CVRD seeking synergies with MBR

By
Wednesday, May 2, 2007

Brazilian mining and metals group CVRD (NYSE: RIO) has signed contracts with its Japanese partners on Empreendimentos Brasileiros de Mineração (EBM) to explore synergies with iron ore miner MBR.

EBM, 80% owned by CVRD and 20% by the Japanese partners, has as its main asset a 51% stake in MBR, controlled by CVRD with an 89.8% direct interest and through its stake in EBM.

CVRD agreed to buy Mitsui's EBM stake for US$115mn and will disburse US$61mn to Sumitomo Metal Industries and a further US$55mn to Sumitomo Corporation, CVRD said in a statement.

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Also, the Brazilian entered into an agreement on the EBM shares owned by Nippon Steel, JFE Steel, Itochu, Marubeni, Mitsubishi, Kobe Steel and Nisshin Steel. CVRD will pay to the seven partners a total of US$60.5mn in 2007 and US$48.1mn annually for a 30-year -period.

The deals will transfer to CVRD the effective control of 100% of MBR's total capital for the next 30 years, "allowing us to maximize our exposure to one of the best iron ore assets in the world and to exploit synergies mainly derived from the operation of mines, plants and maritime terminals, elimination of redundancies and best practices sharing, and are estimated to reach approximately US$500mn, on a net present value basis," the statement said.

MBR, the fourth largest iron ore producer worldwide with output of 64.6Mt last year, holds proven and probable reserves of 1.13Bt.