Esteves-Agnelli Firm Betting Crops Lead Metals: Corporate Brazil
B&A Mineracao SA, the mining venture between billionaire Andre Esteves and former Vale SA (VALE3) Chief Executive Officer Roger Agnelli, is investing in fertilizers on a bet corn and soybeans will outperform minerals.
B&A Mineracao has avoided the iron deposits that made Vale Brazil’s third most-valuable company and is instead buying parts of crop-nutrient companies. MBAC Fertilizer Corp. (MBC) had its biggest one-day gain in a year after B&A Mineracao announced Sept. 13 it bought a C$37.2 million ($38 million) stake to become the largest shareholder.
The venture will vie with bigger miners from Rio de Janeiro-based Vale to London-based Anglo American Plc (AAL) that are spending $18.9 billion on fertilizer projects in Brazil in the next five years. While slowing growth and falling manufacturing output in China, Brazil’s biggest trading partner, have sent prices for iron ore and other metal lower, demand for fertilizers is forecast to keep rising as the Latin American nation harvests bumper soybean and corn crops.
The fertilizers industry “isn’t as contaminated by the global crisis and the slowing growth that Brazil is experiencing,” MBAC President and Chief Operating Officer Roberto Busato Belger said in a telephone interview from Arraias, in the Brazilian state of Tocantins. “This sector has some fundamentals that are still in place. It’s a sector that attends to the issue of food security in the world, which has a totally different rationale.”
Brazil’s government has said that boosting fertilizer output is a priority to help reduce dependence on imported crop nutrients. The country imports more than 90 percent of its potash needs and 75 percent of its nitrogen-based fertilizers supplies, according to industry association ANDA.
The world’s largest producer of coffee and sugar is expected by analysts to overtake the U.S. as the world’s top soybean grower in the 2012-2013 crop year. The consumption of fertilizers in the country grew 4.8 percent in the first eight months of the year, data from ANDA show.
Soybean futures soared to a record $17.89 a bushel on Sept. 4, while corn futures reached a record $8.49 on Aug. 10 amid a drought in June and July in the U.S. Iron ore, Brazil’s largest export, dropped 40 percent in the past year and reached a three- year low on Sept. 5 as economic growth slowed in China, the world’s biggest user of the material.
Food isn’t as sensitive as metals and other commodities to weakening growth in China, said Jose Rezende, agribusiness leader for the Americas at PricewaterhouseCoopers LLP.
“There is an expectation that in the coming years Brazil will reduce its dependence on the external market,” he said in a telephone interview from Sao Paulo. “The outlook is extremely positive.”
Sao Paulo-based B&A was set up to invest as much as $520 million in mines in Africa and Latin America. B&A is looking at investment projects including copper, iron ore, phosphate and titanium, Chief Executive Officer Eduardo Ledsham, a former Vale director, said July 12. Esteves’s Banco BTG Pactual SA (BBTG11), the Brazilian investment bank that went public this year, and AGN Agroindustrial, Projetos & Participacoes Ltda, a company controlled by Agnelli, each hold a 50 percent stake in B&A.
B&A Mineracao said Sept. 13 that it bought an 11.5 percent of Toronto-based MBAC, which has phosphate, potash and rare- earth projects in Brazil. The acquisition follows the purchase of 29.8 percent of Toronto-based Rio Verde Minerals Development Corp. (RVD), which is developing a potash project in the Brazilian state of Sergipe. B&A Mineracao also has a stake in copper firm Cuprum Resources Corp.
“Fertilizers are linked to food and the outlook that, happily, more people worldwide are eating better and eating more,” Fabio Spina, a member of B&A Mineracao’s board and a director at AGN, said in an e-mailed response to questions. “Africa stands out, along with Brazil, as the major production centers for meeting this need.”
BTG’s press office in Sao Paulo declined to comment.
Agnelli’s strategy to focus on fertilizers contrasts with what Vale is doing under its new leadership. Vale CEO Murilo Ferreira, who took over from Agnelli in May 2011, said Aug. 16 that he will postpone a $3 billion potash project in Canada. A month earlier, Vale said it was considering bringing in a partner for its $5.9 billion potash project in Argentina.
Anglo American, which in 2009 said it may sell its fertilizers assets in Brazil, reversed its decision and is now studying doubling its concentrate phosphate capacity in the country to 2.7 million metric tons by 2017, Mauro Meinberg, the company’s chief financial officer for phosphate and niobium, said June 18.
While Brazil’s output is set to increase, the country will continue importing fertilizers to supply local demand, said Mario Barbosa, a former head of fertilizer businesses at Vale and at Bunge Ltd. (BG)
“The country doesn’t have enough phosphate and potash deposits to attend its needs,” he said in a telephone interview from Sao Paulo. “That’s a natural condition.”
MBAC, which produces about 60,000 tons of phosphate rock a year in Brazil, plans to start operations at Itafos Arraias in November, where it expects to produce 500,000 tons of single super phosphate by 2014, Chief Executive Officer Antenor Silva said in an Aug. 13. interview. The company is also seeking a partner to become Brazil’s first rare-earth producer by 2016, he said at the time. The company has a market value of about C$378.9 million.
MBAC, which jumped to a record after the B&A investment and is up 16 percent this year, climbed 1.3 percent to C$3.24 at the close in Toronto today. Rio Verde slumped 9.4 percent to 29 cents, after reaching the highest in almost four months on Sept. 21. Fertilizantes Heringer SA (FHER3), a Brazilian fertilizers company based in Viana, in the state of Espirito Santo, rose 1.1 percent in Sao Paulo to 15.46 reais, increasing its gain in 2012 to 39 percent.