Mining in the First Republic 1910

1910
CHAPTER 1
Mining in the First Republic
1.1 All that glitters is not gold
At the end of the 19th century – when prospectors had already
given up their search for gold in Minas Gerais and abandoned the
villages in the hills to look for work on the coast – the town of Itabira
was little more than Cauê Peak. Cauê was one of those places that
nature seems to have sculpted by hand: a mountain that rose up
suddenly from the surrounding plains, forming a unique feature. It
is said that during full moons, the mountain used to shine as if lit
up by floodlights hung from the sky. However, as we know, all that
glitters is not gold.
The word Itabira is of Tupi origin, meaning rock (“ita”) that
shines (“bira”).1 Contrary to the assumptions of the adventurers
who arrived to dig at the foot of Cauê Peak (the shining rock
itself) in search of gold, what made the mountain shine was its
enormous quantity of iron. It was a reddish iron that spread out its
color across the landscape, the layers of clay and the rivers in the
surrounding area. The color would enter family homes and remain
there, ingrained. At the turn of the 20th century, Cauê Peak was
mapped as the biggest iron deposit in the world. The news spread
across the planet. The gold prospectors had left Itabira, but now
foreign miners started to appear.
The Itabira Iron Ore Company was the first company authorized
to prospect for iron in the region. It was the successor to the
Brazilian Hematite Syndicate and, over the course of its existence,
it witnessed various political upheavals, rises and falls in the
international economy, changes in legislation and, above all,
1 - The name Itabira has two different interpretations. According to linguist Theodoro
Sampaio, it means rock that rises. However, in the book Voyages dans le provinces de Rio
de Janeiro et de Minas Gerais (Paris: Gibret et Darez, 1830, vol. 1, p. 270), by Auguste de
Saint-Hilaire, the name Itabira is said to come from the indigenous words “yta” and
“bera,” meaning rock that shines. According to Saint-Hilaire, “Therefore, Itabira does
not mean higher, sharp rock, as has been suggested.” See Sampaio, Theodoro. O Tupi na
geographia nacional. Instituto Historico e Geographico de S. Paulo. São Paulo: Typ. da Casa
Eclectica, 1901. Available at: <http://biblio.wdfiles.com/local--files/sampaio-1901-tupi/
sampaio_1901_tupi.pdf>.
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70 anos
nationalist movements. The workers of Itabira created their own
dialect, guinlagem de camaco (or “monkey language”),2 to avoid being
understood by their foreign bosses. As time went by, the Itabira Iron
Ore Co., which grew up around the Vitória-Minas Railroad, acquired
the profile of the men who ran it. Percival Farquhar – who is said to
have kept the first dollar he earned mounted in a frame next to his
bed, beside a photograph of his parents – was one of them.
Farquhar was a legendary figure, someone whose life seems like
something from a work of fiction. Some consider him a capitalist
genius; others, an opportunist. Born in the city of York, Pennsylvania,
in the United States, he came to Brazil after working on railroad
construction ventures in Latin America (including the unsuccessful
Madeira-Mamoré adventure in what is now the Brazilian state of
Acre), and he acquired the Itabira Iron Ore Co. in 1919. The paths
taken by the company – especially those that, using the railroad,
would transport ore to the sea and to fortune – were always
intimately connected with Farquhar’s trajectory and personality.
The businessman was the main actor in violent political battles
and, for better or worse, he was the target of nationalist campaigns
concerning the right to extract ore in Brazil.
The history of Companhia Vale do Rio Doce (CVRD), established
in 1942 from Farquhar’s Itabira Iron Ore Co., began slightly earlier,
and is intertwined with the history of mining in Brazil. It is a
history of dreams, adventure, politics, wealth, wars, laws and men.
A history that, as will become evident, was born in the shiny rocks
of Cauê Peak.
2 - The words of “guinlagem de camaco” are made by swapping the first consonant or
group of consonants of the second syllable with the first letter of the first syllable. In this
way, “linguagem” becomes “guinlagem” (or “guilagem”), and “macaco” becomes “camaco.”
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19
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Previous page: a
panoramic view of the
town center of Itabira,
Minas Gerais, in 1899.
The discovery of new processes for transforming iron
into steel had immediate consequences. Steel, an alloy of
iron and carbon, and more malleable than cast iron, was
essential to the production of machines for new factories
and girders for construction
1.2 Mining codes and codes of honor
20
Understanding the history of mineral exploration in Brazil, more
than anything else, means understanding the changes in legislation
regulating the sector. Although mining activity has been a part of
the country’s history from the beginning, exclusive laws in the
area are relatively recent. Changes started to have real influence
on society at the end of the 19th century, with the proclamation
of the Republic. It was the first republican Constitution, enacted
on February 24, 1891, that profoundly altered the subsoil property
regime. Until then, Brazil had lived under laws largely created soon
after the Portuguese royal family arrived in the country.
