Vale, two Korean firms to sell JV to ArcelorMittal at a loss

Brazilian mining giant Vale SA and two South Korean steelmakers are selling their joint venture in Brazil at less than half their investment in six years.

On Thursday, Vale announced that three shareholders, including itself, have agreed to sell Companhia Siderurgica do Pecem (CSP) in Northeast Brazil to ArcelorMittal for $2.2 billion.

Vale holds a 50% stake in CSP. Two other shareholders Dongguk Steel Mill Co. and POSCO Holdings Co. have a 30% stake and the remaining 20% stake.

ArcelorMittal confirmed the acquisition in its earnings report on the same day.

Vale and the two Korean companies have poured a combined $5.4 billion into their joint venture, which was launched in 2016. Their investment included $3 billion in loans.

In its first business year, CSP posted a 90.5 billion won ($70 million) net profit. But it accumulated losses amounting to 2.2 trillion won ($1.7 billion) between 2017 and 2020, before making a turnaround to a 700 billion won operating profit in 2022.

A jump in steel slab prices, which more than trebled to $1,000 per ton last year, bolstered CSP’s bottom line.

But Vale sought to shed CSP as a non-core asset, despite opposition from both POSCO and Dongkuk. Eventually, the two Korean steelmakers consented to Vale’s proposal to sell their Brazilian JV.

Dongkuk and POSCO will walk away with $660 million from the stake sale and $440 million, slightly more than one-third of their investment.

On Thursday, ArcelorMittal, the world’s second-largest steelmaker, said that the acquisition will help it boost sales to North and South American markets and its production of low CO2 and low-cost slab steel products in Northeast Brazil.

It also plans to bump up CSP’s production of hot and cold-rolled steel, for which the Brazilian JV has an annual capacity of 3 million tons.

CSP contains all production lines and produces steel slab, or semi-finished steel products. Vale supplied iron ore to the JV, while POSCO provided steelmaking technology.

Dongkuk led the investment and debt payment guarantee for CSP. It was also in charge of its operation and marketing.

The deal will be closed at the end of this year, pending approval by Brazil's antitrust body.

Write to Kyung-Min Kang at kkm1026@hankyung.com
Yeonhee Kim edited this article.