Glencore among suitors for Anglo's Brazil Amapa stake

LONDON Fri Nov 2, 2012 12:14pm EDT

The logo of Glencore is seen in front of the company's headquarters in the Swiss town of Baar September 7, 2012. REUTERS/Michael Buholzer

The logo of Glencore is seen in front of the company's headquarters in the Swiss town of Baar September 7, 2012.

Credit: Reuters/Michael Buholzer

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LONDON (Reuters) - At least four suitors including commodities trader Glencore (GLEN.L) are in the bidding process for miner Anglo American's (AAL.L) majority stake in the Amapa iron ore operation in northern Brazil, according to sources familiar with the matter.

Anglo bought control of Amapa in 2008 from Brazilian billionaire Eike Batista's MMX as part of the $5.5 billion Minas Rio acquisition. But the asset has been deemed non-core and has been on the block since last year.

Other bidders in the current second phase of the sale process include Russian steelmaker Severstal (CHMF.MM), privately owned mining group Zamin, which was founded by Indian commodities investor Pramod Agarwal and already owns assets in Brazil, and Australia's Centaurus (CTM.AX), also already working in the country.

Glencore has ambitions to grow in iron ore, a key steel-making ingredient in which it is not currently a major player, but the commodities trader has also been selective on the assets it targets.

Glencore, Severstal and Zamin declined to comment. It was not immediately possible to reach Centaurus.

Anglo American also declined to comment.

A sale of the 70 percent stake in Amapa would be a welcome piece of good news for Anglo, whose chief executive resigned last week. Cynthia Carroll quit after more than five years at the helm, under investor pressure over, among other things, delays and cost overruns at the Minas Rio operation.

Selling Amapa would allow Anglo's Brazilian team to focus on Minas Rio, key to the recovery of the miner's underperforming shares.

An internal valuation last year put Amapa's value at $1.5 billion, meaning Anglo's 70 percent holding would be worth at least $1 billion, but that value is expected to have dropped significantly as the iron ore price has weakened and economic prospects for top consumer China have become murky.

One news report in September put the value at closer to $400 to $600 million, but at least one industry source said it could be lower.

"A price of $400 to $600 million is too expensive, as you have to consider you have to buy resources nearby," the industry source said, speaking on condition of anonymity.

"If someone succeeds in buying it, they have to buy another (deposit). Otherwise it would take them over 15 years to recover the investment under today's production rate."

Amapa, in the very north of Brazil, has shortcomings including a restriction on capsize vessels in the Amazon port that serves it, limiting the amount of ore that can be shipped at any one time and increasing freight costs.

Anglo said in its 2011 annual report that Amapa was expected to produce 5.5 million tonnes of iron ore this year. It contributed $120 million of Anglo's operating profit in 2011, more than twice that generated by Anglo's nickel division.

The remaining 30 percent in Amapa is owned by U.S. iron ore pellet producer Cliffs Natural Resources (CLF.N).

The sale is being run by investment bank UBS UBSN.VX, one of the sources said.

(Additional reporting by Alexei Anishchuk in MOSCOW; Editing by Andrew Callus and Jane Baird)

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