ArcelorMittal shores up Brazilian iron ore assets

VANCOUVER — ArcelorMittal (MT-N) cut two sizable cheques on the same day for two iron assets in Brazil.

For US$764 million, it bought the Brazilian iron subsidiary of London Mining (London Mining Brazil) and for another US$40.5 million, it found a way to get more iron out of the country, taking an 80% stake in Adriana Resources’ (ADI-V, ANARF-O) planned port in the city of Mangaratiba, in Rio de Janeiro state.

London Mining’s assets include a mine in Brazil with 84.5 million proven and probable tonnes grading 41.2% iron and 155.9 million tonnes grading 41.1% iron in the measured, indicated and inferred categories (numbers compliant with Brazilian standards, not National Instrument 43-101).

The mine is located 65 km west of the city of Belo Horizonte.

ArcelorMittal, which accounts for about 10% of world steel production, says it’s considering dropping $700 million on the project to ramp up production at the mine to 10 million tonnes iron ore concentrate and lump ore a year from the current 1.4 million tonnes.

With ArcelorMittal expanding its iron presence in Brazil, Adriana’s timing on planning an iron ore port facility couldn’t have been better.

“Really this is the only port site left (in the area),” says Adriana chief financial officer Richard Barclay. “The key is, the piece of land is adjacent to the MRS rail.” The line runs 400 km and services Brazil’s Iron Quadrangle.

The company started collecting property in Mangaratiba this past winter with the aim of developing the facility. Adriana initially bought about 81 hectares of land on the Bay of Sepetiba; the purchase of another 8 hectares is pending.

With the property in hand, Adriana began engineering and permitting plans for a 5-to 10- million-tonne-per-year facility, expandable to 50 million. Then Adriana looked for an end user to help with the cost of construction — around US$250 million.

“And the biggest player in the area ended up being the one interested,” Barclay says.

As Adriana put it in a press release: “Given the capital-intensive nature of the project, the company expects that the port agreement (with ArcelorMittal) will establish the required funding, technical and regional expertise, and industry recognition to move the project through to completion and revenue generation.”

The agreement gives Arcelor- Mittal an 80% stake in the port and Adriana the remaining 20%, with costs shared accordingly. Barclay expects two years of construction and a start date in 2010 or 2011.

ArcelorMittal will also participate in a $6.45-million non-brokered private placement, which will help Adriana with its share of those costs. The debenture is convertible into common shares at 90 in the first two years and 99 over the next two.

Interest from the debenture, pegged at 7%, will convert according to the same structure.

All told, it should give Arcelor- Mittal about 10% ownership of Adriana. Adriana says that will be followed by another private placement, which would bring ArcelorMittal’s stake up to 19.9%.

On news of the acquisitions, ArcelorMittal’ssharepricegained US$2.17 to close at $77.68 and Adriana’s stock jumped 18 to finish at 90.