valehistorybook9

Transcription

valehistorybook9

2002
1931
1944
CHAPTER 9
A New World
9.1 Vale’s international expansion
From 2002 to 2006, the expansion of the global economy fueled
business in Brazil. The world accelerated and CVRD did not stay
behind. On its horizon lay the East. Alongside the 50th anniversary
celebrations of its partnership with Japan, which included an
informal match featuring Vale executives and soccer star Zico,1 the
company was gaining a foothold in China. It was a wise move, as
China was the world’s fastest growing emerging economy – annual
expansion of Chinese gross domestic product (GDP)2 reached
a remarkable 13% in 2007, more than twice that year’s global
economic growth of 5.2%.3
Vale became one of the first Brazilian companies to enter China
when it formed a coal production joint venture with Yankuang
Group, together with the participation of Japanese company
Itochu. In December 2004, the Chinese government approved
the incorporation of the Shandong Yankuang International
Coking Company Limited joint venture, and Vale made an initial
contribution of US$10.6 million.4 Meanwhile, the company was
arriving in other countries. In Mozambique, it won a bid to mine
coal in Moatize, considered the biggest unexploited coal province
in the world. In Canada, Vale made the largest ever purchase on
the global market by a Latin American company, when it acquired
Inco Ltd., the world’s second biggest nickel producer, in 2006. The
US$18 billion purchase of Inco was a big step forward in Vale’s
international expansion process, given that the Canadian miner
had operations in Indonesia, the United Kingdom, South Korea,
Taiwan and Japan, as well as a project in New Caledonia in Oceania.
July 2005 saw another milestone in Vale’s history, when
the company was awarded an investment grade rating by risk
classification agencies. Vale was the first Brazilian company to
receive this rating, which indicates to the market that a company
is solid and safe to invest in, without the risk of defaulting on its
loans. Vale was classified as investment grade before the Brazilian
government was (rating agencies classify countries as well as
companies), in April 2008.
To ensure its growth, Vale expanded its investment in logistics
and power generation in order to avoid problems such as those
experienced during the major blackouts across Brazil in 2001.
Hydroelectric plants were built in various states, including Minas
Gerais and Tocantins, guaranteeing power supplies for Vale’s
operations. In the logistics area, besides expanding its railroad
network to transport iron ore for export, the company invested
in giant trucks – approximately 6 meters high (around 2 meters
higher than the vehicles used until then) and 7 meters wide, with
wheels of up to 5 meters in diameter and neon headlights providing
nighttime visibility – to be used at Carajás Complex.
In addition, Vale’s strong presence in the lives and imaginations
of Brazilians was symbolized at the Rio de Janeiro carnival parade.
In 2003, the Acadêmicos do Grande Rio samba school told the story
of mining and CVRD’s 60 years of history. The moment of glory was
reinforced by the fact that the school’s chosen samba song was
written by renowned carnival composer Joãosinho Trinta.
1 - Arthur Antunes Coimbra, known as Zico, was a renowned soccer player who played
for Flamengo in Rio de Janeiro from 1970 to 1980 and Kashima Antlers F.C. in Japan from
1991 to 1994. He played in the World Cups of 1978, 1982 and 1986. At the time, Zico
was coaching Japan’s national team (2002-2006) and he was living in Japan when Vale
celebrated its 50th anniversary.
2 - Set of goods and services produced in a country.
3 - See the International Monetary Fund’s 2009 World Economic Outlook. Available at
<http://www.imf.org/external/pubs/ft/weo/2009/update/01/>.
4 - See Vale’s 2005 Annual Report.
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279
Photo at the start of this chapter:
mine and processing plant in
Voisey’s Bay, Newfoundland
and Labrador, in Canada.
Left: construction workers in
Beijing, China, in October 2003.
9.2 The economy that came from afar
5 - See International Monetary Fund (IMF) database. Data and Statistics. Available at
<http://www.imf.org>.
the Moatize deposit.12 Investment by Vale and other companies
contributed to the fact that, in 2005 and 2006, Mozambique’s
economy grew by more than 8% per year.13
In March 2002, during the privatizations of Fernando Henrique
Cardoso’s government, the National Treasury and the National
Economic and Social Development Bank (BNDES) sold 33% of Vale’s
common shares. Investors from 17 countries and 584,588 Brazilians
became partners in Vale. Workers were able to invest some of their
resources deposited in their Government Severance Indemnity
Fund (FGTS) accounts in Vale shares, through the “FGTS-Vale” fund.
The company became, in all senses, the property of Brazilians.
Vale’s investment grade rating was another major watershed,
and even more significant when one considers the fact that, a short
time before, the Brazilian economy had gone through a period
of severe turbulence in the run up to Luiz Inácio Lula da Silva’s
election as the country’s president. On September 27, 2002, the
Brazilian real fell to a record low of R$3.88 against the US dollar,
while the “Brazil risk” rating (the difference between the yields14 of
Brazilian government bonds and those issued by the US Treasury,
considered to have zero risk of default) reached 2,440 basis points,
the highest level in seven years.15
However, market pessimism proved to be mistaken. After growing
by just 1.1% in 2003, the Brazilian economy expanded by 5.7% in
2004 and 6.1% in 2007.16 CVRD made the most of the good times,
both in Brazil and in the global economy – which was recovering
from the post-September 11 trauma and entering a growth phase –
to expand both at home and abroad. With the strengthening of the
global economy, commodity prices hit successive highs.
At the end of 2002, the company’s market value reached US$11
billion, up 20.3% from US$9.2 billion in 2001. Vale was now 60
years old. The company’s president (by then known as CEO in
English), Roger Agnelli, summed up the situation in this way: “In
a year marked by slow growth of the global economy, the closure
6 - See World Trade Organization (WTO)’s 2003 Report. Documents and resources, WTO
publications. Available at <http://www.wto.org/english/res_e/statis_e/its2003_e/its03_
general_overview_e.pdf>.
Global economic prospects were promising at the start of
2002. China’s accession to the World Trade Organization (WTO),
formalized in December 2001, stimulated trade between the
country – which in the previous year had grown by 8.3%5 – and
the rest of the world. In 2002, China became the fourth biggest
economy to operate in international trade; in just two years, its
commerce expanded by 30%, during a period of global stagnation.6
China’s urgent drive to renew its infrastructure for the 2008
Olympic Games was another factor in its growing presence in world
trade and economic expansion. In 2003, the country’s economy
grew at an annual rate of 10%, rising to 10.7% in 2006.7 According
to the WTO, one of the highlights of 2004 was China’s continual
rise in international trade.8 The country’s appetite for commodities
benefitted the exporters of these products, including Brazil – and
consequently CVRD.
Due to strong demand, the percentage of Vale’s total gross
revenue attributed to Chinese customers was 15% in 2005, rising to
16.7% in 2006. Meanwhile, the corresponding percentage accounted
for by Asian customers not including Chinese companies was
14.9% in 2005 and 22.7% in 2006.9
Iron ore prices also rose steadily. According to data from the
United Nations Conference on Trade and Development (UNCTAD),
the average price went from US$27.67 per metric ton in 2000 to
US$74.39 in 2006,10 a rise of 169%.
As coal is essential to steelmaking, Vale quickly saw opportunities
in Mozambique, home to one of the largest coal reserves in the
world.11 The company’s contact with the Mozambican government
began in 1987, but it was only in 2004 that CVRD won a bid to exploit
280
7 - See IMF database. Data and Statistics. Available at <http://www.imf.org/external/
pubs/ft/weo/2007/01/pdf/c1.pdf>.
8 - See WTO’s 2005 Report.
9 - See Vale’s 2006 Form 20-F Report.
10 - See UNCTAD statistical data, available at <http://unctadstat.unctad.org/TableViewer/
tableView.aspx?ReportId=104>.
11 - The Economist, “Mozambique’s recovery,” July 8, 2010. Available at <http://www.
economist.com/node/16542671>.
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13 - See IMF database. Data and Statistics. Available at <http://www.imf.org>.
14 - In 2002, a 10-year US Treasury bond yielded between 4% and 5%. See <http://
www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.
aspx?data=yieldYear&year=2002>
and
<http://g1.globo.com/Noticias/Economia_
Negocios/0,,MUL19707-9356,00.html>.
15 - “Tensão leva dólar a novo recorde,” O Globo, September 28, 2002.
16 - See database of Brazil’s official statistics agency, IBGE. Available at <ftp://ftp.ibge.gov.
br/Contas_Nacionais/Contas_Nacionais_Trimestrais/Fasciculo_Indicadores_IBGE>.
of international financial markets and the natural volatility of
the Brazilian economy due to presidential elections, Vale obtained
record sales and one of the three biggest profits in its history,
reaching R$2.04 billion.”17
Between 2001 and 2004, CVRD’s market capitalization rose
from US$9.2 billion to US$39.9 billion.18 During these four years,
the company exported US$16.2 billion, making it the biggest
net exporter in Brazil, accounting for 18.4%19 of the country’s
accumulated trade surplus in the period. Growing trade surpluses
helped to improve Brazil’s external debt indicators, allowing the
country to dispense with IMF support in 2005. Between 2000
and 2009, Vale’s net exports corresponded to the payment of
approximately 25% of Brazil’s external debt.20
In many cases, Vale’s exports alone exceeded some of Brazil’s
main export products.21 In 2006, for example, the company
exported US$9.65 billion of goods, while Brazilian soybean exports
(encompassing soybean grains, bran and other soy products)
amounted to US$8.91 billion.22
In the first five years of this century, Vale made various major
acquisitions. In Brazil, one of its main targets was competitor Caemi,
purchased in 2003, while abroad the most notable acquisition was
the 2006 takeover of Canadian company Inco. The purchase of
Canico, another Canadian company, in 2005, gave Vale guaranteed
control of the Onça Puma nickel production project in the Brazilian
state of Pará. In addition, the year 2004 saw Vale’s entry into the
copper market with the start of operations at Sossego Complex in
Canaã dos Carajás, also in Pará.23
17 - See Vale’s 2002 Annual Report. There was a political and economic crisis in Argentina
that year, but even so, Vale made the third highest net profit in its history.
19 - Idem.
20 - Interview with José Augusto de Castro, vice-president of the Foreign Trade Association
of Brazil (AEB), granted to Vale. According to de Castro, “Over the years, […] the trade
surplus produced by Vale contributed to reducing and eliminating Brazil’s external
vulnerability. The US$49.712 billion trade surplus generated by Vale between 2000 and
2009 is equivalent to around 25% of Brazil’s external debt of US$250 billion, which until
recently was an immense cause for concern. It was a fundamental contribution to the
economic stability we so wanted.”
21 - See Vale’s 2004 and 2005 Annual Reports.
22 - Data from Vale, Brazil’s Central Bank and the Ministry of Development, Industry and
Foreign Trade (MDIC).
23 - Vale Press Office, “CVRD Adquire Participação da Phelps Dodge no Projeto Sossego,”
October 24, 2001. Available at <http://saladeimprensa.vale.com/pt/release/interna.
asp?id=11239>.
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282
283
Vale’s nickel refinery in
Dalian, China, in 2010.
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Visit by delegation from China, including Prime Minister Zhao
Ziyang (in the center, wearing sunglasses). Below: tugboats
Tubarão and São João engage in docking maneuvers when meeting
a Chinese ship at Tubarão Complex, Espírito Santo, in 2004.
In 2010, Asia accounted for 60.7% of Vale’s shipments of
iron ore and pellets, with China alone representing 42.9%
9.3 The Chinese boom and iron ore exports
284
The relationship between Vale and China goes back a long way,
to 1973, but it was only in the late 1990s that it really intensified.
A few years before the turn of the century, Asian countries faced
a severe financial crisis provoked by heavy debt levels in their
economies and distrust among investors about their capacity to pay
back loans.24 The result was a flight of capital from the continent,
causing devaluations of local currencies, which in turn worsened
Asian countries’ indebtedness in US dollar terms and led to falls in
share prices, a shortage of credit and economic recession.25
With a government that was centralized but willing to open up
its economy, China was the least affected of all countries on the
continent, and its performance began to stand out. Its economic
policy had gone through structural reforms in the late 1970s and
the country began to attract growing interest in its market.26 This
factor, together with heavy public investment and a weak exchange
rate, transformed China into the world’s biggest exporter in terms
of sales volumes, accounting for 10% of global exports, which
added up to US$14.8 trillion in 2010.27
However, the need to stimulate the production of its factories
led to a rise in the rate at which iron ore – a raw material used
to make steel – was consumed in China. Until then self-sufficient
in iron ore, the country began to import the product, becoming a
major commercial partner of Brazil.28
Despite its competitive disadvantage due to its geographical
distance from China, Vale expanded its sales to the country at
an annual rate of 33.3% between 1998 and 2002. CVRD’s share
of total Chinese imports grew from 11% in 1998 to 16% in 2002. 29
Especially focused on its relations with China, which was then
the main driver in the seaborne market, Vale developed a number
of initiatives to reduce iron ore shipping costs. 30 They included
efforts to promote sales of Chinese coal and metallurgical
coke to Brazilian customers, generating return freight revenue.
Vale encouraged the arrival of Chinese ships in Brazil and took
advantage of their return journey to ship iron, resulting in
successful trades for both parties. 31
Exports to China also made a large contribution to the 22% rise,
to 23.8 million metric tons, in the volume of general cargo handled
for customers at ports controlled by Vale between 2001 and 2002.32
The biggest advance in Sino-Brazilian relations took place
between 2002 and 2006, when shipments of Vale’s iron ore to the
Asian country more than quadrupled, from 17.5 to 77.9 million
metric tons. China then became the company’s main partner,
surpassing sales on the domestic market.33
Various factors lay behind this phenomenon, above all
China’s entry to the World Trade Organization in December
2001. This forced the country to open up its economy to imports
and new technologies, as well as stimulating investment
in low-cost industrial products (machines, computers and
telecommunications products). 34
China’s biggest iron ore supplier
In 2005, Vale exported 56.53 million metric tons of iron ore –
22.4% of the company’s total sales – to China, which was by then
the world’s largest iron importer. From 1995 to 2005, China’s
total iron ore imports rose by 559.5%, from 41.14 to 275.2 million
metric tons. 35
A long-term partner of Vale, Japan was the company’s second
biggest customer in 2005, consuming 25.25 million metric tons of
iron ore – 10% of total shipments. In third place came Germany,
which consumed 24.55 million metric tons (9.7%), followed by
France (4.7%), South Korea (4.2%) and Italy (3.9%). Sales to steel
and pig iron producers in Brazil amounted to 45.64 million metric
tons – 18.1% of Vale’s total sales.36
The following year, 2006, Vale became the biggest supplier
of iron ore to China, shipping 77.9 million metric tons there.
