UPDATE 2-Brazil CSN says spin-off of units to boost value

* Size of CSN should double organically in 3 yrs-CEO

* Mining unit spin-off, IPO expected by end of June

* CSN could acquire rivals this year-CEO

* Shares rally on upbeat tone for growth (Adds details on timing for IPOs, share prices, comments)

By Alberto Alerigi Jr.

SAO PAULO, March 9 (Reuters) - CSN (CSNA3.SA)(SID.N), Brazil's biggest diversified steelmaking group, will start a gradual spin-off of its main business divisions with an initial public offering of its iron ore unit in a bid to increase the value of the group's assets, Chief Executive Benjamin Steinbruch said on Tuesday.

CSN will start with a share offering of the Casa de Pedra mining unit, which may start in April and is expected to be concluded by the end of June, Steinbruch said.

The company could also sell stakes in its cement, steelmaking, energy and logistics units to investors and list them separately, he added.

The plan could help CSN fetch a better value for its business, helping Steinbruch raise money for acquisitions outside Brazil.

The break-up of the conglomerate, which was born after the privatization of steelmaker CSN in 1994, signals Steinbruch's belief that flexibility could help all the units capture market share and attain cost efficiency more rapidly.

Shares of CSN rallied to their highest level since June 2008. The stock jumped for a ninth day, adding 3.7 percent to 66.25 reais in late afternoon trading.

"We have been saying for a while that the parts are worth more than the whole, and this is what made us consider breaking up the company in five units," he told a news conference. "The most appropriate way to value the parts is through IPOs."

The company wants to merge the Casa de Pedra iron ore mine with a portion of the MRS railway assets, he said. The group is in talks with partners of its Namisa iron ore unit to merge those assets to ramp up the value of the unit in an eventual IPO by gaining muscle and size, he noted.

If no accord is reached by the end of this month, Namisa will be excluded from the IPO plan, he added. He had previously said that a Casa de Pedra offer could raise about $2 billion.

"The company believes that its access to integrated logistics places it in a favorable position to consolidate smaller mining operations," Barclays Capital analyst Leonardo Correa said in a note to clients on Tuesday.

Steinbruch, the heir to a textile fortune who raced Ferraris and dated top models in the 1970s, has said he wants CSN to expand abroad and in areas other than steel and mining.

To grow organically, CSN plans to invest about 3 billion reais ($1.68 billion) annually through 2014, more than the 2 billion reais spent annually in expansion in 2008 and 2009.

CSN, which has been looking to expand into the cement industry, plans to build three cement plants in Brazil to increase annual output capacity more than five times, betting on a construction boom in coming years.

Production capacity should rise to 5.4 million tons by 2014 from 1 million tons now, Eneas Diniz, director of steel production, said at a press conference on Tuesday. The company produces cement at its main steel mills.

OVERSEAS TAKEOVERS

After some unsuccessful attempts to buy foreign rivals, the most recent being the failed purchase of Portuguese cement producer Cimpor (CPR.LS) this year, CSN is spotting "a lot of available businesses overseas," Steinbruch added.

CSN lost out to Brazilian rivals Votorantim Cimentos and Camargo Correa in the battle over Cimpor.

"We believe this gap (in CSN's international strategy) will be filled soon with the acquisition of an asset abroad," Steinbruch said.

Apart from winning access to more diversified and cheaper sources of funding, acquisitions are key for Brazilian conglomerates to lower costs and add competitive advantages.

Steinbruch said CSN needs to increase its presence in North America and exposure to Europe where the steel and cement markets are in a more mature stage.

Eleven companies have filed to sell shares in Brazil this year, including eight through IPOs. Analysts and investment bankers expect 2010 to be a banner year for equity sales in Brazil as investors seek to benefit from an expected gross domestic product growth rate of almost 6 percent. ($1=1.783 reais) (Writing by Guillermo Parra-Bernal and Elzio Barreto; Editing by John Wallace and Tim Dobbyn)