At the start of the colonial period, in 1521, the Ordinances of
Manuel were enacted, giving the Portuguese Court possession of
“seams of gold or any other metal,” and guaranteeing the discoverer
the right to mine upon payment of one-fifth (the so-called “quinto”)
of the metals extracted, “after deducting all costs.” As of 1603, the
Ordinances of Manuel were replaced with the Ordinances of Philip,
which also granted the king ownership of mineral wealth (Book II,
Chapter XXVI, Section 16).3
Soon after independence (but before the Constitution of 1824),
the imperial government enacted a law, on October 20, 1823,
validating “all Portuguese legislation prior to April 21, 1821, including
the provisions of Book II, Chapter 26, Section 16, Chapter 28 and
Chapter 34, Section 10 of the Ordinances of Philip, which stipulated,
among other things, that the king owned all underground mineral
resources. Accordingly, the imperial period retained the property
system adopted in colonial times, through the Ordinances and the
provisions enacted throughout the country by the Law of 1823,
with the difference that mines and any other subsoil wealth now
constituted the nation’s property”.4
One innovation introduced by the 1891 Constitution was the
adoption of the United States system of accession. Through this
system, the mine owner was the owner of the land on which it was
located. This change, expressed in article 72, paragraph 17 of the
Constitutional Charter, sought to stimulate the free exploitation of
minerals by landowners.5
The minerals people were looking for were no longer gold and
precious stones. Throughout Brazil – and especially in the state of
Minas Gerais – there were clear signs that the so-called “age of gold”
had reached its end. Production of the metal, which in the mid-18th
century reached 300 metric tons per year, had fallen to a third of this
level less than 100 years afterwards. The number of people living
around the former gold mines was waning.6 However, there were still
immense resources to be found beneath the ground. The technical and
scientific progress that marked the end of the 19th century, ushering
in what some historians have called the Second Industrial Revolution,7
opened up new prospects for extracting and using various minerals.8
The discovery of new processes for transforming iron into steel
had immediate consequences. Steel, an alloy of iron and carbon, and
more malleable than cast iron, was essential to the production of
machines for new factories and girders for construction. Iron deposits
hitherto abandoned as uneconomic started to be exploited in Europe
and the United States, and steel production grew at an extraordinary
pace. Used to make railroad tracks, the structures of large buildings,
in tunnels and bridges, and in machinery of all kinds, steel – the main
product made from iron – became a basic industrial raw material.9
21
5 - Concerning this subject, see Vivacqua, Attílio, A nova política do sub-solo e o regime legal
das minas.
6 - To consult the censuses, see the IBGE’s library at: <http://biblioteca.ibge.gov.
br/visualizacao/monografias/GEBIS%20-%20RJ/Recenseamento_do_Brazil_1872/
Provincia%20de%20Minas%20Geraes%201%20Parte.pdf>. In the country’s first census,
conducted in 1872, the total population of Ouro Preto was 17,701.
7 - Concerning this subject, see Hobsbawn, Eric. As origens da Revolução Industrial. São
Paulo: Global Editora, 1979; A Era do Capital, 1848-1875. Rio de Janeiro: Paz e Terra, 1996; Da
Revolução Industrial inglesa ao imperialismo. Rio de Janeiro: Forense Universitária, 2003; and
Lima, Alceu Amoroso. A segunda Revolução Industrial. Rio de Janeiro: Agir, 1960.
8 - See Guimarães, José Epitácio Passos. Epítome da história da mineração. São Paulo: Art
Editora, 1981, pp. 102-120.
3 - O regime jurídico da mineração no Brasil. Available at: <www.ufpa.br/naea/pdf.php?id=147>.
4 - Idem.
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First photograph of men
working inside a gold mine, in
1888, taken by Marc Ferrez.
9 - See Burns, Edward McNall. História da civilização ocidental. O drama da raça humana. Porto
Alegre: Editora Globo, 1948, vol. 2, pp. 674-675.
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Interest in the country’s mineral reserves was further shaped
by the creation, in 1907, of the Geological and Mineralogical
Service of Brazil (SGMB), which was replaced in 1934 by
the National Mineral Production Department (DNPM)
22
The map shown above, drawn in India ink, a gift from
engineer João Victor Magalhães Gomes to the Emperor of
Brazil, Pedro II, given in 1881, reveals an itinerary featuring
gold and topaz mines, mineral deposits, and iron factories
located around Ouro Preto in Minas Gerais.
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In turn, technical advances in steelmaking stimulated the
mining of coal to make coke, widely used to reduce iron ores in blast
furnaces. Improvements to processes and techniques for extracting
coal enabled deeper seams to be mined and higher output. Other
minerals, such as copper, lead, zinc, bauxite and manganese, gained
many new uses and their production expanded.10
In various Brazilian states, important advances were made
in the field of geological prospecting and surveying, enabling a
significant increase in the number of mineral discoveries. It was in
this new context – in which scientific research became ever more
linked to economic progress – that the Ouro Preto Mining School
was established. 11
Founded in 1876, the School directly influenced the formulation
of Brazil’s mining policy at the start of the republican period. The
School produced the first generations of Brazilian geologists, blast
furnace designers and steelmaking industrialists. It was the right
moment. Brazil needed research and information in this area, and
this was provided by the School’s professors and alumni. They
also provided assistance to small iron prospectors and mining
companies interested in introducing technological changes to
boost productivity.
Initially, the Mining School’s attentions focused on coal. Under
the direction of geologist Luiz Felipe Gonzaga de Campos, the
potential of the Santa Catarina carbon basin was evaluated, starting
in 1892. In 1906, the Minister of Transport and Public Works, Miguel
Calmon, established the Geological Commission of Brazil. The
idea was to continue research already initiated and, in particular,
conduct studies on untapped minerals.