This represented annual growth of 37.8% and consolidated the
expansion in sales to the country.37 That year, exports to China
accounted for 28.6% of the company’s total sales volumes.38
From that point onward, China became even more significant
to the iron ore trade. In 2010, Asia accounted for 60.7% of Vale’s
shipments of iron ore and pellets, with China alone representing
42.9%. Chinese imports were then so large that 33.1% of Vale’s
operating revenues came from sales to customers in that country.39
Also in 2010, China represented 59% of global demand for iron
ore on the seaborne market. In addition, the country consumed
37% of the world’s exports of nickel and 38% of aluminum exports.40
New frontiers, new markets
Following the reforms of 1978, based on market principles,
China’s economy began to grow exponentially. This expansion
mainly reflected the government’s action to industrialize and
urbanize the country, which raised investment in infrastructure,
led to the construction of large buildings and increased demand
for machinery. 41
In addition, there were reforms in the steel sector, with efforts
to make state-owned enterprises more autonomous in the early
1980s. These companies became more independent from the
government and began to use surplus cash to invest in enhancing
35 - “A economia mineral chinesa e sua influência no comércio Brasil-China.” Study
commissioned by the Ministry of Mines and Energy from the Federal University of Ouro
Preto, March 2009.
24 - Data from Vale and the Ministry of Development, Industry and Foreign Trade (MDIC).
30 - Idem.
25 - See Puga, Fernando et al. “O comércio Brasil-China: situação atual e potencialidades
de crescimento.” BNDES, Textos para Discussão 104, April 2004.
31 - Idem.
37 - See Vale’s 4Q06 US GAAP Results, “Superando desafios: o desafio da CVRD em 2006,”
and 2006 Sustainability Report.
26 - Idem.
33 - See Vale’s 2006 Sustainability Report.
27 - See World Trade Organization’s website. Available at <http://www.wto.org/english/
res_e/res_e.htm>.
34 - See Pereira, Lia Valls and Ferraz Filho, Galeno Tinoco. “O acesso da China à OMC:
implicações para os interesses brasileiros,” Estudos CNI, 5, December 2005, and Vale’s 2003
Annual Report.
28 - See Puga, Fernando et al., op. cit.
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32 - Idem.
285
38 - See the 2005 Annual Report and 2006 Sustainability Report.
39 - See the 2010 Form 20-F Report.
40 - Idem.
41 - China’s Steel Industry, Reserve Bank of Australia, December 2010.
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Rongsheng Shipyard in Nantong,
eastern China, in May 2012.
The ship Vale Lima can be
seen in the foreground.
TABLE 1
IRON ORE exportS TO China
YEAR
286
their facilities and expanding their production capacity. 42 In
the 1980s and 1990s, the sector’s output also benefitted from
the opening up of the Chinese market to foreign trade and
inward investment, permitting local steelmakers access to more
advanced technologies. 43
As a result, Chinese steel production soared, growing at an
average annual rate of 7% in the 1980s, 10% in the 1990s and nearly
20% in the first decade of the 21st century.44
Consequently, China became the world’s largest steel producer.
In 1997, when the effects of the Asian crisis were still being felt, the
country’s steel mills produced 108.91 million metric tons of raw
steel, equivalent to 13% of global supply. In 2010, Chinese output
reached 626.65 million metric tons – 45% of global production.45
In China, the main customers of international mining
companies until 2008 were the large steelmakers, which had longterm supply contracts, with prices agreed upon annually. In 2008,
the 10 biggest companies in the sector accounted for almost 42%
of global steel production.46
This supply focused on special steels used in the automotive,
machinery and electronics sectors. However, the financial crisis
that started in the United States in 2008 with the bankruptcy of
investment bank Lehman Brothers quickly spread around the
world and seriously harmed exports in these fields.
On the other hand, the Chinese construction sector continued
to grow fast, especially due to heavy public sector investment.
This situation favored small and medium steel companies, which
bought iron ore on a spot basis through short-term contracts.47
In 2008, Vale decided it was necessary to establish a presence in
Asia. The reason was simple: a ship loaded with iron ore takes an
average of 45 days to make the journey from Brazil to China, while the
company’s Australian and Indian competitors only take an average
of 10 days to reach there.48 Vale intended to become less exposed
to risks, minimizing its distance-related competitive disadvantage.
By having distribution centers closer to its customers, Vale would
reduce its delivery times and avoid repeating what happened in 2007
and 2008, before the crisis erupted, when strong demand doubled
freight costs, which reached US$100 per metric ton.49
In addition, the company continued to enhance its sales
channels to serve large companies in the sector. In 2007, it developed
a dedicated transportation service on the Brazil-China route.
Through a long-term contract, it improved its supply of products to
the Chinese market and managed to maintain competitive prices.50
Iron ore became ever more significant to Brazil’s balance of
trade. In 2000, Brazil exported 11.5 million metric tons of iron ore,
representing 5.53% of the country’s total exports in value terms.
China was the country’s third largest purchaser, absorbing 0.49%
of Brazilian exports, after Japan and Germany.51
By 2006, iron ore had become Brazil’s largest export product,
accounting for 6.49% of total exports, and China was now the
largest purchaser, absorbing 1.91% of Brazilian exports.52
42 - Idem.
TOTAL EXPORTS
SALES OF IRON ORE AND
CONCENTRATES TO CHINA
IRON ORE EXPORTS
US$
US$
%
US$
%*
2002
60,361,785,544
3,048,850,425
5.05
597,225,468
0.99
2003
73,084,139,518
3,455,920,298
4.73
764,857,259
1.05
2004
96,475,238,342
4,758,875,217
4.93
1,114,955,800
1.16
2005
118,308,269,477
7,296,631,290
6.17
1,784,631,125
1.51
2006
137,807,469,531
8,948,871,317
6.49
2,629,457,745
1.91
2007
160,649,072,830
10,557,911,454
6.57
3,710,286,660
2.31
2008
197,942,442,909
16,538,542,577
8.36
4,886,119,931
2.47
2009
152,994,742,805
13,246,903,676
8.66
7,010,659,667
4.58
2010
201,915,285,335
28,911,882,009
14.32
13,338,017,356
6.61
2011
256,039,574,768
41,817,251,122
16.33
19,797,076,421
7.73
* Percentage of total Brazilian exports. Source: Table produced using data from the Ministry of Development, Industry and Foreign Trade (MDIC).
TABLE 2
TOTAL SALES OF IRON ORE AND concentraTEs
TO China (MILLION METRIC TONS)
TABLE 3
VALE’S SALES OF IRON ORE AND PELLETS TO China
(MILLION METRIC TONS)
YEAR
VOLUME
YEAR
VOLUME
2001
28.0
2001
14.9*
2002
34.5
2002
17.5*
2003
50.0
2003
29.4
2004
52.7
2004
41
2005
59.1
2005
54.1
2006
81.3
2006
75.7
2007
105.0
2007
94.5
2008
96.3
2008
85.1
2009
166.1
2009
140.3
43 - Idem.
48 - Valor Econômico, May 22, 2009, and the 2009 Form 20-F Report.
2010
152.6
2010
126.4
44 - Idem.
49 - Idem.
45 - See World Steel Association database. Available at <http://www.worldsteel.org/
statistics/statistics-archive.html>.
2011
164.5
2011
131.8
46 - Idem.
51 - See <http://www.mdic.gov.br/sitio/interna/interna.php?area=5&menu=1299&r
efr=1161>.
47 - China’s Steel Industry, Reserve Bank of Australia, December 2010.
52 - Idem.
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Source: Table produced using data from the Ministry of Development, Industry and
Foreign Trade (MDIC, 2001-2011).
Source: Vale’s 4Q US GAAP Results, 2003-2011. * Values only refer to the parent
company (Vale’s 4Q BR GAAP Results, 2001-2002).
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Strategic partnership and future prospects
Accompanying Chinese growth, Vale became one of the largest
mining and metals companies in the world, with a record market
value of US$56.9 billion on January 31, 2006.53 The company’s
progress was gradual: in 2003, it was fifth in the global sector ranking,
and rose to fourth place the following year. Vale’s partnerships
with Asian companies were important to its achievements. In 2004,
the company signed an agreement with Yankuang Group, one of
China’s biggest coal producers, and Japan’s Itochu Corporation, to
produce metallurgical coke and ethanol in China.54 This was Vale’s
first industrial operation in China.
Vale and Yankuang began to jointly develop the Zhaolou
coking coal mine in Shandong Province, whose estimated annual
production capacity was 3 million metric tons. For its 25% stake
in the mine’s joint venture, Vale paid US$26 million in 2004. The
project also involved Japanese company Itochu.55 Vale also signed
an agreement with Shanghai Baosteel Group Corporation, China’s
largest steel producer, and Yongcheng Coal & Electricity Group,
one of the leading Chinese coal miners, to produce anthracite
in two mines in Henan Province56 with total annual production
capacity of 4.5 million metric tons. Through its agreement, Vale
has the right to 25% of the processed anthracite produced by the
venture. In January 2006, Vale received its first coal shipment, of
approximately 40,000 metric tons, from China to Brazil.57
Between 1981 and 2001, the Chinese government managed to
lift 400 million people out of poverty. One of its strategies was
to prioritize the consumer goods industry, an intensive user of
manpower, in a shift from the previous model, which consisted
of investment in heavy industry. In line with the change in its
priorities, China incentivized migration from rural areas to the
cities, generating extra demand for housing and infrastructure.
This stimulated the construction sector and demand for minerals.58
At the end of 2008, Beijing announced a target to double China’s
per capita income by 2020. Given that the country has 1.3 billion
people, growing at a rate of 0.9% per year and with improving life
expectancy (currently 73.5 years on average), the impact on demand
for iron ore has been very strong.59 In addition, it is estimated that
in one decade, around 160 million Chinese people will move from
the countryside to the cities, whose infrastructure needs should
underpin demand for steel.60
Despite the variety of minerals that China possesses, its
production in relation to domestic demand is small.61 Furthermore,
a large share of Chinese mineral deposits are underground, located
at great depths, making production costs high.62
Also significant – and something that makes China an
important customer of Vale – is the fact that although the country
has enormous reserves of iron ore (68 billion metric tons, according
to data from the Chinese government, dated April 2007), this ore
is low grade – with average iron content of 30% to 35%. To produce
steel, iron content needs to be higher, and China’s need for higher
quality ore has made the country the world’s biggest importer
of the commodity.63 To run its steel companies’ blast furnaces
efficiently, China has needed – and continues to need – to mix
its own low-grade iron ore with richer ore produced by Vale. It is
also notable that China’s strong demand and the large number
of companies exploiting mineral resources in the country (more
than 2,500, according to a study by Brazil’s Ministry of Mines and
Energy) should accelerate the exhaustion of its iron ore reserves.64
53 - See the 2005 Annual Report, p. 23.
54 - See the 2004 Annual Report.
55 - Idem.
56 - Idem.
Nippon Steel’s steel mill
in Oita, Japan, in 1990.
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Our History
58 - “A economia mineral chinesa e sua influência no comércio Brasil-China.” Study
commissioned by the Ministry of Mines and Energy from the Federal University of Ouro
Preto, March 2009.
59 - Idem.
60 - Idem.
61 - Idem.
62 - Idem.
63 - Idem.
64 - Idem.
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289
Previous page: Copper Cliff
Refinery, belonging to Inco,
in Sudbury, Canada.
290
291
9.4 The Inco purchase
The purchase of Inco Limited, approved by Canada’s regulatory
authorities in October 2006, was a milestone in Vale’s process of
international expansion.65 The Canadian mining company then
possessed the world’s largest nickel reserves and it was the second
biggest nickel producer, after Russian company Norilsk Nickel.66
Costing US$18.24 billion, it was the biggest acquisition ever made
by a Latin American company, and it was funded “in very favorable
conditions, enabling the company to retain its low-risk debt profile
and very healthy balance sheet.”67
Through this acquisition, Vale became the world’s second
largest nickel producer and expanded its geographical reach and
product range. Due to its exceptional portfolio of projects, Inco had
the “best growth potential among its competitors.”68
Roberto Castello Branco, Vale’s Investor Relations Director,
explained the importance of the Inco acquisition: “Vale became not
only a global leader in a sector other than iron ore, but the world’s
second biggest nickel producer, with the largest reserves and the
best technology. This also gave rise to Vale’s transformation into
a global company. We now had operations in various countries: in
Canada and Indonesia, small operations in the United Kingdom,
Japan, China, Taiwan and South Korea, and a project in New
Caledonia. Vale presents itself as a global company, and this is
starting to determine cultural changes.”
Vale
Our History
Over 100 years of history
Inco had a history going back more than a century. The first batch
of ore left the Creighton Mine in Sudbury, Ontario, in 1901. On April
1, 1902, the International Nickel Co. was established and it floated
on the New York Stock Exchange in September 1915. In July of the
following year, the International Nickel Company of Canada Limited
was incorporated into the American company International Nickel
Co. The abbreviation Inco was adopted in 1919.69
King George VI and Queen Elizabeth were the first members of
the British royal family to visit the nickel operations in Sudbury,
in 1939, and the queen was the first woman to go down one of
the mines. Twenty years later, Queen Elizabeth II visited the same
place. During the Second World War (1939-1945), Inco delivered
750,000 metric tons of nickel, 875,000 metric tons of copper and
more than 56 metric tons of platinum to the Allies.70
A major nickel discovery was confirmed in February 1956, in
Thompson, in the Canadian province of Manitoba. A mining and
refining operation at the site was opened in March 1961. When it
reached maximum operating capacity later that same year, Inco
became the second biggest nickel producer in the world.71
Once the negotiations to acquire Inco had been completed, Vale
established CVRD Inco Ltd. (now Vale Canada Limited, a wholly
owned subsidiary) by incorporating Inco Ltd. and Vale subsidiary
Itabira Canada Inc.72 Besides producing and selling nickel, CVRD
Inco, from its head office in Toronto, also began managing other
base metal operations.73
65 - “Vale obtém autorização para comprar a Inco,” O Globo, October 20, 2006.
69 - See <http://nickel.vale.com/business/history/#>.
66 - U.S. Geological Survey data. Minerals Information, Commodity, Nickel. Available at
<http://minerals.usgs.gov/minerals/pubs/commodity/nickel/myb1-2006-nicke.pdf>.
70 - Idem.
67 - See the 2006 Sustainability Report, p. 34.
72 - See 2010 Form 20-F Report.
68 - Idem.
73 - Idem.
71 - Idem.
Vale
Our History
Aerial view of the Port
of Prony, part of the
Vale New Caledonia
nickel and cobalt project
in New Caledonia,
Oceania, in 2007.
Vale
Our History
Vale
Our History
Metallurgical tests at the Onça
Puma Project in Ourilândia
do Norte, Pará, Brazil. Below:
nickel sample taken from
Onça Puma in May 2006.
