With Vale indicating that it would rather spend its cash to reward shareholders, new fertilizer acquisitions may be unlikely. However, strong iron prices may compensate. VALE recently announced a share buyback of up to $2 billion.
This may end speculation about the giant Brazilian mining company using $800 million of that money to buy fertilizer producer Copebras from Anglo American AAL instead. In any event, VALE's existing fertilizer holdings are already the second-biggest contributor to its revenue, behind only its established iron ore business.
And the company expects demand for iron ore to remain stable for the rest of the year, after which point the market should start growing again. China is reportedly streamlining its steel industry to shake out weak players and eliminate overcapacity. This has cut into what is otherwise effectively redundant iron ore buying -- but VALE is gearing up for record demand in 2011 and beyond.
Unlike BHP Billiton, Brazil's giant mining company Vale is not desperately looking for a potash partner. Instead, the company is already gearing up to spin off its extensive fertilizer holdings. VALE currently expects to launch an IPO for its far-flung fertilizer projects some time early next year.
Called Vale Fertilizantes, the company will represent at least $10 billion in combined acquisitions and capital expenditures over the years for its parent. Although its primary resources will remain in Brazil -- where booming agricultural industries demand high amounts of potash-based and other fertilizers -- other holdings range from a huge phosphate mine in Peru to fairly advanced potash operations in Argentina and even PotashCorp's POT home territory of Saskatchewan.
VALE might also be looking to buy Anglo American's AAL controlling stake in Brazilian phosphate fertilizer company Copebras for as much as $800 million. Folding Copebras into a Brazil-based enterprise would give a Latin fertilizer giant added scale in a world increasingly dominated by Canadian and Russian potash plays. Over the next four years, the company is on track to become VALE's second-biggest business -- behind only iron ore -- and generate enough cash to sustain $12 billion a year in development and exploration.