Brazil Miner Vale Wants To Be Global Fertilizer Leader (VALE, BHP, POT, RTP, MOS, IPI, AAUKF)

Brazil’s Vale SA (NYSE: VALE) is the world’s leading miner of iron ore and wants to become the world’s leading producer of fertilizer. The company’s move into the fertilizer business occurred earlier this year, even before Australian mining giant BHP Billiton plc (NYSE: BHP) made its hostile offer of $38.5 billion for Canada’s Potash Corp. of Saskatchewan (NYSE: POT). The very size of that deal has brought fertilizer in general, and potash, in particular, on everybody’s radar screen.

The third largest mining firm in the world, Rio Tinto Ltd. (NYSE: RTP), has not made any move into potash or other fertilizer because it’s still trying to get a grip on its purchase of aluminum producer Alcan. Other big potash producers such as Mosaic Inc. (NYSE: MOS), which is controlled by privately held Cargill, and Intrepid Potash Inc. (NYSE: IPI) have not indicated any acquisitions to expand potash production.

There’s more to fertilizer than potash, though, and Vale has put up $3.8 billion to buy the Brazilian fertilizer assets of Bunge Ltd., which include phosphate and nitrogen fertilizer operations in the country. The company doesn’t get everything it wants though. Its offer to buy Paranapanema S.A. was rejected by that company’s shareholders. Paranapanema owns a phosphate plant as well as copper refineries. Vale is also reported to be looking at fertilizer assets in Brazil owned by Anglo American PLC (OTC: AAUKF).

Vale’s plan seems to be to become the major domestic Brazilian supplier of fertilizer, expecting to gain as much as 50% of the country’s market for potash. Brazil currently imports about 90% of its potash requirements and half its requirement of phosphates.

Vale is expected to establish this week a new company called Vale Fertilizantes SA to be comprised of the Bunge assets and a second Brazilian firm, Fosfertil SA, which Vale bought for $3 billion earlier this year. Vale is also expected to spend as much as $12 billion on new projects and acquisitions in the next three years to boost its position in the fertilizer business.

Compared with BHP’s huge offer for Potash Corp., Vale’s approach seems to be to pick off the low-hanging fruit that won’t give rise to a major international incident. BHP faces the threat of competing bids from China’s state-owned Sinochem, which has most recently been reported in talks with Singapore’s Temasek Holdings about a counter offer for Potash Corp. A counter offer, if it comes, will almost certainly have to come from a sovereign wealth fund, and that brings the Canadian government more into play. Saskatchewan’s provincial government has already said it opposes any bid for Potash Corp. from China.

The hot acquisition interest in fertilizer companies is growing from estimates of growing global population and the need to feed all those new mouths. China is among the leading lessors in what could be foreign government leasing of up to 100 million hectares (about 250 million acres) of arable land in Africa. There are those who suspect that China’s intentions are to export the food, but most believe that China intends to develop infrastructure in African nations that will deliver higher crop yields and, thereby, feed more Africans.

No matter what the eventual destination of the crops, it’s a sure bet that fertilizer will be needed to grow those crops. That’s why BHP and Vale are diversifying beyond hard-rock mining.

Paul Ausick