Anglo American and MMX agree on sale of 49% interest in MMX Minas-Rio Iron Ore Project
23 April, 2007
Anglo American announces a transaction that will result in it owning a consolidated 49% ownership interest in MMX Minas-Rio.
Anglo American plc (Anglo American) and MMX Mineração e Metálicos S.A. (MMX) are pleased to announce that they, together with Centennial Asset Mining Fund LLC (Centennial Asset), a company controlled by Eike Batista, MMX's controlling shareholder, have entered into an agreement in principle pursuant to which a wholly-owned Luxembourg subsidiary of Anglo American would agree to purchase 100% of the shares of Centennial Asset Participações Minas-Rio S.A. (Centennial Minas-Rio), and subscribe for additional shares of MMX Minas-Rio Mineração e Logística Ltda. (MMX Minas-Rio), in a transaction that would result in Anglo American owning a consolidated 49% ownership interest in MMX Minas-Rio.
MMX Minas-Rio is owned 70% by MMX and 30% by Centennial Asset. MMX Minas-Rio is developing an integrated iron ore project consisting of (i) a number of iron ore deposits in the State of Minas Gerais, Brazil, (ii) one or more slurry pipelines and (iii) the ongoing development of an iron ore terminal in the state of Rio de Janeiro to handle cape-size vessels (collectively the “Minas-Rio Project”).
The transaction, which involves the purchase of 100% of Centennial Minas-Rio and the making of capital contributions by Anglo American to MMX Minas-Rio, is subject to final approvals by all parties including the independent members of MMX's Board of Directors. This will result in Anglo American acquiring a 49% interest in MMX Minas-Rio for an economic value and effective price of US$1.15 billion. The value paid by Anglo American would be divided into a cash payment of US$704 million to Centennial Asset and subscription for MMX Minas-Rio shares at the same price per share as paid to Centennial Asset.
The Minas-Rio Project is currently under development. Work is proceeding on securing the permits required for the commencement of construction for the first phase, with a planned annual production capacity of 26.5 million tonnes of iron ore per annum (Phase I) for start-up in the fourth quarter of 2009. It is anticipated that approximately US$2.35 billion of capital expenditure will be required to complete Phase I of the Minas-Rio Project, to be provided from debt financing and shareholders equity.
An expansion is planned to double the Minas-Rio Project capacity (Phase II), subject to certain conditions, including MMX Minas-Rio confirming sufficient reserves and obtaining the relevant permits.
Upon confirmation of Phase II of the Minas-Rio Project, Anglo American would make an additional payment to Centennial Asset and a capital contribution to MMX Minas-Rio, in the same manner as the initial payment, with a total economic value and effective price of US$600 million, increasing Anglo American's participation in MMX Minas-Rio to 50%. This would result in a total economic value of $3.5 billion for 100% of the project, prior to giving effect of the capital contributions described herein.
Signing of the definitive purchase agreements is subject to negotiation of the transaction documents, customary regulatory approvals and completion of the reorganization of MMX Minas-Rio with the creation of LLX Minas-Rio, as announced by MMX on March 22, 2007. This will result in Anglo American owning identical shareholdings in both MMX Minas-Rio and LLX Minas-Rio, the companies that will own the Minas-Rio Project mining and logistics assets, respectively.
Eike Batista, Chairman & CEO of MMX said: “We have always had a strong belief that the Minas-Rio Project is one of the best development-stage iron ore assets globally. Anglo American's agreement today confirms our views. MMX's association with Anglo American would combine MMX's skill sets in Brazil with Anglo American's globally renowned capabilities to develop and operate assets of the dimension of the Minas-Rio Project. It was not only Anglo American's unique reputation as a mining company but also the fact that we share common values regarding environmental and social responsibility issues that made MMX decide to choose Anglo American as the partner for its premier asset. I have been impressed with the innovative, responsive and transparent approach that Anglo American has shown. I look forward to building on the relationship that we have established with Anglo American which I am confident will lead to great success for both parties.”
Cynthia Carroll, CEO of Anglo American said: “Iron ore is core to Anglo American's future growth strategy and we are pleased to have taken this important step in securing this partnership with MMX to develop such an exciting iron ore project in Brazil, a country where we have long standing experience and which is a major iron ore producing region of the world. The Minas Rio Project has an extensive reserve base, a long projected mine life and will be a low cost operation. I believe we are starting from an excellent platform with MMX management who share our vision and values. MMX management are very experienced operators and have achieved significant progress in a short period of time. This project, together with the planned Kumba expansions, will add significantly to Anglo American's iron ore production resulting in consolidated iron ore production in excess of 100 million tonnes per annum in the next five years. Anglo American and MMX will continue to evaluate the substantial expansion potential of this deposit, in particular taking into account the extremely positive long term prospects for the iron ore industry”.
Credit Suisse and Itau BBA are the exclusive financial advisors to MMX and Centennial Asset, and UBS Pactual is the exclusive financial advisor to Anglo American.