The 1,728-kilometer-long (1,080-mile) railway across Brazil's northeast, which could help the company transport more than 30 million tons of cargo a year across the nation's fastest-growing region, should give CSN self-sufficiency in logistics, executives said.
The four advance contracts that have already been signed should help the investment break even ahead of its completion, Tufi Daher, the unit's president, said.
The project is the latest example of Brazilian companies creating their own infrastructure to get around bottlenecks in transportation and elsewhere as the economy booms and public investment remains low. The railway could transport iron ore, foods and gypsum, which is being produced at a great scale in the region, the executives said.
Operational margins are seen topping 50 percent of annual revenue, and returns on the investment should be 13 percent -- more than projects estimated to be highly profitable like Brazil's offshore oil drive in the so-called subsalt region, Daher said. However, CSN has no plans to list Transnordestina in the immediate future, Daher said.
"The investment in Transnordestina is in our view good in order to create value for our shareholders because it brings about much-needed diversification and offers adequate returns," CSN Chief Financial Officer Paulo Penido Marques said.
Chief Executive Benjamin Steinbruch has said repeatedly that CSN could also sell stakes in its cement, steelmaking, energy and logistics units to investors and list them separately, which could help all the units capture market share and attain cost efficiency more rapidly.
"Even as we see diversification as a positive development, the group's simultaneous actions in different fronts embeds some risks and will demand more expertise," Rodrigo Ferraz, a steel and mining analyst with Rio de Janeiro-based Brascan Corretora, said.
The presentation of the Transnordestina project by CSN executives was the first aimed at investors and analysts. CSN owns about 56 percent of the project's equity. Among other partners are the federal government and state-controlled development bank BNDES.
None of the executives mentioned anything about CSN's planned initial public offering of the group's mining unit, which could include some logistics units.
Transnordestina, which is expected to require capital investments worth 4.6 billion reais ($2.7 billion) through 2012, will be funded with debt and capital injections equivalent to 60 percent and 40 percent of the total cost of the project, respectively.
Daher and Penido Marques said the project, which has an estimated cost per kilometer at about 2.9 million reais, is one of the most cost-efficient railways in the world. That should help CSN attain high efficiency levels and help it attain higher profit margins, both executives added. (Reuters)
