Japan’s Sumitomo to buy Brazil iron ore mine stake

The Business of Mining - thebusinessofmining.com | July 2, 2010 | 8:44 am

“Japanese trading firm Sumitomo Corp. said Thursday it will pay 1.93 billion dollars to purchase a 30 percent stake in an iron ore mine from major Brazilian steelmaker Usiminas. The investment will boost Sumitomo’s access to iron ore by around 10 times to 10 million tons a year, the company said.

Sumitomo and Usiminas, known fully as Usinas Siderurgicas de Minas Gerais SA, will establish a new company, with the Brazilian firm taking a 70 percent interest and the Japan side to own the remainder.

‘In the past several years, Sumitomo has been actively pursuing investment opportunities in prospective iron ore projects in Brazil,’ Sumitomo said in a statement. ‘This strategic partnership will provide Sumitomo an opportunity to participate in Usiminas’ existing iron ore mining operations and their planned expansion.’

Sumitomo plans to export the bulk of the iron ore to Japan, which has very little natural resources, and other parts of Asia.”

Source: AFP, July 1 2010

Observations:

  • Sumitomo is a Japanese diversified industrial group, which activities include coal and metal mining. However, the firm is mainly active in the trading part of the miner’s value chain.
  • Usiminas will most likely use the money to fund the expansion program of the mining complex in Serra Azul. Output should be increased from 7 to 30 mln tons per year.

Implications:

  • The deal by Sumitomo demonstrates the increasing vertical integration and involvement by trading firms in the mining industry. Not only western traders (e.g. Glencore, Trafigura) are becoming more active in the upstream markets, but eastern firms try to secure access over resources too.
  • Domestic demand in Brazil will increase strongly in the coming decade. The deal positions Sumitomo well to serve the Latin American market.

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