal. The winner of the auction is expected to be announced this year, a Docas press official said by telephone.

A TCU spokeswoman in Brasilia said the auction received initial approval from the Tribunal on Aug. 29 and that the start of the bidding process wasn’t dependent on its review.

“The Area do Meio delays end up benefiting Eike,” CBIE’s Pires said. “He can speed up the sale of its own capacity.”

Starting Up

The press office of EBX Group Co., the Rio-based holding company for most of Batista’s assets, referred questions to MMX. MMX’s press office said the company will open up one of four loading facilities at its own terminal in the second quarter of next year, with the second coming online later that year, according to an e-mailed reply to questions.

Batista late yesterday suspended a plan to pay as much as 618.7 million reais ($305.4 million) to delist his unit LLX Logistica, which is developing a separate port in northern Rio de Janeiro state, after an evaluation indicated he would have to spend more than double what he initially expected.

MMX already has an agreement with Usiminas to export iron ore through the Sudeste port for five years. Usiminas can extend the deal for as many as five more years and will pay $12.63 per metric ton shipped, MMX said last year. The company is also advancing plans to duplicate its capacity at Sudeste to 100 million metric tons per year.

‘Sweet Spot’

The startup of Sudeste may reduce pressure on Batista, who has seen his net worth reduced after missing production and reserves targets at his oil unit OGX Petroleo & Gas Participacoes SA. The billionaire’s wealth, which peaked at $34.5 billion on March 27, was trimmed to $22 billion yesterday, according to the Bloomberg Billionaires Index daily ranking.

The delivery of projects such as Sudeste will allow Batista to appease some of the investors who recently lost faith in his companies, said Laurence Balter, who oversees $100 million for Fox Island, Washington-based Oracle Investment Research.

“MMX is in the sweet spot to deliver on the Chinese growth,” he said in e-mailed comments. “Being able to ramp up operations at the port would give Brazil another leg up on the iron-ore seaborne market competition.”

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