Brazilian mining giant Vale said on Friday it plans to expand its fertilizer business with a $3.8 billion takeover of Bunge assets in the country, making its largest bet so far on a surge in demand for potash as global food consumption grows.

Vale is in talks to buy Bunge's 42.3 percent stake in fertilizer company Fosfertil , phosphate mines and manufacturing plants. The purchase would add to the company's $857 million purchase of potash projects in Canada and Argentina last year from Rio Tinto Plc .

The deal would mark 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's bid is the latest sign of growing interest in the global fertilizer business that has seen a spate of merger and acquisition activity in recent months, including a battle for Terra Industries Inc .

Fosfertil is an asset that shows Vale's interest in becoming big in fertilizers, said Pedro Galdi, an analyst at brokerage SLW in Sao Paulo.

Vale's shares dipped 0.5 percent to 46.14 reais in early afternoon trade, while Fosfertil shares surged 8.4 percent to 21.89 reais. Bunge's stock jumped 3 percent to $70.17 in New York.

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

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 agriculture output in South America and Asia.

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

The company, which had sold a stake in Fosfertil to Bunge for $84 million in 2003, said it can use similar types of technology to extract potash and other minerals for fertilizers as it also employs to mine for iron ore.

Fosfertil is Brazil's main provider of raw materials for fertilizer producers and mixers and is an important part of the country's agricultural sector, a linchpin of Latin America's largest economy.

The news of Bunge's potential exit from Fosfertil comes as the 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 Elzio Barreto; Additional reporting by Roberto Samora and Reese Ewing in Sao Paulo; Editing by Phil Berlowitz)

Canada Argentina