The talks, with Dutch trading, energy, mining andlogisticscompanyTrafigura Beheer BV and Abu Dhabi sovereign wealth fund Mubadala Development Co, are Batista’s latest effort to halt the decline of his once high-flying EBX Group.
“This shows that Batista is succeeding, at least at some of his companies, at getting partners to shore up his melting empire,” said João Augusto de Castro Neves, Latin America analyst with Eurasia Group in Washington, D.C. “But it’s only a first step and many doubts remain.”
The value of EBX’s oil, electricity, mining, port and shipbuilding companies, once worth more than $60 billion, has collapsed in the past year because of missed production and profit targets and a weaker outlook for Brazil and other commodities producers.
Once Brazil’s richest man with assets of about $35 billion, Batista’s fortune is now worth less than $900 million, according to Forbes Magazine.
Cash, Debt & Royalties
Under the preliminary accord announced Tuesday, MMX agreed to exclusive talks with Trafigura Beheer and Mubadala, the filing said. If a final agreement is reached, the companies plan to buy an estimated $400 million of new MMX stock to finance the completion of MMX’s Sudeste Port and iron ore terminal west of Rio de Janeiro.
The purchase will give Trafigura and Mubadala 65 percent of the port, which has a planned capacity of 50 million tonnes of ore a year and expects to begin operations in 2014. Under the proposed agreement, expected to be worked out over the next four weeks, Trafigura and Mubadala will also assume the bank debts of MMX’s iron ore mining unit MMX Sudeste Mineração SA.
The agreement would commit Trafigura and Mubadala to pay holders of special MMX unit shares a royalty of $5 per tonne for iron ore shipped after the port makes a profit, the statement and MMX’s press office said. The unit shares, which do not convey ownership in the company, were given to holders of Batista’s LLX Logistica SA when it sold the port project to MMX in 2010.
If cemented, the agreement would ensure port access for MMX even as it allows the new controlling shareholders to seek deals with rival miners and steelmakers.
MMX will also have the right to move 7 million tonnes of iron ore through the port and an option to nearly double that to 13 million tonnes by June 30, 2013. If the port’s capacity is expanded beyond 50 million tonnes a year, MMX will have the right to raise its share of port capacity proportionally.
“This is good because it will help finish port facilities Brazil needs while fostering competition in the iron ore market,” said Adriano Pires, head of the Brazilian Infrastructure Institute, a Rio de Janeiro research group.
While offering much-needed investment, the agreement, by creating new stock in MMX, will dilute value for existing investors whose shares have lost nearly 60 percent of their value so far this year.
MMX shares fell as much as 18 percent on Tuesday, trimming early losses in Sao Paulo to trade at 1.90 reais, a drop of 16.7 percent, late Tuesday afternoon. The stock was on track for its lowest close in a month.
The special unit shares, also traded in Sao Paulo, rose as much as 22 percent, on expectation of the royalties being guaranteed, traders said.
Iron ore exports from Brazil, the No. 2 producer of the raw material, is dominated by Rio de Janeiro-based Vale SA, the world’s largest exporter of the mineral. Iron ore is the main ingredient in steel.
MMX’s Sudeste Port is one of only a handful of non-Vale iron ore export terminals in the country. When the port starts operations, small and medium-sized miners dependent on ports and railways controlled by Vale and Cia Siderurgica Nacional, the No. 2 iron ore exporter, will have more bargaining power over the cost of transport, a major portion of iron ore costs.
China’s Wuhan Iron and Steel Co, also known as Wisco, and Korea’s SK Networks, a unit of SK Holdings Co, own minority stakes in MMX. The companies purchased the stakes to gain access to MMX’s iron ore mines, now under development, in Brazil’s Minas Gerais state.
Without investments from new partners, MMX and other EBX Group companies could run out of cash in coming months, leaving them unable to pay debts and complete major infrastructure projects, including mines, ports and oil fields.
On Aug. 28, Batista agreed to give up control of port operator LLX Logística SA in exchange for a $1.3 billion investment in the company by Washington, D.C.-based investment fund EIG Global Energy Partners. (Reuters)