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Brazil: Chinese firms looking to go solo in iron ore mining.

Issued at 2010-10-25



Chinese firms are increasingly looking to build their own mining operations in Brazil, national mining association Ibram´s R&D and economic data manager Antonio Lannes told BNamericas. Up to now, Chinese firms have been involved in JVs and partnerships with local companies but Ibram recently received a Chinese delegation interested in local regulations, taxes and environmental licensing processes to begin new projects rather than buying existing operations, Lannes said.The increase in China's foreign exchange reserves has prompted the country to look at international assets to ensure mineral and food supply, according to Lannes.

China's Wuhan Iron and Steel (Wisco), for example, acquired a 21.5% stake in Brazilian iron ore miner MMX (Bovespa: MMXM3) this year for 739mn reais (US$422mn). MMX has agreed to sell to Wisco at least 50% of the company's output from Serra Azul, part of the miner's Sudeste system. Iron ore shipments could reach 17Mt/y once the system is fully ramped up.  The acquisition of Brazilian iron ore and pig iron producer Itaminas by Chinese consortium ECE is another instance of Chinese involvement in local companies. Itaminas' iron ore mine in Minas Gerais state's Sarzedo has estimated reserves of 1.3Bt and ECE acquired the firm for US$1.2bn. The mine currently produces 3Mt/y of iron ore but this could be increased to 25Mt/y, according to press reports.

China consumes 1.3Bt/y of iron ore but it extracts no more than 350Mt/y. In 2009, China absorbed 56.4% of Brazil's iron ore production, according to Ibram's statistics.

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 Chinese interest in building own operations would not pose a threat to local companies, Lannes said. Currently, the Chinese share in Brazil's iron ore output is 4-5Mt/y, a little above 1% of the annual iron ore production of 350Mt.

 Over the next five years, Brazil is expected to double iron ore output to 700Mt/y and, even if Chinese companies are responsible for 15-20Mt/y of that production, it would still only account for 2-3% of national output, according to the expert.

Lannes is optimistic about foreign investment in general, and not just from China. "Investments in iron ore mining also involve considerable infrastructure projects to handle new production," he said

Ibram is forecasting that US$62bn will be invested in the Brazilian mining industry through 2014. Of the total, 63.3% will be directed towards iron ore.

This year, mineral production is expected to generate US$35bn, of which US$20bn will be from iron ore mining.


Source: Business News Americas



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