Shares of Eike Batista’s mining unit MMX Mineracao & Metalicos SA slumped while securities linked to royalties of its Sudeste port jumped after the company agreed to sell control of the terminal to Trafigura Beheer BV and Mubadala Development Co. in a $400 million deal.
MMX declined 17 percent to 1.89 reais at the close in Sao Paulo today, the biggest drop since July 12 and the worst-performer on Brazil’s benchmark Ibovespa index, which slid 0.5 percent. The securities linked to future revenue of the Sudeste port, called MMXM11, surged 12 percent to 2.68 reais to close at its highest since June 6.
Under a preliminary accord announced today, Amsterdam-based commodities trader Trafigura and Abu Dhabi sovereign wealth fund Mubadala will assume bank debt and royalties payment of the securities, MMX said in a regulatory filing. Trafigura and Mubadala would buy $400 million in new shares of the unit that controls the port in exchange for a 65 percent stake, it said.
“It’s certainly positive for the MMXM11 holders, less so” for the company’s shareholders, Mariana Bertone, an equity analyst at GBM Grupo Bursatil Mexicano SA, said by telephone from Sao Paulo. “They are negotiating just the port and without the port, MMX is less valuable.”
Batista, 56, is selling pieces of his commodities and logistics empire as the companies run out of cash and debt swells amid an investor confidence crisis triggered by missed targets at his oil unit OGX Petroleo & Gas Participacoes SA.
MMX, Brazil’s fourth-largest iron-ore producer, said in June it was in talks to sell a stake or assets to companies including Trafigura and Glencore, the largest publicly traded commodities supplier. Chief Executive Officer Carlos Gonzalez said Aug. 15 that MMX was seeking to sell the entire company.
The port “is a very valuable asset; as a trader Trafigura will be strategically well-positioned,” Rafael Weber, who helps manage about 5.4 billion reais ($2.4 billion) at Geracao Futuro Corretora, said by telephone from Porto Alegre, Brazil. “I don’t think any other port will be built there in 10 years so all the miners in the Minas Gerais state will have to export their iron ore through Sudeste.”
Sudeste, in Rio de Janeiro’s Sepetiba Bay, can handle as much as 50 million metric tons of iron ore a year and is scheduled to start operations in mid-2014, MMX said in the filing. The company previously planned to start shipping by year-end, providing a supply route for Brazilian mining and metals companies including Usinas Siderurgicas de Minas Gerais SA.
Victoria Dix, a Trafigura spokeswoman in Geneva, said they don’t have any comment beyond today’s statement until negotiations are completed.
The companies will negotiate exclusively in the next four weeks to complete the agreement, MMX said.
“We firmly believe in Trafigura’s unparalleled capacity to extract the full value of the Sudeste Superport,” Batista said in today’s filing.
After the accord is completed, MMX will be able to ship 7 million metric tons of iron ore a year through Sudeste, with an option expiring in mid-2015 to expand to 13 million tons. MMX will also have the right to increase volume proportionally in case the new controllers decide to double Sudeste’s capacity to 100 million tons a year, according to today’s agreement.
The mining business of MMX, which last year produced 7.4 million tons of iron ore, will be “essentially debt-free” after the accord, the company said, without elaborating. MMX had net debt of 2.56 billion reais at the end of last quarter, according to data compiled by Bloomberg.