Led by Orville Derby, this commission divided the country
into three districts: the south region, with its notable carbon
reserves; the central region, known since the 18th century for gold
exploration; and the north region, whose potential was practically
unknown. The three regions were placed under the leadership,
respectively, of geologists Francisco de Paula Oliveira, Gonzaga de
Campos and Antônio Olynto dos Santos Pires, all former students
of the Mining School.12
The results of the commission’s work – which put into concrete
numbers what had until then been mere speculation – changed
the way mineral policy was established in the country. Gonzaga de
Campos, for example, estimated that there were around 3 billion
metric tons of iron ore reserves in the state of Minas Gerais. In terms
of coal, earlier assessments about the feasibility of harnessing
them were confirmed, and this encouraged the establishment of
companies interested in exploiting carbon deposits in the south
of Brazil.
Interest in the country’s mineral reserves was further shaped
by the creation, by means of Decree 6,323 of January 1907, of the
Geological and Mineralogical Service of Brazil (SGMB), which was
replaced in 1934 by the National Mineral Production Department
(DNPM). The SGMB, whose first director was Orville Derby, became the
main instrument for geological and mineral studies in the country.13
Right from the start, the focus of the SGMB’s research was iron.
In its first year, the SGMB was tasked with conducting prospecting
and economic studies concentrating on iron ore in the municipalities
of Conselheiro Lafaiete, Mariana, Itabira and Sabará in Minas Gerais.
These studies resulted in two maps showing the distribution of iron
and manganese deposits in the Iron Quadrangle region. Above all, the
study revealed the existence of immense iron reserves of exceptional
quality in Itabira. This small town in Minas Gerais was now on the
geological and economic map of Brazil.
10 - Idem, ib., p. 677. See also Vazquez de Prada, Valentin. História econômica mundial. Porto:
Livraria Civilização Editora, 1977/1978, vol. 2, pp. 211-214.
12 - See Chiarizia, Martha M. de Azevedo. Itabira Iron Ore Company Limited. Master’s thesis in
History, Niterói, UFF, 1979, p. 4; and Soares e Silva, Edmundo de Macedo. O ferro na história e
na economia do Brasil. Rio de Janeiro: Biblioteca do Sesquicentenário, no. 9, 1972, p. 49.
11 - See Guimarães, José Epitácio Passos, op. cit., pp. 102-103, who presents a list of the
mineral deposits existing in various regions of Brazil, produced by Itagyba Barçante, author
of Economia rural brasileira. Rio de Janeiro: Imprensa Nacional, 1946. See also Carvalho, José
Murilo de. A Escola de Minas de Ouro Preto: o peso da glória. Rio de Janeiro: Finep/Cia. Editora
Nacional, 1978.
13 - For more information, see the Federal Senate, O governo presidencial do Brasil 1889-1930:
Guia administrativo do Poder Executivo no período da República Velha, p. 50. For comparison
purposes, the United States Geological Service was established In 1879, and the British
Geological Service (BGS) was founded in 1835.
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Ouro Preto Mining School
“In a very small area of land, one can see an almost complete range of the metamorphic rocks that cover a large area of Brazil,
and all of the city’s surroundings are used for fruitful, interesting mineral excursions.”
(Claude Henri Gorceix, founder of the Ouro Preto Mining School, 1874)
Anyone who strolls around the hilly streets of Ouro Preto will sooner or later come across a plaque on the door
of one of the city’s fine old buildings, giving the name of a student fraternity house. Dotted all over the city, they are
occupied by students from across the country, the most visible sign of the 135-year history of the Ouro Preto Mining
School (known by Portuguese acronym EMOP).1 The School’s history is intertwined with the history of mining in
Brazil. In addition to its beautiful main building in the center of the city, EMOP has a pioneering record in geological
mapping, famous professors, and a vocation for scientific research. Every year, a new intake of students arrives, keen
to obtain an excellent education and to enjoy the fraternity houses’ lively parties. EMOP has been – and continues
to be – a leading school in the study of mining in Brazil. The School currently turns out 72 newly qualified geologists
and mining engineers each year, many more than in the past.
The Ouro Preto Mining School was opened in 1876, but in its first year, it did not attract a single applicant.
Afterwards, things improved… a little: in the second year, seven people applied, and four were accepted. The School
is the fruit of the personal efforts of Emperor Pedro II, who had plans to study better the mineral wealth of Brazil.
He invited Augusto Dabreé, his fellow member of the Science Academy of Paris and director of the Mining School of
Paris, to lead a project to build an institution to study Brazilian geology. His invitation – sent in a letter in 1872 – said:
“[...] not only will the country benefit from greater use of its mines, but the natural sciences in general will be very
much strengthened.” Dabreé was unable to leave France, but he recommended his compatriot Claude Henri Gorceix
for the mission. Four years later, Gorceix founded not only the School, but also a new way of looking at the country’s
mineral resources. After EMOP, Brazil’s underground resources would never be the same.
Within 30 years or so, the engineers graduating from the School began to dictate the course of the country’s mining
policy. The laboratories swarmed with activity, students went into the field to look for new deposits, and the mining
sector replaced pure chance with strategic study. At the 1910 Geological Congress of Stockholm, which showed the
world the potential of Brazil’s minerals, geological mapping was demonstrated by the first professionals to have
graduated from EMOP. Thousands of people have studied at the School since then. Former president Getúlio Vargas,
for example, spent a short time studying there. Even today, Vale recruits a significant share of its employees from
among EMOP alumni. It’s always been that way. In fact, EMOP – part of the Federal University of Ouro Preto since
1969 – educated the first two presidents of Vale: Israel Pinheiro and Dermeval Pimenta.2
24
Facing page: scientists
working at the Mineralogy
and Geology Laboratory
of the Ouro Preto Mining
School in Minas Gerais,
in 1925. Below: details of
the front and side of the
institution’s building.
