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Vale pays $2.5 billion for African iron ore deposits

SAO PAULO/CONAKRY (Reuters) - Brazilian mining giant Vale bought a majority stake in a division of mining company BSG Resources in Guinea on Friday, spending $2.5 billion to tap what it called “among the best deposits” of iron ore in the world.

The move is significant for Vale VALE5.SAVALE.N, the world's largest iron ore miner that is aggressively seeking opportunities in Africa, and for Guinea, where a political crisis has largely discouraged major foreign investment.

“Guinea will be a player on the world iron market within four years and could be the No. 3 producer in six years,” Mines Minister Mahmoud Thiam said. “This decision will also kick-start other mining projects in Guinea.”

The acquisition will give Vale access to properties with high-quality iron reserves that include the Simandou South property known as Zogota as well as exploration blocks Simandou North 1 and 2, the company said.

Output will begin in 2012 with 10 million tons of iron ore and reach 50 million tons by 2015, Vale said.

It will pay $500 million up front for a 51 percent stake in BSG Resources (Guinea) Ltd. and the remaining $2 billion in subsequent payments over an unspecified period.

“This project is yet another indication of Vale’s bullish views on the longevity of the iron ore pricing cycle, and the structural iron ore story,” Barclay’s capital analysts said in a research note, adding “Given the massive infrastructure requirements...we are skeptical on the time-to-market of these projects...”

AFRICA STRATEGY

The joint venture will renovate 660 kilometers (410 miles) of railway on which Vale plans to export the ore via Liberia.

BSG Resources, with oil and gas projects in Russia and Nigeria, copper, diamonds and iron ore mines in Africa, and an engineering arm, is controlled by Israeli billionaire diamond trader Beny Steinmetz.

Vale is making a big push into African iron ore.

In addition to the Guinea deal, Vale is in talks with Liberia, Guinea’s southern neighbor, about a possible concession there, and may seek a stake in the Belinga iron ore project in Gabon.

The Belinga concession was awarded to a Chinese firm ahead of Vale in 2006, but Gabon is reviewing the deal. Analysts believe a Chinese company will lead the project and they expect Vale to take a technical or environmental role.

In March, Chinese metals group Chinalco signed a joint venture agreement with Rio Tinto RIO.LRIO.AX to develop another iron ore project in Guinea.

The West African country is due to hold elections in late June as part of its transition from military rule to democratic government. Soldiers took power in Guinea in December 2008.

(Additional reporting by Daniel Magnowski in Dakar, Elzio Barreto in Sao Paulo; Denise Luna in Rio de Janeiro)

Editing by Gerald E. McCormick, Lisa Von Ahn, Leslie Gevirtz and Gunna Dickson

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