CHANGE IN MARKET VALUE
US$ BILLION
95
85
75
Iron ore remained Vale’s main product following the
establishment of CVRD Inco, accounting for 48% of its gross
revenues in 2006. Nevertheless, nickel was also very significant,
representing 26% of total revenues that year, “at a time of strong
demand and record prices for the metal.”74
By acquiring Inco, Vale also gained subsidiary PT Inco,
with operations in Indonesia, and a nickel-cobalt project in
New Caledonia, an archipelago in Melanesia in Oceania.75 PT
International Nickel Indonesia Tbk (PTI) had begun operating in
1970. Its assets consist of open-pit mines and a processing plant in
Sorowako, on the island of Sulawesi, which produces nickel matte to
feed Vale’s refinery in Japan.76 In New Caledonia, Inco’s subsidiary
– now Vale Nouvelle-Calédonie SAS (VNC) – was established in
1992. In 1999, an initial mining zone containing 47 million metric
tons of probable reserves was delimited. In 2001, Inco confirmed
its intention to invest US$1.4 billion in the company’s commercial
operations.77 The Vale New Caledonia project’s estimated annual
nickel production capacity is 60,000 metric tons.
When CVRD Inco was formally acquired on October 24, 2006,
Vale became the world’s second largest producer of refined nickel,
with annual production of 250,600 metric tons.78 Refined nickel is
produced by processing nickel ore; ferronickel and nickel matte, an
intermediate product, are also produced. The graph on the opposite
page79 shows the change in Vale’s market value from 2002 until the
end of 2006, when the company purchased Inco.
295
US$69 billion*
65
55
45
35
25
15
5
2002
2003
2004
2005
2006
Source: Vale’s 2006 Annual Report.
* In December 2006
Another investment made by Vale in Canada was Canico,
bought in November 2005 for approximately US$800 million.80
CVRD completed this transaction in February 2006, giving it
100% of the Canadian company’s equity. This operation ensured
Vale control of the Onça Puma nickel production project in
Pará, Brazil. The project, which covers the municipalities of
Ourilândia do Norte, Tucumã and Parauapebas, has a nominal
production capacity of 53,000 metric tons of nickel per year.81
Onça Puma was Vale’s first ferronickel operation in Brazil and it is
one of the largest in the world. It consists of a mine and processing
plant. In 2007, its reserves were reassessed, rising from 78 to 82.7
million metric tons. The main cause of this increase was the use
of a new modeling method, in line with the recommendation of an
audit conducted the previous year.82 The operation also includes
an electricity substation to meet the needs of the operation. In all,
US$2.297 billion was invested to implement the project.83
78 - Idem.
80 - See 2005 Annual Report.
74 - Idem.
75 - Idem.
76 - See 2010 Form 20-F Report and its website, available at <http://nickel.vale.com/
business/history/#>.
77 - See <http://nickel.vale.com/business/history/#>.
Vale
Our History
Vale
Our History
9.5 In search of coal
Moatize was considered the largest unharnessed coal province
in the world, with world-class reserves estimated at 2.4 billion
metric tons of thermal and metallurgical coal. In 1987, Vale’s
interest in the African country’s coal deposits led to its first contact
with the government of Mozambique. In 1989, the company signed
an agreement to develop a project to exploit the metallurgical coal
reserves of Moatize in the province of Tete, using a mine-railroadport complex. The reserves were spread over a 3,200 square
kilometer area alongside the Zambezi River.
In 2003, Vale signed a memorandum of understanding to explore
the coal deposits of Moatize. The following year, a consortium led
by the company, in association with American Metals and Coal
International, won a bid to develop a mine, for US$122.8 million.84
The incorporation of Rio Doce Moçambique Limitada, a company
created by the consortium, occurred in April 2005. Studies about
the project’s funding and technical feasibility were completed in
November 2006.85
While investing in Africa, Vale also entered the Chinese coal
market, through joint ventures with local companies, including
Yankuang and Yongcheng. The company now operates coal mines
in the Chinese provinces of Shandong and Henan.86 In 2005,
Vale invested in the coal market in Australia, the home of its
competitors BHP Billiton and Rio Tinto. Vale signed an agreement
with subsidiaries of Aquila Resources Ltd. and AMCI International
to undertake a study into underground coal mining. This study
did not lead to any concrete results. However, in February 2007,
Vale bought AMCI Holdings Australia for 835 million Australian
dollars (slightly more than US$662 million).87 At the time, Vale’s
Executive Director of Non-Ferrous Metals, José Lancaster, said that
Australia had been on the company’s radar for a long time due to
its proximity to Asia, where its main customers were.88
296
Taquari-Vassouras Mine
in Rosário do Catete,
Sergipe, Brazil, in 2011:
employees observe the
underground mine from
which potash is extracted.
Vale
Our History
Fertilizers
Vale also saw the opportunity to enter the fertilizer market. Brazil
is heavily dependent on imports in this area – around 70% of the
fertilizers used by the country’s farmers are imported, and this
figure rises to 90% in the case of potash, a raw material used to
make fertilizers.89 As a result, Vale invested in potash projects both
in Brazil and in other countries, such as Argentina and Canada.90
One of these investments involved Taquari-Vassouras mine in the
Brazilian state of Sergipe. In 1991, Vale entered into a contract
with Petrobras to lease this, the only potash mine in Brazil, and
operations began the following year. The mine’s production
capacity was initially estimated to be 650,000 metric tons per year.
In 2001, approval was obtained to expand its capacity to 850,000
metric tons per year through an investment of US$67 million.
In 2012, the contract, initially lasting for 25 years, was extended
for a further 30 years, allowing Vale to continue its operation in
Taquari-Vassouras and proceed to develop the Carnalita Project.91
Through this project, Vale estimates that it will raise its annual
potash output in Sergipe by 1.2 million metric tons.92
In 2006, Taquari-Vassouras mine produced 731,000 metric
tons of potash. At the time, the mine’s proven and probable
reserves amounted to 16.6 million metric tons. 93 In 2011, annual
production was 625,000 metric tons and total reserves were put
at 13.4 million metric tons. It is estimated that the mine will be
exhausted in 2016. 94
In October 2003, Vale sold an 11.12% stake it owned in
Fertilizantes Fosfatados S.A. (Fosfertil) to Bunge Fertilizantes S.A.
At the time, Vale classified the transaction as being consistent with
its focus on mining and logistics.95
In March 2005, the company won an international bid to mine
the Bayóvar phosphate deposit in the Piura region of Peru – one of
the biggest phosphate rock deposits in South America, with the
89 - See Vale’s Press Office, “Vale e Petrobras assinam acordo para a exploração de
potássio em Sergipe,” April 23, 2012. Available at <http://saladeimprensa.vale.com/pt/
release/interna.asp?id=21567>.
86 - See the 2005 and 2006 Annual Reports.
91 - Idem.
87 - See Vale’s Press Office, “Vale compra empresa australiana para crescer em carvão,”
February 26, 2007. Available at <http://saladeimprensa.vale.com/pt/noticias/interna.
asp?id.=17216>.
92 - Idem.
88 - See Vale’s Press Office, Jornal do Brasil, “Vale arremata a australiana AMCI,” February
27, 2007. Available at <http://saladeimprensa.vale.com/_newsimagens/news_17218_1.
jpg>.
93 - Idem.
95 - See Vale’s Press Office, “CVRD Vende sua Participação na Fosfértil,” October 24, 2003.
Available at <http://saladeimprensa.vale.com/pt/release/interna.asp?id=11075>.
Vale
Our History
297
298
299
Train being loaded at
Moatize coal mine in
Mozambique, in 2011.
Vale
Our History
Vale
Our History
In 2005, when Sossego Mine completed its first
year of full operations, sales were made to 13
customers in 11 countries
300
capacity to produce 3.9 million metric tons per year.96 Phosphates,
together with potash and nitrogen, are used to make fertilizers.
Before this, in November 2004, Vale bought the rights to develop
a potash deposit on the banks of the Colorado River in Argentina.
The start of the first phase of the Rio Colorado Project, whose
nominal potash production capacity is 2.1 million metric tons
per year, is planned for the second half of 2014. 97 Another potash
project, called Neuquén, 98 is currently at the pre-feasibility study
phase. Its estimated potash production is 1 million metric tons
per year. 99
Vale believes that rising global consumption of agricultural
products, especially in emerging countries, will boost demand
for fertilizers. 100
9.6 Copper in Brazil: Sossego
Vale began producing copper in 2004. In the first half of this
year, operations were started up at Sossego Mine in Canaã dos
Carajás, Pará, a deposit discovered by the company in 1997. In
2001, Vale acquired Phelps Dodge do Brasil Mineração Ltda.’s stake
in the project for US$42.5 million.101
Implementation of the Sossego Project began on August 31,
2003, when excavation work began at the Sequeirinho orebody.
By the end of the year, 1.93 million metric tons of ore and waste
rock had been removed, surpassing the year’s target of 1.8 million
metric tons. 102
By the end of 2004, the total amount of material extracted
from Sossego Mine, whose estimated lifespan was 17 years, was
28 million metric tons, including 6 million metric tons of sulfide
ore of 1.31% copper content. In its first year of operation, the plant
obtained a 92% metallurgical recovery rate.103
The first batch of copper concentrate was shipped out from São
Luís, Maranhão, on June 3, 2004. In all, 269,000 metric tons produced
at Sossego Mine were sold – 252,000 metric tons for export and
17,000 to customers in Brazil. This sales volume generated gross
revenues of R$592 million.104
In the same year, Vale completed producing and updating the
Sossego Master Plan and it invested R$119.8 million in the project’s
infrastructure. The company also entered into agreements to train
and develop the local workforce, as well as partnerships with Canaã
dos Carajás municipal government to conduct public security and
basic sanitation projects.105
In 2005, when Sossego Mine completed its first year of full
operations, sales were made to 13 customers in 11 countries.
Production once more exceeded 100,000 metric tons of copper in
concentrate, amounting to 107,000 metric tons. The shipments
generated gross revenues of R$937 million.106
98 - See Vale’s Press Office, “CVRD ganha concorrência para exploração de depósito de
potássio na Argentina,” November 17, 2004. Available at <http://saladeimprensa.vale.
com/pt/release/interna.asp?id=13267>.
99 - See Vale’s Press Office, undated.
101 - See Vale’s Press Office, “CVRD Adquire Participação da Phelps Dodge no Projeto
Sossego,” October 24, 2001. Available at <http://saladeimprensa.vale.com/pt/release/
interna.asp?id=11239>.
Vale
Our History
103 - Idem.
Aerial view
of Sossego
Mine in Pará.
105 - Idem.
Vale
Our History
Above: ore reclaimer at the Mineração Rio do Norte
(MRN) bauxite mine in Oriximiná, Pará, Brazil, in
2003. Below: operations at Rio Doce Manganèse
Norway (RDMN), in Mo i Rana, Norway, in 2005.
9.7 Acquisitions and divestments
In 2002, Vale CEO Roger Agnelli stated that CVRD would
concentrate “on diversified growth in mining activities and
the development of associated logistics and electric power
businesses.”107 To this end, it was necessary to go through
certain transformations: the mining company had to expand its
investment in operations such as coal, while disposing of interests
in activities such as pulp and gold production. In September of
that year the company completed, for R$191.4 million, the sale
of assets belonging to Florestas Rio Doce S.A. (FRDSA), composed
of 39,700 hectares of land in Espírito Santo and 8,000 hectares in
Minas Gerais, to Aracruz Celulose and Bahia Sul Celulose.108
Meanwhile, Vale incorporated the entire equity of Celmar
S.A. – Indústria de Celulose e Papel. By purchasing Nissho Iwai
Corporation’s stake in Celmar, in December 2002, CVRD took
control of 29,400 hectares of eucalyptus plantations in the state
of Maranhão. The eucalyptus produced would be used to make
charcoal – the only iron ore reducing agent that enables pig iron to
be produced in an environmentally sustainable manner.109
Vale also wound down its gold assets. In 2002, the company
closed down operations at its biggest gold mine, Igarapé Bahia,
located in Parauapebas, Pará. Sales that year were down
significantly from 2001, falling from 508,472 to 331,479 ounces.
As a result, gross revenue from sales of gold also decreased, by
15.4%, to R$280 million, despite a 14.4% rise in the dollar price per
troy ounce. 110 The site’s processing plant was adapted to process
copper instead. 111
In June 2002, through Aluvale, CVRD acquired a 12.6% interest
that Mineração Rio do Norte (MRN), a joint venture, held in
Alunorte. In this way, Aluvale raised its stake in Alunorte to 62.1%
of its common shares and 57.03% of its total equity.112
In June 2003, Vale acquired full control of Salobo Metais, the
owner of the Salobo copper project in the state of Pará, from
Anglo American, for US$50.9 million. The aim was to enable
the project to be designed and implemented so as to maximize
synergies arising from Vale’s existing operations in Carajás.113
302
108 - Idem.
109 - “Vale anuncia a incorporação de Celmar e Ferteco,” Exame magazine, September 1,
2003. Available at <http://exame.abril.com.br/negocios/empresas/noticias/vale-anunciaa-incorporacao-da-celmar-e-ferteco-m0058635>.
Our History
115 - The transaction was completed in January 2003. See the 2002 and 2003 Annual
Reports.
121 - The definitive incorporation of Caemi took place in 2005 and 2006.
117 - Idem.
124 - In December 2006, Caemi was incorporated by CVRD. See “CVRD completa
incorporação de ações da Caemi,” Vale, May 3, 2006. Available at <http://saladeimprensa.
vale.com/pt/release/interna.asp?id=16124>. See also the 2006 Sustainability Report.
118 - Idem.
111 - See Vale’s Press Office, “Nova fase da Mina de Igarapé Bahia,” July 10, 2002. Available
at <http://saladeimprensa.vale.com/pt/release/interna.asp?id=11202>.
119 - Idem.
company bought 50% of Caemi’s common shares and 40% of its
preferred shares for US$426.4 million, giving it control of Caemi,
with 100% of its voting capital and 40% of its preferred shares,
equivalent to 60% of its total equity.121
In 2004, Vale initiated a number of new projects in the steel
sector. In March, it signed a memorandum of understanding
with South Korean steelmaker Dongkuk, Danielli, an Italian
manufacturer of equipment for metallurgical plant equipment
manufacturer, and Brazil’s development bank, BNDES, to build the
Ceará Steel Mill (Usina Siderúrgica do Ceará, or USC) in Fortaleza,
northeast Brazil.122 It also sold its 28.02% stake in CST to Arcelor
for US$578.5 million.123
In 2005, Vale incorporated its shares in Caemi, giving it 100%
ownership of the group,124 which, among other companies,
controlled Minerações Brasileiras Reunidas (MBR). According to
Vale, this incorporation made management more efficient and
transparent, in addition to reinforcing financial capacity, generating
potential gains in productivity.
