Glencore Buys Stake in Icahn-Backed Brazil Producer Ferrous

Glencore International Plc bought a stake in Ferrous Resources Ltd., the Brazil iron-ore miner part-owned by billionaire investor Carl Icahn, as the trader seeks to bolster its position in the market for the raw material.

Glencore negotiated directly with investors in closely held Ferrous, the Belo Horizonte-based company said today in a statement, confirming an earlier report by Bloomberg News. It didn’t give the size of the stake bought by the largest publicly traded commodities supplier. Glencore may increase its holding in Ferrous, said two people familiar with the matter. Spokesmen for both companies declined to comment further.

The deal represents Chief Executive Officer Ivan Glasenberg’s first investment in a producing iron-ore asset as Glencore pursues a larger share of the trading of the world’s most shipped commodity after oil. Icahn invested in Ferrous in April, buying stock from Phil Falcone’s Harbinger Capital Partners LLC, people familiar with the talks said at the time.

“Increasing marketing exposure to iron ore has been an area of focus for Glencore, where it has limited presence despite strength in other bulk commodities,” Ash Lazenby, a mining analyst at Liberum Capital Ltd. in London, said today. “Establishing a stake with the right iron ore company is important, given the challenges associated with scaling up assets. Buying into Ferrous may be an effective way to boost its iron-ore interests.”

Additional Funding

Glencore also agreed to offer Ferrous additional funding by March 31 to help develop its Viga mine in exchange for a bigger stake, the two people said, asking not to be identified as the information is confidential. Ferrous will consider any additional funding offer from Glencore without being obliged to accept it, the people said.

“The entrance of Glencore may bring new blood to the project,” said Luis Nepomuceno, a partner at Belo Horizonte-based consulting firm LCN Mining and Metals. “Ferrous is step by step putting the house in order.”

Brazil is the second-largest exporter of the raw material and home to Vale SA, the biggest shipper of the steel-making product. The iron-ore price has surged 75 percent from an almost three-year low in September as Chinese growth rebounded from a seven-quarter slowdown. Glencore owns a stake in closely held Core Mining Ltd. which has said it’s seeking to build a $4 billion project in the Republic of Congo.

Glencore acquired the stock from minority shareholders of closely held Ferrous, the people said. Baar, Switzerland-based Glencore has also agreed to buy 20 million metric tons of iron ore from Ferrous over the next four years, according to the statement.

Production Guarantee

“The agreement will guarantee a good portion of the company’s production until 2016, on top of reinforcing the financial position of the company given that it reduces the working capital requirements and the commercial risks,” Ferrous CEO Jayme Nicolato said in the statement.

Ferrous began output in March 2011 and has six mines in the largest iron-ore producing region in Brazil, Minas Gerais state. It produced 3.2 million tons last year and plans to boost production to 5 million tons this year and 17 million tons from 2016, according to the statement.

Glencore, which has a mid-March deadline to complete a $34 billion takeover of Xstrata Plc, gained 0.6 percent to 385.5 pence by the close in London.

Ferrous shelved plans for a $400 million London initial public offering in 2010 and had been seeking a partner to help finance its Brazilian projects since at least 2009.

In December 2011, Ferrous proposed a $2.3 billion takeover of rival MMX Mineracao & Metalicos SA, the Rio de Janeiro-based iron-ore producer controlled by Brazilian billionaire Eike Batista, according to a letter detailing the plan obtained by Bloomberg News. The companies held “several discussions” on a merger during the prior 18 months, the letter showed. MMX said a month later that it wasn’t interested in a Ferrous merger.