25
1 - See more information at: <www.ufop.br>.
2 - Carvalho, José Murilo. A Escola de Minas de Ouro Preto – O peso da glória. 2nd edition. Belo Horizonte: Editora da UFMG, 2002.
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From left to right: details of
the São João de Ipanema Iron
Factory (depicted by Jean-Baptiste
Debret in 1827, and an unknown
photographer, respectively). A
furnace at the Esperança Factory.
An advertisement by coal importer
Francisco Leal taken from the
Almanak Laemmert of 1913.
26
1.3 Setbacks in iron production
Although many studies and surveys revealed or confirmed
the existence of large iron ore deposits in Brazil, it took some
time before there were any significant advances in exploiting
them. Various factors explain the limited development of iron
ore extraction and the late establishment of steelmaking on an
industrial scale in the country.
Known reserves of iron ore – located mainly in the state of Minas
Gerais and, to a less extent, in Mato Grosso – were a great distance not
only from the coal reserves of Rio Grande do Sul and Santa Catarina,
but also from the potential iron and steel consuming markets of Rio
de Janeiro, São Paulo and the northeast of the country. The high cost
of railroad transportation and the low quality of Brazilian coal for
coking purposes (the transformation of coal into coke, an essential
fuel used in steel blast furnaces) were other major difficulties.
Besides these problems, there were others related to the limited size
of the domestic market, a shortage of capital, and the lack of an
appropriate tariff policy. Iron imported from Europe, for example,
enjoyed a special tariff, a privilege it had held since the 1810s.14
For all of these reasons, until the start of the 1920s, steelmaking
in Brazil was practically limited to the smelting of iron in small
furnaces fed by charcoal, generally located close to iron ore deposits
and forests where timber was harvested to make charcoal.15 These
facilities were mainly located in Minas Gerais, in the municipalities
of Ouro Preto, Mariana, Santa Bárbara, Itabira, Conceição and Minas
Nova.16 And nearly everything produced there was destined for
“domestic use.”
14 - See Paiva, Glycon de. O Serviço Geológico e Mineralógico do Brasil (1907-1933) como antecessor
do DNPM (a speech given at a dinner hosted by the SEMOP to celebrate the DNPM’s 50th
anniversary), unpublished academic paper, n.p.
15 - See Suzigan, Wilson. Indústria brasileira: origem e desenvolvimento. São Paulo: Brasiliense,
1986, p. 257.
16 - See IBGE, Séries estatísticas retrospectivas, vol. 2, part 1, p. 463.
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Some of the iron was used to make horseshoes, hoes, sickles
and axes, and some was sold in bars to neighboring municipalities.
There were also many foundries spread across various parts of the
country. A common feature of the overwhelming majority of these
establishments was the use of imported raw materials.17 The only
two operations to produce pig iron on an industrial scale before
the 1920s were the Esperança Plant and the Companhia Siderúrgica
Mineira, established in 1888 and 1917, respectively.18
In the 1910s, certain factors began to favor the development
of steelmaking. Studies and research conducted by students and
professors at the Mining School confirmed that the country had
large reserves of high-quality iron ore. In turn, an increase in
the pace of railroad and port construction, the growth of urban
infrastructure in the major Brazilian cities, and rising agricultural
production (which needed tools and machines) led to growing
imports of iron, steel and metal artifacts.
The First World War (1914-1918) also had a major influence on
the Brazilian steel industry. The conflict hindered iron and steel
imports, generating shortages of products. This exposed the fragility
and dependence of Brazil’s economy and demonstrated the need to
harness the country’s abundant mineral resources.
17 - For more information, see Suzigan, Wilson, op. cit., pp. 232-245.
18 - The Esperança Plant was established in 1888 through an initiative led by Swiss
metallurgist Alberto Gerspacher and Brazilians Amaro da Silveira and Carlos da Costa
Wigg, near the town of Itabirito, Minas Gerais. The plant’s charcoal-fed blast furnace
began operating in 1891, and could produce between four and five metric tons of pig
iron per day. Owned by the Companhia Forjas e Estaleiros between 1892 and 1897,
and the Leandro Queiroz company between 1897 and 1899, the Esperança Plant was
acquired in 1899 by engineer J. J. Queiroz Júnior. In 1916, following the death of its owner,
the plant was renamed the Queiroz Júnior Plant. See Suzigan, Wilson, op. cit., chapter
4, and Chiarizia, Martha M. de Azevedo, op. cit., chapter 1. The Companhia Siderúrgica
Mineira was established in 1917 in Sabará, by Amaro Lanari, Cristiano Guimarães and
Gil Guatimosin, former students of the Ouro Preto Mining School. The company began
production in 1920, turning out 10 metric tons of pig iron per day. Iron ore was extracted
from the Andrade deposit close to the plant, from where it was transported by the Central
do Brasil Railroad. Charcoal was made in the region’s woods. See Soares e Silva, Edmundo
de Macedo, op. cit., pp. 61-62.
