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Brazil Iron ore producer Vale SA in takeover offer for Brazilian copper smelter Paranapanema

Brazil’s Vale SA, the biggest iron ore producer globally, Thursday said it had agreed on a deal that will see it takeover Paranapanema, the Brazilian copper smelter. In a move the company said is aimed at diversifying its revenue generation sources, Vale SA said it would be remitting 2 billion Brazilian reals, about US$1.13 billion for the buy out of the copper smelter.

The iron ore producer offered a premium pegged at 22.4% over Parapanema’s standard share price in the past three months. The deal will now see Vale SA acquire the operations of the biggest copper smelter in the world by market value, Paranapanema. Vale agreed on a deal to remit the acquisition funds in cash to Paranapanema’s shareholders.

Even so, Vale SA said the motivation behind the purchase was bolstered by the burgeoning demand for metals in the emerging economies such as China, and their emerging market opportunities that have hiked the prices of metals globally through incessant high demand. Additionally, the Brazilian global iron ore giant said its investment and revenue generation strategy would be well served if the company depends less on iron ore as its primary source of revenue and instead diversifies its operations into high value metals and their related products given the increasing demand for specialized mining being witnessed currently.

As such, Vale believes the acquisition of Paranapanema will create significant value for its investors, said a statement from the firm. Prior to this acquisition, copper sales took about 3% of Vale’s operational revenues in the first quarter of 2010, that translates to about US227 million, when compared with its majority iron ore revenue that peaked at an impressive 55%.

Thus the new capacity for copper obtained from the acquisition of the copper smelter is expected to hike the value of Vale’s copper projects under development currently, with the total capacity expected to peak at 458,000 tonnes yearly from the existing 300,000 tonnes. However, analysts were not upbeat over Vale’s acquisition, arguing that it was neutral given the fact that it is a small business compared to what Vale needs currently.

Vale is a diversified mining multinational corporation and one of the largest logistics operators in Brazil. In addition to being the second-largest mining company in the world, Vale is also the largest producer of iron ore, pellets, and second largest of nickel. Vale also produces manganese, ferroalloys, copper, bauxite, potash, kaolin, alumina and aluminum. In the electric energy sector, the company participates in consortia and currently operates nine hydroelectric plants.

30 July 2010.