* BTG Pactual, AGN to spend $520 mln in mining venture
* Former Vale CEO Agnelli sees resilient mining sector
* Venture B&A allows BTG to enter metals, ore industry
* Seeks acquisitions amid price drop in mining assets

Two of Brazil’s most prominent dealmakers have joined forces to create a $520 million mining venture, confident that recent drops in iron ore and metal prices make some assets in the sector ripe for acquisitions.

Investment bank BTG Pactual, controlled by billionaire financier André Esteves, has teamed up with Roger Agnelli, former chief executive of mining company Vale , to create B&A Mineração. BTG Pactual and Agnelli’s AGN Participações will each own half of São Paulo-based B&A.

The association allows BTG Pactual to move into mining after venturing over the past three years into projects mostly related to Brazil’s buoyant infrastructure and consumer goods sectors. B&A offers a chance for Agnelli, who will serve as B&A chairman, to reprise his role of high-flying deal maker after a stormy departure from Vale last year, when the Brazilian government pushed him out.

B&A has two ongoing projects in Brazil and Chile and will soon be on the lookout for acquisitions across Africa, Agnelli and other executives said at a news conference on Thursday. The company expects to be fully operational within the next three to five years, said Eduardo Ledsham, another former Vale executive who will be the venture’s CEO.

The creation of B&A, an idea that slowly took shape following informal meetings between Esteves and Agnelli, comes as falling commodity prices pushed down mining project valuations globally. Agnelli dismissed the notion that demand for minerals will weaken as China’s economy slows, saying the cycle that has caused prices to soar in the past decade is far from over.

“I see a convergence of vision between BTG Pactual and us,” Agnelli said. “We all are convinced that investing right now, in a moment of scarce capital and a dearth of robust projects carried out by experienced teams with a strong track record, will help us create massive value.”

In addition to Agnelli and Ledsham, another six ex-Vale executives will join B&A.

Brazil’s seaborne iron ore exports are expected to rise about 40 percent to 450 million tonnes in 2015 from 320 million tonnes last year. Over the past three years, delays, bureaucracy and a global slowdown have helped slash the 2015 estimate by about one-fifth.

B&A is one of several new Brazilian companies entering the mining sector.

Other recent entrants include Ferrous do Brazil, a private venture between Brazilian and Australian investors, and Bahia Mineracao, 100 percent-owned by Eurasian Natural Resources Ltd . MMX Mineração e Metálicos, controlled by Brazil’s richest man, Eike Batista, is also developing new mines as is MHAG Servicos e Mineração.

DEAL MAKING LEGENDS

The association between Esteves, who turned 44 on Thursday, and Agnelli, who started his career at the investment-banking division of Banco Bradesco, unites two of Brazil’s most notable deal makers of the past decade.

Agnelli, 53, clinched Vale’s top job after 19 years as an investment banker with Bradesco. Known for his discipline and hot temper, he instilled a culture of meritocracy that turned Vale into Brazil’s No. 1 exporter and a Wall Street darling.

The São Paulo-born economist transformed Vale from a money losing state company into the world’s second-largest diversified miner behind BHP Billiton. Vale is Brazil’s largest private sector company, although the government has a significant stake through state banks and pension funds.

Vale’s revenues rose 13-fold during Agnelli’s 10 years as chief executive. Profit at the company, which under Agnelli diversified by expanding from iron ore into nickel and fertilizers, jumped about 11-fold, while production of iron ore – its flagship product – almost doubled.

Likewise, BTG and Esteves have become symbols of Brazil’s growing economic might, competing head to head with global investment banks in a country with bustling capital markets and a promising long-term growth outlook.

Since it was formed it 2009, BTG has been in a deal-making frenzy in Brazil and abroad as Esteves, the bank’s CEO and majority shareholder, strives to turn the firm into the largest investment bank in emerging markets by the end of the decade.

The Sao Paulo-based bank has for years advised miners in takeover and capital markets transactions in Brazil and overseas. B&A will also take advantage of BTG Pactual’s creation of a $1 billion fund to invest in Africa, Agnelli said, adding that “their and our strategies converged perfectly.”

The partnership “showcases BTG Pactual’s ability to attract high quality partners,” wrote Citigroup Global Banking & Markets analyst Daniel Abut in a report. “This agreement shows BTG Pactual management’s willingness to reinvest capital in its merchant banking business.”

STRONG TRACK RECORD

Agnelli’s and BTG Pactual’s track records will be essential in attracting investors and help bargain for assets that are also being sought by Vale and some of its large rivals, including Australia’s BHP Billiton LTD and Rio Tinto Ltd.

Agnelli said the moment is “right” to invest in Africa. Ledsham added that B&A’s new investments in Brazil could be delayed as the government mulls changing current rules for mining investment in indigenous communities and natural reserves.

Demand for minerals, fertilizers, metals and other minerals will remain firm for the next 10 years, Agnelli forecast, while acknowledging there would be “natural market ups and downs out ahead.

Ledsham said B&A will also look out for business opportunities in markets such as titanium, where a mismatch between supply and demand offer significant room for profits. Both executives highlighted the need to invest in mining in an environmentally sustainable manner.

“One very thing that this industry has to do is begin working with the affected communities in order to make them participants of development,” Agnelli said.

Under his tenure, Vale was faced with strikes and lawsuits by indigenous tribes and communities neighboring some important company projects.

Units of BTG Pactual, a blend of common and preferred shares of the company’s investment banking and private equity divisions, fell 0.7 percent to 29.89 reais, commpared with a 0.3 percent decline in Brazil’s benchmark Bovespa index.

By Guillermo Parra-Bernal
Reuters