Brazil’s Vale said it has agreed to sell its fertilizer business to US firm Mosaic in a deal valued at $2.5bn.
The Brazilian mining company will receive $1.25bn in cash and $1.25bn in newly issues shares from Mosaic, equal to an 11% stake in the Minnesota-based fertilizer company, Vale said in a statement. Vale can appoint two members to Mosaic’s board of directors after the sale closes in late 2017.
Mosaic will pay up to an additional $260m if the spot price and the exchange rate exceed certain thresholds in the two years after the transaction. Vale cannot sell its shares in Mosaic for two years.
The sale excludes Vale’s nitrogen and phosphate assets in Cubatão but includes all other phosphate assets in Brazil, Vale’s stake in the Bayovar mine in Peru and the company’s potash assets in Brazil and Canada. Mosaic is still conducting due diligence on the Rio Colorado potash project in Argentina, Vale said.
Vale said it will carve out its assets in Cubatão from its fertilizer division Vale Fertilizantes and sell them separately in 2017. The company is selling assets to reduce its debt load by $10bn by the end of next year. “Vale continues to deliver on its divestment initiatives and will use the proceeds of this sale to reduce its debt position, while remaining exposed to the fertilizer business through its strategic stake in Mosaic,” the company said.
Vale concluded last week the sale of its remaining 13.6% stake in Mineracao Paragominas to Norsk Hydro for $113m.
The mining company’s shares slipped 4.44% to BRL23.25 ($6.85) after Vale announced the sale to Mosaic. S&P Global Ratings said Vale’s credit ratings were not immediately affected by the sale. “We expect Vale to use the resources to reduce its debt levels,” S&P said. The rating agency gives the Brazilian miner a BBB- with a stable outlook.
Law firms Cleary Gottlieb and Souza Cescon advised Vale on the deal, while Simpson Thatcher and Lobo & de Rizzo advised Mosaic. JPMorgan and UBS were Mosaic’s financial advisors on the transaction.
Vale had planned to form a joint venture with Fortescue Metals Group to serve clients in China, but the Australian iron ore miner said that “it is looking less likely that any transaction will be completed.” Vale and Fortescue reached an agreement in March, with the Brazilian miner looking to take a minority stake in its Australian counterpart. Fortescue said on Monday that discussions continue but “continuing more slowly than originally anticipated.”