CORRECT:ENRC To Pay $820 Million For Brazil Iron Ore Miner Stake,Option

In a bid to strengthen its presence in Brazil, Eurasian Natural Resources Corp. PLC (ENRC.LN) Tuesday said it acquired the remaining 50% of iron ore miner Bahia Minerals BV (BMBV) it doesn't already own and purchased an option to buy the neighboring Greystone iron ore asset for a combined $820 million in cash.

ENRC is paying Zamin BM NV net cash of $670 million for the remaining half in BMBV, after assuming net debt of about $65 million. BMBV owns two iron ore companies: Bahia Mineracao Limitada (BML) and Eire Mineracao Limitada (EML), both located in the Caetite region in the state of Bahia, Brazil.

The BML project completed its feasibility study in July and is expected to produce 11 million tons of iron ore concentrate by 2011, ramping up to 19.5 million tons annually by 2014 at a cost of $2.1 billion to develop. The processed iron ore products will have an iron ore content of between 67% and 68.5%.

The project should benefit from lower logistics risks since the Brazilian government will be responsible for developing the railway line to a port. The timing of the rail-link construction still needs to be determined, but the Brazilian government expects to award the railway construction contract in fourth quarter of this year. ENRC said the approval and timing of the environmental license for the port also need to be determined.

The acquisition of BMBV "will further enhance ENRC's access to the seaborne iron ore market and will provide ENRC with growth in and diversification of its iron ore customer base and product suite," the company said. "ENRC believes that the global seaborne iron ore market continues to offer an attractive investment opportunity, particularly in view of the outlook for growth in demand for high quality iron ore products."

BMBV has an iron ore resource base of 1.81 billion tons with an average iron content of 32%. ENRC bought its first 50% stake in BMBV from Zamin in May 2008 for $306 million in cash. The purchase is expected to exceed ENRC's pretax internal rate of return hurdle of 20%.

Analysts at Liberum capital said ENRC is paying a full price at $2.3 a metric ton for the resource compared to Anglo-Swiss miner Xstrata PLC's (XTA.LN) recent offer to buy West Africa iron ore explorer Sphere Minerals Ltd. (SPH.AU) at $0.36/ton. "In our view the de-risking resulting from government involvement in railroad construction is reflected in the price paid by ENRC," the bank said.

Government involvement in the deal could result in project fast-tracking, which would be worth paying for if iron ore can hit the market in 2013 and 2014, before other large scale iron ore projects start producing, Liberum said.

ENRC also secured an option to purchase 100% of Greystone Mineracao do Brasil Ltda from Zamin for cash of no more than $150 million. Greystone has an iron ore resource base of 147 million tons with an average iron content of 31.8%, and an additional 187.5 million tons of potential resource. The deposit is from the same iron ore body as the BML project.

Should ENRC not exercise the option, part of the option payment will be used to pay for the BMBV purchase.

At 0831 GMT, ENRC was 6.50 pence or 0.7% lower at 908 pence a share, while London's FTSE-100 stock index was up 0.4%.

-By Alex MacDonald, Dow Jones Newswires; 44 20 7842 9328; [e-mail]