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CHAPTER 9 A New World
9.1 Vale’s international expansion had operations in Indonesia, the United Kingdom, South Korea, 279 Taiwan and Japan, as well as a project in New Caledonia in Oceania. From 2002 to 2006, the expansion of the global economy fueled July 2005 saw another milestone in Vale’s history, when business in Brazil. The world accelerated and CVRD did not stay the company was awarded an investment grade rating by risk behind. On its horizon lay the East. Alongside the 50th anniversary classification agencies. Vale was the first Brazilian company to celebrations of its partnership with Japan, which included an receive this rating, which indicates to the market that a company informal match featuring Vale executives and soccer star Zico,1 the is solid and safe to invest in, without the risk of defaulting on its company was gaining a foothold in China. It was a wise move, as loans. Vale was classified as investment grade before the Brazilian China was the world’s fastest growing emerging economy – annual government was (rating agencies classify countries as well as expansion of Chinese gross domestic product (GDP)2 reached companies), in April 2008. a remarkable 13% in 2007, more than twice that year’s global To ensure its growth, Vale expanded its investment in logistics economic growth of 5.2%.3 and power generation in order to avoid problems such as those Vale became one of the first Brazilian companies to enter China experienced during the major blackouts across Brazil in 2001. when it formed a coal production joint venture with Yankuang Hydroelectric plants were built in various states, including Minas Group, together with the participation of Japanese company Gerais and Tocantins, guaranteeing power supplies for Vale’s Itochu. In December 2004, the Chinese government approved operations. In the logistics area, besides expanding its railroad the incorporation of the Shandong Yankuang International network to transport iron ore for export, the company invested Coking Company Limited joint venture, and Vale made an initial in giant trucks – approximately 6 meters high (around 2 meters contribution of US$10.6 million.4 Meanwhile, the company was higher than the vehicles used until then) and 7 meters wide, with arriving in other countries. In Mozambique, it won a bid to mine wheels of up to 5 meters in diameter and neon headlights providing coal in Moatize, considered the biggest unexploited coal province nighttime visibility – to be used at Carajás Complex. in the world. In Canada, Vale made the largest ever purchase on In addition, Vale’s strong presence in the lives and imaginations the global market by a Latin American company, when it acquired of Brazilians was symbolized at the Rio de Janeiro carnival parade. Inco Ltd., the world’s second biggest nickel producer, in 2006. The In 2003, the Acadêmicos do Grande Rio samba school told the story US$18 billion purchase of Inco was a big step forward in Vale’s of mining and CVRD’s 60 years of history. The moment of glory was international expansion process, given that the Canadian miner 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
Vale Our History Vale Our History 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 the Moatize deposit.12 Investment by Vale and other companies of international financial markets and the natural volatility of contributed to the fact that, in 2005 and 2006, Mozambique’s the Brazilian economy due to presidential elections, Vale obtained Global economic prospects were promising at the start of economy grew by more than 8% per year.13 record sales and one of the three biggest profits in its history, 2002. China’s accession to the World Trade Organization (WTO), In March 2002, during the privatizations of Fernando Henrique reaching R$2.04 billion.”17 formalized in December 2001, stimulated trade between the Cardoso’s government, the National Treasury and the National Between 2001 and 2004, CVRD’s market capitalization rose country – which in the previous year had grown by 8.3%5 – and Economic and Social Development Bank (BNDES) sold 33% of Vale’s from US$9.2 billion to US$39.9 billion.18 During these four years, the rest of the world. In 2002, China became the fourth biggest common shares. Investors from 17 countries and 584,588 Brazilians the company exported US$16.2 billion, making it the biggest economy to operate in international trade; in just two years, its became partners in Vale. Workers were able to invest some of their net exporter in Brazil, accounting for 18.4%19 of the country’s 280 commerce expanded by 30%, during a period of global stagnation.6 resources deposited in their Government Severance Indemnity accumulated trade surplus in the period. Growing trade surpluses 281 China’s urgent drive to renew its infrastructure for the 2008 Fund (FGTS) accounts in Vale shares, through the “FGTS-Vale” fund. helped to improve Brazil’s external debt indicators, allowing the Olympic Games was another factor in its growing presence in world The company became, in all senses, the property of Brazilians. country to dispense with IMF support in 2005. Between 2000 trade and economic expansion. In 2003, the country’s economy Vale’s investment grade rating was another major watershed, and 2009, Vale’s net exports corresponded to the payment of grew at an annual rate of 10%, rising to 10.7% in 2006.7 According and even more significant when one considers the fact that, a short approximately 25% of Brazil’s external debt.20 to the WTO, one of the highlights of 2004 was China’s continual time before, the Brazilian economy had gone through a period In many cases, Vale’s exports alone exceeded some of Brazil’s rise in international trade.8 The country’s appetite for commodities of severe turbulence in the run up to Luiz Inácio Lula da Silva’s main export products.21 In 2006, for example, the company benefitted the exporters of these products, including Brazil – and election as the country’s president. On September 27, 2002, the exported US$9.65 billion of