The federal government’s desire to encourage domestic iron
and steel production was expressed for the first time in a message
sent by President Nilo Peçanha in 1909 to the National Congress:
“Nothing could better meet this need than iron. Nationalizing the
production of this metal is also a necessary condition for the growth
and consolidation of the military, no less than for the expansion of
civil industry.”19
Shortly afterwards, Decree 8,019 of May 19, 1910 granted favors
and privileges to companies or individuals, Brazilian or foreign,
that proposed to build steelworks in Brazil. These favors included
the right to construct, equip and operate quays, bridges and docks,
and permission to connect mineral deposits and plants to railroads
and ports through branch lines. The government also granted
exemption from taxes and reduced ore loading and unloading
charges at federal ports.20
Another notable occurrence during this period was the 11th
International Geological Congress of September 1910, held in
Stockholm. This event was convened by the major European and
North American steel companies, with the purpose of making a
detailed assessment of global iron reserves. Delegations from many
countries attended the event, including Brazil, represented by
Orville Derby.
Derby went to the congress with the intention of showing Brazil’s
mining potential to the rest of the world. He presented a report
by the Geological and Mineralogical Service of Brazil, produced
by Gonzaga de Campos, that identified Brazilian mineral deposits,
evaluated them for their potential, and gave their exact position
on a map of Minas Gerais. The report also reported the existence
of iron ore in the states of Bahia, Goiás, São Paulo, Paraná, Santa
Catarina, Rio Grande do Sul and Mato Grosso. For these states,
however, there was no reliable information on the potential of
these deposits.21
As a result of the congress, then, large companies from England,
the United States, Germany, Belgium and France, in particular,
obtained official knowledge of Brazil’s reserves, calculated at
10 billion metric tons, and this triggered a race to harness the
country’s iron ore. Taking advantage of gaps in the first republican
Constitution, these powerful companies, known as “syndicates,”
acquired all of the identified deposits, awaiting the time they judged
most convenient to exploit them. The landowners in these areas,
not knowing the value of what lay beneath the ground, sold their
land for much less than its true worth.22
One of these companies was the Itabira Iron Ore Company, the
subject of a long legal and ideological dispute stretching from the
1910s to the 1930s.
19 - Bandeira, Luiz Alberto Moniz. A ideia de nação no Brasil. In: Bresser-Pereira, Luiz Carlos
(org.). Nação, câmbio e desenvolvimento. Rio de Janeiro: Editora FGV, 2008. p. 46.
20 - See Luz, Nícia Vilela. A luta pela industrialização do Brasil. São Paulo: Difusão Europeia do
Livro, 1961, pp. 188-189, and Barçante, Itagyba, op. cit., vol. 1, p. 105.
21 - See Chiarizia, Martha M. de Azevedo, op. cit., chapter 1.
22 - Idem, ib.
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1.4 Itabira Iron Ore Co.’s contract
2802
The history of the Itabira Iron Ore Co. began even before Brazil’s
mineral potential was divulged abroad. By the time the recently
established SGMB revealed the existence of enormous iron deposits
in Itabira during the congress in Stockholm, English engineers
Murly Gotto, Dawson, and Robert Normanton, all resident in Brazil,
had already obtained the option to purchase extensive tracts of
land in the region. They knew what lay beneath the ground. Before
effecting this purchase, they consulted the directors of the VitóriaMinas Railroad Company (CEFVM)23 – established six years before
by Brazilian businessmen to transport agricultural goods from the
Doce River Valley – about the possibility of iron ore being carried
by the railroad. After receiving a positive response, the Englishmen
founded the Brazilian Hematite Syndicate.
In 1909, the Brazilian Hematite Syndicate acquired 42,000 shares
in the Vitória-Minas Railroad Company and made a request to the
federal government to change the original route of the railroad to
permit access to the reserves of Itabira. Not only was this request
accepted, but the Vitória-Minas obtained a virtual monopoly over
operations in the region. In exchange, however, Brazilian Hematite
was obliged to build a steel mill with minimum production capacity
of 1,000 metric tons per month.24
In 1910, Brazilian Hematite effectively acquired the main
mineral deposits of Itabira. Extending for 76.8 million square
meters and holding more than 1 billion metric tons of ore, they
constituted one of the biggest iron reserves in the country.25”
23 - To read about the history of the EFVM, see Ribeiro, Lucílio Rocha. Pequena contribuição
à história da Estrada de Ferro Vitória a Minas. Vitória: author’s edition, 1986, and Pimenta,
Dermeval. O minério de ferro na economia nacional. Rio de Janeiro: Gráfica Editora Aurora,
1950, among others.
24 - All of this was determined by Decree 7,773 of December 30, 1909. See Suzigan, Wilson,
op. cit., p. 261.
Men on the tracks of the
Vitória-Minas Railroad
(EFVM) in the 1920s.
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25 - See Abreu, Alzira Alves de, “Itabira Iron Ore Company,” Dicionário histórico-biográfico
brasileiro; 1930-1983. Rio de Janeiro: Fundação Getulio Vargas, Year 1, Volume 2, 2001.
p. 1,629 (hereafter “DHBB”). Available at: <http://www.fgv.br/CPDOC/BUSCA/Busca/
BuscaConsultar.aspx>.
In this same year, Brazilian Hematite raised its stake in the VitóriaMinas to 73.3% and made an agreement with the Port of Vitória
Company to export iron ore. Finally, in 1911, it founded the Itabira
Iron Ore Company, which received authorization from the Brazilian
government to operate in the country by means of Decree 8,787 of
June 16 of that year.