In 2006, Vale spent US$21.5 billion on acquisitions, largely
accounted for by the purchase of Inco. This was a major milestone
in the company’s international expansion process, as Investor
Relations Director Roberto Castello Branco declared in an interview
in January 2012. In addition, Vale acquired Rio Verde Mineração, a
company located in the Iron Quadrangle region of Minas Gerais,
close to MBR’s operations in the municipality of Nova Lima, for
US$47 million. In July of that year, the company also bought a
45.5% stake that BHP Billiton Metais S.A. held indirectly in Valesul.
The US$28 million deal gave Vale 100% ownership of Valesul.125
Vale’s divestments in 2006 generated a considerable amount of
resources. The disposals included a US$418 million stake in Gulf
Industrial Investment Co.,126 a US$176 million stake in Usiminas (a
further US$728 million was raised in 2007 from the sale of another
tranche of shares in the company), a US$108 million interest in
Siderar, a US$67 million stake in Gerdau, and a US$14 million
interest in Nova Era Silicon. The previous year, Vale had sold a total
of US$126 million of assets.127
114 - See Vale’s Press Office, “Aluvale adquire Mineração Vera Cruz,” July 1, 2002. Available
112 - Idem.
Vale
Another important acquisition took place the following
month, when CVRD, through Aluvale, bought a 64% interest in
affiliate Mineração Vera Cruz S.A. (MVC), based in Paragominas,
Pará, for R$6.403 billion. By means of a transfer of shares from
Grupo Paranapanema companies, Vale took possession of 100% of
MVC’s equity. 114
The restructuring of the company’s equity interests was then
extended to the area of manganese and ferroalloys. Contributing
to its international growth process, Vale acquired full ownership
of Rio Doce Manganèse Europe in France, and Elkem Rana in
Norway, subsequently renamed Rio Doce Manganese Norway.
This brought about an increase of around 110,000 metric tons in
Vale’s annual manganese ferroalloy production capacity.115 At the
same time, the company announced the disposal of its interests in
Eletrosiderúrgica Brasileira S.A. (Sibra) and Companhia Paulista de
Ferro-Ligas (CPFL).
By 2002, Vale was present in 14 Brazilian states: Amazonas,
Bahia, Espírito Santo, Goiás, Maranhão, Mato Grosso do Sul, Minas
Gerais, Pará, Rio de Janeiro, Rio Grande do Sul, Santa Catarina,
São Paulo, Sergipe and Tocantins.116 Outside Brazil, the company
also had a strong presence, with subsidiaries and affiliates in the
United States, Argentina, Chile, Peru, France, Norway and Bahrain,
as well as offices in New York, Brussels, Tokyo and Shanghai.117
In order to expand its presence in South America outside Brazil,
Vale established a subsidiary in 2002 to harness new mining
opportunities in southern Peru and Chile. This took place in association
with Chilean mining company Antofagasta, and the focus was on
copper mining. Meanwhile, Vale also established Compañia Minera
Latinoamericana (CMLA), headquartered in Chile, to be responsible
for mineral exploration activities in Chile and Argentina.118
That same year, Vale acquired Acesita S.A.’s stake in Companhia
Siderúrgica de Tubarão (CST), raising its interest in the steelmaker
from 22.85% to 28.02%. In addition, CVRD signed an agreement
with Arcelor (now Arcelor Mittal), the world’s largest steelmaking
group, to guarantee the liquidity of its stake in CST.119
In 2003, Vale completed some important acquisitions, including
that of Caemi, helping to strengthen Vale’s position as the world’s
biggest producer and exporter of iron ore and pellets.120 The
120 - “Vale conclui compra da Caemi; Mitsui fica com 5% da Valepar,” Exame.com,
September 3, 2003. Available at <http://exame.abril.com.br/negocios/empresas/noticias/
vale-conclui-compra-da-caemi-mitsui-fica-com-5-da-valepar-m0058649>.
125 - See the 2006 Form 20-F Report, p. 31.
126 - An iron ore pellet producer in Bahrain.
127 - See the 2006 Form 20-F Report and 4Q06 US GAAP Results.
Vale
Our History
303
Left to right: Bayóvar Phosphate
Mine in Peru, and an aerial view
of piers I, II and III at Ponta da
Madeira Maritime Terminal in
São Luís, Maranhão, Brazil, in 2005.
304
9.8 Investment grade
In July 2005, Vale celebrated a landmark date in its history when
it became the first Brazilian company to receive an investment
grade rating,128 even before the Brazilian government. The first
ratings agency to award Vale this classification was Moody’s, on July
8, followed by Standard & Poor’s and Dominion Bond. Vale thereby
became the first Brazilian company to have a better rating than
its host country’s government – Brazil only received investment
grade status in April 2008129 – and was the only one to receive such
a rating from three ratings agencies.130
That same year, Vale was rated BBB by Standard & Poor’s, Baa3
by Moody’s and BBB low by Dominion.131 In 2011, its ratings were A(Standard & Poor’s), Baa2 (Moody’s), BBB high (Dominion) and BBB+
(Fitch).132 Companies and countries at the BBB level are considered
capable of coping with a moderate level of economic turbulence,
while those rated B and C are seen as fragile and only attractive
to speculative capital. Companies and countries rated A to AAA
are considered safer, and AAA is the top score, denoting zero risk.
Classification D indicates default.133
128 - Risk evaluation score given by specialist institutions known as ratings agencies
to companies or countries considered to be safe investments. A country classified as
investment grade is deemed to have a high capacity to honor its debts. The opposite
classification, high risk, is called speculative grade or junk. See “Grau de Investimento,”
Glossário de Economia, O Estado de S.Paulo, available at <http:// economia.estadao.com.
br/glossario/letra_g.htm>.
Vale’s market value more than quintupled between 2001 and
2005, rising from US$9 billion to more than US$50 billion. In 2005,
Vale held exploration rights covering 8.7 million hectares in Brazil
and 19.8 million hectares in Angola, South Africa, Argentina, Chile,
Gabon, Guinea, Mongolia, Mozambique and Peru, putting it among
the four largest mining and metals groups in the world.134
Being classified as investment grade was a major endorsement for
CVRD, which had honored its commitment to maintain a balanced
financial strategy. It was also identified as the best performer in
terms of shareholder returns between 2000 and 2004, out of all
companies in the world with a market value of more than US$25
billion, according to a study by the Boston Consulting Group.135
The international context was favorable: in 2005, the global
economy grew by 4.8%. The GDP of the United States, Europe and
Japan expanded by 3%, while emerging countries (excluding South
Korea, Israel and Singapore, according to the IMF’s classification)
grew by 7.2%. Brazil’s growth rate was 3.2%.136
The company ended 2005 with a net profit of US$4.8 billion
– a new record, up 88.1% from the previous year. Gross revenue
amounted to US$13.4 billion and the company’s net exports from
Brazil totaled US$6.3 billion, representing 14.1% of the country’s
trade surplus, a record that year. Between 2001 and 2005, Vale’s
exports increased at an average annual rate of 20.8%, and its total
exports in this period were US$23.3 billion.137
129 - “Com a chancela de porto seguro,” O Globo, May 1, 2008.
9.9 Five years of expansion
in logistics (2002-2006)
Given that mineral deposits are generally located in remote
areas, transportation is a fundamental question. For this reason,
logistics was classified by Vale CEO Roger Agnelli as the second
most important area for the company, after mining.138 This
infrastructure is used not only for mining, but also to transport
various other products. In 2002, the revenue obtained from
intermodal services grew by 44%, reaching R$170 million. These
services involved the transportation of containers by railroads and
on the sea between the main ports of Buenos Aires, Argentina, and
Manaus in the state of Amazonas, Brazil, complemented by road
transportation.139 Many records were broken that year.
In 2002, the transportation of agricultural goods was the most
dynamic area within Vale’s logistics activities. Especially notable
were soybean exports and integrated operations involving the VitóriaMinas Railroad (EFVM), the Centro-Atlântica Railroad (FCA) and
Tubarão Complex.140 One example of this was the first consignment
of soybeans from northeast Mato Grosso to be shipped out of Ponta
da Madeira Maritime Terminal in São Luís, Maranhão, opening up a
new transportation corridor for that region. These operations earned
Vale R$250 million, up 56% from the previous year.141
Then extending for 7,080 kilometers, the FCA connects Bahia,
Espírito Santo, Goiás, Minas Gerais, Rio de Janeiro and Sergipe, as
well as the Federal District, to the ports of Rio de Janeiro, Vitória,
Angra dos Reis, Salvador and Aracaju. It has the following main
lines: the Bahia Line, which links the Camaçari petrochemical
complex in Bahia to the industrial centers of São Paulo and
Santos; the Cerrado Line, which connects Goiânia, Brasília and Belo
Horizonte to the ports of Vitória, Tubarão and Barra do Riacho, used
mainly to transport agricultural products; and the Minério (“Ore”)
Line, which links cities near Belo Horizonte to the states of Rio
de Janeiro and Espírito Santo, mainly carrying minerals, limestone
and steel sector products. The FCA also transports petroleum
goods, cement, pig iron and grains.142 The railroad operates via a
renewable 30-year contract that expires in 2026.143
A number of new records were attained in 2002, such as the
transportation of 336,000 metric tons of soybeans and bran by
the EFVM and FCA in April, and the shipment of 432,000 metric
tons of goods by the Diverse Products Terminal (TPD) in Vitória,
Espírito Santo in June. Another record was made at Ponta da
Madeira Maritime Terminal, which shipped out 55.5 million
metric tons of cargo, up 4% from 2001. Of this total, iron ore and
pellets amounted to 51.6 million metric tons. 144 In the same year,
Tubarão Complex in Espírito Santo 145 exported 89.9 million metric
tons of goods, of which iron ore and pellets accounted for 72.9
million metric tons. 146
To transport ore, more railroad tracks were needed. In January
2002, the FCA began operating a 431-kilometer stretch of track
between Valefértil in Minas Gerais and Boa Vista Nova, near the
city of Campinas in São Paulo. This stretch, operated under a
concession from Ferrovias Bandeirantes S.A. (Ferroban), completed
a link to Araguari in the Triângulo Mineiro region of Minas Gerais
that was already operated by the FCA. Based on this agreement,
131 - Idem.
134 - Idem.
132 - Idem.
135 - Idem.
133 - See Standard & Poor’s, Ratings Criteria. Available at <http://www.standardandpoors.
com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldata&blobtable
=MungoBlobs&blobheadervalue2=inline%3B+filename%3Dunderstanding_ratings_
definitions.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application
%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1243834063620&blo
bheadervalue3=UTF-8>.
136 - Diniz, Eli, “O pós-Consenso de Washington: a globalização e o desenvolvimento
revisitados,” Res Pvblica, Revista de Políticas Públicas e Gestão Governamental, vol. 5, 2006,
p. 9-27, and data from IBGE.
138 - See Vale’s Press Office, “Vale acelera injeção de recursos em MG,” February 6, 2004.
Available at <http://saladeimprensa.vale.com/pt/noticias/interna.asp?id=11637>.
137 - See the 4Q05 US GAAP Results. Available at <http://www.vale.com.br/pt-br/
investido res/resulta dos - e- i n for macoes - fi n an cei ras / res u l t ados - t r i mes t rai s /
Documents/2005/4%C2%B0%20Trimestre/Press%20Releases/cvrd_usgaap_4t05p.pdf>.
140 - Idem.
145 - Composed of the Port of Tubarão, Paul Quay, the Praia Mole, Bulk Liquid and Diverse
Products terminals, and a series of pelletizing plants.
141 - Idem.
146 - Idem.
Vale
Our History
142 - See Vale’s Press Office, “Ferrovia Centro-Atlântica – FCA,” January 24, 2000. Available
144 - Idem.
Vale
Our History
305
which also granted a right of way to Santos using Ferroban’s
tracks, the FCA began operating the important corridor between
the Triângulo Mineiro industrial region and the Port of Santos.147
Over the whole of 2002, Vale invested US$68.4 million in
logistics projects, including US$28.3 million in the acquisition
of locomotives and US$30.2 million in expanding general cargo
transportation capacity in the South System.148 The volume of
general cargo shipped out for external customers from the ports
controlled by Vale – the Ponta da Madeira, Tubarão, Inácio Barbosa
and Vila Velha maritime terminals – rose by 22% in relation to the
previous year’s figures, to 23.8 million metric tons.149
On July 2, 2004, Pier III at Ponta da Madeira Maritime Terminal
was opened, together with a set of new iron ore stockyards,
following an investment of US$35.1 million. These facilities were
mainly used for iron ore and pellets, supporting expansion in
Carajás, whose annual iron ore production capacity had recently
risen by 14 million metric tons.150
When Pier III began operating, Ponta da Madeira Maritime
Terminal was then able to export 74 million metric tons of ore and
general cargo per year. After this project was completed, work began
on expanding facilities in Carajás in order to raise the North System’s
iron ore production capacity to 70 million metric tons per year.151
306
Seaborne market
This expansion in production capacity had a target in mind: the
Chinese market. Over the course of 2003, China would be the main
player responsible for raising global demand for iron ore and pellets,
reflecting the performance of the local steel industry, spurred on
147 - In exchange for granting the FCA the right to operate along there, Vale agreed to
transfer its shares in Ferroban to the latter’s controlling shareholders, following the
necessary approval from the government entity responsible for railroad concessions. See
the 2002 and 2003 Annual Reports.
Ship being loaded with
soybeans at Praia Mole
Maritime Terminal at
Tubarão Complex in Vitória,
Espírito Santo, in 2005.
Vale
Our History
by the country’s rapid economic development.152 Consequently,
demand for iron ore on the seaborne market rose by 10.3% that
year from the record level of 482 million metric tons in 2002, to a
new record of 537 million metric tons in 2003.153
Vale’s annual results in 2003 accompanied this international
trend. Ferrous minerals accounted for 69.4% of the company’s total
revenues, or US$3.84 billion. Sales of iron ore brought in US$2.66
billion, pellet revenues were US$793 million, sales of manganese
and ferroalloys raised US$349 million, and pelletizing plant
operations generated US$45 million. Of the total of 186.3 million
metric tons of iron ore and pellets sold, 139 million metric tons
were exported, up 18.6% from 2002. This was a new record, with
Vale accounting for 32.9% of the global seaborne market in 2003.154
Logistics restructuring
In 2004, CVRD completed an important restructuring operation
involving its stakes in logistics companies. Vale sold its interests
in Companhia Ferroviária do Nordeste (CFN) and Sepetiba Tecon in
Rio de Janeiro. At the same time, it further expanded its majority
stake in FCA. In September 2003, authorized by the National Land
Transport Agency (ANTT), the company took control of the FCA
concession company, having acquired 99.9% of its shares. The deal
involved an investment of around R$1 billion.155 By officially taking
over a new railroad and announcing an expansion in its supply of
transportation services, Vale enabled the country’s exports to grow.156
Between 2004 and 2006, the company allocated approximately
US$488 million to the FCA in order to modernize its assets.157
153 - Idem.
i nve s t i d o re s / re s u l t a d o s - e - i n f o r m a c o e s - f i n a n c e i ra s / re s u l t a d o s - t r i m e s t ra i s /
149 - Idem.
