By Paul Kiernan

RIO DE JANEIRO -- Brazilian mining firm Vale SA said Monday it will sell most of its fertilizer business to U.S.-based The Mosaic Company for around $2.5 billion, the latest step in its effort to pay down debt amid the commodity downturn.

The deal brings an end to Vale's one-time hopes of capitalizing on global population growth by producing the fertilizers needed to cultivate crops.

For Mosaic, the acquisition represents a key foothold in one of the world's largest fertilizer markets and should help feed existing distribution networks in Brazil, said Floris Bielders, Mosaic's Brazil president.

"If you want to grow in agriculture and fertilizers it has to be in Brazil," Mr. Bielders said in an interview. "It's the fastest-growing market and with the most upside to continue to grow."

Vale, the world's largest producer of iron-ore and nickel, had identified fertilizer ingredients as a strategically important business several years back. But it never got off the ground, accounting for just 8% of Vale's overall revenue in the third quarter and posting negative earnings before interest and taxes.

The biggest setback came in 2013, when Vale indefinitely suspended a $5.92 billion potash-mining project in Argentina, known as Rio Colorado, due to high costs and political difficulties.

By this year, Vale's finances were growing precarious as iron-ore prices crashed and the company struggledwith the fallout of a major disaster at its Samarco joint venture in November 2015.

Rumors have swirled for months that Mosaic could buy the fertilizer business from Vale, with local news reports putting the price tag at $3 billion.

Vale stock fell sharply after the deal was announced for less than expected, with preferred shares recently trading 5.3% lower at 23.03 Brazilian reais.

The sale should nevertheless ease Vale's debt load and help the company to focus on its core iron-ore business, said Pedro Galdi, an investment analyst at Upside Investor.

"Vale wanted to get out of this business," Mr. Galdi said.

Mosaic and Vale expect to close the deal at the end of 2017. Half the transaction amount should be paid to Vale in cash and the other via the issuance of an estimated 42.3 million shares in Mosaic, equivalent to about 11% of the latter company's capital.

Excluded from the deal are nitrogen and phosphate assets in Cubatão, Brazil, which generated cash flow of $108 million in 2015, Vale said. The company expects to explore options for the Cubatão assets next year.

Write to Paul Kiernan at paul.kiernan@wsj.com

(END) Dow Jones Newswires

December 19, 2016 14:37 ET (19:37 GMT)

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