Rio Sells Iron Mines to Vale

Early this week, Vale (VALE - Analyst Report) acquired Corumbá iron ore mining operations from Rio Tinto Plc (RTP - Analyst Report) for $750 million in cash. It was the part of a larger transaction that included the sale of a potash project and certain exploration assets in Canada . The potash deal closed in February for $850 million.

Management is expected to benefit from potential synergies, through augmented asset and portfolio flexibility, lower administrative and logistics costs and rationalization of the use of reserves.

Companhia Vale do Rio Doce is benefiting from a series of acquisitions. Recently, the company spent US$922 million for acquiring potash assets in Argentina and coal assets in Colombia , in line with the company’s strategic focus.

The company also announced the signing of a memorandum of understanding along with Companhia Siderurgica do Pecem (CSP), the state government of Ceara and Korean steelmaker Dongkuk, to build a steel mill in Brazil 's northeastern state of Ceara. The steel mill is expected to produce 6 million tons of steel slabs per year, which will require a huge amount of iron ore. Thus, the company will depend less on market demand due to in-house consumption.

There are some negative signs as well. Vale is still waiting for Australian miners, RTP and BHP Billiton Ltd., (BHP - Analyst Report), the world’s second and third-largest iron ore suppliers, to settle annual prices with China. The outlook for 2009 is still uncertain as we have no reliable information on price adjustment for iron ore for 2009.

However, we are optimistic based on the fact that the company is taking every measure to reduce costs and adjust to the present situation and short-term demand from Asia is showing recovery signs.