155 - Idem.
Vale
Our History
307
Previous page, left to right: iron
ore stockyard in Nova Lima,
Minas Gerais, in 2009, and an
aerial view of a stretch of the
Carajás Railroad (EFC) in São Luís,
Maranhão, in 2005. Left: silos
at Ponta da Madeira Maritime
Terminal in São Luís, Maranhão.
308
The leading operator in Brazilian logistics
In 2003, Vale accounted for 16% of all cargo transportation in Brazil,
65% of bulk solids handled at the country’s ports and approximately
40% of Brazil’s foreign trade transportation, accompanying
the country’s economic expansion.158 Logistics service revenue
amounted to US$604 million, up 31.9% from 2002.159 The railroad
transportation of steel for export, which grew by 82%, and the
volume of freight transported by the EFVM from factories to the
São Paulo market, which expanded 2.7 times, were the highlights
of CVRD’s logistics results that year.160
The total volume of general cargo transported by the EFVM, EFC
and FCA in 2003 was a record 26.3 billion metric ton-kilometers, up
5% from 2002.161
In addition, around 26.5 million metric tons of cargo were
handled for third parties by the port terminals controlled and
operated by Vale in 2003 – up 35% from the previous year. Ponta
da Madeira Maritime Terminal, for example, shipped out 58.4
million metric tons of goods, representing annual growth of 5.4%
and setting a new record. This included 54 million metric tons of
manganese and 3 million metric tons of general cargo (pig iron
and soybeans).162
Tubarão Complex exported 98.4 million metric tons in 2003,
against 86.7 million the previous year. This total included 72 million
metric tons of iron ore and pellets and 19.5 million metric tons of
miscellaneous cargo, most notably coal, pig iron and soybeans.163 Vila
Velha Terminal handled 2.4 million metric tons, up 17% from 2002.164
That same year, Vale acquired 2,986 railroad cars and 101
locomotives to transport iron ore and general freight, through
an investment of US$156 million, expanding its transportation
capacity for all sectors and markets served by its railroads.165
Meanwhile, the South System’s grain handling capacity was
expanded when two new silos came on line at the Diverse Products
Terminal at Tubarão Complex – which experienced a 78% increase
in the volume of fertilizers imported that year.166
Also in 2003, in the shipping sector, Docenave sold two ships
for US$36 million, meaning that it now owned just five ships.167 In
all, the company had sold 14 ships for the total sum of US$134.7
million. Only three ships now remained from Docenave’s former
long-distance fleet. That year, Vale’s shipping services generated
revenues of US$87 million.168
A partnership with Japanese company Mitsui led to the
creation of DCNDB Overseas S.A.,169 a Docenave subsidiary. Mitsui
contributed its knowhow and technology in the areas of container
transportation management and the development of a feeder
service for long-distance container shipping.
Export corridors
In 2004, Vale invested to expand the capacity of two of the
country’s main transportation corridors, fundamental to the
export of grains, called the Vitória Corridor and the Center-North
Corridor. The following facilities of importance to agriculture were
opened: two new silos in São Luís, Maranhão, raising the site’s
storage capacity by 58%; and a 64,000 metric ton capacity silo at
Tubarão Complex in Vitória, Espírito Santo, to handle exports of
the 2004/2005 harvest.170
That same year, the company announced that its logistics
area was “directly linked to the strong performance of Brazilian
agricultural exports.”171 The figures backed this claim up: Vale
accounted for 16% of all soy exported from Brazil that year, with
the company handling more than 5 million metric tons of soybeans
and byproducts, up 21% from the previous year. The company’s
logistics-related businesses earned gross annual revenue of R$3.02
billion, up 42% from 2003.172
Also in 2004, the total volume of general freight transported by
Vale’s railroads – the EFVM, EFC and FCA – surpassed the previous
year’s record by 9.1%, reaching 28.7 billion metric ton-kilometers.173
In Maranhão, Ponta da Madeira Maritime Terminal shipped out
a record 65.4 million metric tons of goods, up 12% from the 56.9
million metric tons exported in 2003.174
Tubarão Port Complex shipped 101 million metric tons of
products in 2004, up 9.3% from 2003. Shipments of iron ore and
pellets rose by 8.1% to 78.5 million metric tons, while the volume
of miscellaneous goods exported increased by 13.8%, reaching
21.1 million metric tons.175 Elsewhere in Espírito Santo, Vila Velha
Terminal at the Port of Capuaba handed 2.9 million metric tons of
miscellaneous products that year, up 17.5% from 2003.176
309
158 - Idem.
i nve s t i d o re s /re s ul tad os -e -informacoe s -fina nc eira s/resulta do s-trimestra is/
165 - Idem.
166 - Idem.
171 - Idem.
167 - See Vale’s Press Office, “CVRD conclui venda de navios da Docenave,” June 26, 2003.
172 - Idem.
174 - Idem.
163 - Idem.
investido res/resulta dos - e- i n for macoes - fi n an cei ras / res u l t ados - t r i mes t rai s /
164 - Idem.
161 - Idem.
162 - Idem.
Vale
Our History
173 - Idem.
175 - Idem.
176 - Idem.
Vale
Our History
Train cars laden with iron ore
on the Vitória-Minas Railroad
(EFVM) in Governador Valadares,
Minas Gerais, in 2001.
310
Integrated systems
Vale’s 2005 Annual Report announced that the company now had
three integrated logistics systems. In addition to its longstanding
South System and North System, with their reserves of iron and
other minerals, mines, processing facilities, and integrated railroads
and port terminals, the company presented its new MRS System.
This system was acquired in April 2001, when Vale took full control
of Ferteco Mineração S.A., which at the time owned a 10.5% stake
in MRS Logística S.A., a railroad company whose tracks linked the
states of Minas Gerais, Rio de Janeiro and São Paulo. Subsequently,
Vale expanded its direct and indirect interest in MRS Logística to
37.2% of its voting capital and 40.5% of its total capital.
Some of Vale’s iron ore production activities were then conducted
by subsidiary Minerações Brasileiras Reunidas (MBR). It “operates
its mines in the Iron Quadrangle region of Minas Gerais and exports
its products from its own maritime terminal on Guaíba Island in
Sepetiba Bay, Rio de Janeiro.”177 MRS Logística was responsible for
transporting all of MBR’s iron ore sent to Guaíba Island Terminal.
MRS’s railroad tracks extended for 1,674 kilometers.178
In turn, MBR was responsible for operating three important
mining complexes in the state of Minas Gerais: Pico Complex,
consisting of the Pico, Sapecado and Galinheiro mines, as well
as one main processing plant and three secondary ones; Vargem
Grande Complex, encompassing the Tamanduá, Capitão do Mato
and Abóboras mines and a processing plant; and Paraopeba
Complex, composed of the Jangada and Capão Xavier mines. All of
MBR’s mines are served by MRS Logística. Lump ore, iron ore fines
(sinter feed), ultrafines (pellet feed) and hematite fines, used by pig
iron producers, are mainly produced using the run-of-mine (ROM)
process in open-pit operations.179
Vale
Our History
Vale confirmed its position as the leading supplier
of logistics services in Brazil, accounting for 68% and
27% of the volumes transported along the country’s
railroads and handled in its ports, respectively
Believing in the logistics sector, Vale invested to expand and
enhance its infrastructure in this field. The company acquired
5,414 railroad cars and 125 locomotives to transport its products
and general freight for customers along its three railroads: the EFC,
EFVM and FCA.180 This helped Vale to bolster its position as the
leading supplier of logistics services in Brazil, accounting for 68%
and 27% of the volumes transported along the country’s railroads
and handled in its ports, respectively.181
Logistics services generated revenues of US$1.21 billion in
2005, up 38.7% from the previous year.182 In the company’s fullyear consolidated results, railroad transportation of general
freight generated US$881 million, port services contributed US$204
million, and coastal shipping and auxiliary port services earned
US$131 million.183
In 2006, the three railroads administered by Vale together
transported 28.92 billion metric ton-kilometers of general freight
for customers, very similar to the previous year’s figure of 28.37
billion metric ton-kilometers. The company’s ports and maritime
terminals handled 29.6 million metric tons of general cargo,
compared with 30.53 million metric tons in 2005.184
that point onward, the company reported the two systems’
results separately. 185
Located in the Iron Quadrangle region of Minas Gerais, the
Southeast System’s iron ore mines were divided into three areas:
Itabira, Central Mines and Mariana. The Vitória-Minas Railroad
(EFVM) connected the mines situated in these areas to Tubarão
Complex in Vitória, Espírito Santo.186 All of the Southeast System’s
iron ore was extracted by means of open-pit mining from reserves
with a high itabirite-hematite ratio.187
Straddling the states of Minas Gerais and Rio de Janeiro, the
new South System encompassed mines in two areas: West and
MBR. All of the iron ore mined in this system was transported by
MRS Logística to Guaíba Island Terminal and the Sepetiba Bay Port
Company, both in the state of Rio de Janeiro.
In December 2006, Vila Velha Terminal in Espírito Santo,
Mineração Andirá in Minas Gerais and Tercam Intermodal Terminal
in Camaçari, Bahia, were transferred to Docenave, whose corporate
name was changed to Log-In Logística Intermodal S.A. (Log-In).
It was predicted that this transfer would generate revenues of
US$104 million.188
Restructuring of operations in the South System
In the third quarter of 2006, Vale reorganized the administration of
its long-established South System in order to make it more efficient.
Its original structure was split up into two iron ore production and
distribution units, called the Southeast and South systems. From
180 - Idem.
181 - Idem.
186 - Idem.
177 - Idem.
i nves t i dores / res u l t ados - e- i n for macoes - fi n a n c e i ra s / re s u l t a d o s - t r i m e s t ra i s /
178 - Idem.
183 - Idem.
187 - “Itabirite is a hematite-quartz rock with average iron content of between 35% and
60%, to be suitable for shipment to customers, it needs to be concentrated to average
iron content of more than 64%. Hematite is a high-grade ore with average iron content of
approximately 66%.” See the 2006 Form 20-F Report.
184 - Idem.
188 - Idem.
Vale
Our History
311
Aerial view of Porto Estrela
Hydroelectric Plant in
Minas Gerais, in 2002.
9.10 More power (2002-2006)
312
As Brazil was still recovering from the severe energy crisis
of 2001 and 2002, Vale was already generating 9.9% of its total
electricity consumption from its own hydroelectric plants. By
investing in hydroelectric power, the company protected itself
from price volatility, as well as guaranteeing supplies and better
competitiveness.189 These investments proved useful, as between
1990 and 2000, the country’s power consumption rose by 49%,
while its installed capacity only expanded by 35%.190
To keep up with rising demand, rather than building new hydro
or thermal power plants, use was made of the water available in
the country’s reservoirs. By harnessing these reserves (officially
allocated for use during droughts), the risks of energy shortages
increased,191 until the droughts of 2001 and 2002 triggered the crisis.
In 2002, Vale’s investments in building power plants and in the
licensing process for future projects amounted to US$78 million.
The company had stakes in nine hydroelectric plant consortia, and
three of the plants were already operating, namely Funil, Igarapava
and Porto Estrela, all in Minas Gerais. Two plants were scheduled
to come on line by 2003 – Candonga and Aimorés, also in Minas
Gerais – and work had begun on building another five.192
The Machadinho Hydroelectric Plant in the state of Santa
Catarina – in which Valesul Alumínio, based in the district of Santa
Cruz, Rio de Janeiro, had a 7% stake – began producing electricity in
2002. This enabled Valesul to achieve self-sufficiency in its power
supply during peak consumption hours, between 6 pm and 9 pm.193
In December 2002, the first phase of the Funil Hydroelectric
Plant, a partnership between Vale and Centrais Elétricas de Minas
Gerais (Cemig), came into operation. Located in Minas Gerais and
possessing 180 megawatts (MW) of installed capacity, the plant
was built in 27 months, a record time for a project of its size.
The total amount invested in the plant was US$47.6 million,
equivalent to US$519 per kilowatt (kW) installed. Vale’s share of
the power generated by the Funil Plant was allocated for use by
Tubarão Complex. 194
Some months before, in July 2002, a consortium in which Vale
had a 30% interest had won an auction to build and operate the
Estreito Hydroelectric Plant, located on the border between the
states of Tocantins and Maranhão. 195
Constructing hydroelectric plants in 2003 involved investment
of US$57 million, most of which was dedicated to the Aimorés
(US$19 million), Candonga (US$17 million) and Amador Aguiar I
(US$10 million) plants, all in the state of Minas Gerais. 196
At the start of 2003, pelletizing plants I and II, the Ore Terminal
and the Coal Terminal, all located at Tubarão Complex in Espírito
Santo, started to receive power generated by Vale itself, joining
company facilities in Itabira and Timbopeba, in Minas Gerais,
which had already been consuming energy produced by the
company since 1999. 197
Vale
Our History
190 - Tolmasquim, Mauricio Tiomno. “As origens da crise energética brasileira.” Ambiente
& Sociedade magazine, no. 6-7, January-June. Available at <http://www.scielo.br/scielo.
php?script=sci_arttext&pid=S1414-753X2000000100012#back>.
194 - Idem.
191 - Idem.
195 - Idem.
193 - Idem.
197 - See the 2002, 2003 and 2004 Annual Reports.
Vale
Our History
313
Following page: meeting at the foot of a
baobab, a sacred tree, in Moatize, Tete
Province, Mozambique, in 2010.
TABLE 4
VALE’S STAKES IN HYDROELECTRIC PLANTS
314
PLANT
INSTALLED
CAPACITY (MW)
VALE’S STAKE
START UP
(1st MACHINERY)
LOCATION
Igarapava
210
38.15%
January 1999
Rio Grande, Minas Gerais / São Paulo
Porto Estrela
112
33.33%
September 2001
Rio Santo Antônio, Minas Gerais
Funil
180
51.00%
January 2003
Rio Grande, Minas Gerais
Candonga
140
50.00%
September 2004
Rio Doce, Minas Gerais
Aimorés
330
51.00%
July 2005
Rio Doce, Minas Gerais
Amador Aguiar I
240
48.42%
February 2006
Rio Araguari, Minas Gerais
Amador Aguiar II
210
48.42%
July 2007
Rio Araguari, Minas Gerais
Foz do Chapecó
855
40.00%
October 2010
Rio Uruguai, Santa Catarina / Rio Grande do Sul
Estreito
1,087
30.00%
March 2012
Rio Tocantins, Maranhão / Tocantins
Source: 2003, 2004 and 2005 Annual Reports; 2011 Form 20-F Report.
