Vale may cut stake in steel mill JV with S.Korean firms

Vale , the world’s largest iron ore producer, is in talks to reduce its stake in a joint venture with two South Korean firms to build an integrated steel mill in Brazil, a source with direct knowledge of the matter said on Monday.

Local media reported that Vale’s stake may fall from 50 percent to 30 percent in the second phase of construction of the plant, while POSCO and Dongkuk Steel may increase their stakes to 35 percent each.

POSCO, the world’s No.3 steelmaker, and smaller Dongkuk Steel agreed to hold an initial 20 percent and 30 percent stake in the project, respectively.

“POSCO and Dongkuk are in talks to increase their stakes in the joint venture with Vale in the second phase of construction,” an industry source told Reuters, declining to elaborate further.

“But nothing has been decided yet as the second phase will start after the first phase is completed in 2014,” he said, declining to be named due to the sensitivity of the issue.

Last November, Vale signed a preliminary deal to take a 50 percent stake in the first phase of the steel mill with annual production capacity of 3 million tonnes due to be completed by 2014. The project is expected to require $4 billion in investments in its first phase.[ID:nTOE6A305X]

The plant, which will be located in Brazil’s Ceara state, will add another 3 million tonnes of capacity in the second phase of construction.

A POSCO spokesman said, “We are considering expanding our stake in the joint venture should we proceed with the second phase.”

He added the company expected its board to approve its plan to participate in the first phase of construction next month.

Vale has faced pressure from Brazilian authorities to create more jobs in Brazil by investing in steel projects, a business in which it has said it does not want to be a majority stakeholder because it puts it in direct competition with its clients, steel mills. [ID:nN1696570]

Although Vale has been aggressively diversifying away from iron ore into other minerals such as copper, nickel and phosphates, it still sees its core business as iron mining.