Brazil’s Acu Superport Learning That Money Actually Isn’t The Easy Part

(Bloomberg) — Billionaire Eike Batista is struggling to reach his goal of luring $40 billion to an industrial port complex in Rio de Janeiro state after Nissan Motor Co. pulled out, Anglo American Plc delayed a project and talks with Ternium SA failed to produce a deal.

A preliminary accord between Ternium, the steelmaker indirectly controlled by billionaire Paolo Rocca’s family, and Batista’s logistics unit LLX Logistica SA to build a mill at the Acu super-port project expired Sept. 30. Nissan chose to set up its $1.4 billion unit elsewhere in Rio state, and Anglo delayed by a year the start of its Minas-Rio project, which includes completing an iron-ore terminal at the port.

The Acu port project is the centerpiece of Batista’s plan to integrate his commodities and oil empire and tap Chinese demand for raw materials from Brazil. Batista vowed last year to make Acu the world’s third-biggest port by attracting investments from oil-storage facilities to steelworks and car plants.

“Who’s going to carry out a project like that these days when you have a steel supply surplus?” Pedro Galdi, chief strategist at brokerage SLW Corretora, said by phone from Sao Paulo, referring to the proposed Ternium steel project. “Nobody is going to want to set up a mill and then end up with the white elephant.”

LLX said in an e-mailed response to questions that negotiations with Ternium are in an “advanced” stage and that about 70 memorandums of understanding have been signed with companies interested in setting up units or move freight through the Acu superport.

EBX Group Co., the holding company for most of Batista’s assets, referred questions to LLX. A press officer for Ternium in Buenos Aires, who declined to be named because of corporate policy, said the company won’t comment.

Americas’ Largest

Batista, Brazil’s richest man, said in an interview in New York on March 14, 2011, that Acu will become the largest port in the Americas with capacity to handle 350 million metric tons of iron ore, oil, steel and other products annually. Batista was counting on manufacturers such as Luxembourg-based Ternium and Nissan, based in Yokohama, Japan, setting up plants at Acu to transform iron ore and other raw materials into steel, cars and electronics that would then be shipped through the port.

Ternium and Tenaris SA, both controlled by the Rocca family’s Techint Group, last year agreed to pay about 5 billion reais ($2.5 billion) for a stake allowing them to join the group that controls Usinas Siderurgicas de Minas Gerais SA, known as Usiminas, Brazil’s second-biggest steelmaker by output.

Likely Delay

Ternium Chief Financial Officer Pablo Brizzio said Aug. 1 the steelmaker is reevaluating the Acu port project and will likely delay its decision.

“The possibility of getting iron ore into this port has been delayed,” Brizzio told analysts in a conference call. That “will lead to a delay in the possibility of us taking a decision on that project,” he said.

“We sense it has more than likely been shelved for the foreseeable future,” HSBC Holdings Plc’s analyst Jonathan Brandt said in an Oct. 4 report.

Ternium is among the companies bidding for ThyssenKrupp AG’s Rio de Janeiro steel plant, according to two people familiar with the matter, who asked not to be identified because the talks are private. The German steelmaker said in May it may sell the plant, along with U.S. assets as part of “strategic options.” ThyssenKrupp declined to comment on the number or names of bidders.

Start of Operations

Rio de Janeiro-based LLX, which has invested 2.9 billion reais ($1.4 billion) in the complex since 2007, delayed the start of operations to next year from the second-half of 2012. It has signed contracts with companies including London-based miner Anglo American, oil-services providers Subsea 7 SA and Technip SA.

Acu’s revenue won’t be hurt significantly in the short term because there are other oil and mining projects still in the works, said William Castro Alves, an analyst at brokerage XP Investimentos.

“I don’t think the current market valuation of LLX includes this project anymore, so a cancellation shouldn’t have a big impact,” he said in a telephone interview from Rio. “These investments take time. They may not happen now, but can resume in the future.”

Shares Tumble

Shares of Batista’s commodities and energy companies tumbled in June after his oil startup, OGX Petroleo & Gas Participacoes SA, cut production targets at its first two oil wells by as much as 75 percent. The drop dragged down Batista’s mining, logistics and shipbuilding companies on concern the enterprises, some of which rely on OGX for revenue, will also scale back targets. The tycoon’s net worth fell from a peak of $34.5 billion on March 27 to $20.6 billion on Oct. 11, according to Bloomberg Billionaires Index.
LLX rose 0.7 percent to 2.71 reais in at 12:40 p.m. in Sao Paulo. It has declined 20 percent this year before today.

Nissan Chief Executive Officer Carlos Ghosn said last year that Japan’s second-biggest carmaker chose to build a plant in Resende, also in Rio state, rather than at the Acu Port “for cost reasons.”

David Reuter, a spokesman for Nissan’s operations in the Americas, declined to comment on developments at Batista’s Acu facility.

Anglo’s Project

Anglo American paid Batista-controlled companies $5.1 billion in two transactions in 2007 and 2008 for the Minas-Rio iron-ore mine in southeastern Brazil and the right to build an export terminal at Acu. At the time, Anglo planned to spend an additional $2.6 billion on projects including an ore processing plant, the terminal and a pipeline to carry iron-ore slurry to the coast.

The completion date, which initially was expected in 2010, has been pushed back to the second half of 2014 amid licensing challenges, Anglo said July 27. Minas-Rio is now expected to cost as much as $5.8 billion after the company revised costs for the project, its largest, for at least a fourth time in December.

The Minas-Rio delays don’t impact works at the iron-ore terminal in Acu, which are advancing normally, Anglo said in an e-mailed response to questions.

“The economic crisis impacted the steel industry quite a bit,” Galdi said. “Whoever does this will certainly wait for the market to improve.”

-By Juan Pablo Spinetto. Copyright 2012 Bloomberg

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