SUPERPORT IS BRAZIL´S NEW ROUTE TO CHINA / THE FINANCIAL TIMES ( RECOMMENDED READING )

Superport is Brazil’s new route to China

By Joe Leahy in São Paulo

Published: May 9 2011 23:14

The so-called Highway to China is one of the first infrastructure projects in Brazil built on a scale to match anything in the Asian nation from which it takes its nickname.


Officially known as the Açu Superport, the facility stretches into the sea off the coast of the state of Rio de Janeiro and is the most ambitious component of the portfolio of Eike Batista, Brazil’s richest man.


After it begins operations next year, it will be deep enough to service the Chinamax – a new vessel capable of shipping 400,000 tonnes of iron ore between Brazil and China, twice that of most existing bulk carriers plying the route.


Açu is one of the most ambitious projects backed by Mr Batista, a former extreme speedboat racing champion estimated by Forbes magazine as the world’s eighth-richest man with a fortune of $30bn.


Mr Batista, who runs his empire from Rio de Janeiro through holding company EBX Group, grew up with mining and exploration.

His father, Eliezer, as mining minister presided over the transformation of Companhia Vale do Rio Doce (later privatised and renamed Vale) into one of the world’s largest iron ore producers.


Mr Batista set up and ran his own gold and diamond mining operations in the Amazon in the 1980s.


Between 2004 and 2008, he raised $10bn from equity investors in initial public offerings of EBX’s subsidiaries, most offering little more than ambitious plans.


EBX’s main subsidiaries include LLX, the logistics company building Açu port; OGX Petroleo e Natural Gas Participacoes, the oil flagship; power-generation company MPX; oil services and shipbuilder OSX and miner MMX.


With the exception of MMX, these are all in the start-up phase. Only the mining subsidiary is generating cash at this stage. However, EBX says it will invest $15bn between 2010 and 2014 in start up companies in the oil and gas, energy and mining sectors.


At his headquarters on Flamengo beach, Mr Batista sprinkles his conversation with the word “brutal” to describe everything from his experiences developing his first gold mine in the Amazon in the 1980s to his vision for a vertically integrated oil, mining and energy group.


“You can see the synergies behind the whole thing and they are brutal,” he says of EBX.


The biggest project is Açu, which is set to become the largest port in the Americas on completion. Set on a remote beach, the facility is seeking to attract $40bn in total investment across an area 2.5 times the size of Manhattan island.


Mr Batista wants the port to serve miners – London-listed Anglo American is planning to transport iron ore from its inland mines to Açu via a 525km pipeline – and oil companies.


The port is near Brazil’s giant offshore “pre-salt” oil fields, expected by many to propel the country into the world’s top ranks of producers of the fuel in the coming years.


“The oil is all in front of us,” says Mr Batista. “This will be the pre-salt industrial park.”


Mr Batista’s partners in Açu include China’s Wuhan Iron and Steel, which is building a steel plant, and South Korea’s Hyundai Heavy Industries, which is investing in a shipyard with OSX. Mr Batista is courting automotive manufacturers to the facility, which will also have its own power plants.


The billionaire forecasts that Brazil’s ship-building industry could employ about 300,000 people in the next five to eight years, three times the number today, as it increases capacity to serve the pre-salt fields.


He also sees ports as one of the main bottlenecks holding back Brazil. “You know what people [investors] say to me? ‘I love your country, I love Brazil but I don’t know how we can get stuff in or out of it.’”

But, for Mr Batista, a key hurdle will be meeting the expectations of impatient stock market investors.


OGX was trading at R$14.48 per share on Friday, down from almost R$20 since the release of a report in mid-April that said the company had 3.1bn barrels of oil equivalent of “contingent resources” – oil that is potentially recoverable.

This was below market expectations and the company’s own estimates of 4bn boe. Mr Batista rejected the findings of the report, conducted by consultants DeGolyer and MacNaughton, as based on outdated recovery techniques and too conservative.


Mr Batista says his mining company is already generating cash while OGX, OSX and MPX should begin doing so in October. LLX will have to wait until the third quarter of next year.


Many analysts see his forecasts, particularly for OGX’s oil production, as aggressive. OGX’s 2008 initial public offering was one of the most successful on the Brazilian market but OSX’s listing in São Paulo last year flopped.


Copyright The Financial Times Limited 2011.