Mosaic to acquire Vale’s
 fertilizer assets for US$2.5B

VANCOUVER — Mosaic (NYSE: MOS) is buying the “majority” of Vale’s (NYSE: VALE) fertilizer business in a cash-and-share deal valued at US$2.5 billion.

The transaction would see Vale receive an 11% stake (42.3 million shares) in Mosaic worth US$1.25 billion, plus another US$1.25 billion in cash, which Mosaic plans to raise by issuing debt. Vale would become Mosaic’s largest shareholder, and gain two seats on Mosaic’s board.

Vale’s fertilizer portfolio includes five Brazilian phosphate rock mines, four chemical and fertilizer production facilities, and a potash facility.

Vale employees in an underground fertilizer facility. Credit: Vale.

Mosaic would also acquire Vale’s 40% “economic interest” in the Miski Mayo phosphate mine in Peru, and its potash project in Kronau, Saskatchewan. The U.S. company could also include the Rio Colorado potash project in Argentina at closing as part of the transaction.

Vale’s fertilizer business has contributed between 2% and 4% of its net earnings, and can produce up to 4.8 million tonnes of finished phosphate crop nutrients and 500,000 tonnes of potash.

The acquisition would include 8,000 employees, which would bring Mosaic’s global headcount to nearly 17,000.

Vale has been operating the Bayovar mine in Peru since 2010. Credit: Vale.

“This is a perfect fit with our strategy to grow our core potash and phosphate businesses. We’re increasing our presence in Brazil and complementing our distribution,” Mosaic president and CEO Joc O’Rourke said during a conference call.

“We’re talking about low-cost production in close proximity to a growing agricultural sector. We’ve always said we look for value-add opportunities in the low period of the cycle, and that’s exactly what we’ve found here. It’s been a long road with many factors, but we see real value at this point in the market,” he added.

Mosaic management said “market conditions” did not appear to warrant any production expansion, but the Kronau and Rio Colorado assets could provide “upside optionality” in the case of improving fertilizer prices.

Meanwhile, Vale views the transaction as a “partnership” that will allow it to maintain some exposure to the fertilizer market, while bringing in a multinational company with potash and phosphate experience, and infrastructure capacity.

Vale may not sell its newly issued Mosaic shares for two years under the sales agreement.

Vale is pursuing “divestment initiatives” to lower its debt. The cash will help the company  pay down net debt to US$24 billion.

The Bayovar phosphate mine in Peru, in which Vale holds a 40% interest through subsidiary Miski Mayo. Credit: Vale.

“In the case of fertilizers, we simply never found large reserves that could open a window of opportunity,” Vale CEO Murilo Ferreira said in a company video. “But the business remains important to [our company], and we have decided to partner with an international company that has a relevant production of potash, and is extremely competitive.”

The transaction is subject to regulatory approvals and closing conditions, including carving out the Cubatao-based production facilities.

The deal should close in late 2017. Vale could receive additional payments of up to US$260 million if the average monoammonium phosphate price and Brazilian Real exchange rate exceed certain thresholds.

Inside a potassium warehouse at Vale’s Taquari-Vassouras potash mine in Sergipe state, Brazil. Credit: Vale.

The deal is another example of consolidation upstream in the fertilizer business after a steep decline in the price of fertilizer products. In September, major Canadian players Potash Corp. of Saskatchewan and Agrium agreed to merge to create a US$36-billion integrated fertilizer giant.