Wuhan Steel May Buy MMX Stake, Build Mill in Brazil

(Bloomberg) -- Wuhan Iron & Steel Co., China’s third-largest steelmaker, may buy a stake in MMX Mineracao e Metalicos SA or the Brazilian mining company’s Sudeste unit.

Wuhan may also build a steel plant at LLX Logistica SA’s Port of Acu in Brazil as part of a possible partnership with MMX and LLX, Rio de Janeiro-based MMX said in a regulatory filing. Brazilian billionaire Eike Batista controls both LLX and MMX.

Batista on March 31 said he hired an adviser to help sell all or part of MMX as part of a strategy to “get the assets on their feet, then put them up for sale.” LLX on April 1 said it also hired an adviser to study the sale of a stake in its $740 million Sudeste port project, in southeast Brazil.

China, the world’s third-biggest economy, became Brazil’s leading trade partner this year after the global recession choked sales to the U.S. A deal between MMX and Wuhan would “likely represent the single most important Chinese investment in Brazil,” Batista said in today’s statement.

The steel mill that Wuhan may build at Acu would be able to produce 5 million metric tons a year and be controlled by the Chinese steelmaker. Batista’s holding company EBX may have a minority stake, MMX said in the statement.

LLX and Ternium SA, Latin America’s second-largest steelmaker, previously signed a memorandum of understanding on a possible investment in a 5 million tons-a-year steel plant at Acu. Yesterday, LLX Chief Executive Officer Ricardo Antunes said the company plans to push for the development of two steel mills at the site.

Supply Contract

The accord signed today may also include a long-term supply contract for almost all Sudeste’s iron-ore exports to Wuhan at benchmark prices, an agreement on use of services at Sudeste port and the supply of Wuhan steel products to Batista’s shipbuilding unit Brasil Estaleiros SA, the statement said.

MMX fell 58 centavos, or 7.84 percent to 6.82 reais in Sao Paulo trading. LLX declined 33 centavos, or 8.15 percent to 3.72 reais.

The stocks have gained 138 percent and 148 percent, respectively, since the start of the year, more than a 28 percent gain in the Bovespa index of traded companies.

“They’ve gained since late last year when Eike first signaled a sale,” Galdi said in a telephone interview. “Batista is sticking to his strategy of selling off MMX’s best assets and then rebuilding the company.”

MMX has the capacity to produce 10.8 million tons annually of iron-ore from its Sudeste and Corumba mines, with the potential to expand to 40 million tons a year, it said.

This year it will produce 6 million tons, Sales Director Chequer Hanna Bou-Habib said yesterday on a conference call.

The company has reserves of more than 2 billion tons in Brazil and Chile.

In March 2008 the company agreed to sell its biggest assets, the 26.6 million tons-a-year MMX Minas-Rio iron-ore mine project and a 70 percent stake in the MMX Amapa iron-ore mine, to Anglo American Plc as part of a $5.5 billion deal. Cleveland Cliffs Inc. previously bought 30 percent of MMX-Amapa.

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