The company was headquartered in London and was obliged to
maintain a representative in Brazil, subject to Brazilian laws and
jurisdiction. The company’s core objective, according to Decree
8,787, was to “acquire, explore, develop, work and exploit certain
mineral properties known as Conceição, Santa Ana and Cauê,
situated in the municipality of Itabira, in the state of Minas Gerais.”
One of the Itabira Iron Ore Co.’s key targets was to export 3
million metric tons of iron ore per year. To do this, the company
would have to improve the Vitória-Minas’ operating conditions,
including electrifying the track. However, the company did not
manage to raise the sums needed – 53 million réis, or around 3.5
million pounds – due to the lack of a customary guarantee from the
federal government to pay the interest on the investment, and the
obligation to build the steel mill, a venture that the company was
not interested in.26
The First World War closed off the European financial markets,
making fundraising even harder. In addition to its financial
problems, the Itabira Iron Ore Co. also faced nationalist opposition,
which had targeted the company almost since the start of its
activities. In these early years, notable opponents of the company
included Arthur Bernardes, a leading politician in Minas Gerais, and
Clodomiro de Oliveira, Professor of Mineralogy at the Ouro Preto
Mining School.27 Until then, the public had not actively supported
the movements trying to repeal the privileges given to the English
company. However, the Itabira Iron Ore Co.’s situation started to
become more complex when Arthur Bernardes was elected the
president of Minas Gerais in 1918.
26 - See Suzigan, Wilson, op. cit., p. 262.
27 - For more details, see Abreu, Alzira Alves de, op. cit., p. 1,629.
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29
Between the mine and the sea
Between Belo Horizonte Central Station and Pedro Nolasco Station in Greater Vitória lie 664 kilometers of railroad
track, on which run the only daily train service between two Brazilian state capitals. Along it – using the indispensable
branch line from Nova Era to Itabira, taking the total trip to 905 kilometers – around 70 locomotives travel every day,
many of them pulling more than 150 cars. The majority of the train cars carry iron ore from the mines of Itabira and
the whole of the Iron Quadrangle region to the Port of Tubarão. In all, the railroad carries over 100 million metric tons
of iron a year. The EFVM’s trains also transport non-iron goods (making up around 40% of total freight), including
agricultural products, containers, timber, steel, tools and granite, as well as people – many people.
Every year, around 1.5 million people travel on the railroad. They include tourists, business people, students,
teachers and other ordinary folk. It’s the largest passenger train service in Brazil. The trains have restaurant cars and
facilities for people with disabilities. There are both economy and executive classes – the latter with air conditioning
and reclining seats. The journey from Belo Horizonte to Greater Vitória goes past 30 stations and takes 13 hours.
And while passengers pass the time looking out of the window – seeing the old houses, the bridges, the tunnels,
the children who come to wave, the elderly people in their canvas chairs, the winding Doce River, and the railroad’s
cuttings and embankments, marking the landscape – it can seem they have gone back at least 100 years in time.
The Vitória-Minas Railroad was established in 1904 and its use has long been at the center of discussions about
mining in Brazil. Since the first concession contracts made with the Itabira Iron Ore Co., the use of the railroad
has served as a fundamental negotiating tool. Around its construction, stories arose of adventure, dreams and
achievements. The train was – and continues to be – essential to integrating the whole Doce River Valley region
and everything produced there. Without the railroad, there would be no transportation or exports. You could say
there’d be no Vale – at least the Vale we know today – without the EFVM. The people who work on the trains – from
locomotive engineers to the catering staff who offer coffee, biscuits and candy to passengers – know that they are
moving the company’s soul, continually renewing a dream that began with the pioneers of Brazilian mining. For this
reason, on the railroad station platforms, when a train approaches, it’s not uncommon to hear someone exclaim
proudly: “There goes Vale’s train!”
30
31
A debenture certificate
issued by the Vitória-Minas
Railroad in 1911. Following
page: train cars carrying
ore along the EFVM.
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In 1919, the Itabira Iron Ore Co changed hands: it was bought
by American businessman Percival Farquhar, the company’s
former representative in Brazil. Farquhar had arrived in
Brazil 15 years before, and had specialized in businesses
involving foreign companies and the public sector
32
Arthur Bernardes was 45 years old, a qualified lawyer and
a charismatic politician. He always began his speeches with a
reference to his home town (Viçosa), his family and the worthy
people of Minas Gerais. Before joining the state government, he had
twice been elected a federal deputy, both times as a member of a
nationalist party. As leader of the state government of Minas Gerais,
he was supported by Clodomiro de Oliveira, whom he appointed to
run the Secretariat of Agriculture, Industry, Trade and Public Works.
Together, they formulated the rules for mining iron in Minas Gerais.
With or without the Itabira Iron Ore Co.28
In 1919, Bernardes enacted Law 750, which raised the tax on
iron ore exports to 3,000 réis per metric ton for companies that
were exclusively export-focused. In compensation, the law set the
tax at 300 réis per metric ton, for 20 years, for exporting companies
that would build a steel mill in the state and process at least 5% of
the amount of ore exported.29 The terms of Law 750 evidently did
not please the Itabira Iron Ore Co., especially as it had previously
managed to obtain from the federal government, through Decree
12,094 of June 7, 1916, an end to its obligation to build a steel mill.30
Also in 1919, the Itabira Iron Ore Co. changed hands: it was
bought by American businessman Percival Farquhar, the company’s
former representative in Brazil. Farquhar had arrived in Brazil 15
years before, and had specialized in businesses involving foreign
companies and the public sector. In 1905, he worked on the
establishment of Canadian company Rio de Janeiro Tramways,
Light and Power, which would later become known simply as Light.
