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Anglo Said to Hire Banks for Sale of Brazil Project Stake

Anglo American Plc hired Goldman Sachs Group Inc., Morgan Stanley and UBS AG to sell as much as 49.9 percent of its biggest development project, according to two people with direct knowledge of the matter.

The London-based company is seeking to sell at least a 30 percent stake in the Minas-Rio iron-ore project in Brazil, which has suffered cost overruns and licensing delays, the people said, asking not to be identified because the early-stage talks aren’t public. Private-equity funds and Asian companies are showing interest, they said.

While Anglo American values the project at as much as $6 billion, a deal for a 49.9 percent stake could be reached for about $1 billion, the two people said. Anglo announced in January that it sold 70 percent of the Amapa iron-ore operation in Brazil to Zamin Ferrous Ltd., without providing terms. The value of that transaction was $380 million, the people said.

“We have openly discussed the option to introduce a minority investor into Minas-Rio on many occasions over the last few years and we continue to be flexible in this regard and may pursue that option if it makes economic sense to do so,” said James Wyatt-Tilby, a spokesman for Anglo American.

He declined to comment on the hiring of advisers or a possible sale price for Minas-Rio or Amapa. Zamin, based in London, also declined to comment on the Amapa purchase price through an external media representative.

Cost Blowout

“Any buyer would take into account the consensus long-term iron ore price forecast of $80 a ton, which would value half the project at $1 billion,” said Paul Gait, a mining analyst at Sanford C. Bernstein & Co. “But I don’t think Anglo is a seller at that price. Anglo should sell the stake at no less than $2.25 billion so it can cover its part of the future capital expenditure required to complete the project and $3 billion is what they should aim for.”

Morgan Stanley and UBS declined to comment, according to officials who asked not to be identified in keeping with the companies’ policies. Michael DuVally, a spokesman for Goldman Sachs, also declined to comment.

The plan to sell a stake in Minas-Rio follows the company’s writedown in the value of the $8.8 billion mine, processing plant, pipeline and port terminal by $4 billion. First shipments are now scheduled to start late in 2014 after years of delays and budget increases.

Forecast Earnings

Chief Executive Officer Mark Cutifani, 55, pledged to scrutinize every aspect of Anglo’s business after taking over from Cynthia Carroll in April, saying in a June 26 interview that he will announce the result of the review next month.

“The one word that will drive decisions we will make will be value,” Cutifani told Bloomberg. “The word won’t be growth, or takeover or development. It will be value.”

Anglo American bought Minas-Rio and a 70 percent stake in Amapa in March 2008 for $5.5 billion. Minas-Rio was originally forecast to cost $2.6 billion to build. The acquisition was Carroll’s most expensive bet in the more than five years that she ran the company. Carroll quit in October.

The mine will generate $2.5 billion of earnings before interest, tax, depreciation and amortization with 26.5 million metric tons of output, given a price of $120 a ton, or about $3 billion at a price of $150 a ton, Carroll said in January.

Iron ore for immediate delivery rose 1.3 percent to $115.30 a ton yesterday, according to a price index compiled by The Steel Index Ltd. The index is down 20 percent this year.

Exame magazine reported on its website on June 24 that Anglo American is trying to sell a stake in Minas-Rio, without providing values.

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