LONDON Jan 4 Miner Anglo American and
joint venture partner Cliffs Natural Resources have
agreed to sell their Amapa iron ore operation in Brazil to
former commodities trader Pramod Agarwal's Zamin Ferrous for an
Anglo bought control of Amapa, in the very north of Brazil,
from Brazilian billionaire Eike Batista's MMX in 2008, as part
of the $5.5 billion Minas Rio acquisition. But Amapa was deemed
non-core and officially put on the block last year as the miner
streamlines its asset portfolio globally.
The sale announced on Friday, which adds to privately owned
Zamin's portfolio of iron ore assets in Latin America, will
allow Anglo to focus on its flagship Minas Rio in Brazil, where
the miner has battled rising costs and permitting delays.
Minas Rio has been a key factor in the souring of relations
between Anglo's chief executive and shareholders, and, along
with an upcoming review of the miner's platinum arm, is seen as
critical to the recovery of its underperforming shares.
Anglo said in November that Minas Rio is now unlikely to
cost less than $8 billion, up from the miner's most recent
forecast of $5.8 billion - already twice original estimates.
"Of greater significance for Anglo's shares (than Amapa's
sale) would be if (Friday's) transaction were to be followed by
further portfolio rationalisation at its Brazilian iron ore
assets," JP Morgan analysts said on Friday, adding investors
would likely welcome a strategic partner for Anglo in Minas Rio.
Amapa has potential for expansion according to Zamin, which
owns the Zamapa iron ore processing facility in the same state,
but limitations of the operation include a restriction on
capesize vessels in the Amazon port that serves it, curtailing
the amount of ore that can be shipped at any one time.
Zamin, however, said the acquisition would allow it to
produce 45 million tonnes per year as a group within five years.
"Zamin is buying at a good time in the cycle with iron ore
prices recovering recently following the collapse in the middle
of 2012 and renewed confidence in the industry's prospects,"
Zamin founder Agarwal said.
An internal valuation by Anglo in 2011 put Amapa's value at
$1.5 billion, meaning Anglo's 70 percent stake would be worth at
least $1 billion, but that value is expected to have tumbled as
the iron ore price has weakened and prospects for Chinese growth
One news report in September put the value at closer to $400
to $600 million and analysts on Friday said they estimated a
price tag of well below that amount.
Cliffs, in its announcement overnight, said the value of
Amapa would need to be adjusted to reflect fair value, adding it
would take a pretax impairment charge of about $380 to $420
Analysts at Nomura estimated Anglo would also likely take an
impairment charge of some form against the asset.
Sources familiar with the matter had told Reuters in
November that potential bidders considering the asset included
commodities trader Glencore, Russian steelmaker
Severstal and Australia's Centaurus, as well
as Zamin, which already has assets in Brazil.
Anglo said in its 2012 annual report that Amapa was expected
to produce 5.5 million tonnes of iron ore this year.