goods, while Brazilian soybean exports consequently CVRD. Brazilian real fell to a record low of R$3.88 against the US dollar, (encompassing soybean grains, bran and other soy products) Due to strong demand, the percentage of Vale’s total gross while the “Brazil risk” rating (the difference between the yields14 of amounted to US$8.91 billion.22 revenue attributed to Chinese customers was 15% in 2005, rising to Brazilian government bonds and those issued by the US Treasury, In the first five years of this century, Vale made various major 16.7% in 2006. Meanwhile, the corresponding percentage accounted considered to have zero risk of default) reached 2,440 basis points, acquisitions. In Brazil, one of its main targets was competitor Caemi, for by Asian customers not including Chinese companies was the highest level in seven years.15 purchased in 2003, while abroad the most notable acquisition was 14.9% in 2005 and 22.7% in 2006.9 However, market pessimism proved to be mistaken. After growing the 2006 takeover of Canadian company Inco. The purchase of Iron ore prices also rose steadily. According to data from the by just 1.1% in 2003, the Brazilian economy expanded by 5.7% in Canico, another Canadian company, in 2005, gave Vale guaranteed United Nations Conference on Trade and Development (UNCTAD), 2004 and 6.1% in 2007.16 CVRD made the most of the good times, control of the Onça Puma nickel production project in the Brazilian the average price went from US$27.67 per metric ton in 2000 to both in Brazil and in the global economy – which was recovering state of Pará. In addition, the year 2004 saw Vale’s entry into the US$74.39 in 2006,10 a rise of 169%. from the post-September 11 trauma and entering a growth phase – copper market with the start of operations at Sossego Complex in As coal is essential to steelmaking, Vale quickly saw opportunities to expand both at home and abroad. With the strengthening of the Canaã dos Carajás, also in Pará.23 in Mozambique, home to one of the largest coal reserves in the global economy, commodity prices hit successive highs. world.11 The company’s contact with the Mozambican government At the end of 2002, the company’s market value reached US$11 17 - See Vale’s 2002 Annual Report. There was a political and economic crisis in Argentina began in 1987, but it was only in 2004 that CVRD won a bid to exploit billion, up 20.3% from US$9.2 billion in 2001. Vale was now 60 that year, but even so, Vale made the third highest net profit in its history. years old. The company’s president (by then known as CEO in 18 - See Vale’s 2004 Annual Report. English), Roger Agnelli, summed up the situation in this way: “In 5 - See International Monetary Fund (IMF) database. Data and Statistics. Available at 19 - Idem.
Vale Our History Vale Our History 282 283
Vale’s nickel refinery in Dalian, China, in 2010.
Vale Our History Vale Our History 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%
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 9.3 The Chinese boom and iron ore exports of total Chinese imports grew from 11% in 1998 to 16% in 2002.29 The following year, 2006, Vale became the biggest supplier Especially focused on its relations with China, which was then of iron ore to China, shipping 77.9 million metric tons there. The relationship between Vale and China goes back a long way, the main driver in the seaborne market, Vale developed a number This represented annual growth of 37.8% and consolidated the 284 30 37 285 to 1973, but it was only in the late 1990s that it really intensified. of initiatives to reduce iron ore shipping costs. They included expansion in sales to the country. That year, exports to China A few years before the turn of the century, Asian countries faced efforts to promote sales of Chinese coal and metallurgical accounted for 28.6% of the company’s total sales volumes.38 a severe financial crisis provoked by heavy debt levels in their coke to Brazilian customers, generating return freight revenue. From that point onward, China became even more significant economies and distrust among investors about their capacity to pay Vale encouraged the arrival of Chinese ships in Brazil and took to the iron ore trade. In 2010, Asia accounted for 60.7% of Vale’s back loans.24 The result was a flight of capital from the continent, advantage of their return journey to ship iron, resulting in shipments of iron ore and pellets, with China alone representing causing devaluations of local currencies, which in turn worsened successful trades for both parties.31 42.9%. Chinese imports were then so large that 33.1% of Vale’s Asian countries’ indebtedness in US dollar terms and led to falls in Exports to China also made a large contribution to the 22% rise, operating revenues came from sales to customers in that country.39 share prices, a shortage of credit and economic recession.25 to 23.8 million metric tons, in the volume of general cargo handled Also in 2010, China represented 59% of global demand for iron With a government that was centralized but willing to open up for customers at ports controlled by Vale between 2001 and 2002.32 ore on the seaborne market. In addition, the country consumed its economy, China was the least affected of all countries on the The biggest advance in Sino-Brazilian relations took place 37% of the world’s exports of nickel and 38% of aluminum exports.40 continent, and its performance began to stand out. Its economic 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 policy had gone through structural reforms in the late 1970s and New frontiers, new markets 26 metric tons. China then became the company’s main partner, the country began to attract growing interest in its market. This Following the reforms of 1978, based on market principles, surpassing sales on the domestic market.33 factor, together with heavy public investment and a weak exchange China’s economy began to grow exponentially. This expansion Various factors lay behind this phenomenon, above all rate, transformed China into the world’s biggest exporter in terms mainly