Vale plans Brazil’s biggest share sale

July 4, 2008

July 4th (The Sydney Morning Herald) – Vale plans to sell as much as $13.3 billion of new shares, the biggest offering in Brazilian history, to fund projects and acquisitions intended to create the world’s largest mining company.

The sale of up to 256.9 million common shares and 164.4 million preferred shares will take place as soon as today, Vale said yesterday.

The shares, excluding underwriters’ over-allotments, are worth 20.5 billion reais ($13.3 billion), based on Wednesday’s closing price in Sao Paulo.

“If Vale gets these resources, it must be for a possible acquisition,” said Daniel Gorayeb, a metals and mining analyst for Sao Paulo-based broker Spinelli. “The offer will certainly be oversubscribed.”

Rio de Janeiro-based Vale, which bought Canadian nickel producer Inco last year, said June 10 it would sell as much as $US15 billion ($15.6 billion) in stock to pay for expansion and possible takeovers.

Vale, which abandoned a $US90 billion bid for Xstrata Plc in March, said this week it may try to buy a copper smelter and a phosphate-fertilizer unit from Brazil’s Paranapanema.

Vale preferred shares fell 69 centavos, or 1.6%, to 42.71 reais yesterday in Sao Paulo. The company’s common shares fell 1.24 reais, or 2.4%, to 50.95 reais.

An acquisition would be in addition to the $US59 billion that Vale, led by chief executive Roger Agnelli, is already spending over five years as it tries to overtake BHP Billiton as the world’s top mining company.

With the investment, Vale aims to increase annual iron-ore output by 40% to 450 million metric tonnes by 2012, equal to more than a third of global seaborne trade of the commodity.

Vale also plans to double nickel and copper output to about 500,000 tonnes and 592,000 tonnes, respectively.

The share sale is the “next step in the process to strategic development or acquisition,” Cristiane Viana, a Rio de Janeiro-based analyst with broker Agora Corretora, said. She recommends buying Vale shares.

Vale’s share offering, equal to about 8.7% of its market capitalisation, would be the biggest ever by a Brazilian company.

The government and minority shareholders first sold a stake in Vale for 3.34 billion reais in 1997.

Vale will apply to list its ADRs on the Paris-based Euronext exchange. Shareholders who are residents of Brazil will have priority in the sale.

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