TORONTO (miningweekly.com) – The world's second-biggest mining company has inked an agreement to buy New York-based Bunge's Brazilian fertiliser assets for $3,8-billion in cash, the group announced on Wednesday.

Vale also said that it would start construction on the Rio Colorado potash project, in Argentina, that it bought last year from rival Rio Tinto.

The group, which is seeking to increase its position in fertiliser production, reducing its exposure to iron-ore, and taking advantage of demand for crop nutrients, particularly in Brazil, said it expects to be producing about 3,3-million tons a year of phosphoric acid and 10,7-million tons of potash within seven years.

In Brazil, the company will buy 100% of Bunge Participacoes e Investimentos (BPI) which owns phosphate rock mines and assets, and Bunge’s 42,3% stake in Brazilian fertiliser producer Fertilizantes Fosfatados (Fosfertil).

Once the transaction receives the necessary approvals and closes, Vale will launch a mandatory offer to buy out the shares held by minority shareholders in Fosfertil for the same price it paid Bunge, the company said.

“This transaction is instrumental to the consolidation of Vale's strategy on focusing on Brazil as the main market for its production of phosphates, given the potential of the acquired mines as well as the growth associated to our projects around the world,” group CEO Roger Agnelli said in a statement.

“The acquisition of these assets combined with our potash projects based on world-class deposits, contributes to enhancing the execution of Vale 's growth and value creation strategy, making feasible the emergence of a new global leader in the fertiliser industry,” he said.

Rio de Janeiro-based Vale will examine the potential to combine the Bunge assets with the group's other fertiliser assets around the world, which could potentially lead to a “corporate reorganisation”.

BPI is Brazil’s second largest producer of phosphates fertilisers, with a market share of 14,2%.

It owns two phosphate rock mines, as well as four processing plants that produce phosphates fertilisers.

Fosfertil, meanwhile, produces phosphate rock from three mines, as well as phosphates fertilisers and single superphosphate and nitrogen fertilisers.

The company is Brazil’s biggest supplier of phosphate and nitrogen-based products for fertilisers production and is also developing a greenfield phosphate operation, Salitre, in the state of Minas Gerais.

Vale said it sees strong demand growth potential, for fertilisers, anchored in market fundamentals “similar to those underlying the global demand for minerals, metals and energy”.

The Brazilian governemnt also wants to increase domestic output of crop nutrients.

RIO COLORADO

Vale said it will begin construction on the Rio Colorado project this year, and expects to start production from the mine in the second half of 2013.

The operation will have a nominal production capacity of 2,4-million tons a year of potash, and will cost $4,1-billion.

The group already operates a potash mine in Brazil, and is scheduled to start up the 3,9-million ton a year Bayóvar I phosphate mine, in Peru, in the second half of this year, and is also looking at potash development projects in Brazil, Argentina and Canada, as well as phosphates projects in Peru and Mozambique.

The potash market has traditionally been tightly controlled by a small group of producers. However, larger diversified miners like Vale and rival BHP Billiton are showing increasing interest in the sector.

BHP said last week it had approved $240-million for preparation work on its Jansen potash project, in Canada.

The project is being designed to produce about eight-million tons a year of agricultural-grade potash, which will represent BHP Billiton's first production of the crop nutrient.

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