Vale announced yesterday its acquisition of a 55% stake in iron ore mining company BSG in Africa for US$2.5bn. The company is located in Guinea, in Western Africa. Is this a smart move?
Iron ore prices are high again and this could attract newcomers such as BSG. Apparently, Vale is neutralizing newcomers, which is apparently what it is doing.
Vale is the second largest diversified mining company in the world. With an expressive international presence, the company has operations in the 5 continents.
BSG is considered a dangerous newcomer, and the region where the mines are located has iron ore of high-quality. In this scenario, spending US$2.5bn to prevent it from storming into the market is a good deal, according to Raphael Biderman, analyst at Bradesco Corretora, in Sao Paulo.
Raphael also says that despite buying only 55% of BSG, Vale will have offtake of all the production, so it will be able to control how this newcomer affects the global seaborne market.
BSG has two other important advantages to Vale; first, it has logistics and second, it would reduce political risk in Africa.