Exclusive: Brazil's Vale mulls sale of Thyssenkrupp steel venture stake

By Tatiana Bautzer and Guillermo Parra-Bernal

NEW YORK/SAO PAULO (Reuters) - Brazilian iron ore miner Vale SA is finalizing a proposal to sell its 26.87 percent stake in a steel slab plant that cost nearly $10 billion to build to Germany’s Thyssenkrupp for $1 plus the assumption of some debt, a source close to the deal said.

Under the draft plan, which has yet to be approved by Vale's (VALE5.SA) board, the company would also assume 10 percent of the contingent liabilities of the money-losing venture, CSA Siderúrgica do Atlántico.

The plant, Brazil's most costly foreign investment project ever, reported 2.6 billion euros in total liabilities at the end of the 2015 fiscal year.

Thyssenkrupp (TKAG.DE) is aware that a proposal is underway, and negotiations with Vale are in "their final stages," a second source said. Both companies declined to comment.

The sources said that Vale's exclusive rights to supply iron ore and pellets to the mill would be maintained. Vale also wants a so-called tail period, a time during which a partner is entitled to payment in the event of a sale or the disposal of assets in a company, for 10 years, the first source noted.

Vale's planned exit is the latest sign the steel mill has become a liability for both Vale and Thyssenkrupp, which has tried unsuccessfully in recent years to sell the venture.

Once considered a showpiece for Brazil's steel industry, the CSA mill has seen production costs soar amid high inflation, currency volatility and political instability that have pushed Brazil's economy into a deep recession.

FANFARE

Vale bought into the CSA project after facing political pressure to diversify into value-added activities like steel and fertilizers.

In 2009, Brazil's ruling Workers' Party government pushed Vale to boost its CSA stake from an initial 10 percent, as the project faced cost overruns and delays. The plant was inaugurated with much fanfare the following year in a ceremony attended by former Brazilian President Luiz Inácio Lula da Silva.

Since it began operating in 2010, the CSA mill has been affected by a global glut in steel slabs that pushed down its margins and hindered factory capacity usage.

The exit from CSA comes as Vale wrestles with the impact of slumping iron ore prices. Chief Executive Officer Murilo Ferreira said in February that a sale of about $10 billion in assets was under analysis to help reduce Vale's debt.

The plant, which has total production capacity of 5 million tonnes a year, exports slabs that can be further processed at another ThyssenKrupp plant in Alabama.

In the 12 months through September, CSA lost almost 400 million euros, company data showed.

Vale shares were up 5.5 percent in Friday afternoon trading.

Its shares are down 20 percent over the past year, although they have rallied in recent months along with the broader Brazilian market.

Thyssenkrupp shares on Friday rose to a four-month high, after a source said it had been talking about combining its European steel operations with those of India's Tata Steel.

(Additional reporting by Georgina Prodhan in Frankfurt; Editing by Christian Plumb and Andrew Hay)