SAO PAULO - Brazilian mining company Vale said on Wednesday that it would pay $3.8 billion to take over Bunge Ltd's fertilizer assets in Brazil, as global demand for potash is boosted by growing food consumption.

Vale will acquire Bunge Participacoes e Investimentos SA, which owns phosphate rock mines and phosphates assets and a direct and indirect stake of 42.3 percent in the capital of Fosfertil, a leading fertilizer company.

The deal, which does not include any retail or distribution business, marks Vale's biggest acquisition since its $18.2 billion takeover of Canada's Inco in 2006 as it sought to expand into nickel production.

Vale said in a securities filing that it was paying $1.65 billion for BPI's phosphate rock and phosphates assets, and the remaining $2.15 billion for the shares of Fosfertil held directly and indirectly by BPI.

Vale will launch a mandatory offer to buy out the common shares held by the minority shareholders of Fosfertil.

This transaction is instrumental to the consolidation of Vale's strategy on focusing on Brazil as the main market for its production of phosphates, given the potential of the acquired mines as well as the growth associated with our projects around the world, Vale Chief Executive Roger Agnelli said.

Vale shares dipped 2 percent to 41.75 reais in early-afternoon trade, while Fosfertil shares rose 1.37 percent to 19.25 reais. Bunge shares were up 1.3 percent to $62.81 in early New York Stock Exchange trading.

In a separate statement, Bunge said it will retain its fertilizer operations in Argentina and the United States.

BPI is Brazil's No. 2 producer of phosphates fertilizers. It has two phosphate rock mines, in Minas Gerais and Sao Paulo states, which produced 1.6 million tonnes of phosphate rock in 2008, and four processing plants for the production of phosphates fertilizers.

Fosfertil operates three phosphate rock mines, with a total nominal production capacity of 3.4 million tonnes per year of phosphate rock.

Currently, Fosfertil is developing Salitre, a project in Minas Gerais state with preliminary production capacity of 2 million tonnes per year of phosphate rock.

GLOBAL PLAYER

The deal is the latest sign of growing interest in the global fertilizer business, which has seen a spate of merger and acquisition activity in recent months, including a battle for Terra Industries Inc (TRA.N).

Vale, the world's largest iron ore producer and exporter, has said it is interested in strategic acquisitions in the fertilizer sector to become a leading global player. It was reported to have been in talks that ultimately failed last year to acquire U.S. potash producer Mosaic (MOS.N).

The Rio de Janeiro-based company has said its growing bets on fertilizer are part of a strategy to benefit from rising global food consumption and agricultural output in South America and Asia.

Vale is developing a world-class potash deposit in Brazil's northeast and has set aside $479 million to bring its Bayovar project in Peru online this year.

The company, which sold a stake in Fosfertil to Bunge for $84 million in 2003, said the technology it can used to extract potash and other minerals for fertilizers is similar to the technology it employs to mine iron ore.

Bunge's exit from Fosfertil comes as Brazil's government is attempting to reform the country's mining regulations to increase federal taxes and royalties from the sector and stimulate domestic fertilizer production.

(Reporting by Inae Riveras; Additional reporting by Elzio Barreto; editing by John Wallace)

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