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Vale sells nitrogen plant, extending ag deal spree

Brazil's Vale, facing a squeeze on investment forced by lower iron ore prices, revealed the sale of a large chunk of its nitrogen business in the latest of a pre-Christmas deal spree in agribusiness.

The mining giant sold its Araucaria nitrogen operation to Petrobas, Brazil's state-led oil group, for $234m, to be paid using revenues from mining rights leased by the energy company to Vale.

The disposal comes amid a drive by Vale to slim down its operations, and curb capital expenditure needs, in the face of a slowdown in demand for iron ore, which accounts for some 90% of the group's profits.

Iron ore prices in September hit a three-year low, undermined by slower growth in China and difficulties among European steelmakers.

Vale, whose more cautious stance has co-incided with Murilo Ferreira's move in April to chief executive, earlier this month revealed it would cut investment by $1.2bn next year, to $16.3bn.

Disposal rationale

"The divestment of assets such as Araucária, which does not have synergies with the rest of our portfolio, is consistent with our efforts to improve capital allocation," Vale said.

"The sale of Araucária also contributes to an annual reduction of investments in sustaining operations of approximately $50m."

Vale's other recent disposals have included its Colombian thermal coal operations, sold to a mining group controlled by Goldman Sachs for $407m, and $1bn in gas and oil stakes.

Nitrogen vs phosphate and potash

Araucária has annual production capacity of 1.1m tonnes of ammonia and urea, nutrients of which Vale, which claims to be Brazil's "biggest phosphate and nitrogen producer", manufactured 1.25m tonnes last year.

While phosphate and potash, are manufactured from mined ores, nitrogen production is an energy intensive process which uses, for example, natural gas as a major raw material, leading to arguments that its output sits better within an energy company's portfolio.

Petrobas said that the Araucária plant complemented its existing fertilizer assets, flagging also its "close proximity to markets in São Paulo and Paraná", major agricultural states.

Vale leases Taquari-Vassouras, the only potash mine in Brazil - in Rosario do Catete, in the state of Sergipe - from Petrobras.

Deal rush

The deal is the latest in a pre-Christmas rush in the agribusiness sector, including the $750m purchase by Yara International of Bunge fertilizer assets in Brazil.

This week, Louis Drefyus Commodities' Brazil-based Biosev cane business sold some operations to rival San Martinho for $95m, Archer Daniels Midland sold a 23% stake in Mexican food group Gruma for up to $510m, and Marine Harvest purchased salmon processor Morpol.

On Wednesday, Mauritius-based Omnicane bought 25% of Kenya's Kwale International Sugar Company for $20m.

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