Rio de Janeiro Docks Company to Auction Area do Meio Port
09/12/2012| 12:54pm US/Eastern
--The Area do Meio port area may be used for iron ore or grains
--Cia Docas says a prospectus soon will be published
--Analyst says the project may be losing attractiveness
(Updates with new details, including analyst comment and the names of companies that have expressed interest in bidding, beginning at the fourth paragraph.)
By Diana Kinch
RIO DE JANEIRO--Brazil's federally owned port administrator, Companhia Docas do Rio de Janeiro, known as Cia Docas, said Wednesday it plans to auction this year a new iron-ore and grains port area in Rio de Janeiro state.
The bidding and auction process for the site, known as "Area do Meio," or "Middle Area," has been approved by the government's federal audits court, or TCU, and a prospectus for the area on offer will be published "as soon as possible," a Cia Docas spokeswoman said.
The prospectus will state a minimum bid value for the site, which is located at Itaguai, between existing ports operated by mining company Vale SA (VALE, VALE5.BR) and steelmaker and mining company Companhia Siderurgica Nacional SA (SID, CSNA3.BR), the spokeswoman said.
Preliminary estimates are that the project will entail investments of around 1.5 billion Brazilian reais ($746 million) and will have a product-handling capacity of around 25 million metric tons a year, and it should be leased out on a renewable 25-year concession.
Cia Docas recently said Area do Meio is to be let out to offer export access to companies producing iron ore at the Serra Azul mountain range in Minas Gerais state, which is linked to Itaguai by a railroad owned by companies including Vale, CSN and steelmaker Usinas Siderurgicas de Minas Gerais SA, or Usiminas (USIM5.BR, USNZY).
However, on Wednesday the Cia Docas spokeswoman said the area also can be used "to ship grains or any other solid bulk product."
Earlier this year, Usiminas and steelmaker ArcelorMittal (MT, MT.FR, MT.AE) confirmed that they were in talks to form a consortium to participate in bidding for the port. Usiminas is investing to increase its iron-ore production to 29 million metric tons a year by 2015, part of which it plans to export. The steelmaker currently doesn't have its own iron-ore port and has accords to ship ore via the port, which EBX Group mining company MMX Mineracao e Metalicos SA (>> MMX Mineracao e Metalicos SA) is building, also in the Itaguai vicinity.
MMX and CSN also have said separately they will study the possibility of bidding for Area do Meio once the prospectus is published.
The timing of the auction, however, may be a disadvantage following a recent slide in spot iron-ore prices to three-year lows as Chinese demand growth for the steelmaking ingredient has slowed. Slower growth in Brazil's steel markets also has pressured Brazilian steelmakers' margins.
"At this point, we are less convinced on the development of this port as we expect declining interest in the auction," Barclays Capital's Latin America equities research team said in a research note Wednesday. "We consider the likelihood of Usiminas bidding low as it aims to strengthen its balance sheet and as it has a safer alternative via MMX's Sudeste port."
The project still needs to go through the full environmental licensing process, Barclays notes.
Write to Diana Kinch at email@example.com