Japanese, Korean firms in $1.8 billion deal for Brazil firm

SEOUL Thu Mar 3, 2011 3:00am EST

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SEOUL (Reuters) - Nippon Steel Corp (5401.T), JFE (5411.T), POSCO (005490.KS) and others are teaming up to buy a 15 percent stake in a Brazilian rare metal miner for around $1.8 billion, seeking to fend off China and its voracious appetite for raw materials.

China, needing to fuel its surging economy, has been scouring the globe for oil and gas assets, commodities and other resources, including the rare metal niobium, the major prize in the Brazilian deal.

"Behind the move is a growing demand for niobium in China, and its aggressive move to secure supplies from abroad because its domestic output is very limited," said Kaz Machida, president of KAY International, a rare metal consultant.

"Japanese steelmakers, worried of China's aggressive moves, moved quickly in a tie-up with Korean firms," he said.

The consortium, the latest among growing number of cooperative deals between the North Asian neighbors, will buy the stake in Brazilian firm, Companhia Brasileira de Metalurgia e Mineracao (CBMM).

The company mines and processes niobium, a rare metal used to produce high-grade steel used in autos, aerospace and pipelines to make steel products lighter and stronger.

CBMM controls 82 percent of the global niobium market, with more than 800 million tons of reserves, according to POSCO.

Asia's No. 3 steelmaker and South Korea's National Pension Service (NPS) will invest a combined $650 million to buy a 5 percent stake in CBMM. A spokesman from POSCO said the two companies will split the investment equally.

POSCO also said Japanese investors including Nippon Steel, JFE Holdings, trading firm Sojitz Corp (2768.T) and Japan Oil, Gas and Metals National Corp will buy a 10 percent stake in

CBMM.

Nippon, JFE, Sojitz and Japan Oil, Gas and Metals National Corp declined to comment. Two sources directly involved in the deal said the four firms plan to invest 100 billion yen for a 10 percent stake, but the agreement is not yet signed.

"Resources assets tend to generate higher returns and the joint investment with industry specialists such as steelmakers will generate more synergies," a spokesman from NPS said.

The deal values the unlisted CBMM at around $12 billion.

Brazil is the world's No. 1 niobium producer. The Brazilian mining industry association said Brazil produced 80,000 tons out of world output of 83,000 tons globally in 2010 and the ratio has been similar in the last decade.

Niobium is one of 31 rare metals and is used to add strength to steel sheets and pipes used in energy projects. The 17 so-called rare earths are also part of rare metal, along with such metals as uranium and lithium.

CHINA'S MONOPOLY ON RARE EARTH

China's domestic niobium production is limited, although demand is expected to soar in the future. In contrast, China currently has a near-monopoly over supply of the 17 rare earths, producing more than 95 percent of the global supply of the essential metals used in smartphones, electric car motors and high-tech industrial equipment.

China has cut export quotas for the first half of 2011 by 35 percent from the first half of last year, although total quotas for this year have not yet been announced.

China's moves have raised hackles in major trading partners such as the United States, European Union and Japan. The U.S. Trade Representative office has threatened to take China to the World Trade Organization about its export restraints.

Another Japanese-Korean consortium is bidding to develop the world's largest untapped coking coal deposit in Mongolia, while Japanese trading firm Itochu Corp and six Asian steelmakers paid about $3 billion for a 40 percent stake in Brazilian iron ore miner Namisa in 2008.

(Additional reporting by Yuko Inoue in Tokyo and Peter D. Murphy in Brasilia; Editing by Jonathan Hopfner and Anshuman Daga)

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