Big Spenders Close in on CSN's Namisa Iron Ore Unit

The shake-out of bidders for Brazilian iron ore miner Namisa has left a number of contenders with deep pockets and big appetites, sources familiar with the bidding said, signalling that owner CSN may sell a majority stake.

Some analysts estimate the sale could value Namisa, the smaller of CSN's iron ore units as high as $10bn, but at least one analyst said price expectations were getting way out of hand.

CSN has taken advantage of a white-hot iron ore market and tempted steelmakers by touting Namisa's huge growth potential.

Top global steelmaker ArcelorMittal, one of the world's most acquisitive companies, is among a clutch of firms still in the chase after final bids went in earlier this month, according to sources familiar with the sale process.

Arcelor showed its keenness last month when it agreed to pay $810m for the Brazilian iron ore assets of London Mining Plc, 50% above the company's entire market value, and to build a $250m port shipping 10 million tons a year.

Ranged against it are India's Tata Steel Ltd and Japan's top five steelmakers, together with trading house Itochu Corp. Several sources said a consortium led by China's top private steelmaker Shagang Group was also still in the hunt.

That line-up points to a bigger rather than smaller stake.

"If they are going to sell the whole thing, it's going to favour Arcelor or the Japanese. If it's a minority stake, then the Chinese," said one investment banker in the sector, who declined to be named.

All are hungry and have access to generous funding. Bankers say Japanese firms are getting more assertive in the face of Chinese competition for assets globally, while Tata Steel, part of the much larger Tata Group, is seeking private equity investment that one banking source put at $2-3bn.

Shagang's finances are unclear, though it could attract the backing of a state bank, with almost limitless funding.

CSN and its advisor Goldman Sachs want to sell 40-50% of Namisa but have complicated the sale, which should yield a winner within a month, by saying they would entertain bids for the whole unit. Neither would comment on the sale.

China, Russia of the pace

Other early bidders such as Beijing-based steelmaker Shougang Group appear to have fallen off the pace. Bankers say China's state financiers are increasingly cautious about overpaying.

"Chinese planners are aggressive, but they don't want to be the stupid money. Ultimately the Chinese buyers have very strong views about value," said an investment banker focusing on China.

And Russia's Severstal, which has made a string of acquisitions this year, has also appeared to rule itself out.

"If an opportunity comes up, we'll take a look at it, but there is no major acquisition currently in our (planning)," Severstal chief financial officer Sergei Kuznetsov told an analysts' conference call last week, according to a transcript from Thomson Reuters Streetevents.

One potentially unappealing aspect of Namisa is the need to cooperate with CSN on port access, which one Japanese trading company executive said had put his firm off entering the bidding.

"A lot of people are concerned about getting into bed with CSN," said a source involved in Namisa bidding. With that in mind, several observers expressed surprise at Arcelor's interest.

"Arcelor would be basically at the behest of CSN," said another source in the bidding. "Arcelor is looking for optionality at a good price."

Namisa's value depends on iron ore prices and its production growth. CSN has touted a long-term plan to boost Namisa's output from 7 million tons this year to more than 40 million tons.

Analysts at Merrill Lynch said the price of Arcelor's London Mining deal, equivalent to $175 per ton, would value Namisa at $7bn, adding 20% to CSN's share price and triggering a revaluation of its main iron ore unit Casa de Pedra.

But HSBC analyst Fabiano Santos sounded the alarm, writing in a note to clients on 8 September that Namisa was worth only $1.8-2.6bn, with a chance that no deal would materialise.

The 40 million ton target referred to overall sales or exports, rather than production, he said, so that the business on offer was largely a low-value trading firm, re-selling ore from Casa de Pedra or third parties, rather than actual production.

However, he also raised his rating on CSN's shares to an "overweight" from "neutral", citing the market's overly pessimistic view of steel and iron ore prices.

by Tom Miles and Yuko Inoue, Reuters.