MT Arcelor Mittal New

ArcelorMittal (MT), the world's biggest steelmaker, confirmed on Tuesday that it is in talks to purchase iron-ore assets of MMX Mineracao e Metalicos SA (MMXM3.BR), the mining company owned by Brazilian billionaire Eike Batista.

"We're in talks with MMX on this matter," said Sebastiao Costa Filho, director-president of ArcelorMittal Serra Azul, the steelmaker's Brazil-based iron-ore unit.

"We'll be having a meeting on Friday in ArcelorMittal's merger and acquisitions department in London to deal with this matter," Costa Filho said by telephone from Ukraine, where he was visiting an integrated ArcelorMittal steelworks and mine operation.

MMX's mine and related assets in Brazil and Chile may be worth as much as 8.03 billion reals ($4.57 billion), estimated Max Bueno, analyst with Spinelli SA, a Sao Paulo-based brokerage.

"The analysts' consensus is that MMX is worth BRL17 a share," Bueno said. MMX's value should be boosted by moves to consolidate the fragmented structure of mines and transport infrastructure in the Serra Azul region, he said.

"There's a definite possibility the assets could be sold to ArcelorMittal as part of a consolidation that's already being discussed in this region," Bueno said.

MMX rose to BRL12 on Sao Paulo's Bovespa stock exchange in early afternoon trading, up 0.67% on Monday's close.

MMX plans to expand its current output capacity of 8.7 million metric tons a year at Serra Azul in Minas Gerais state, southeast Brazil, and Corumba in west Brazil to about 34 million tons by 2014, adding a further 10 million tons by 2015 from a new mine in Chile, MMX Chief Executive Officer Roger Downey said last month.

Spokesmen for MMX and for the company's owner, Eike Batista, had no immediate comment on the possibility of a sale to ArcelorMittal. MMX said in a statement Monday that "the company is always on the lookout for opportunities that may interest its shareholders."

Batista is eyeing a sale of MMX iron-ore assets in Brazil to concentrate on oil and energy, which may give greater returns in the future, analysts said on Monday. Other interested parties may include Brazilian steelmaker Usinas Siderurgicas de Minas Gerais SA (USIM5.BR), or Usiminas, China's Wuhan Iron & Steel Co. (600005.SH) and U.S. mining company Cliff Natural Resources Inc (CLF).

Usiminas, ArcelorMittal and Ferrous Resources already have relatively small iron-ore interests at Serra Azul, where cooperation between companies to set up joint concentration and transport facilities is essential to make production viable, and ensure the granting of environmental licensing, Bueno said.

Usiminas Chief Executive Officer Wilson Brumer told reporters on a conference call July 29 the steelmaker is involved "in talks with neighbors in the Serra Azul area on joint mining."

Usiminas is seeking to expand its iron-ore operations in the area to 29 million tons a year by 2015 from seven million tons at present, Brumer said.

Usiminas could face stiff competition to acquire MMX assets, not least from China's Wuhan, which already bought a 21.52% stake in MMX last year and would have preferential rights on any future share sale, said Germano Mendes de Paula, an economist at Uberlandia Federal University in Minas Gerais.

Both Wuhan and ArcelorMittal wish to enlarge their own iron-ore operations to boost self-sufficiency in supplies of the steelmaking ingredient in a rising market as they expand their crude steel capacities.

ArcelorMittal is Brazil's second-biggest steelmaker with crude steel capacity of around 11 million tons a year. Company Chief Executive Officer Lakshmi Mittal announced before the global economic crisis plans to enlarge the company's presence in Brazil in both steel and iron ore with investments of around $5 billion.

In May, ArcelorMittal said it was resuming investments in Brazil with a doubling of the Joao Monlevade steelworks in Minas Gerais and plans to triple iron-ore output in the country to 15 million tons a year by 2014, from 5.3 million tons at present at its Andrade and Serra Azul sites.

The Brazilian iron-ore boost is understood to be part of ArcelorMittal's global strategy to source 75% of its own iron-ore needs, or about 100 million tons a year by 2014.

-By Diana Kinch, Dow Jones Newswires; 55-21-2586-6086, diana.kinch@dowjones.com

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