UPDATE 1-Brazil's Usiminas not interested in taking control of MMX

Wed Aug 21, 2013 11:08am EDT

By Alberto Alerigi

SAO PAULO Aug 21 (Reuters) - Brazilian steelmaker Usinas Siderúrgicas de Minas Gerais SA said on Wednesday it has no interest in taking control of mining company MMX Mineração e Metálicos SA.

The two firms share assets in mining and logistics.

Usiminas, as Usinas is known in Brazil, has an agreement with MMX for sharing port facilities that could be used to ship iron ore to clients outside Brazil. Usiminas is demanding compensation from MMX related to delays in construction of the port, known as Porto do Sudeste, executives said.

While acknowledging that MMX, which is controlled by embattled Brazilian tycoon Eike Batista, may be up for sale, Usiminas Chief Financial Officer Ronald Secklemann said speculation over a deal with MMX "is not concrete."

"MMX concerns us only as a fully-operating port," Secklemann told industry analysts.

Cia Siderúrgica Nacional SA, Brazil's largest diversified steelmaking group and a fierce rival of Usiminas in the flat steel market, is interested in acquiring control of MMX from Batista, a source with direct knowledge of the situation told Reuters on Tuesday. Another source said other companies may also be ready to bid for MMX, which is struggling with development of its iron ore mining operations and a port.

For the past three years, Usiminas has dealt with a rigid cost structure that includes a lack of proprietary energy and mining assets and aging mill facilities. It is also struggling with rampant competition from cheap imported flat steel products and a slowdown in Brazil's economy, now entering its third year.

Analysts say acquiring MMX could help the expansion of players like Usiminas, but they see the impact of MMX's rising debt, dwindling cash and execution delays as potential obstacles to an acquisition.

Preferred shares of Usiminas, the company's most widely traded class of stock, shed 0.4 percent to 10.23 reais in early Wednesday trading in São Paulo. MMX jumped 6.6 percent, paring its decline over the past 12 months to 56 percent.

PORT ACCORD

Batista, 56, has already sold controlling stakes in two of six publicly listed firms in his Grupo EBX holding company - power producer MPX Energia SA and port and logistics operator LLX Logística SA. Officials at MMX told investors last week that the iron ore producer would soon have a new controlling shareholder, but did not elaborate.

In a securities filing late Tuesday, MMX acknowledged that it is looking for business opportunities that could "enhance value creation for shareholders," without saying whether any of those initiatives include a merger or acquisition.

Under terms of its accord with MMX, Usiminas agreed to use Porto do Sudeste to ship its iron ore exports between 2012 and 2016. The steelmaker will pay a fee of $12.63 per tonne transported, annually adjusted by U.S. producer price index.

In addition, MMX will be in charge of the licensing, investment and operation of Usiminas-controlled Pau de Vinho ore mine. The company will take 86.5 percent of the volume produced and transfer the remainder to Usiminas.

The accord was signed in November 2010. Executives at Usiminas said at the time that the deal would give the company, which had mining assets and access to railroad transportation but not a port, the chance to profit from its iron ore resources. Usiminas expects sales of iron ore to surpass those of last year should Porto do Sudeste start operations before year-end, the executives said.

Executives at Usiminas said they see the price of iron ore stabilizing at levels around $125 a tonne though next year. The company will spend up to 1.2 billion reais ($498 million) in fixed capital and other investments next year, Secklemann added.