Mosaic acquisition of Vale fertilizer assets cements its position as leading phosphate producer - Integer
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Mosaic acquisition of Vale fertilizer assets cements its position as leading phosphate producer

Posted On: 21-12-2016 By: Grahame Turnbull

By Ibi Idoniboye –  Lead Phosphate Analyst

Acquistion.wsWeak fertilizer prices do have a silver lining – lower asset values, and this is stimulating mergers activity. Mosaic has agreed to acquire Vale’s fertilizer assets, with a deal for US$1.25 billion in cash and US$1.25 billion in newly issued shares for the business, with the deal expected to be finalised in 2017.

The agreement has the biggest impact on the phosphates sector, with a small scale exchange of productive potash assets. The acquisition includes Vale’s phosphate and potash operations in Brazil, as well as its stake in Peru’s Bayóvar mine and the Kronau potash project in Canada. It could also potentially include Vale’s Rio Colorado potash project in Argentina for an additional $260 million, subject to further due diligence. It, however, excludes Vale’s nitrogen and phosphate fertilizer assets in Cubatão ra.

The sale follows a difficult few years for Vale, with weakened commodity markets damaging its primary mining businesses: iron-ore and nickel. While fertilizer was tipped to be a strategically important part of the company, it has not performed as expected. The largest drawback came when Vale halted the progress of the US$5.9 billion Rio Colorado potash project, citing high costs and political challenges. Vale’s current debt stands at almost US$26 billion, according to the company’s latest quarterly results, and this deal makes significant inroads into the chief executive, Murilo Ferreira’s, target to reduce the debt by US$10 billion.

The current acquisition value shows how quickly the fertilizer business has changed. Vale bought its way in to the fertilizer business on the tail end of the cyclical upturn. In 2010, Vale paid US$1 billion to acquire 20% of Fosfertil from Mosaic (Yara sold 15.5% of Fosfertil for US$785 million around the same time), and had spent US$5.7 billion in total on Brazilian phosphate assets. A simple straight comparison of the valuations now and then would suggest the more experienced fertilizer players have done well from Brazilian M&A.

Read more on Integer’s Phosphate Cost and Profit Margin Service , The Chinese Phosphate Industry, addressing the global impact, Phosphate Rock Outlook Report , Potash Market Service and SOP Outlook Report