reflected the government’s action to industrialize and China’s entry to the World Trade Organization in December of sales volumes, accounting for 10% of global exports, which urbanize the country, which raised investment in infrastructure, 27 2001. This forced the country to open up its economy to imports added up to US$14.8 trillion in 2010. led to the construction of large buildings and increased demand and new technologies, as well as stimulating investment However, the need to stimulate the production of its factories for machinery.41 in low-cost industrial products (machines, computers and led to a rise in the rate at which iron ore – a raw material used In addition, there were reforms in the steel sector, with efforts telecommunications products).34 to make steel – was consumed in China. Until then self-sufficient to make state-owned enterprises more autonomous in the early in iron ore, the country began to import the product, becoming a 1980s. These companies became more independent from the 28 major commercial partner of Brazil. China’s biggest iron ore supplier government and began to use surplus cash to invest in enhancing Despite its competitive disadvantage due to its geographical In 2005, Vale exported 56.53 million metric tons of iron ore – distance from China, Vale expanded its sales to the country at 22.4% of the company’s total sales – to China, which was by then an annual rate of 33.3% between 1998 and 2002. CVRD’s share the world’s largest iron importer. From 1995 to 2005, China’s
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 29 - See Vale’s 2002 Annual Report. Preto, March 2009. 24 - Data from Vale and the Ministry of Development, Industry and Foreign Trade (MDIC). 30 - Idem. 36 - See Vale’s 2005 Annual Report. 25 - See Puga, Fernando et al. “O comércio Brasil-China: situação atual e potencialidades 31 - Idem. 37 - See Vale’s 4Q06 US GAAP Results, “Superando desafios: o desafio da CVRD em 2006,” and 2006 Sustainability Report. de crescimento.” BNDES, Textos para Discussão 104, April 2004. 32 - Idem. 38 - See the 2005 Annual Report and 2006 Sustainability Report. 26 - Idem. 33 - See Vale’s 2006 Sustainability Report. 39 - See the 2010 Form 20-F Report. 27 - See World Trade Organization’s website. Available at
Vale Our History Vale Our History 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
SALES OF IRON ORE AND YEAR TOTAL EXPORTS IRON ORE EXPORTS CONCENTRATES TO CHINA
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 42 286 their facilities and expanding their production capacity. In In 2008, Vale decided it was necessary to establish a presence in 287 the 1980s and 1990s, the sector’s output also benefitted from Asia. The reason was simple: a ship loaded with iron ore takes an 2007 160,649,072,830 10,557,911,454 6.57 3,710,286,660 2.31 the opening up of the Chinese market to foreign trade and average of 45 days to make the journey from Brazil to China, while the 2008 197,942,442,909 16,538,542,577 8.36 4,886,119,931 2.47 inward investment, permitting local steelmakers access to more company’s Australian and Indian competitors only take an average advanced technologies.43 of 10 days to reach there.48 Vale intended to become less exposed 2009 152,994,742,805 13,246,903,676 8.66 7,010,659,667 4.58 As a result, Chinese steel production soared, growing at an to risks, minimizing its distance-related competitive disadvantage. 2010 201,915,285,335 28,911,882,009 14.32 13,338,017,356 6.61 average annual rate of 7% in the 1980s, 10% in the 1990s and nearly By having distribution centers closer to its customers, Vale would 20% in the first decade of the 21st century.44 reduce its delivery times and avoid repeating what happened in 2007 2011 256,039,574,768 41,817,251,122 16.33 19,797,076,421 7.73 Consequently, China became the world’s largest steel producer. and 2008, before the crisis erupted, when strong demand doubled 49 In 1997, when the effects of the Asian crisis were still being felt, the freight costs, which reached US$100 per metric ton. * Percentage of total Brazilian exports. Source: Table produced using data from the Ministry of Development, Industry and Foreign Trade (MDIC). country’s steel mills produced 108.91 million metric tons of raw In addition, the company continued to enhance its sales steel, equivalent to 13% of global supply. In 2010, Chinese output channels to serve large companies in the sector. In 2007, it developed reached 626.65 million metric tons – 45% of global production.45 a dedicated transportation service on the Brazil-China route. TABLE 2 TABLE 3 In China, the main customers of international mining Through a long-term contract, it improved its supply of products to TOTAL SALES OF IRON ORE AND concentraTEs VALE’S SALES OF IRON ORE AND PELLETS TO China companies until 2008 were the large steelmakers, which had long- the Chinese market and managed to maintain competitive prices.50 TO China (MILLION METRIC TONS) (MILLION METRIC TONS) term supply contracts, with prices agreed upon annually. In 2008, Iron ore became ever more significant to Brazil’s balance of the 10 biggest companies in the sector accounted for almost 42% trade. In 2000, Brazil exported 11.5 million metric tons of iron ore, YEAR VOLUME YEAR VOLUME of global steel production.46 representing 5.53% of the country’s total exports in value terms. This supply focused on special steels used in the automotive, China was the country’s third largest purchaser, absorbing 0.49% 2001 28.0 2001 14.9* 51 machinery and electronics sectors. However, the financial crisis of Brazilian exports, after Japan and Germany. 2002 34.5 2002 17.5* that started in the United States in 2008 with the bankruptcy of By 2006, iron ore had become Brazil’s largest export product, investment bank Lehman Brothers quickly spread around the accounting for 6.49% of total exports, and China was now the 2003 50.0 2003 29.4 world and seriously harmed exports in these fields. largest purchaser, absorbing 1.91% of Brazilian exports.52 2004 52.7 2004 41 On the other hand, the Chinese construction sector continued 2005 59.1 2005 54.1 to grow fast, especially due to heavy public sector investment. 2006 81.3 2006 75.7 This situation favored small and medium steel companies, which bought iron ore on a spot basis through short-term contracts.47 2007 105.0 2007 94.5 2008 96.3 2008 85.1