In 2004, Brazil’s federal government established a new
regulatory framework for the electricity sector,198 setting out
general operational guidelines. The new framework was announced
by Mines and Energy Minister Dilma Rousseff.199 At the same time,
CVRD opened the Candonga Hydroelectric Plant in Minas Gerais,
thereby expanding its presence in the energy sector. The plant’s
license was issued in June of that year, enabling Vale’s fourth plant
to start generating power in September.200
As of 2004, the company had stakes in consortia for nine
hydroelectric plants, of which four – Igarapava, Porto Estrela,
Funil and Candonga – were operating and three were being
built. The four plants already operating that year generated
970 gigawatt hours (GWh), enough to light more than 800,000
average-sized homes. 201
In March 2004, work began on building the Amador Aguiar II
Hydroelectric Plant on the Araguari River in Minas Gerais. In May
of the same year, the biggest ever private electricity auction on
the liberalized power market took place, with Albras acquiring
from Eletronorte 750 MW, on average, up to 2006 and 800 MW,
on average, up to 2024. In September, a construction license was
198 - See Siffert Filho, Nelson Fontes et al. “O papel do BNDES na expansão do setor
elétrico nacional e o mecanismo de Project Finance,” BNDES, 2009.
granted for the Foz do Chapecó Hydroelectric Plant, located on
the border between the municipalities of Águas de Chapecó (Santa
Catarina) and Alpestre (Rio Grande do Sul). In November, the
construction license for the Aimorés Hydroelectric Plant in Minas
Gerais was renewed.202
In July 2005, the Aimorés plant’s first turbine came on line, and
by December all of the plant’s three turbines were operating.203
In the same month, the Amador Aguiar I Hydroelectric Plant in
Minas Gerais obtained its operating license, allowing it to begin
commercial operations in February 2006.204
In turn, operations at the Amador Aguiar II plant, also located
in Minas Gerais, started up in the first quarter of 2007, helping to
meet Vale’s power demand in southeastern Brazil.205 In 2006, 100%
of the electricity consumed in the company’s Southeast System
was produced by the Igarapava, Porto Estrela, Funil, Candonga,
Aimorés and Amador Aguiar I hydroelectric plants,206 which also
supplied 22% of the power consumed in the South System.207
9.11 Community relations and culture
In 2002, Vale resumed its efforts to develop the capacity of its local
suppliers of goods and services, with the aims of improving supply
logistics, generating jobs and enabling its suppliers to adopt new
technologies. In all, 626 suppliers employing around 40,000 people
benefited from this initiative that year. The company established a
partnership with the Service to Support Micro and Small Companies
(Sebrae) to run special workforce training programs in deprived regions,
and then recommended that its suppliers hire these professionals.208
The same year, CVRD supported programs involving indigenous
communities, developed with technical guidance from the National
Indian Foundation (Funai). Also in 2002, Vale directly supported
the Xikrin, Gavião and Sororó indigenous communities in Pará, and
the Awá, Guajajara and Urubu Kaapor communities in Maranhão,
benefiting 3,300 indigenous people in all. In addition, the company
assisted Funai in demarcating the Awá Indigenous Reserve.209
In 2003, through the intermediation of the Federal Public
Prosecution Ministry, Vale signed agreements with Funai and
indigenous leaders of the Gavião and Xikrin peoples to implement
an integrated community and agricultural production development
project. The aim of the Gavião people was to produce foods both
for their own consumption and for sale. For the Xikrin people,
Vale built a 110-kilometer road from the village of Cateté to
Highway PA-006 and the town of Água Azul do Norte, improving
the community’s mobility, and provided support to cultivate new
family-run fields.210 In Maranhão, Funai, indigenous leaders and
Vale created a community development project with the aim of
202 - Idem.
generating wealth, improving health services, doing maintenance
work at schools and establishing small crop fields.211
In 2004, as part of a regional socioeconomic development
program called “Cidade Vale Mais,” the Vale Foundation ran a project
in Corumbá, Mato Grosso do Sul, to support the socioeconomic
revitalization and sustainable development of the city’s port
area. The project entailed producing a sustainable development
plan, restoring a historical harbor building, creating the Estação
Natureza Pantanal, a permanent wildlife-themed multimedia
exhibition, and opening the Latin American Culture Center in the
Moinho Mato-Grossense, a former industrial building. Around 500
Brazilian and Bolivian children participated in activities as part of
the project.212
Water management in Itabira
Also in 2004, Vale unveiled the Itabira Water Master Plan, designed
to reduce losses and guarantee supplies of treated water for the
people of Itabira, Minas Gerais, which then had around 90,000
inhabitants. The plan involved automating, modernizing and
upgrading the town’s water treatment plants and reservoirs, as well
as replacing some parts of the old water distribution network.213
One year later, Vale’s 2005 Annual Report highlighted the concept
of “social license to operate,” in which the risks and impacts associated
with a business are identified and presented to the community in
order “to promote reflection and understanding about them, and to
assess their repercussions for the local population,” as happens in
the process of granting environmental licenses. Impact management,
conducted by various business areas with the support of the Vale
Foundation, would become one of the pillars of the company’s
sustainability model. This model also included investment in social
199 - “Dilma saboreia o anúncio do modelo e diz que agora regras são estáveis,” O Globo,
July 31, 2004.
204 - Idem.
211 - Idem.
209 - Idem.
212 - Idem.
201 - Idem.
207 - Idem.
213 - Idem.
Vale
Our History
Vale
Our History
315
Previous page: parade by the Acadêmicos
do Grande Rio samba school, telling Vale’s
story at the Rio de Janeiro carnival of 2003.
316
dialogue through the Vale Community Program, encompassing the
Meeting with Leaders project, which grouped together leaders from
different communities, giving them a direct communication channel
with CVRD. This dialogue enabled the company to understand
the real conditions and specific needs of each community, while
publicizing Vale’s social initiatives and, above all, its environmental
control measures.214 Another project implemented as part of the Vale
Community Program was called the “Culture Network.” This involved
developing interfaces in the areas of education, social action, health
and the environment, with the aims of establishing regional dialogue,
facilitating the circulation of artistic and cultural goods, transmitting
information and knowledge, and strengthening new local, regional
and national partnerships. All of this was designed to promote the
development of local culture and income generation.215
Network of good results
In Espírito Santo, mobilization among the public, private and third
sectors generated remarkable results. The fashion sector expanded
in the municipality of Cariacica when a manufacturing cluster was
established by around 150 entrepreneurs, generating 800 formal
jobs and 2,000 informal ones. This was achieved through the Vale
Network program, a partnership between the Vale Foundation and
NGO Rede Cidadã, which seeks to train young people and help them
enter the job market.216 Cariacica, which lies within Greater Vitória,
has a large number of poor families (with family income of up to
half of one minimum salary).217 Meanwhile, in the inland mountain
area of Espírito Santo, a 20-year Sustainable Development Plan was
implemented to provide a roadmap for strengthening the region
214 - See Vale’s Press Office, “Projetos sociais na região das Minas Centrais,” October 5, 2006.
through agribusiness and ecotourism, once more as part of the
Vale Network program.218
However, the Vale Foundation’s flagship initiatives focused on
education. One of its most important programs, called Vale School,
was begun in 1999, and in 2008 alone it involved 101,328 people,
including teachers, supervisors, school principals, students and
technical teams. The program’s effectiveness has been verified by
the Institute of Development in Education, Culture and Community
Action (Ideca).219 In 2005, approximately 12,000 people took a course
run by the Vale Information Technology Program, which since 1999
has benefitted 50,100 students.220
Social initiatives were implemented by Vale’s operational
areas and the Vale Foundation through programs conducted in
partnership with NGOs and public sector entities. In 2005, the
company adopted the Front-End Loading (FEL) methodology, which
requires detailed assessments of health, safety, the environment
and community relations at all project development stages in
order to promote regional sustainability. Elements that are not
exclusively economic have a decisive influence on the formulation
of projects. From the very start of a project, each decision must
consider values or service standards arising from analysis of
these variables, aligning social and environmental requirements
with other future business demands such as location, the level of
definition of engineering designs, and implementation planning.
The social and environmental diagnoses conducted by the Vale
Foundation make it possible to anticipate the impacts of Vale’s
future operations on communities. An integrated socioeconomic
diagnosis of southeast Pará, for example, presented forecasts
related to economics, demographics and the demand for public
services and infrastructure, and identified that the region would
need significant investments to correct deficiencies and prepare
215 - Idem.
216 - See Vale Foundation website, available at <http://www.fundacaovale.org/pt-br/
desenvolvimento-humano-e-economico/rede-que-vale/conheca-o-rede-que-vale/
Paginas/default.aspx>.
217 - See Vale Foundation website, Diagnóstico Socioeconômico da Grande Vitória.
Available
at
<http://www.fundacaovale.org/pt-br/a-fundacao-vale/como-atuamos/
paginas/default.aspx>.
Vale
Our History
the region221 for projected economic growth of 18% per year.222
Considering local economic growth trends, it was concluded that
agriculture was as important as mining.
From that point onward, meetings with leaders strengthened
partnerships between Vale, the community and the public sector,
leading to the production of a participatory master plan for
each municipality and helping to raise income levels and permit
investments in other sectors. In 2005, Vale invested R$8.5 million in
Banco Produtor (“Producer’s Bank”)223 and R$2.13 million in Banco
do Cidadão (“Citizen’s Bank”).224
Also in 2005, CVRD worked with 13 traditional quilombola
communities225 in Moju, Pará. In that region, the company invested
in the construction of various facilities,226 such as a health clinic,
bridges and roads. It also implemented a “Rural Family House” project
and supported the implementation of volunteering projects there.227
Other lands, new people
The company’s concern to integrate with the communities around
its projects is not restricted to Brazil. In Mozambique, Vale has had
to adapt its practices to local traditions. Mozambicans believe that
their land provides a link with their ancestors. As a result, it was
necessary to conduct a ritual with local leaders before starting
mining activities in Moatize.228 The people have a strong connection
with nature, not least with the baobab, a giant tree considered
sacred in the region. Many people bury their loved ones under one,
and a lot of Vale’s African employees have asked to receive their
salaries at the foot of a baobab.229
221 - The plan covers six municipalities (Parauapebas, Canaã dos Carajás, Curionópolis,
Marabá, Ourilândia do Norte and Tucumã) and also influences Eldorado dos Carajás. See
the 2007 Sustainability Report.
222 - To this end, municipalities will be able to count on their own investment capacity,
which should generate current savings of US$504 million between 2006 and 2010. See the
2007 Sustainability Report.
223 - Support for new projects that contribute to Pará’s socioeconomic development.
224 - Granting of credit to micro and small business owners, up to a limit of R$10,000
(Pará). See the 2005 Annual Report.
225 - The 13 communities are São Bernardinho, Santa Luzia do Tracuateua, Nossa Senhora
das Graças, Santa Maria do Tracuateua, São Manoel, Santa Maria de Oxalá de Jacundaí,
Vila Nova, Ribeira, Centro Ouro Bom Jesus, Santana do Baixo, Santo Cristo, Conceição do
Mirindeua, and Santa Maria do Mirindeua. In all, 650 families live in these communities,
and around 215 of them have a direct relationship with the project.
226 - Following claims made by members of the community in Moju, in December 2006,
Vale undertook (and signed an agreement to this effect in February 2007) to correct
any impacts generated by the installation of an ore slurry pipeline and to accelerate
mitigation measures. The company carried out a study to map the community’s
productive potential and supported community sustainability projects.
218 - Idem.
227 - See the 2005 Annual Report and 2006 Sustainability Report.
219 - See the Vale School program’s portal. Available at <http://www.escolaquevale.org.
br/>.
228 - See the 2006 Sustainability Report.
220 - See the 2005 Social Report.
229 - “Empresas do Brasil avançam na África com ação social,” Jornal do Brasil, September
4, 2006.
The Bayóvar project in Peru provided another example of how
Vale seeks integration with local communities. In 2006, more than
50 meetings were held with people in the towns and villages around
the project, under the coordination of the San Martin de Sechura
Rural Community. Workshops were also conducted with local
people in order to explain the project. Following these meetings,
the project’s approval rating among participants exceeded 90%.
Vale also conducted a socioeconomic diagnosis to identify local
demands and establish priorities for social investments, including
agreements with universities and workforce training centers, as
well as support for programs to reduce infant mortality.230
More education
In 2003, CVRD created an education and people development
department, called Valer, in order to train manpower and promote
local development by giving access to education, jobs and income.
Through partnerships with teaching institutions across the world,
the company became active in basic education, technical training,
managerial development, corporate citizenship, culture and art.231
Valer expressed the company’s vision to use education as
a fundamental mechanism to promote competitiveness and
excellence in performance as a strategy for attracting, developing
and retaining qualified professionals. After opening 34 units in
Brazil, Valer expanded its presence to Canada, China, Oman and
Switzerland between 2006 and 2011. Valer has now provided
training to around 70,000 employees.232 Together with teaching
institutions, Vale has developed training courses for professionals.
One example of this was a partnership with the Catholic University
of Minas Gerais (PUC Minas) to train railroad engineers. In 2005, 39
professionals completed the first course, and another 26 people
participated the following year.233
Culture: “O Nosso Brasil que Vale” samba song
The year 2003 was also a musical time for Vale, as Rio de Janeiro
samba school Acadêmicos do Grande Rio celebrated the history
of mining and CVRD’s 60th anniversary in its annual samba song,
written by renowned carnival composer Joãosinho Trinta. Vale’s
presence on Rio’s samba parade ground contributed to the school’s
third place ranking in that year’s Special Group contest, giving it
the right to perform once more in the Champions’ Parade on the
Monday following carnival.
232 - See Vale’s Press Office, “Vale conquista prêmio da ABRH-RJ,” November 25, 2011.
233 - See Vale’s Press Office, “Vale: parceria para formar mão de obra,” Diário do Comércio,
Minas Gerais, January 19, 2006. Available at <http://saladeimprensa.vale.com/pt/versao_
impressao/prt_detail.asp?tipo=1&id=15691>.
Vale
Our History
317
318
319
Aerial view of Azul Mine
in Carajás, Pará, in 2000.
Vale
Our History
Vale
Our History
Right: Vale Botanical
Park at Tubarão
Complex in Vitória,
Espírito Santo.
9.12 The environment
320
Vale’s 2003 Annual Report stated that that year would go down
in the company’s history for its excellent results in all areas,
including the environmental and social fields. “Vale has stood out
as a leading corporate investor in environmental protection in
the regions where it conducts its activities. The social area is also
a priority for us,” said the message from the Board of Directors.
