Ore price un­likely to im­pact on a Vale bid

The Weekend Australian - Travel - - Resources -

BRAZIL­IAN iron ore miner Vale should make an an­nounce­ment on takeover talks with min­ing ri­val Xs­trata soon, but im­proved iron ore prices may not help raise its bid, an­a­lysts said on Mon­day.

Vale an­nounced on Mon­day that it has se­cured agree­ments from at least five ma­jor Ja­panese and one South Korean steel-maker, in­clud­ing Nip­pon Steel and POSCO, to raise term iron ore prices for 2008 by 65 per cent from its south­ern min­ing sys­tem.

But the ex­pected in­crease in cash flow from the im­proved iron ore rev­enues, which make up about twothirds of Vale’s min­ing earn­ings, would not likely raise Vale’s bid for takeover tar­get Xs­trata, said UBS Pac­tual’s Edmo Cha­gas.

‘‘( The term price in­crease) is pos­i­tive but does not nec­es­sar­ily raise Vale’s lever­age to bid higher,’’ said Cha­gas on a con­fer­ence call Mon­day. ‘‘ Vale is in a com­fort­able po­si­tion in re­spect to cash flow, given the very de­cent price of nickel and iron ore in 2008 and 2009.’’

Cha­gas added that he ex­pected ‘‘ Vale to come out in the short-term and make an of­fi­cial state­ment about the trans­ac­tion given that Vale man­age­ment is to meet to de­cide on a for­mal of­fer for the com­pany’’ Xs­trata.

The UBS Pac­tual an­a­lysts were slightly more up-beat than sources re­cently quoted by the Fi­nan­cial Times , that said ne­go­ti­a­tions were not go­ing well due to lack of agree­ment over price.

UBS Pac­tual min­ing and met­als an­a­lyst Paulo Gal­loway said on a con­fer­ence call: ‘‘ The pol­i­tics of the deal seem to be sorted out, the fi­nanc­ing seems to be sorted out and re­main­ing is the price that needs to be sorted out.’’

Cha­gas es­ti­mated that Vale could rea­son­ably bid around 48 pounds a share for Xs­trata, which would re­quire about $50 bil­lion in fi­nanc­ing that Vale is re­ported to have se­cured from banks. If the deal goes through, it would make the world’s largest iron ore and nickel min­ing com­pany. Reuters

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