Phil Falcone’s Harbinger Top Holding $BHP Rumored to Be in Talks With Ferrous

According to Bloomberg, BHP Billiton Ltd (BHP) is in talks to buy Ferrous Resources Ltd, a Brazilian iron-ore producer. The deal is rumored to be worth around $3.2 billion. The discussions have been taking place in Melbourne, home of BHP, over the past few weeks.

BHP Looks to the Future of Iron Ore

BHP is currently “studying development of a 20 million-ton-a-year iron ore concentrate operation in southeastern Brazil from 2017, the government of Minas Gerais state said on its website, citing a letter of intent signed by BHP. The company is also a partner in the Samarco venture in the country with Brazil’s Vale SA,” writes Bloomberg. BHP is looking at a $2.1 billion iron-ore project in Brazil right now, which could complement Ferrous’s operations. Brazil is the world’s second-largest exporter of iron ore, making it a prime location for businesses like BHP and its rival Rio Tinto (RIO) that are looking for resources to meet the large demand for the material seen in many developing nations, like China, which is the world’s biggest user of iron ore. BHP is confident that demand for iron ore “will hold up even as economic growth slows.” Bloomberg notes, “BHP may spend $25 billion enlarging iron-ore operations as part of its global investment plan announced in February, Citigroup Inc. said Feb. 16. Iron ore contributed 37 percent of the company’s $37.1 billion in earnings before interest, tax, depreciation and amortization for the year through June.”

Ferrous Has Big Plans Too

Bloomberg reports, “Ferrous is seeking to produce as much as 25 million metric tons of iron ore annually from 2014 following an expansion.” According to Bloomberg, “An official at an external public relations firm working for Belo Horizonte-based Ferrous said today that the company has been looking for a strategic partner for some time.” In March, Ferrous was in talks with investors and lenders to fund a $4 billion expansion, specifically mining and steel companies in China, Japan, Korea and Brazil. Ferrous also took part in talks with Evergreen Industries Holding Group, but they broke down in July. Ferrous was preparing an $400 million IPO but shelved plans after the second sale broke down. Phil Falcone‘s New York-based hedge fund, Harbinger Capital Partners holds more than 26% of Ferrous as of the end of the first quarter, 2011.