CSN wants to sell its last iron ore mine. This would not be the first time that Benjamin S. has sold iron ore; the last time was when he sold CVRD, and you can see how well that worked out for him. The question is what is CSN trying to sell and how is it going to get the best value for that sale. Currently the Indian press is saying that Tata is going to bid for the assets. Now I could see a lot of sense to Tata buying CSN whole block, but the iron ore assets by themselves are going to attract many bidders and a couple with very deep pockets come to mind.
There are two companies in particular that are going to be willing to pay for CSN’s iron ore division: BHP and Anglo. Right now growth in most iron ore assets is damn hard to find. Most rail lines and ports are maxed out, and every inefficiency known to man has been removed from the business. Both BHP and Anglo have to grow to keep on top of this great roll up of mining assets, and CSN’s mine is one of the last, or the very last, low-hanging bit of tasty fruit.
If I were CSN, I would not sell the whole asset with a low-cost long-term ore purchase agreement, but would sell a 50% joint venture stake and take the remaining 50% in ore rather than in profits. This business has to be worth $10-20b, and I think that a $5b+ payday for CSN for selling a 50% stake to Anglo would go down rather well. Low-cost purchase agreements have not worked too well in South Africa, as such agreements just leave too many confusing strings. Direct ownership is much cleaner.
Does Tata have the balance sheet to bid against Anglo, BHP, or Mittal? Something makes me doubt it. They have bought Land Rover and another British car company, a steel company in England, and a tea company in England. (Wait a second. Are they just buying England? I hear Westminster Abbey is for sale on a long-term buy-back lease.) The fact is credit lines are not as easy to get anymore and Tata has done some serious shopping on credit, while both Anglo and BHP can pay cash and lots of it.
Who would have thought five years ago that CSN’s mine would be worth more than the whole company was once worth. I remember thinking CSN would never be worth more than 4b USD lock, stock, and barrel.
The risk is, of course, that all of CSN will go up for bid if someone really wants it. Luckily a bid by Mittal will not pass Brazilian antitrust regulators, so the risk of that happening is lower, but there are a few Russian companies and apparently one Indian company that might make a pass at it.
On this, I do not think the rice bowl needs to be passed, but a nice Brazilian/Australian/South African steak, or a good curry. Of course we have to chase with a strong Russian vodka, as they are sure to show up.
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