42 - Idem. 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. 2011 164.5 2011 131.8 45 - See World Steel Association database. Available at
Vale Our History Vale Our History Strategic partnership and future prospects At the end of 2008, Beijing announced a target to double China’s Accompanying Chinese growth, Vale became one of the largest per capita income by 2020. Given that the country has 1.3 billion mining and metals companies in the world, with a record market people, growing at a rate of 0.9% per year and with improving life value of US$56.9 billion on January 31, 2006.53 The company’s expectancy (currently 73.5 years on average), the impact on demand progress was gradual: in 2003, it was fifth in the global sector ranking, for iron ore has been very strong.59 In addition, it is estimated that and rose to fourth place the following year. Vale’s partnerships in one decade, around 160 million Chinese people will move from with Asian companies were important to its achievements. In 2004, the countryside to the cities, whose infrastructure needs should 289 the company signed an agreement with Yankuang Group, one of underpin demand for steel.60 China’s biggest coal producers, and Japan’s Itochu Corporation, to Despite the variety of minerals that China possesses, its produce metallurgical coke and ethanol in China.54 This was Vale’s production in relation to domestic demand is small.61 Furthermore, first industrial operation in China. a large share of Chinese mineral deposits are underground, located Vale and Yankuang began to jointly develop the Zhaolou at great depths, making production costs high.62 coking coal mine in Shandong Province, whose estimated annual Also significant – and something that makes China an production capacity was 3 million metric tons. For its 25% stake important customer of Vale – is the fact that although the country in the mine’s joint venture, Vale paid US$26 million in 2004. The has enormous reserves of iron ore (68 billion metric tons, according project also involved Japanese company Itochu.55 Vale also signed to data from the Chinese government, dated April 2007), this ore an agreement with Shanghai Baosteel Group Corporation, China’s is low grade – with average iron content of 30% to 35%. To produce largest steel producer, and Yongcheng Coal & Electricity Group, steel, iron content needs to be higher, and China’s need for higher one of the leading Chinese coal miners, to produce anthracite quality ore has made the country the world’s biggest importer in two mines in Henan Province56 with total annual production of the commodity.63 To run its steel companies’ blast furnaces capacity of 4.5 million metric tons. Through its agreement, Vale efficiently, China has needed – and continues to need – to mix has the right to 25% of the processed anthracite produced by the its own low-grade iron ore with richer ore produced by Vale. It is venture. In January 2006, Vale received its first coal shipment, of also notable that China’s strong demand and the large number approximately 40,000 metric tons, from China to Brazil.57 of companies exploiting mineral resources in the country (more Between 1981 and 2001, the Chinese government managed to than 2,500, according to a study by Brazil’s Ministry of Mines and lift 400 million people out of poverty. One of its strategies was Energy) should accelerate the exhaustion of its iron ore reserves.64 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
53 - See the 2005 Annual Report, p. 23. 54 - See the 2004 Annual Report. 59 - Idem. 55 - Idem. 60 - Idem. 56 - Idem. 61 - Idem. 57 - See the 2005 Annual Report. 62 - Idem. 58 - “A economia mineral chinesa e sua influência no comércio Brasil-China.” Study Nippon Steel’s steel mill commissioned by the Ministry of Mines and Energy from the Federal University of Ouro 63 - Idem. in Oita, Japan, in 1990. Preto, March 2009. 64 - Idem.
Vale Our History Vale Our History Previous page: Copper Cliff Refinery, belonging to Inco, in Sudbury, Canada.
290 291
9.4 The Inco purchase Over 100 years of history Inco had a history going back more than a century. The first batch The purchase of Inco Limited, approved by Canada’s regulatory of ore left the Creighton Mine in Sudbury, Ontario, in 1901. On April authorities in October 2006, was a milestone in Vale’s process of 1, 1902, the International Nickel Co. was established and it floated international expansion.65 The Canadian mining company then on the New York Stock Exchange in September 1915. In July of the possessed the world’s largest nickel reserves and it was the second following year, the International Nickel Company of Canada Limited biggest nickel producer, after Russian company Norilsk Nickel.66 was incorporated into the American company International Nickel Costing US$18.24 billion, it was the biggest acquisition ever made Co. The abbreviation Inco was adopted in 1919.69 by a Latin American company, and it was funded “in very favorable King George VI and Queen Elizabeth were the first members of conditions, enabling the company to retain its low-risk debt profile the British royal family to visit the nickel operations in Sudbury, and very healthy balance sheet.”67 in 1939, and the queen was the first woman to go down one of Through this acquisition, Vale became the world’s second the mines. Twenty years later, Queen Elizabeth II visited the same largest nickel producer and expanded its geographical reach and place. During the Second World War (1939-1945), Inco delivered product range. Due to its exceptional portfolio of projects, Inco had 750,000 metric tons of nickel, 875,000 metric tons of copper and the “best growth potential among its competitors.”68 more than 56 metric tons of platinum to the Allies.70 Roberto Castello Branco, Vale’s Investor Relations Director, A