Vale in talks to buy Brazil assets of Bunge

Vale of Brazil, the world’s largest miner of iron ore, is in talks to expand its fertiliser business through the purchase of Bunge assets in Brazil for up to $3.8bn.

The move for the US agricultural trader’s Brazilian fertiliser business includes a 42.3 per cent stake in Fosfértil, a fertiliser group, in addition to phosphate mines and production facilities.

It comes as Vale attempts to diversify its business away from iron ore. The talks are also the latest sign of growing interest in fertiliser markets, particularly in potash, in spite of low prices and lacklustre demand in key emerging markets. A recovery is expected this year.

Agrium, North America’s third-biggest fertiliser producer, late last year sweetened its hostile bid for CF Industries, a rival it has been stalking since last February.

CF Industries, meanwhile, this month withdrew its own hostile offer for Terra Industries, another fertiliser producer. Terra is vowing to remain independent.

Gilberto Cardoso, mining analyst at Banif in Rio de Janeiro, said it was hard to evaluate the potential value of a Vale deal as Bunge had fertiliser assets other than Fosfértil, where its stake was valued at R$3.6bn ($2bn).

Vale and Bunge did not specify what other assets were under negotiation. Bunge added that there was “no assurance that [the negotiations] will result in any transaction”. Both declined further comment.

Mr Cardoso said the talks were clearly an aggressive move that made sense in the context of Vale’s increasing diversification over the past few years. “This not only adds assets and reserves, it also adds value to Vale’s existing assets,” he said.

Vale already mines potassium, a raw material for fertiliser, and the Fosfértil acquisition would allow it to add value by entering the business of fertiliser production, Mr Cardoso said.

Bunge’s willingness to sell its Brazilian fertiliser unit underlines how the agricultural sector continues to struggle as the drop in crop commodities prices and tighter credit force farmers – particularly in emerging markets such as Brazil – to reduce fertiliser consumption.

However, some analysts believe that improving economic growth will lead to higher demand and prices for fertilisers in the near term.

Bunge is one of the world’s largest traders of agricultural commodities and its earnings have been dragged down over the past year by poor fertiliser markets.

The International Fertilizer Industry Association, the trade body, estimates that global fertiliser demand fell by 5.1 per cent in 2008-09, and will enter in “slow recovery” in 2009-10, with an increase in consumption of about 3.6 per cent.

Bunge’s shares were up 2.6 per cent by the close of trading, while Vale was down 0.5 per cent.