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Japan-Korea Partnership to Invest in Brazilian Niobium Producer CBMM

03/07/2011 - A Japanese-Korean partnership (JFE, Nippon, Sojitz, JOGMEC, Posco and NBS) have entered into an agreement acquire a 15% stake in the Brazilian niobium company Companhia Brasileira de Metalurgia e Mineração.

A Japanese investor group and a Korean investor group have entered into an agreement with the controlling shareholders of the Brazilian niobium company Companhia Brasileira de Metalurgia e Mineração (CBMM) under which the Japan-Korea partnership will acquire a 15% stake in CBMM.
 
Members of the Japanese investor group include JFE Steel Corp. (JFE), Nippon Steel Corp. (NSC), Sojitz Corp. (Sojitz) and Japan Oil, Gas and Metals National Corp. (JOGMEC). The Korean investor group includes Korean steel producer Posco and National Pension Service (NPS).
 
Niobium is a critical alloying element for the production of a variety of high-grade steel products. As the most comprehensive supplier of niobium products in the world, CBMM is in a position to secure a continuous supply system of the metal as the need for high-grade steel products grows.
 
The four Japanese companies will use two special purpose companies to acquire a 10% stake in CBMM and the two Korean companies will use a separate special purpose company to acquire a 5% stake. The amount of the investment by the Japan consortium and the Korea consortium will be $1.3 billion (approximately JPY 108 billion) and $650 million (approximately JPY 54 billion), respectively, and each of the six consortium partners will indirectly hold a 2.5% stake in CBMM (for a combined total of 15%). This investment in such a significant supplier of niobium comes at an opportune time and has real strategic value to the consortium companies.
 
In addition to the acquisition of CBMM shares, JFE, NSC, Posco and Sojitz entered into a long-term niobium supply agreement with CBMM, assuring continuation of the stable relationship these companies have long had with CBMM.
 
JOGMEC is participating in the consortium in accordance with the Japanese government’s policy to secure resources. This transaction represents the first project of the equity participation scheme for mining business under operation after the amendment of JOGMEC law in 2010.
 
Niobium is indispensable in the production of high-grade and special steel products, as it can dramatically enhance strength, durability, and heat resistance with the addition of only trace amounts. High-grade and special steel products and superalloy products containing niobium include pipelines, automotive steel, large-scale construction steel, turbines, aircraft engines, including the ones used in the space shuttle, and other cutting edge machinery.
 
Worldwide demand for niobium recorded an annual growth rate of some 10% from 2002 through 2009, buoyed by growing need for high-grade steel in emerging economies including China and India. China in particular doubled its niobium imports over a four-year period to about 30% of global output. Demand for niobium is projected to grow faster than the expansion in world crude steel production.
 
The growth of emerging nations is propelling the demand for high-grade steel products, and security of niobium supply sources is becoming an important issue. This transaction will ensure stable supply of niobium to both Japan and Korea.
 
CBMM, a Brazilian company established in 1955, owns a niobium mine, refining plant and metallurgical production facilities in the Araxá area of Minas Gerais State. Brazil holds the largest part of total known niobium reserves in the world according to data from official agencies, and CBMM is thought to hold rights to the best niobium reserves in Brazil.
 
Established in April 2003, JFE Steel Corp. is headquartered in Uchisaiwaicho, Chiyoda-ku, Tokyo, Japan. The company reported net sales of 228.1 billion yen (consolidated) in FY2009 and has 13,922 employees (non-consolidated, as of March 31, 2010).
 
Established in March 1970, Nippon Steel Corp. is headquartered in Marunouchi, Chiyoda-ku, Tokyo, Japan. The company reported net sales of 3487.7 billion yen (consolidated) in FY2009 and has 15,845 employees (non-consolidated, as of March 31, 2010).
 
Established in April 2003, Sojitz Corp. is headquartered in Akasaka, Minato-ku, Tokyo, Japan. The company reported net sales of 3844.4 billion yen (consolidated) in FY2009 and has 2,309 employees (non-consolidated, as of December 31, 2010).
 
Established in February 2004, Japan Oil, Gas and Metals National Corp. (JOGMEC) is headquartered in Saiwai-ku, Kawasaki-city, Kanagawa. The company has 476 employees (non-consolidated, as of April 1, 2010).