major nickel discovery was confirmed in February 1956, in explained the importance of the Inco acquisition: “Vale became not Thompson, in the Canadian province of Manitoba. A mining and only a global leader in a sector other than iron ore, but the world’s refining operation at the site was opened in March 1961. When it second biggest nickel producer, with the largest reserves and the reached maximum operating capacity later that same year, Inco best technology. This also gave rise to Vale’s transformation into became the second biggest nickel producer in the world.71 a global company. We now had operations in various countries: in Once the negotiations to acquire Inco had been completed, Vale Canada and Indonesia, small operations in the United Kingdom, established CVRD Inco Ltd. (now Vale Canada Limited, a wholly Japan, China, Taiwan and South Korea, and a project in New owned subsidiary) by incorporating Inco Ltd. and Vale subsidiary Caledonia. Vale presents itself as a global company, and this is Itabira Canada Inc.72 Besides producing and selling nickel, CVRD starting to determine cultural changes.” 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
Vale Our History 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
75 295 US$69 billion* Iron ore remained Vale’s main product following the 65 establishment of CVRD Inco, accounting for 48% of its gross revenues in 2006. Nevertheless, nickel was also very significant, 55 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, 45 with operations in Indonesia, and a nickel-cobalt project in 75 New Caledonia, an archipelago in Melanesia in Oceania. PT 35 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 25 feed Vale’s refinery in Japan.76 In New Caledonia, Inco’s subsidiary – now Vale Nouvelle-Calédonie SAS (VNC) – was established in 15 1992. In 1999, an initial mining zone containing 47 million metric tons of probable reserves was delimited. In 2001, Inco confirmed 5 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. 2002 2003 2004 2005 2006
When CVRD Inco was formally acquired on October 24, 2006, Source: Vale’s 2006 Annual Report. Vale became the world’s second largest producer of refined nickel, * In December 2006 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 Another investment made by Vale in Canada was Canico, Onça Puma was Vale’s first ferronickel operation in Brazil and it is 79 page shows the change in Vale’s market value from 2002 until the bought in November 2005 for approximately US$800 million.80 one of the largest in the world. It consists of a mine and processing end of 2006, when the company purchased Inco. CVRD completed this transaction in February 2006, giving it plant. In 2007, its reserves were reassessed, rising from 78 to 82.7 100% of the Canadian company’s equity. This operation ensured million metric tons. The main cause of this increase was the use Vale control of the Onça Puma nickel production project in of a new modeling method, in line with the recommendation of an 74 - Idem. Pará, Brazil. The project, which covers the municipalities of audit conducted the previous year.82 The operation also includes 75 - Idem. Ourilândia do Norte, Tucumã and Parauapebas, has a nominal an electricity substation to meet the needs of the operation. In all, 76 - See 2010 Form 20-F Report and its website, available at
Vale Our History Vale Our History 9.5 In search of coal Fertilizers Vale also saw the opportunity to enter the fertilizer market. Brazil Moatize was considered the largest unharnessed coal province is heavily dependent on imports in this area – around 70% of the in the world, with world-class reserves estimated at 2.4 billion fertilizers used by the country’s farmers are imported, and this metric tons of thermal and metallurgical coal. In 1987, Vale’s figure rises to 90% in the case of potash, a raw material used to interest in the African country’s coal deposits led to its first contact make fertilizers.89 As a result, Vale invested in potash projects both with the government of Mozambique. In 1989, the company signed in Brazil and in other countries, such as Argentina and Canada.90 an agreement to develop a project to exploit the metallurgical coal One of these investments involved Taquari-Vassouras mine in the Brazilian state of Sergipe. In 1991, Vale entered into a contract 296 reserves of Moatize in the province of Tete, using a mine-railroad- 297 port complex. The reserves were spread over a 3,200 square with Petrobras to lease this, the only potash mine in Brazil, and kilometer area alongside the Zambezi River. operations began the following year. The mine’s production In 2003, Vale signed a memorandum of understanding to explore capacity was initially estimated to be 650,000 metric tons per year. the coal deposits of Moatize. The following year, a consortium led In 2001, approval was obtained to expand its capacity to 850,000 by the company, in association with American Metals and Coal metric tons per year through an investment of US$67 million. International, won a bid to develop a mine, for US$122.8 million.84 In 2012, the contract, initially lasting for 25 years, was extended The incorporation of Rio Doce Moçambique Limitada, a company for a further 30 years, allowing Vale to continue its operation in created by the consortium, occurred in April 2005. Studies about Taquari-Vassouras and proceed to develop the Carnalita Project.91 the project’s funding and technical feasibility were completed in Through this project, Vale estimates that it will raise its annual November 2006.85 potash output in Sergipe by 1.2 million metric tons.92 While investing in Africa, Vale also entered the Chinese coal In 2006, Taquari-Vassouras mine produced 731,000 metric market, through joint ventures with local companies, including tons of potash. At the time, the mine’s proven and probable Yankuang and Yongcheng. The company now operates coal mines reserves amounted to 16.6 million metric tons.93 In 2011, annual in the Chinese provinces of Shandong and Henan.86 In 2005, production was 625,000 metric tons and