UPDATE: ArcelorMittal, Usiminas Confirm Talks On Brazil Port Bid

ArcelorMittal (MT), the world's largest steelmaker, and Brazilian steelmaker Usinas Siderurgicas de Minas Gerais SA (USIM5.BR, USZNY) confirmed Tuesday they are in talks on setting up a consortium to make a joint bid for an iron ore port area to be put up for auction on Brazil's Atlantic coast.

The so-called Area do Meio port area at Itaguai on Sepetiba Bay in Rio de Janeiro state, southeastern Brazil, is expected to be put up for auction by the federal Companhia Docas do Rio de Janeiro ports company later this year.

"The idea is that the new port will make mining production in Serra Azul, Minas Gerais state, more competitive, as shipping ore via the new port will reduce the logistics problems faced by the region's companies," ArcelorMittal said in a statement.

Usiminas, as the Brazilian steelmaker is known, said in a statement that it is interested in setting up a partnership with ArcelorMittal within a consortium to bid for the port, without specifying who else might also join the consortium. Various mining companies have operations in Serra Azul, including MMX Mineracao e Metalicos SA (MMXM3.BR), which is already building a port at Itaguai, and Ferrous Resources Ltd., which is at an early stage of a mine development project and is owned by U.S., U.K. and Brazilian pension funds.

Usiminas's directors said in a March 7 conference call that Usiminas has a "keen interest" in participating in the Area do Meio auction, as having its own port would facilitate iron ore exports from its mines in Minas Gerais state, currently under expansion.

Rio de Janeiro state Economic Development Secretary Julio Bueno told Dow Jones Newswires in a recent interview he expects "very competitive" bidding for the new port area due to the level of interest. The Area do Meio port area will likely see about $100 million in investments, he said.

Usiminas plans to expand its mines to produce 29 million metric tons of iron ore by 2015, from about 8 million tons this year. The bulk of its output will be available for export, as the company supplies only one of its steelworks from its own mines while the other works will continue to purchase iron ore from miner Vale SA (VALE, VALE5.BR) under a long-term contract.

Mining is seen as one of the most profitable parts of the flat steelmaker's business, after rising Chinese demand in recent years has inflated prices for the steelmaking raw material.

ArcelorMittal recently announced plans to increase its iron ore output in Brazil next year to 7.1 million tons from around 5.3 million tons in 2011, as part of a companywide global strategy to boost self-sufficiency in iron ore production.

Serra Azul, a mountain range that concentrates some of Minas Gerais's remaining high-grade iron ore deposits, is notorious for transport hurdles that have slowed down the region's development as a mining area.

The area is connected to the coast by a railway owned by MRS Logistica SA, in which Usiminas, Vale and steelmaker and mining company Companhia Siderurgica Nacional SA (CSNA3.BR, SID), or CSN, all have shareholdings, but there has been limited coastal port shipping capacity within reach.

The port area now to be put up for grabs, located between existing ports operated by Vale and CSN, could be used for exports of iron ore and other products. It is also alongside an area owned by Usiminas, the so-called Inga area that was contaminated by a former zinc producer and is being cleaned up by Usiminas.

The idea is that Usiminas will offer its partners--or whoever wins the auction to operate the Area do Meio--the opportunity to use the Inga area, which measures 800,000 square meters, as a port backup area, Usiminas's former Chief Executive Officer Wilson Brumer said late last year.

-By Diana Kinch, Dow Jones Newswires; 55 21 2586 6086; diana.kinch@dowjones.com