Farquhar had also been involved in controversial projects, such as
a venture to sell timber and rubber in the Amazon.31
28 - Bernardes’ speeches may be read in Discursos selecionados do Presidente Arthur Bernardes
3,­organized by Izabela Medeiros de Souza, Fundação Alexandre de Gusmão, Brasília,
Ministério das Relações Exteriores, 2010. His biographical details may be consulted in
Koifman, Fábio (org.). Presidentes do Brasil. Editora Rio, 2001.
Soon after gaining control of the Itabira Iron Ore Co., Farquhar
made a proposal to the Brazilian government to build a steel mill at
no cost to the public purse, in exchange for authorization to export
4 million metric tons of iron per year. The proposal was well received
by the President of the Republic, Epitácio Pessoa, who had been
elected in 1919, and by his Minister of Transport and Public Works,
José Pires do Rio. The president also looked favorably on the inflow of
foreign capital to the country. It was estimated that the Itabira Iron
Ore Co. would invest around 60 million dollars in the project.32
And so, on May 29, 1920, a contract was signed by which the
federal government authorized the Itabira Iron Ore Co. to build and
operate coke-fed blast furnaces, steel plants and rolling mills, a
dedicated iron ore port in Santa Cruz (now called Aracruz), to the
north of Vitória, and two railroad branch lines starting from the
Vitória-Minas line: one toward Itabira and the other to the Port of
Santa Cruz. Both the branch lines and the port would be owned
by the company, giving it the unrestricted right to export Brazilian
iron ore. The exported ore would be transported on ships owned by
Itabira, which would carry coal on the return journey to feed the
steel mills.
Overall, the contract granted a period of 24 months to start the
work and 48 months for the facilities to come into operation. If
at the end of the period the requirements had not been met, the
government could declare the contract forfeited and terminate
it, and the company would be obliged to pay a fine. The contract
also stated that the Port of Santa Cruz would return to government
ownership after 90 years and, after 45 years, the Brazilian government
could acquire the Itabira Iron Ore Co.’s set of properties. Finally,
another clause in the contract stated that, in order to proceed with
the venture, the company would have to sign an additional contract
with the state government of Minas Gerais.33
33
29 - See Diniz, Clélio Campolina. Estado e capital estrangeiro na industrialização mineira. Belo
Horizonte: UFMG/PROED, 1981, p. 46.
30 - See Suzigan, Wilson, op. cit., p. 262.
31 - For more information, see the entry for “Farquhar, Percival,” DHBB, available at: <http://
www.fgv.br/CPDOC/BUSCA/Busca/BuscaConsultar.aspx>.
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Our History
32 - See Chiarizia, Martha M. de Azevedo, op. cit., pp. 27-28, 33.
A chart showing Brazil’s
mineral deposits in 1929.
33 - Idem, ib., pp. 35-37, and Abreu, Alzira Alves de, op. cit., p. 1,629.
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Our History
Percival Farquhar
Born with a silver spoon in his mouth, Percival Farquhar
(York, Pennsylvania, 1864 – New York, 1953) 1 lived an
extraordinary life, as if written by an imaginative
screenwriter.
Born into an American family of Quakers (Protestants
who aim to live reserved lives of moral and religious
purity), Farquhar was a member of the industrial
aristocracy at a time when access to finance was
fundamental to establishing and developing companies
that in just a few years would grow into empires. The
young entrepreneur graduated as an engineer, left
traditions behind and founded a capitalist empire that
34 spanned the world.
Farquhar built railroads in Guatemala, Cuba and
Russia, where he negotiated contracts directly with Lenin.
In Brazil, among various enterprises he founded Rio de
Janeiro Tramways, Light and Power (the precursor to
today’s electricity distributor Light S/A), he became
involved in the unsuccessful project to construct the
Madeira-Mamoré Railroad in what is now the state of
Rondônia, he built the beautiful Grand Hotel La Plage (the
first to have telephones in guests’ rooms, in 1921) in
Guarujá, São Paulo, he leased the Sorocabana Railway
Company and, not least, he bought the Itabira Iron Ore
Company, which was taken over by the newly established
Companhia Vale do Rio Doce in 1942.
With the comings and goings of the Brazilian Mining
Code, he made enemies with major public figures, such as
President Arthur Bernardes, and lifelong friends and
partners, such as businessman Assis Chateaubriand, who
in 1924 financed the establishment of O Jornal. Farquhar
a l s o f o u n d e d t h e I t a b i ra S p e c i a l S t e e l C o m p a ny
(Companhia Aços Especiais Itabira, or Acesita), in 1946.
35
1 - Carone, Edgard. A República Velha. São Paulo: Editora Bertrand Brasil, 1974.
Moraes, Fernando. Chatô, o Rei do Brasil. São Paulo: Companhia das Letras, 1994.
A meeting at Cauê Peak in 1935 with the president of
Itabira Iron Ore Co., Percival Farquhar (fourth from the
left), standing next to the administrator, Thomas Charlton,
and German geologist Dr. Grosse (in a light jacket).
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Previous page: workers in front of a
drilling rig at Cauê Mine in Itabira,
Minas Gerais, in the 1920s.