total reserves were put Vale invested in the coal market in Australia, the home of its at 13.4 million metric tons. It is estimated that the mine will be competitors BHP Billiton and Rio Tinto. Vale signed an agreement exhausted in 2016.94 with subsidiaries of Aquila Resources Ltd. and AMCI International In October 2003, Vale sold an 11.12% stake it owned in to undertake a study into underground coal mining. This study Fertilizantes Fosfatados S.A. (Fosfertil) to Bunge Fertilizantes S.A. did not lead to any concrete results. However, in February 2007, At the time, Vale classified the transaction as being consistent with Vale bought AMCI Holdings Australia for 835 million Australian its focus on mining and logistics.95 dollars (slightly more than US$662 million).87 At the time, Vale’s In March 2005, the company won an international bid to mine Executive Director of Non-Ferrous Metals, José Lancaster, said that the Bayóvar phosphate deposit in the Piura region of Peru – one of Australia had been on the company’s radar for a long time due to the biggest phosphate rock deposits in South America, with the its proximity to Asia, where its main customers were.88
89 - See Vale’s Press Office, “Vale e Petrobras assinam acordo para a exploração de potássio em Sergipe,” April 23, 2012. Available at
Vale Our History Vale Our History 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, Implementation of the Sossego Project began on August 31, together with potash and nitrogen, are used to make fertilizers. 2003, when excavation work began at the Sequeirinho orebody. Before this, in November 2004, Vale bought the rights to develop By the end of the year, 1.93 million metric tons of ore and waste a potash deposit on the banks of the Colorado River in Argentina. rock had been removed, surpassing the year’s target of 1.8 million The start of the first phase of the Rio Colorado Project, whose metric tons.102 nominal potash production capacity is 2.1 million metric tons By the end of 2004, the total amount of material extracted per year, is planned for the second half of 2014.97 Another potash from Sossego Mine, whose estimated lifespan was 17 years, was project, called Neuquén,98 is currently at the pre-feasibility study 28 million metric tons, including 6 million metric tons of sulfide phase. Its estimated potash production is 1 million metric tons ore of 1.31% copper content. In its first year of operation, the plant per year.99 obtained a 92% metallurgical recovery rate.103 Vale believes that rising global consumption of agricultural The first batch of copper concentrate was shipped out from São products, especially in emerging countries, will boost demand Luís, Maranhão, on June 3, 2004. In all, 269,000 metric tons produced for fertilizers.100 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 9.6 Copper in Brazil: Sossego Sossego Master Plan and it invested R$119.8 million in the project’s infrastructure. The company also entered into agreements to train Vale began producing copper in 2004. In the first half of this and develop the local workforce, as well as partnerships with Canaã year, operations were started up at Sossego Mine in Canaã dos dos Carajás municipal government to conduct public security and 105 Carajás, Pará, a deposit discovered by the company in 1997. In basic sanitation projects. 2001, Vale acquired Phelps Dodge do Brasil Mineração Ltda.’s stake In 2005, when Sossego Mine completed its first year of full in the project for US$42.5 million.101 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 96 - See the 2005 Annual Report. 97 - See the 2010 Form 20-F Report. 98 - See Vale’s Press Office, “CVRD ganha concorrência para exploração de depósito de potássio na Argentina,” November 17, 2004. Available at
Vale Our History 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 Another important acquisition took place the following company bought 50% of Caemi’s common shares and 40% of its month, when CVRD, through Aluvale, bought a 64% interest in preferred shares for US$426.4 million, giving it control of Caemi, In 2002, Vale CEO Roger Agnelli stated that CVRD would affiliate Mineração Vera Cruz S.A. (MVC), based in Paragominas, with 100% of its voting capital and 40% of its preferred shares, concentrate “on diversified growth in mining activities and Pará, for R$6.403 billion. By means of a transfer of shares from equivalent to 60% of its total equity.121 the development of associated logistics and electric power Grupo Paranapanema companies, Vale took possession of 100% of In 2004, Vale initiated a number of new projects in the steel businesses.”107 To this end, it was necessary to go through MVC’s equity.114 sector. In March, it signed a memorandum of understanding certain transformations: the mining company had to expand its The restructuring of the company’s equity interests was then with South Korean steelmaker Dongkuk, Danielli, an Italian investment in operations such as coal, while disposing of interests extended to the area of manganese and ferroalloys. Contributing manufacturer of equipment for metallurgical plant equipment in activities such as pulp and gold production. In September of to its international growth process, Vale acquired full ownership manufacturer, and Brazil’s development bank, BNDES, to build the that year the company completed, for R$191.4 million, the sale of Rio Doce Manganèse Europe in France, and Elkem Rana in Ceará Steel Mill (Usina Siderúrgica do Ceará, or USC) in Fortaleza, of assets belonging to Florestas Rio Doce S.A. (FRDSA), composed Norway, subsequently renamed Rio Doce Manganese Norway. northeast Brazil.122 It also sold its 28.02% stake in CST to Arcelor of 39,700 hectares of land in Espírito Santo and 8,000 hectares in This brought about an increase of around 110,000 metric tons in for US$578.5 million.123 Minas Gerais, to Aracruz Celulose and Bahia Sul Celulose.108 Vale’s annual manganese ferroalloy production capacity.115 At the In 2005, Vale incorporated its shares in Caemi, giving it 100% Meanwhile, Vale incorporated the entire equity