Vale set to buy Paranapanema

No longer satisfied with just being the world’s number one iron ore producer, Vale (VALE-N) is looking to increase its heft in the copper market.

The Rio de Janeiro-based heavyweight plans to buy fellow Brazilian copper producer Paranapanema for US$1.14 billion in a bid to rival diversified miners Xstrata (XTA-L, XSRAF-O) and Anglo American (AAL-L) in terms of copper production.

Paranapanema is currently Brazil’s leading producer of refined copper, turning out 200,000 tonnes of cathode per year from its Camacari mine in Brazil. The company has plans to expand production to 250,000 tonnes per year in the near future.

Paranapanema is the only company to produce copper cathode with London Metal Exchange certificates in Brazil.

Vale’s offer is for 6.3 Brazilian reais ($3.70) per Paranapanema share — a 22.4% premium to the average price of Paranapanema over the last 90 days.

If successful, the move will continue both the company’s drive to diversify from iron ore and to reestablish itself as a force on the mergers and acquisitions trail.

Earlier this year, Vale acquired Fertilizantes Fosfatosos, or Fosfertil, along with the fertilizer assets of Bunge (BG-N) in a series of deals worth roughly $5 billion.

And in 2006, the company made one of its biggest acquisitions and most significant step towards diversification when it acquired nickel producer Inco for $18.9 billion.

While the deal for Paranapanema will increase the company’s copper stature it does not represent its first foray into the market. That’s because the company currently produces about 270,000 tonnes of the red metal from its Sossego mine in Brazil and at its nickel mines in Sudbury, Ont., and Voisey’s Bay, Labrador.

If the deal does go through, copper concentrates from Sossego would be processed at Paranapanema’s current facilities.

But Vale isn’t only looking to increase its copper production domestically. The company announced earlier this month that it will invest US$400 million in South African-based African Rainbow Minerals (ARIM-J) to develop a new copper mine at Konkola North in northern Zambia.

Vale also has a 50% stake in African Rainbow’s copper and gold exploration division.

Vale shares were off US21¢ to US$27.57 in New York on July 29 — the day the news was released — while Paranapanema shares jumped 41 centavos, or 7.1% to 6.2 reais in Brazil.