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By Bloomberg

Mitsui & Co. said it agreed to pay $763 million for stakes in a Mozambique coal project owned by Vale SA, signaling confidence from Japan’s second-largest trading house in a recovery in coking coal prices.

The Japanese trader will take a 15 percent stake in the Moatize mine and half of Vale’s 70 percent stake in associated rail and port infrastructure, Mitsui said in a statement to the Tokyo Stock Exchange. The company will pay $450 million for the mine and $313 million for the infrastructure project, known as Nacala Logistic Corridor, or NLC, it said.

Mitsui, which since 2003 is part of the holding group that controls Rio de Janeiro-based Vale, is expanding partnerships with the world’s largest iron-ore producer after announcing last year the purchase of 20 percent in Vale’s VLI cargo unit for 1.51 billion reais ($581 million). The southeast African nation is also home to Mitsui’s biggest liquefied natural gas development, which is set to begin producing in 2019.

“The partial sale of the troubled Moatize mine and logistics project appears to be at a very attractive price for Vale,” said Tony Robson, an analyst at BMO Capital Markets, in a note to clients today. “The proposed sale would likely make the company net free cash flow break-even for the year”.

Prices Stabilize

Vale’s Moatize mine is one of the world’s biggest deposits of coal used for steelmaking, with the company boosting output for the product by 8.4 percent to 2.14 million tons in the first nine months of the year. Coking coal prices have fallen 18 percent this year, though they have stabilized in recent months, according to Bloomberg Intelligence analyst Andrew Cosgrove in a Dec. 4 report.

“The transaction is essential for the continuity of our investment in Mozambique and Malawi as it provides the funding for the completion of the Moatize project and of the NLC,” Vale said in a separate statement today.

After the deal is concluded in 2015, Vale will indirectly own 81 percent of the coal mine and about 35 percent of NLC, sharing its control with Mitsui, the Brazilian company said, adding that Mitsui may pay a further $30 million for the mining stake conditional of performance targets.

The partnership with Vale in Mozambique will be one of Mitsui’s top investment priorities, according to Kotaro Yamaguchi, the Japanese trader’s head of coal business. The coking coal price is poised to rebound as most mines in the world are operating in the red, he said at a briefing with reporters in Tokyo today.

Shares of Mitsui dropped 1 percent to close at 1,616.5 yen in Tokyo today. Vale lost 3.4 percent to 18.06 reais in Sao Paulo yesterday, the lowest since September 2005.