Vale to sell control of VLI unit to Mitsui, Brookfield

RIO DE JANEIRO/SAO PAULO Wed Sep 18, 2013 4:20pm EDT

A logo is pictured on Brazilian mining company Vale's central sales office in Saint-Prex near Geneva June 4, 2012. REUTERS/Denis Balibouse

A logo is pictured on Brazilian mining company Vale's central sales office in Saint-Prex near Geneva June 4, 2012.

Credit: Reuters/Denis Balibouse

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RIO DE JANEIRO/SAO PAULO (Reuters) - Brazilian mining company Vale SA said on Wednesday it plans to sell control of its VLI SA general rail- and port-cargo unit to Canadian, Japanese and Brazilian investors in a transaction expected to be worth about 4 billion reais ($1.79 billion).

Under the plan, Tokyo-based trading company Mitsui Co (8031.T), will pay 1.51 billion reais for 20 percent of VLI and Brazil's FGTS worker compensation and retirement fund will pay 1.2 billion reais for 15.9 percent. Toronto-based Brookfield Asset Management Inc is in exclusive talks to buy about 26 percent of VLI, Vale said in a statement.

The Mitsui and FGTS sales will cut Vale's share in VLI to 64.1 percent, Vale said. The Brookfield stake would cut Vale's share to 38.1 percent, based on Vale figures. Chief Executive Officer Murilo Ferreira told reporters in Brasilia - without giving a price - that the Brookfield stake would be valued similarly to the Mitsui and FGTS shares.

In the face of a weak world economy, falling commodities prices and slowing growth in China, Vale's largest market, Ferreira is moving to slash costs, sell assets and focus spending on the company's core iron ore business.

"Vale will have a minority stake when the three shareholders have their parts," Ferreira said after meeting with President Dilma Rousseff in Brazil's capital. "In the future we could see a public offering so the Brazilian and international public can also be shareholders."

The world's second-largest mining company, Vale is the world's largest producer of iron ore, the main ingredient in steel, and the No. 2 producer of nickel, used to make steel rust-resistant. Vale is also Brazil's largest rail operator and largest private operator of ports.

Under the agreement Brookfield, Mitsui and FGTS will share control of VLI under a shareholder's agreement, Vale said. Mitsui already owns 15 percent of Valepar, which controls Vale through a 53 percent voting stake.

Vale's VLI unit comprises the company's general cargo operations, or operations not directly related to the movement of Vale's own output of iron ore and other minerals.

The sale will free Vale from some of the burden of keeping and expanding non-core freight operations, which the government had pushed the company to assume in recent years. The government's own efforts to build railways, ports, highways, and airports have fallen years behind schedule in recent years, leaving the country's ageing infrastructure stretched thin.

Recent efforts to attract private investment partners for highways, high-speed rail and airports have also stalled over factors such as high costs, rising political and economic risk and bureaucracy.

While VCI's rolling stock, locomotives and approximately 100 clients will have access to Vale's Carajas (EFC) and Vitoria-Minas (FVM) railways, which move the bulk of Vale's more than 300 tons of annual iron-ore output, the general cargo company will not run those railways, Vale said.

VLI will also have access to Vale's ports and warehousing facilities and it will run Vale's concessions for the Central Atlantic (FCA) and North-South (FNS) railways.

All told, VLI has 10,700 kilometers (6,650 miles) of track, 600 locomotives and 13,000 rail cars.

FGTS, which is managed by Brazilian state-owned bank Caixa Econômica Federal, is made up of millions of individual worker accounts and financed by payroll taxes. While workers own the funds, with few exceptions, they have no say over how the money is invested.

The government uses the money to make loans at below market rates for public-interest projects. Brookfield, formerly known as Brascan, is one of the oldest foreign investors in Brazil. It began operations in the country in the 1890s financing hydroelectric dams, urban streetcar system and later telephone systems.

After losing many of its assets to nationalizations in the 1960s and 1970s, Brookfield now has large Brazilian investments in banking and real estate.

($1 = 2.24 Brazilian reais)

(Reporting by Caroline Stauffer, Reese Ewing, Jeb Blount and Nestor Rabello; Editing by Leslie Adler and Gunna Dickson)

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