Ferrexpo Joins Icahn, Glencore as Investor in Iron-Ore Producer

Ferrexpo Plc bought a stake in a Brazilian iron-ore producer that counts billionaire Carl Icahn and Glencore Xstrata Plc among investors, adding to its $1.5 billion plan to double output in the Ukraine.

Ferrexpo paid about $80 million from January to September for 14.4 percent of Ferrous Resources do Brasil, it said today in a statement. The deal values the Latin American producer at about $556 million, according to Bloomberg calculations.

Glencore, the global commodity trader and metals producer run by billionaire Ivan Glasenberg, bought a stake in Ferrous in February and said this month that it owned less than 5 percent. Icahn invested in the closely held company last year, buying stock from Phil Falcone’s Harbinger Capital Partners LLC, people familiar with their negotiations said at the time.

Ferrous produces about 5 million metric tons of the steel-making raw material a year and is expanding in the Minas Gerais region to boost output to 15 million tons, Ferrexpo said today.

Baar, Switzerland-based Ferrexpo, run by Chief Executive Officer Kostyantin Zhevago, is seeking to boost iron-ore output to 12 million tons in 2013 with a $647 million expansion and to an annual 20 million tons by 2016. Brazil is the second-largest exporter of iron ore and home to Vale SA, the biggest shipper.

“There may be earnings upside in Ferrous, and Ferrexpo may get dividends from the group,” Deutsche Bank AG analyst Rob Clifford wrote today in a report. “On the downside, if port or rail capacity tightens up in Brazil, earnings could contract. Our key concerns are that the option could draw management time and focus away from the ramp-up of the Ukrainian operation, or that it could draw more cash from the business.”

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Ferrexpo declined 0.9 percent to 182.1 pence by 11:16 a.m. in London. The stock has dropped 28 percent this year and has a market value of 1.1 billion pounds ($1.8 billion).

The acquisition “allows Ferrexpo the opportunity to extend its marketing knowledge to include iron ore fines and share its extensive experience in the beneficiation of iron ore, a process which is increasing in the Minas Gerais region,” it said.

Belo Horizonte-based Ferrous began output in March 2011 and has six mines in Minas Gerais, the largest iron-ore producing region in Brazil. It produced 3.2 million tons last year.

The company 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.