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SAO PAULO - Usiminas, Brazil's biggest producer of flat steel, will operate its Pau de Vinho mine jointly with mining company MMX in an effort to develop its own iron ore resources faster and at a lesser cost.
Under terms of the accord, Usiminas will use MMX's Southeast Port to ship its iron ore exports for 2012-2016 period, according to a regulatory filing. The steelmaker will pay a fee of $12,63 per tonne transported, annually adjusted by U.S. producer price index.
MMX, the mining company controlled by billionaireEike Batista's conglomerate EBX, will be in charge of the licensing, investment and operation of Pau de Vinho. The company will take 86,5 percent of the volumes produced and transfer the remainder to Usiminas.
"While the outcome seems positive for both companies, at a first glance this seems a relatively better deal for MMX, as it gets the mining rights to the ... mine for only 13,5 percent of the production," wroteRodolfo de Angele, an analyst with JPMorgan Chase, in a note to clients.
The deal comes days after Usiminas canceled its Santana do Paraiso slab plant project, indicating the need to develop iron ore and logistics capabilities faster than steelmaking. Cheap imports of some products, a rally in Brazil's currency and sluggish demand led to the worst quarterly results for the nation's largest mills in the third quarter.
Usiminas said in a filing on Friday that its board approved plans to invest 550 million reais in its mining division to expand iron ore production to 12 million tonnes a year from the current 7 million tonnes.
The deal also gave Usiminas, which has mining assets and access to railroad transportation but not a clear port solution, the chance to profit from its iron ore resources.
Mineracao Usiminas, which Usiminas spun off this year as its iron ore unit, has secured capacity to ship 3 million tonnes of iron ore starting in 2012 through the port -- operated by Batista's LLX Logistica , and up to 12 million tonnes in 2015 and 2016, the filing added.
"We believe that there is a strong and clear message from the deal: access to port capacity in Brazil is becoming increasingly difficult, and also more expensive,"Rodrigo Barros, a mining and steel analyst at Deutsche Bank, wrote in a report.
MMX announced in September that it would buy out LLX and it is also the majority stake holder with Usiminas in Pa de Vinho.
"With this contract, Mineracao Usiminas will secure the corridor for exporting its iron ore from 2012," a market filing said.
Usiminas tumbled 3,3 percent to 21,45 reais on Tuesday. The stock has shed 5,1 percent in the past 12 months.
MMX rose 1,1 percent to 14 reais. The shares have risen 46 percent in the past 12 months.