Vale board OK’s sale of fertilizer unit — report

The board of directors at Brazilian mining giant Vale (NYSE:VALE), the world’s largest iron ore producer, has approved the sale of the firm’s fertilizer business, amid a global oversupply of potash that has caused prices to tumble in the past year, leading to layoffs and mine closures across the sector.

With the deal, Vale is expected to fetch about $ 3.5 billion.

According to local newspaper Valor Economico (in Portuguese) most of the division’s assets will be acquired by US-based Mosaic Co. (NYSE:MOS), the world’s largest producer of phosphate fertilizer, with whom Vale had been in talks for months.

The company's plants in Cubatão, São Paulo, are said to be going to Norway’s Yara International.

With the deal, Vale — the biggest producer of phosphate in Brazil, which in turn is the planet's fifth-biggest user of fertilizer — is expected to fetch about $ 3.5 billion.

The Rio de Janeiro-based company had long vowed to hold on to world-class operations in these and other key areas.

But in February, it shocked market analysts by announcing it was putting its core assets on the block in a bid to reduce its net debt to $15 billion within 18 months, from $25.23 billion at the end of 2015.

Vale board OK’s sale of fertilizer unit — report

“Nearly everything has gone wrong for the potash industry” since 2011, analysts at Morgan Stanley wrote earlier this year.

Vale, which logged Thursday a third quarter net profit of $575 million, will also go ahead with the sale of its Carborough Downs coal mine, the company's last operating mine in Australia, Valor said.

The company’s net operating revenue increased 13% in the period to $7.3 billion. Such revenue recovery came amid higher iron ore prices, which reached an average $65.50 per tonne in the quarter, versus $62.11 in the same period last year.

It definitely wasn't helped by the fertilizer business, as prices for potash have been on a downward spiral. They began their decline four years ago, as weak crop prices and currencies weakness pinched demand. Potash has also suffered from increased competition following the breakup in 2013 of a Russian-Belarusian marketing cartel that previously helped limit supply.

The industry's woes have seen a pick-up in M&A and last month Canada’s Potash Corp. of Saskatchewan (TSX:POT) (NYSE: POT), the world’s largest producer of the fertilizer by capacity, and smaller rival Agrium (TSX:AGU) (NYSE: AGU) agreed to an all-share merger, creating the world’s largest crop-nutrient supplier worth about $36 billion.

Vale board OK’s sale of fertilizer unit — report

Most of Vale’s fertilizer assets will be acquired by US-based Mosaic Co., the world’s largest producer of phosphate. . (Image courtesy of Vale SA.)