1.5 The nationalist backlash
36
The monopolistic power gained by Itabira by signing the contract
inflamed nationalist opposition. After it was signed, the contract
was duly submitted to the Federal Audit Court, which refused to
register it, alleging violation of legislative norms. Epitácio Pessoa
pressured the Court and the contract ended up being registered
reluctantly. However, Pessoa’s intervention made it necessary to
return the contract to the National Congress for approval, where
it was examined by various commissions, without a definitive
conclusion being reached as to its validity.34
Farquhar’s plans affected many interests. The owners of small
metallurgical plants in Minas Gerais feared that the Itabira Iron Ore
Co.’s planned exclusivity would suffocate their operations. Foreign
companies, which had bought vast swathes of land on which to
mine iron ore, were also apprehensive about the transportation
exclusivity achieved by Farquhar. The coal companies of Rio Grande
do Sul and Santa Catarina did not welcome competition from foreign
coal, which would arrive in Brazil in Itabira’s ships. The project was
also opposed by all the German, English, French and American
suppliers of machines and tools, which feared competition from
the output of the steel mill to be built by Itabira.35
Minas Gerais, as it was the state with the biggest mineral
deposits, became the center of resistance against Farquhar and
the politicians allied with him. Arthur Bernardes, under pressure
because, by signing the second contract, he would have to ratify
the contract already signed by the Itabira Iron Ore Co. and the
federal government, enacted Law 793 on September 21, 1920. This
law reaffirmed the terms of Law 750 and made it a condition for
exporting iron ore that the Itabira Iron Ore Co. would have to build
a plant in the state capable of producing at least 150,000 metric
tons of steel products per year. The decree also extended the period
of tax benefits for steel producers from 20 to 30 years.36
Within the federal government, the mood had also started to
worsen for the Itabira Iron Ore Co., following Epitácio Pessoa’s
departure from the presidency. His successor was none other than
Arthur Bernardes, who upon taking office in March 1922, sought
to offer a nationalist alternative to the foreign company’s plans.
To this end, he set up a commission formed of parliamentarians,
technicians and industrialists, which in 1923 presented its first
draft of a national steel industry plan. This work was led by his
right-hand man and former Secretary, Clodomiro de Oliveira.
The commission’s work provided the basis for Decree 4,801, passed
on January 9, 1924. Confirming the nationalist orientation of Bernardes’
government, the decree provided for the granting of loans by the
federal government exclusively to Brazilian companies established
with the purpose of building mills.37 This orientation became even
more accentuated in the constitutional reform led by Bernardes in
1926, which prohibited the transfer to foreigners of mines and mineral
deposits required for the safety and defense of the country.
In Minas Gerais, the policy adopted by Arthur Bernardes
concerning mining and, above all, the Itabira Iron Ore Co., was
followed to the letter by his successor to the state presidency, Raul
Soares (1922-1924), and his successor, Fernando de Melo Viana
(1924-1926). The impasse created for the signing of the state contract
with the Itabira Iron Ore Co. would only be overcome during the
administration of Antônio Carlos Ribeiro de Andrada (1926-1930).
On December 7, 1927, the second contract was finally signed, by
which the Itabira Iron Ore Co. would only be able to start to export
iron ore when it had begun operating a steel mill.38
36 - See Diniz, Clélio Campolina, op. cit., p. 46.
34 - Idem.
35 - See Pereira, Osny Duarte. Ferro e independência. Rio de Janeiro: Civilização Brasileira,
1967, p. 32.
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Our History
37 - See Gomes, Francisco Magalhães. História da siderurgia no Brasil. Belo Horizonte/São
Paulo: Itatiaia/USP, 1983, pp. 159-161.
38 - See Chiarizia, Martha M. de Azevedo, op. cit., p. 66.
Vale
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37
Previous page: a crowd
gathered at a Central
do Brasil Railroad
station in the 1920s,
waiting for the arrival
of the president of Minas
Gerais, Antônio Carlos.
38
39
In an attempt to make it feasible to approve the company’s
projects and placate the violent attacks on the monopolistic
aspects of its contract, the president of the state of Minas Gerais,
Antônio Carlos, made approval of Itabira’s plans conditional
upon the removal of its monopoly on the use of the Vitória-Minas
Railroad, granted by the contract of 1920. Accordingly, on November
10, 1928, Itabira signed a waiver by which it relinquished its right
to exclusively transport its own ore on the railroad, and agreed to
also carry ore belonging to third parties, as well as passengers and
agricultural goods from the region through which the tracks passed.
The signing of the waiver paved the way for the enactment, two
days later, of Federal Decree 5,568, which attested to the legalization
of the contract by the National Congress, and State Decree 8,045
of December 8, 1928, by which the government of Minas Gerais
authorized Itabira to begin its activities.39
39 - Idem, ib., p. 67.
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Our History
In September 1930, Itabira once more obtained a dispensation
from its obligation to build the steel mill, taking advantage of the
discontent and political power of small manufacturers of pig iron,
which feared the possibility of the company building it.40
With due legal authority to develop its plans in Brazil, Itabira
sought funding from European and American banks. However,
the global economic crisis of 1929 and the subsequent downturn
in financial markets, together with political and institutional
transformations brought by the Revolution of 1930, opened up a new
stage in the Itabira Iron Ore Co.’s struggle to implement its projects.
Men operating a drilling
rig at Cauê Mine in Itabira,
Minas Gerais, in the 1920s.
40 - Idem, ib., p. 68.
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