of Celmar same time, the company announced the disposal of its interests in ownership of the group,124 which, among other companies, 302 S.A. – Indústria de Celulose e Papel. By purchasing Nissho Iwai Eletrosiderúrgica Brasileira S.A. (Sibra) and Companhia Paulista de controlled Minerações Brasileiras Reunidas (MBR). According to 303 Corporation’s stake in Celmar, in December 2002, CVRD took Ferro-Ligas (CPFL). Vale, this incorporation made management more efficient and control of 29,400 hectares of eucalyptus plantations in the state By 2002, Vale was present in 14 Brazilian states: Amazonas, transparent, in addition to reinforcing financial capacity, generating of Maranhão. The eucalyptus produced would be used to make Bahia, Espírito Santo, Goiás, Maranhão, Mato Grosso do Sul, Minas potential gains in productivity. charcoal – the only iron ore reducing agent that enables pig iron to Gerais, Pará, Rio de Janeiro, Rio Grande do Sul, Santa Catarina, In 2006, Vale spent US$21.5 billion on acquisitions, largely be produced in an environmentally sustainable manner.109 São Paulo, Sergipe and Tocantins.116 Outside Brazil, the company accounted for by the purchase of Inco. This was a major milestone Vale also wound down its gold assets. In 2002, the company also had a strong presence, with subsidiaries and affiliates in the in the company’s international expansion process, as Investor closed down operations at its biggest gold mine, Igarapé Bahia, United States, Argentina, Chile, Peru, France, Norway and Bahrain, Relations Director Roberto Castello Branco declared in an interview located in Parauapebas, Pará. Sales that year were down as well as offices in New York, Brussels, Tokyo and Shanghai.117 in January 2012. In addition, Vale acquired Rio Verde Mineração, a significantly from 2001, falling from 508,472 to 331,479 ounces. In order to expand its presence in South America outside Brazil, company located in the Iron Quadrangle region of Minas Gerais, As a result, gross revenue from sales of gold also decreased, by Vale established a subsidiary in 2002 to harness new mining close to MBR’s operations in the municipality of Nova Lima, for 15.4%, to R$280 million, despite a 14.4% rise in the dollar price per opportunities in southern Peru and Chile. This took place in association US$47 million. In July of that year, the company also bought a troy ounce.110 The site’s processing plant was adapted to process with Chilean mining company Antofagasta, and the focus was on 45.5% stake that BHP Billiton Metais S.A. held indirectly in Valesul. copper instead.111 copper mining. Meanwhile, Vale also established Compañia Minera The US$28 million deal gave Vale 100% ownership of Valesul.125 In June 2002, through Aluvale, CVRD acquired a 12.6% interest Latinoamericana (CMLA), headquartered in Chile, to be responsible Vale’s divestments in 2006 generated a considerable amount of that Mineração Rio do Norte (MRN), a joint venture, held in for mineral exploration activities in Chile and Argentina.118 resources. The disposals included a US$418 million stake in Gulf Alunorte. In this way, Aluvale raised its stake in Alunorte to 62.1% That same year, Vale acquired Acesita S.A.’s stake in Companhia Industrial Investment Co.,126 a US$176 million stake in Usiminas (a of its common shares and 57.03% of its total equity.112 Siderúrgica de Tubarão (CST), raising its interest in the steelmaker further US$728 million was raised in 2007 from the sale of another In June 2003, Vale acquired full control of Salobo Metais, the from 22.85% to 28.02%. In addition, CVRD signed an agreement tranche of shares in the company), a US$108 million interest in owner of the Salobo copper project in the state of Pará, from with Arcelor (now Arcelor Mittal), the world’s largest steelmaking Siderar, a US$67 million stake in Gerdau, and a US$14 million Anglo American, for US$50.9 million. The aim was to enable group, to guarantee the liquidity of its stake in CST.119 interest in Nova Era Silicon. The previous year, Vale had sold a total the project to be designed and implemented so as to maximize In 2003, Vale completed some important acquisitions, including of US$126 million of assets.127 synergies arising from Vale’s existing operations in Carajás.113 that of Caemi, helping to strengthen Vale’s position as the world’s biggest producer and exporter of iron ore and pellets.120 The
114 - See Vale’s Press Office, “Aluvale adquire Mineração Vera Cruz,” July 1, 2002. Available 107 - See the 2002 Annual Report. at
Vale Our History Vale Our History 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 Vale’s market value more than quintupled between 2001 and 9.9 Five years of expansion complex in Bahia to the industrial centers of São Paulo and 305 2005, rising from US$9 billion to more than US$50 billion. In 2005, in logistics (2002-2006) Santos; the Cerrado Line, which connects Goiânia, Brasília and Belo In July 2005, Vale celebrated a landmark date in its history when Vale held exploration rights covering 8.7 million hectares in Brazil Horizonte to the ports of Vitória, Tubarão and Barra do Riacho, used and 19.8 million hectares in Angola, South Africa, Argentina, Chile, mainly to transport agricultural products; and the Minério (“Ore”) it became the first Brazilian company to receive an investment Given that mineral deposits are generally located in remote 128 Gabon, Guinea, Mongolia, Mozambique and Peru, putting it among Line, which links cities near Belo Horizonte to the states of Rio grade rating, even before the Brazilian government. The first areas, transportation is a fundamental question. For this reason, the four largest mining and metals groups in the world.134 de Janeiro and Espírito Santo, mainly carrying minerals, limestone ratings agency to award Vale this classification was Moody’s, on July logistics was classified by Vale CEO Roger Agnelli as the second Being classified as investment grade was a major endorsement for and steel sector products. The FCA also transports petroleum 8, followed by Standard & Poor’s and Dominion Bond. Vale