Sumitomo to Invest $1.93 Billion in Brazil Mine Unit

Sumitomo to Invest $1.93 Billion in Brazil Mine Unit. Sumitomo Corp., Japan’s third-largest trading company, will pay $1.93 billion for a 30 percent stake in a Usinas Siderurgicas de Minas Gerais SA unit, boosting its iron ore supply 10-fold by 2015, amid growing demand from China. The company will secure more than 10 million metric tons of iron ore a year, up from 1.1 million tons, Senior Managing Executive Officer Kuniharu Nakamura told reporters today in Tokyo. It will buy the stake in Belo Horizonte, Brazil-based Mineracao Usiminas SA, which owns iron ore mines and a railroad business, Sumitomo said in a statement. Iron ore imports by China, the world’s biggest consumer, soared 42 percent last year to a record 628 million tons. Global steel consumption will surpass a 2007 record this year, rising 11 percent from a year earlier as the world economy recovers, according to the World Steel Association. “This will help the domestic steel sector secure stable raw material supplies” amid increasing competition from China and South Korea, said Takashi Murata, an analyst at Daiwa Securities Capital Markets Co. in Tokyo. “Sumitomo can expect an increase in revenue from higher iron ore prices and expand its steel-products business.” Usiminas, Brazil’s second-largest steelmaker, is seeking to profit from surging iron ore prices by selling a stake and spinning off the unit, which the company said may be worth $6.43 billion. Profit Boost The investment may boost Sumitomo’s operating profit by between 10 billion to 20 billion yen ($226 million) a year by 2015, when an iron ore expansion project is completed, Nakamura said. Usiminas Chief Executive Officer Wilson Brumer said yesterday the company will invest 4.1 billion reais ($2.3 billion) by 2015 to boost iron ore output more than fourfold to 29 million tons. Sumitomo shares closed little changed at 896 yen in Tokyo. Sumitomo will likely supply “several million tons” of iron ore a year to Japanese steelmakers and will target shipments to China and India, Nakamura said. A Japanese group led by Nippon Steel Corp., the nation’s largest mill, has a 27.8 percent stake in Usiminas. “Stable supplies to Japan and the world will lead to stability in management for the industries,” Nakamura said at a press conference. Asian Demand Tokyo-based Sumitomo follows other Asian companies buying assets in South America to curb costs and secure supplies of iron ore, the main raw material used to make steel. A group that included Posco and Nippon Steel acquired a 40 percent stake in a unit of Cia. Siderurgica Nacional SA, the Brazilian steelmaker known as CSN, for $3.12 billion. CSN also plans to sell shares in its iron ore unit. JFE Holdings Inc., Japan’s second-largest steelmaker, plans to spend as much as 200 billion yen ($2.3 billion) to invest in iron ore and coal mines in Australia and Brazil to double its raw material self-sufficiency, Eiji Hayashida, the president of the company’s steel unit, said in a May 7 interview. The Usiminas unit will control 83 percent of railroad operator Usiminas Participacao & Logistica SA. The railroad business includes a 20 percent voting stake in MRS Logistica SA, a rail operator in southeastern Brazil. Vale SA and CSN also hold stakes in MRS. Ore Expansion Mineracao Usiminas’ mine, located in the Serra Azul region in the state of Minas Gerais, has an estimated 2.4 billion dry tons in reserves, Sumitomo said. When the mine expansion is complete, Sumitomo may be able to secure 9 million tons of iron ore, about 30 percent of the output, spokesman Koji Furui said. Sumitomo also has rights to a South African iron ore mine that produces 1 million tons a year, he said. Sumitomo paid the equivalent of about $247 a ton of iron ore, almost twice as much as Usiminas paid in 2008 to buy mining company Mineracao J. Mendes Ltda., Ivan Fadel, a Credit Suisse analyst based in Sao Paulo, said yesterday in a note to clients. Iron ore producers including Vale SA, Rio Tinto Group and BHP Billiton Ltd., the three biggest, have begun selling the steelmaking ingredient on quarterly contracts. The price for the period starting July 1, based on the average spot price for the three months from March, may rise about 30 percent to $152 a ton, Sanford C. Bernstein Ltd. analysts said.