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Wuhan Enters Commercial and Strategic Partnership Talks with Brazil’s LLX, MMX

05/20/2009 - Wuhan Iron and Steel enters MoU with MMX Mineração e Metálicos SA and LLX Logística SA that could lead to Wuhan’s construction of a 5 million tons/year integrated steel plant in Brazil.

Wuhan Iron and Steel Co. has entered into a Memorandum of Understanding that would establish a commercial and strategic partnership with MMX Mineração e Metálicos SA and LLX Logística SA.
 
The potential business arrangement could lead to Wuhan’s construction of a 5 million tons/year integrated steel plant at the Açu Super Port Industrial District in Brazil. The new facility would be controlled and operated by Wuhan with EBX participating as a significant minority interest.
 
The MoU also allows for Wuhan’s off-take of all export capacity of MMX Sudeste Mineração SA (a wholly owned subsidiary of MMX), as well as the restatement of a long-term port services agreement among MMX Sudeste, LLX Sudeste Operações Portuárias S.A. and Wuhan. The new port services agreement would enable MMX Sudeste to handle substantially all of its production capacity at the LLX Sudeste port site.
 
Finally, the agreement also provides for Wuhan to acquire an equity interest in MMX and/or MMX Sudeste, and sets up Wuhan to supply steel products to Brasil Estaleiros S.A. (BEX), EBX’s off-shore shipbuilding company.
 
“This business combination, once consummated, will likely represent the single most important Chinese investment in Brazil, and one of the most relevant commercial joint ventures between a Brazilian group and a Chinese company,” commented Eike Batista, Chairman of both LLX and MMX. “This beginning of negotiations toward the completion of such a grandiose task is initiated in a uniquely auspicious moment, when China becomes Brazil’s largest trade partner, and counts with the blessing of both the Brazilian and Chinese governments.”
 
The Memorandum of Understanding is non-binding and non-exclusive, but contemplates that the parties would initiate immediate negotiations concerning the business arrangements at hand.
 
Created in 1955, Wuhan Iron and Steel Corp. is the first giant iron and steel complex established after the founding of P.R. China and one of the backbone enterprises under the leadership of the Central Government. Following its integration with Echeng Iron & Steel Co., and Liuzhou Iron & Steel Co., Wuhan has an annual production capacity of 20 million tonnes, making it the third largest in China and sixteenth in the world in terms of size. Wuhan owns a complete set of processing plants comprising mining, coking, sintering, ironmaking, steelmaking, rolling and the associated utilities.
 
Wuhan is making great efforts to reach a production scale of more than 30 million tonnes with an annual sales income of over 100 billion RMB, aiming at entering into the rank of the 500 top enterprises in the world and becoming an important automobile sheets producer in China by the year of 2010.
 
LLX is implementing two Super Ports in the Rio de Janeiro state, Brazil’s Southeast region that will have efficient infrastructure and the necessary depth to receive the most modern large-capacity ships, such as capesize bulk carriers as well as the new generation of supergeneral cargo ships, resulting in lower operating costs. The Açu Super Port, located in the north of Rio de Janeiro and already under construction, will have 18.5 meters draft and six berths for bulk carriers and four berths for general cargo vessels. With 90 km2 of back area, Açu Super Port will be able to host a state-of-the-art, high-capacity industrial complex, including an iron ore terminal, pelletizing plants, thermo power plants, a steel complex and metal mechanic industries. Sudeste Super Port, located in the south of Rio de Janeiro state, has already granted the environmental license to implement a port with 20 meters draft and 2 berths, with a total capacity to store and handle 50 million tonnes of iron ore per year. Construction of the Sudeste Super Port is expected to begin in the fourth quarter of 2009.
 
MMX is a mining company which currently has two integrated systems in operation, MMX Corumbá and MMX Sudeste, representing a total installed capacity of 10.8 million tonnes per year of iron ore, which can be expanded to up to 40 million tonnes per year. MMX has a recognized differentiated status in Brazil in terms of the outstanding quality of its mineral assets and its ability to design integrated projects with ensured logistics. MMX has also mining rights in Chile through its subsidiary Minera MMX de Chile, with promising deposits of iron ore and logistics also ensured, through the port under development by the EBX group. In 2008 MMX sold to Anglo American group two integrated systems originally developed by the company—Amapá and Minas-Rio—in a transaction evaluated at USD 5.5 billion