Since the turn of the century, the company’s internal policies for
controlling the impacts of its activities had become stronger. In
2002, Vale’s investments in environmental preservation amounted
to US$238.1 million. That year, the following Vale units received
ISO 14001 certification: 234 Docenave Tugboat Quay (Espírito Santo);
Itabira and Conceição Iron and Gold Mining Complex (Minas
Gerais); Gongo Soco Iron Mine (Minas Gerais); Sociedade Mineira
de Mineração Manganese Mine (Minas Gerais); Ferteco Mineração
Iron Mines (Minas Gerais); and Sepetiba Bay Port Company
Maritime Terminal (Rio de Janeiro). The company received 12
certifications by the end of 2002. 235 New electrostatic precipitators
capable of retaining more than 95% of particulate matter were
installed in the pelletizing plants at Tubarão Complex (Espírito
Santo). In 2002, Vale invested around R$23 million in projects to
rehabilitate mined areas. 236
A waste management plan was put into practice in 2003,
focused on proper segregation, temporary storage and final
disposal of residues.237 The following year, CVRD created the Vale
do Rio Doce Botanical Park at Tubarão Complex after planting
more than 6 million trees on a 33-hectare site. This was the biggest
green area in Vitória, Espírito Santo’s state capital. In 2004 alone,
approximately 3,900 employees, 8,000 contractors and 6,300 local
students and teachers visited the park as part of the company’s
environmental education programs.238 Between 2002 and 2004, Vale
produced a full inventory of its particulate emissions at Tubarão
234 - Set of environmental management standards, designed to reduce the impact
of business activities on the environment. See the International Organization for
Standardization (ISO)’s website: <www.iso.org/iso/iso_14000_essentials>.
236 - Idem.
Complex, including a prognosis aligned with its rising production.
Dust-suppression solutions were employed in strategic locations
where pellets where handled, using new technologies developed
by Vale itself.239
In 2004, the Manganese Department’s units implemented
enhancements related to atmospheric emissions of pollutants
and the management of wastes and water resources at ferroalloy
plants in Ouro Preto, Barbacena, São João del-Rei and Santa Rita
de Jacutinga (Minas Gerais), Simões Filho (Bahia), and Corumbá,
including Urucum Mine and River Terminal (Mato Grosso do Sul).
Meanwhile, environmental restoration work at the Morro da Mina
unit in Conselheiro Lafaiete, one of the oldest mines operating in
Brazil, was recognized by the local environmental regulator as a
best practice in Minas Gerais.240
The following year, in 2005, Vale invested R$147 million in
environmental initiatives, including R$108 million in projects at the
company’s operational sites and R$39 million in external programs
and projects. The same year, the Vale do Rio Doce Environment
Institute (known by Portuguese acronym IAVRD) produced an
inventory of 1,409 hectares of vegetation in Carajás, Pará. In all,
441 bird species, 102 species of amphibians and reptiles, and 145
mammal species were evaluated. The site’s air quality was also
monitored using three automated substations that began operating
in May 2005. This equipment takes hourly measurements of levels
of non-respirable dust and total suspended dust at iron and
manganese mines, as well as in Carajás urban center.241
Between 2005 and 2008, Vale invested R$2 million in a program
to restore tree cover along rivers and streams in northern Espírito
Santo. Covering 180 hectares, the initiative was responsible for
planting 1.5 million trees of various Atlantic Forest species,
grown at the Vale do Rio Doce Natural Reserve (now called the
Vale Natural Reserve) in Linhares.242 The program was conducted
by IAVRD in partnership with 56 farmers in the region. Elsewhere
in Espírito Santo, at Tubarão Complex, the eighth station in the
Automated Network for Monitoring Air Quality in Greater Vitória
(known by Portuguese acronym Ramqar) was installed in 2005,
under the supervision of state environmental regulator IEMA.243
In August 2005, Vale unveiled a new anti-pollution product:
a dust suppresser for pellets. An organic binder was used to cut
pelletizing plants’ emissions of particulate matter, minimize the
amount of water used to dampen piles of iron ore, and improve
the pellet manufacturing process. The benefits extended to
customers, who could now handle the product free of emissions at
their ports and in their stockyards and plants. CVRD’s investment
in developing the dust suppressor, testing it and building related
facilities amounted to R$4 million.244
In 2006, CVRD invested R$286 million in social actions and
another R$317 million in environmental initiatives. The latter
enabled the conservation of 1.4 million hectares of vegetation in
Pará, Espírito Santo and Minas Gerais, among other achievements.
The company reduced its pelletizing plants’ primary water
consumption by 45% compared with 2003 levels, beating its target
for a 40% reduction. During this period, the plants’ reduction in
consumption of new water totaled 2 million cubic meters, saving
approximately R$1.5 million.245
Between 2005 and 2006, there was a 50% fall in the mortality
rate among animals relocated to clear vegetation at copper,
iron and manganese mines in Carajás, Pará. Meanwhile, new
electrostatic precipitators were installed at the entrance and
exit of the furnace and screening facilities at Plant 7 at Tubarão
Pelletizing Complex in Vitória, Espírito Santo. Dust suppressor
was also deployed in the transportation and handling of pellets,
practically eliminating emissions. 246
321
239 - Idem.
240 - Idem.
241 - See Vale’s Press Office, “Vale garante qualidade da água e do ar em seus
empreendimentos,” August 22, 2005. Available at <http://saladeimprensa.vale.com/pt/
release/interna.asp?id=14940>.
242 - See Vale’s Press Office, “Vale investe mais de R$ 250 milhões em meio ambiente no
Espírito Santo,” August 3, 2006. Available at <http://saladeimprensa.vale.com/pt/release/
243 - See Vale’s Press Office, “Onze empresas vão monitorar ar,” September 14, 2005.
Available at <http://saladeimprensa.vale.com/pt/noticias/interna.asp?id=14994>.
244 - See Vale’s Press Office, “Vale adota nova tecnologia para controlar poeira em
Tubarão,” August 1, 2005. Available at <http://saladeimprensa.vale.com/pt/release/
246 - Idem.
Vale
Our History
Vale
Our History
9.13 Results over the 2002-2006 five-year period
The global fear was that Lula’s election would drastically change
the course of the country’s economy. This fear was evident in the
Brazil Risk rating, which in September 2002 – shortly before the
elections – reached its highest ever level, of 2,446 basis points.248
Foreigners’ apprehension of investing in Brazil was even greater
than during the severe Asian and Russian crises of the late 1990s.
The following chart shows the change in the Brazil Risk rating
between 1995 and 2011:249
The complexity of the global economic environment in 2002
infected the markets, leading to volatility and growing risk
aversion. In Brazil, the financial markets took some time to get
used to the imminent first victory of Luiz Inácio Lula da Silva
and the Workers’ Party (Partido dos Trabalhadores, or PT) in the
presidential elections.247
322
323
BRAZIL’S RISK RATING – EMBI* + BRAZIL
TIME SERIES – AFTER REACHING 677 POINTS IN OCTOBER 2008, BRAZIL’S COUNTRY RISK SCORE FELL
2.500
Sep 2002: 2,446
2.000
Jan 1999: 1,779
Mar 1995: 1,689
1.500
1.000
Oct 2008: 677
500
Oct 1997: 337
Mar 2011: 184
May 2007: 137
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: HC Investimentos and Applied Economic Research Institute (Ipea). * Emerging Markets Bond Index.
Aerial view of piers I, II
and III at Ponta da Madeira
Maritime Terminal in São
Luís, Maranhão, in 2005.
Vale
Our History
247 - “Crise financeira de 2002 foi mais perigosa para o Brasil do que a atual, diz Armínio
Fraga,” Agência Brasil, January 20, 2009. Available at <http://agenciabrasil.ebc.com.br/
noticia/2009-01-20/crise-financeira-de-2002-foi-mais-perigosa-para-brasil-do-queatual-diz-arminio-fraga>.
248 - See Ipea – Country risk, time series.
249 - Produced by HC Investimentos based on data from the Applied Economic Research
Institute (Ipea). Available at <http://hcinvestimentos.com/2011/03/28/risco-pais/>.
Vale
Our History
Aerial view of a pelletizing
plant at Ponta da Madeira
Luís, Maranhão. Following
page: iron ore sample.
Brazil’s currency was also heavily affected. At the start of
September 2002, one US dollar would buy around R$3; at the end
of the same month, the same dollar was worth nearly R$4.250 Amid
this great volatility, stock markets suffered: between January and
October 2002, the São Paulo Stock Exchange’s main Ibovespa index
fell by more than 40%.251
The markets only recovered when it was realized that the new
government would not interrupt the economic policy established
during the two-term government of Fernando Henrique Cardoso.
The maintenance of the pillars of stability – such as the floating
exchange rate regime adopted in 1999, the inflation-targeting
system and the setting of primary government surplus targets –
gradually won over the pessimism.252 From that point onward, the
São Paulo Stock Exchange entered a bull market and the Ibovespa
went from 14,000 points in 2002 to over 44,000 in 2006.253
In contrast to slow global growth, with an economic crisis in
the United States and a debt moratorium in Argentina, the ups
and downs of the global economy confirmed Vale’s stability. At the
end of the turbulent year of 2002, the company’s market value was
US$11 billion, up 20.3% from its US$9.2 billion value in December
2001, despite the overall fall in stock markets and even a decline in
the share prices of other companies in the same sector.254
324
Third highest net profit since the company was founded
In 2002, the company celebrated its 60th anniversary after having
made the third highest annual net profit since it was established:
R$2.04 billion.255 That year, Vale strengthened its leading position
in the global seaborne iron ore market, with record sales of 163.91
million metric tons, up 11.5% from the previous year. As a result,
29.4% of the global iron market now belonged to Vale.256 Sales of
iron ore reached 135.187 million metric tons, 12% higher than in
2001. Pellet sales rose 9.4% to 28.729 million metric tons. Of the
total volume sold in 2002, 84.1% was exported – up 15% from the
previous year’s figure.257
US$81.6 million was spent on building a pelletizing plant
and related infrastructure in São Luís, Maranhão, which began
commercial operations in the second half of 2002. Vale also invested
US$35.1 million to expand its iron ore transportation capacity in
the North System.258 This sum provided for the construction of Pier
III at Ponta da Madeira Maritime Terminal in Maranhão and the
creation and expansion of iron ore stockyards, in which the company
invested US$18.4 million and US$14.8 million, respectively.259
In 2002, Vale owned and operated four manganese mines: Azul,
Urucum, MMN and Morro da Mina. It also had seven ferroalloy
production plants: Corumbá, Santa Rita, Barbacena, Rancharia,
São João del-Rei, Sibra and Rio Doce Manganèse Europe (RDME).
These operations were located in four Brazilian states – Pará,
Mato Grosso do Sul, Minas Gerais and Bahia – and France.260 That
year, Vale achieved record manganese ore production of 2.33
million metric tons, up 29.5% from 2001, and sales of this product
amounted to 665,000 metric tons. The volume of ferroalloys sold
reached 539,000 metric tons. Consolidated gross revenue from
manganese and ferroalloys rose by 34.6% from 2001 to 2002, to
R$845 million.261
Aluminum and fertilizers
In 2002, aluminum sector businesses contributed 11.6% of Vale’s
total consolidated gross revenue, reaching R$1.76 billion, up
58.1% from 2001’s figure of R$1.11 billion. 262 In the same year,
work on expanding Alunorte’s annual production capacity to
2.4 million metric tons was completed, and the company’s third
production line started up in January 2003. Investment in this
expansion totaled US$277.6 million, and the production cost per
metric ton was under US$350, very competitive by aluminum
sector standards. 263
Meanwhile, at Taquari-Vassouras Mine in the state of Sergipe,
sales and production levels hit new records. The mine’s potash
sales, all allocated to the domestic market, came to 731,000
metric tons, up 45.3% from 2001. Gross revenue of R$272 million
was generated. 264
Latin America’s largest private company
In 2003, Vale maintained its top ranking among Brazil’s biggest
exporters, with net exports of US$3.42 billion. This meant that
13.8% of the country’s trade surplus (the difference between
exports and imports) was guaranteed by CVRD’s activities.265
Vale’s total investment that year amounted to approximately
US$2 billion, making the company Brazil’s biggest private investor,
255 - Roger Agnelli, “Message from the CEO,” the 2002 Annual Report.
250 - “Invasão de dólares na economia,” IstoÉ Dinheiro, September 10, 2010. Available at
<http://www.istoedinheiro.com.br/noticias/34020_INVASAO+DE+DOLARES+NA+ECONO
MIA>.
256 - This sum includes the amount sold by the parent company and Nibrasco, Kobrasco,
Itabrasco, Hispanobras, Urucum, Ferteco, Samarco, GIIC, MBR and QCM. The volume
given is net of transactions between companies – such as sales of pellet feed from the
parent company to the pellet producing companies – and was calculated in proportion to
Vale’s equity stakes. See the 2002 Annual Report.
261 - Idem.
252 - See Revista Bovespa. “Mercado tem fôlego para crescer mais,” January 2006. Available
at <http://www.bmfbovespa.com.br/InstSites/RevistaBovespa/101/Mercado.shtml#a>.
262 - Idem.
258 - Idem.
263 - Idem.
253 - See BM&FBovespa’s website, Summary of Annual Records.
259 - Idem.
264 - Idem.
260 - Idem.
251 - See BM&FBovespa – Ibovespa time series. Available at <http://www.bmfbovespa.
com.br/indices/ResumoEvolucaoDiaria.aspx?Indice=IBOVESPA&idioma=pt-br>.
Vale
Our History
Vale
Our History
325
326
generating at least 60,000 direct and indirect jobs.266 The statistics
are even more impressive if compared with those of other
companies in the sector: for example, while market values across
the mining industry rose by an average of 63.45% in 2003, Vale’s
value increased by 102.35%.267 Consequently, by the end of the year,
Vale had become Latin America’s largest private company, with a
market value of nearly US$22 billion. At the start of the same year,
its market value had been US$11 billion.268
Research and development provided the foundations for these
results. In 2003, Vale invested US$69 million in mineral exploration
and development projects, up 33% from the previous year. Of this
total, US$50.5 million was spent by CVRD and US$18.5 million
was provided by BNDES as part of the Carajás Mineral Province
Risk-Sharing Contract signed in 1997. Vale intensified its mining
research activities, accounting for 18% of its 2003 budget.269
That year, Vale also conducted research in partnership with the
universities of São Paulo (USP) and São Paulo State (UNESP) in the
field of biotechnology, with the federal universities of Minas Gerais
(UFMG) and Ouro Preto (UFOP) in the hydrometallurgy sector, and
with the federal universities of Rio Grande do Sul (UFRGS) and Pará
(UFPA) concerning kaolin. The company also carried out research in
partnership with the Minas Gerais Technology Center Foundation
(Cetec), the Mineral Technology Center (Cetem) and the Alberto
Luiz Coimbra Institute of Postgraduate Engineering Studies and
Research at the Federal University of Rio de Janeiro (Coppe/UFRJ),
which focused on characterizing ores.270 Vale’s academic research
activities were not restricted to Brazil. In Australia, the company
conducted research together with CSIRO271 (mineralogy), ANSTO272
(radionuclides) and AMIRA273 (milling and flotation). In South Africa,
Vale worked with Mintek (platinum group metal and manganese
ore characterization), and in the USA, it worked with Hazen (copper
pyrometallurgy). In Canada, Vale joined with Cominco Engineering
Services Ltd. (copper hydrometallurgy). Finally, in Chile, the company
exchanged technological knowledge with CIMM274 (milling).275
i nve st i d o re s /re s ul tad os -e -informacoe s -fina nc eira s/resulta do s-trimestra is/
Incorporated by Vale in December 2003, Mineração Vera
Cruz began geological research in the Miltônia Plateau 5 area in
Paragominas, Pará, and in Tiracambu, Maranhão. Supplementary
geological and technological research work in the Miltônia Plateau
3 area, also in Paragominas, confirmed reserves of 142.5 million
metric tons of bauxite.276
Good results were also attained in steelmaking, copper,
manganese and kaolin. In 2003, California Steel Industries (CSI), a
joint venture between Kawasaki Steel Corporation and Vale located
in California, USA, achieved its best ever financial results since it
was established 19 years before. The steel producer’s net revenue
was R$2.35 billion, up R$115 million from 2002.277
In 2003, the company’s mines produced 2.24 million metric tons
of manganese ore. Sales to third parties rose by 33.1% to 885,000
metric tons. Over the course of the year, Vale developed its cored
wire business278 by acquiring two machines to use at Rio Doce
Manganèse Europe (RDME) in Dunkirk, France.279
Pará Pigmentos S.A. (PPSA) and Cadam S.A. – which produced
kaolin in Pará and Amapá, respectively – sold 731,000 metric tons
in 2003, up 62.1% from the previous year. PPSA produced a total of
422,800 metric tons of kaolin from its sites in Ipixuna do Pará and
Barcarena, up 28% from the 330,300 metric tons produced in 2002.
Two new paper coating products called Paraprint and Century S
were produced on an industrial scale in 2003, in addition to Century
HC, PPSA’s main product.280
327
The highest profit ever made by a private-sector Brazilian company
The year 2004 saw the best ever results in Companhia Vale do Rio
Doce’s 62-year history. Gross revenue totaled R$29.02 billion and
net income reached R$6.46 billion – up 43.3% from the previous
year and at that time the highest profit ever made by a privatesector Brazilian company.281
In four years (2001-2004), Vale’s market value had risen from
US$9 billion to US$39.9 billion. During this period, the company’s
exports totaled US$16.2 billion, making it Brazil’s biggest net
exporter, accounting for 18.4% of the country’s trade surplus.282
268 - Idem.
269 - Idem.
276 - Idem.
270 - Idem.
277 - Idem.
271 - Commonwealth Scientific and Industrial Research Organization.
272 - Australian Nuclear Science and Technology Organization.
273 - Australian Mineral Industries Research Association Limited.
280 - Idem.
274 - Centro de Investigación Minero y Metalúrgico.
282 - Idem.
Vale
Our History
Ore stockyard and
reclaimers operating
at Ponta da Madeira
Luís, Maranhão, in 2005.
Vale
Our History
Previous page: smelter at
ferroalloy plant in São João
del-Rei, Minas Gerais, in 2002.
Left: aerial view of the potash
ore processing plant at TaquariVassouras Mine in Rosário do
Catete, Sergipe, in 2002.
328
329
Consolidated gross revenue from manganese ore and ferroalloy
sales soared by 89.8% to R$2.08 billion.293 Expansion in Chinese
consumption and a recovery in steelmaking on a global level,
together with the closure of ferroalloy plants in Europe and
temporary disruptions at plants in China and the United States,
raised the prices of manganese ferroalloys to levels two or three
times higher than their historic averages.294
More than US$184 million was invested by Vale in mineral
research and development in 2004, more than any other Brazilian
company invested in R&D that year and up 86% from 2003. In order to
identify and assess new mineral deposits, Vale conducted geological
studies in South America (Brazil, Chile, Peru and Argentina), Africa
(Gabon, Angola and Mozambique) and Asia (Mongolia).295
In 2005, all of Vale’s mining complexes once more attained new
records. The following graph shows these results.296
2003-2005 SALES
MILLION METRIC TONS
Alumina
Aluminum
Kaolin
288 - Idem.
289 - Idem.
285 - Idem.
286 - Idem.
291 - Idem.
295 - Idem.
287 - Idem.
292 - Idem.
294 - Idem.
296 - See the 2005 Annual Report, p. 31.
Our History
Copper*
252.189
229.881
Iron ore
and pellets
* Production initiated in 2004. Source: Vale’s 2005 Annual Report.
283 - Idem.
Vale
186.812
269
731
Bauxite
398
1.218
1.207
498
477
488
1.738
1.678
2005
1.805
2004
5.600
2003
5.429
Targets were surpassed in the areas of iron ore, manganese,
potash, kaolin, bauxite, alumina and primary aluminum. In addition,
the excellent results achieved in recent years in freight transportation
(average annual growth of 11% in freight transportation for third
parties between 2001 and 2004)288 confirmed Vale’s position as the
biggest logistics operator in Brazil.289
Between 2003 and 2004, Pará Pigmentos S.A.’s annual kaolin
sales rose by 8.8% from 423,000 to 460,000 metric tons, and its
production rose by 9.5% to 463,000 metric tons. In turn, Cadam
sold 744,000 metric tons in 2004 and produced 750,000 metric tons,
up 5.5% from the previous year.290
In 2004, approximately 90% of the work to expand the production
capacity of Taquari-Vassouras potash mine in Sergipe was completed.
In all, US$78 million was invested to expand annual potassium
chloride output from 600,000 to 850,000 metric tons. Gross revenues
from potash sales reached R$362 million, against R$289 million in
2003. This rise was due to a large increase in the average price of
potash, more than making up for a fall in production.291
Global primary aluminum production grew by 17% in 2004 to
nearly 30 million metric tons, boosted once more by China, the
world’s leading producer. Albras and Valesul represented 36% of
the volume produced in Brazil.292
The manganese ore and ferroalloy market, closely linked to
steel production, also had an exceptional year in 2004: 2.73 million
metric tons of manganese ore were produced, up 12.9% from the
previous year.
4.326
In 2004, Vale had mineral exploration offices in Argentina,
Chile, Peru, Venezuela, Gabon, Angola, South Africa, Mozambique
and Mongolia. Over the course of the year, the company signed
around 65 contracts with major customers in the Americas, Europe
and Asia to sell a total of approximately 1.1 billion metric tons of
iron ore and pellets over an average weighted period of 10 years.283
That year, global iron ore production was a record 1.2 billion
metric tons, up 5.5% from the previous year. China’s imports
continued to exceed all market estimates and they seemed set to
grow even more. In 2003, the country became the world’s largest
importer of iron ore, followed by Japan.284 Vale made the most of
the favorable moment. In 2004, its sales of iron ore and pellets
amounted to 231.5 million metric tons, another all-time record, up
23.9% from 2003. This enabled Vale to maintain its leadership of
the global seaborne market, accounting for 32.1% of the volume of
iron ore and pellets sold that year across the world.285
In 2004, the company produced record volumes of iron ore: 98.8
million metric tons in the South System (up from 92.8 million the
previous year) and 69.4 million metric tons in the North System
(up from 58.9 million). Annual pellet production also increased,
from 31.2 to 35.3 million metric tons.286 On December 24, 2004,
Tubarão Complex in Vitória, Espírito Santo, reached a major
production milestone: 500 million metric tons of pellets since the
first pelletizing plant there began operating in 1969.287
Vale
Our History
Iron ore stockyard at Tubarão
Complex, Vitória, Espírito Santo.
2003-2006 SALES
Alumina
Aluminum
Bauxite
272.682
252.189
229.881
81
186.812
119
169
1.323
1.218
1.207
731
4.085
5.600
5.429
4.326
1.738
1.678
1.805
330
510
2006*
498
2005
477
2004
3.207
2003
488
MILLION METRIC TONS
Kaolin
Copper*
331
Iron ore
and pellets
The 2006 figure includes two months of CVRD Inco’s production. Source: Vale’s 2006 Sustainability Report.
Records were also broken in the area of potassium chloride,
an important raw material used by the fertilizer industry: 641,000
metric tons were produced and 640,000 metric tons were sold.
In the aluminum sector, 6.9 million metric tons of bauxite, 2.6
million metric tons of alumina and 496,000 metric tons of primary
aluminum were produced. In 2005, all of Vale’s bauxite production
corresponded to a 40% share, proportional to its equity stake, of
the output of Mineração Rio do Norte, which reached 17.2 million
metric tons.297
In 2006, the company’s net profit was R$13.4 billion, up 29%
from 2005. Exports totaled US$9.7 billion, up 37.5% from the
previous year. Vale became the second biggest mining and metals
company in the world, in terms of market value.298
Between December 2001 and February 2007, the company’s
market value expanded eight-fold. 299 For shareholders, this
represented an annual return of 42.7% over that period. In 2006,
operational activities generated gross revenue of R$46.7 billion,
up 32% from 2005. 300 With its total net exports of US$8.8 billion,
Vale accounted for nearly one-fifth of Brazil’s trade surplus: its
exports as a proportion of the surplus rose from 14.1% in 2005 to
19% in 2006. 301
In 2006, Vale’s gross revenues were broken down as follows:
ferrous minerals – 59.1%; non-ferrous minerals – 18.2%; aluminum
sector products (bauxite, alumina and aluminum) – 11.8%; logistics
services – 7.3%; and steel products – 3.2%.302
That year, the company achieved new production records for
alumina, copper, potash and kaolin, with annual growth of 53.2%,
12.8%, 14.2% and 11.1%, respectively. These results were directly
linked to important records in that year’s shipments: iron ore and
pellets – 272.68 million metric tons; alumina – 3.2 million metric
tons; primary aluminum – 510,000 metric tons; copper – 169,000
metric tons; potash – 733,000 metric tons; and kaolin – 1.32 million
metric tons.303 The graph above shows these results and reveals
CVRD’s growth.304
A number of major expansion projects were also completed in
2006. Carajás’ annual production capacity increased to 85 million
metric tons in the third quarter of the year.305 Alunorte’s alumina
refinery was also expanded, with its production capacity reaching
4.4 million metric tons per year.306
302 - Idem.
303 - Idem.
299 - Idem.
304 - See the 2006 Sustainability Report, pp. 20, 39.
300 - Idem.
301 - Idem.
306 - Idem.
Vale
Our History
Vale
Our History
A bridge made of iron ore: Vale’s 50-year relationship with Japan
The year 2005 featured a special date: the 50th anniversary of the relationship between Companhia Vale do
Rio Doce and Japan. The date was celebrated with various events, including a soccer match between executives
of Vale’s main client companies in Japan as well as soccer star Zico, who had retired as a professional player
and was coaching Japan’s national team. 1 Roger Agnelli, CVRD’s CEO at the time, highlighted the partnership’s
importance in “guaranteeing Japan natural resources and the supply of raw materials to sustain the growth of
this fantastic country.” 2
This relationship began in 1955 with the first 20,000-metric-ton shipment of iron ore to Fuji Steel. This marked
the start of regular exports from Brazil to Japan. The following year, in 1956, iron ore exports reached 80,000 metric
tons, rising to 300,000 metric tons in the 1960s, thanks to Vale’s partnership with Japanese steelmakers Nippon
Steel, JFE, Sumitomo, Kobe Steel and Nisshin Steel.3 The construction of Tubarão Maritime Terminal in Vitória,
Espírito Santo, capable of accommodating large ships, was part of the efforts made by both sides to expand the
partnership. In 2005, Eliezer Batista, company president from 1961 to 1964 and again from 1979 to 1986, said that
“the project was designed with a series of innovations, bringing about major changes to global shipping.”4
Carajás Complex in the state of Pará, which has some of the largest iron ore deposits in the world, played a
major role in this partnership. Opened in 1985 – following research in the region going back to 19675 – the project
enabled Vale to produce a record 85.8 million metric tons of iron ore in the third quarter of 2008.6 From the start,
Carajás attracted attention from the Japanese: “It was love at first sight. The quality was top class and the deposits
contained 18 billion metric tons – as much as in the whole of Australia. If Carajás had been discarded at the time,
it terrifies me just to imagine where global steelmaking would be today,” said Takashi Imai, then a board member
at Nippon Steel, in 2005.7
Fumio Sudo, at the time CEO of JFE, noted that between 1995 and 2005, the iron ore exported by CVRD to Japan
added up to around 600 million metric tons: “With this amount, we could build a bridge between Japan and Brazil.
I think that CVRD’s iron ore symbolizes in itself the link between Brazil and Japan.” Among the reasons for this
success, Sudo identified the quality of the ore produced by Vale, significant Japanese immigration to Brazil, and “the
determination and perseverance of the leaders of both companies.”8
The unfavorable aspect of the relationship – the great distance, which required long journey times and
raised transportation costs – did not go unnoticed by the Japanese. However, Akio Mimura, CEO of Nippon
Steel, highlighted Vale’s efforts to make up for this disadvantage by constructing large-capacity ports. He also
expressed his admiration for the Brazilian people’s optimism: “Brazil has gone through various crises and even so
it is always hopeful.” Mimura said he looked forward to there being “another 50 years of history” jointly written
by Vale and Japan. 9
JFE’s Fumio Sudo explained that the iron ore sector is governed by long-term administration, the establishment
of relationships of trust and the confident expectation of mutual gains among companies: “CVRD has worked
based on these three principles. May the next 50 years be even more superb,” he said in 2005, adding that he hoped
to celebrate the partnership’s 100th anniversary in 2055.10
332
333
1 - “Festa à moda japonesa,” O Globo, September 29, 2005.
2 - DVD “Dois povos, um sonho: 50 anos de parceria CVRD e Japão,” Vale, 2005.
3 - Idem.
4 - Idem.
5 - See Vale’s website, “Conheça a Vale, Nossa Trajetória.” Available at <http://www.vale.com.br/pt-br/conheca-a-vale/nossa-trajetoria/paginas/default.aspx>.
Top: a steam train goes
past iron ore cars on a
stretch of the Vitória-Minas
Railroad (EFVM). Bottom:
Nippon Steel’s plant in
Kamaishi, Japan, in 2011.
Vale
Our History
6 - See Vale’s website, Press Office, 3Q10 Production Report, October 18, 2010. Available at <http://saladeimprensa.vale.com/pt/release/interna.asp?id=20205>.
7 - DVD “Dois povos, um sonho: 50 anos de parceria CVRD e Japão,” Vale, 2005.
8 - Idem.
9 - Idem.
10 - Idem.
Vale
Our History

valehistorybook9

Transcription

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