thereby most important area for the company, after mining.138 This CVRD, which had honored its commitment to maintain a balanced goods, cement, pig iron and grains.142 The railroad operates via a became the first Brazilian company to have a better rating than infrastructure is used not only for mining, but also to transport financial strategy. It was also identified as the best performer in renewable 30-year contract that expires in 2026.143 its host country’s government – Brazil only received investment various other products. In 2002, the revenue obtained from 129 terms of shareholder returns between 2000 and 2004, out of all A number of new records were attained in 2002, such as the grade status in April 2008 – and was the only one to receive such intermodal services grew by 44%, reaching R$170 million. These 130 companies in the world with a market value of more than US$25 transportation of 336,000 metric tons of soybeans and bran by a rating from three ratings agencies. services involved the transportation of containers by railroads and billion, according to a study by the Boston Consulting Group.135 the EFVM and FCA in April, and the shipment of 432,000 metric That same year, Vale was rated BBB by Standard & Poor’s, Baa3 on the sea between the main ports of Buenos Aires, Argentina, and 131 The international context was favorable: in 2005, the global tons of goods by the Diverse Products Terminal (TPD) in Vitória, by Moody’s and BBB low by Dominion. In 2011, its ratings were A- Manaus in the state of Amazonas, Brazil, complemented by road economy grew by 4.8%. The GDP of the United States, Europe and Espírito Santo in June. Another record was made at Ponta da (Standard & Poor’s), Baa2 (Moody’s), BBB high (Dominion) and BBB+ transportation.139 Many records were broken that year. 132 Japan expanded by 3%, while emerging countries (excluding South Madeira Maritime Terminal, which shipped out 55.5 million (Fitch). Companies and countries at the BBB level are considered In 2002, the transportation of agricultural goods was the most Korea, Israel and Singapore, according to the IMF’s classification) metric tons of cargo, up 4% from 2001. Of this total, iron ore and capable of coping with a moderate level of economic turbulence, dynamic area within Vale’s logistics activities. Especially notable grew by 7.2%. Brazil’s growth rate was 3.2%.136 pellets amounted to 51.6 million metric tons.144 In the same year, while those rated B and C are seen as fragile and only attractive were soybean exports and integrated operations involving the Vitória- The company ended 2005 with a net profit of US$4.8 billion Tubarão Complex in Espírito Santo145 exported 89.9 million metric to speculative capital. Companies and countries rated A to AAA Minas Railroad (EFVM), the Centro-Atlântica Railroad (FCA) and – a new record, up 88.1% from the previous year. Gross revenue tons of goods, of which iron ore and pellets accounted for 72.9 are considered safer, and AAA is the top score, denoting zero risk. Tubarão Complex.140 One example of this was the first consignment 133 amounted to US$13.4 billion and the company’s net exports from million metric tons.146 Classification D indicates default. of soybeans from northeast Mato Grosso to be shipped out of Ponta Brazil totaled US$6.3 billion, representing 14.1% of the country’s To transport ore, more railroad tracks were needed. In January da Madeira Maritime Terminal in São Luís, Maranhão, opening up a trade surplus, a record that year. Between 2001 and 2005, Vale’s 2002, the FCA began operating a 431-kilometer stretch of track new transportation corridor for that region. These operations earned 128 - Risk evaluation score given by specialist institutions known as ratings agencies exports increased at an average annual rate of 20.8%, and its total between Valefértil in Minas Gerais and Boa Vista Nova, near the Vale R$250 million, up 56% from the previous year.141 to companies or countries considered to be safe investments. A country classified as exports in this period were US$23.3 billion.137 city of Campinas in São Paulo. This stretch, operated under a investment grade is deemed to have a high capacity to honor its debts. The opposite Then extending for 7,080 kilometers, the FCA connects Bahia, concession from Ferrovias Bandeirantes S.A. (Ferroban), completed classification, high risk, is called speculative grade or junk.S ee “Grau de Investimento,” Espírito Santo, Goiás, Minas Gerais, Rio de Janeiro and Sergipe, as Glossário de Economia, O Estado de S.Paulo, available at
Vale Our History Vale Our History which also granted a right of way to Santos using Ferroban’s by the country’s rapid economic development.152 Consequently, tracks, the FCA began operating the important corridor between demand for iron ore on the seaborne market rose by 10.3% that 306 the Triângulo Mineiro industrial region and the Port of Santos.147 year from the record level of 482 million metric tons in 2002, to a 307 Over the whole of 2002, Vale invested US$68.4 million in new record of 537 million metric tons in 2003.153 logistics projects, including US$28.3 million in the acquisition Vale’s annual results in 2003 accompanied this international of locomotives and US$30.2 million in expanding general cargo trend. Ferrous minerals accounted for 69.4% of the company’s total transportation capacity in the South System.148 The volume of revenues, or US$3.84 billion. Sales of iron ore brought in US$2.66 general cargo shipped out for external customers from the ports billion, pellet revenues were US$793 million, sales of manganese controlled by Vale – the Ponta da Madeira, Tubarão, Inácio Barbosa and ferroalloys raised US$349 million, and pelletizing plant and Vila Velha maritime terminals – rose by 22% in relation to the operations generated US$45 million. Of the total of 186.3 million previous year’s figures, to 23.8 million metric tons.149 metric tons of iron ore and pellets sold, 139 million metric tons On July 2, 2004, Pier III at Ponta da Madeira Maritime Terminal were exported, up 18.6% from 2002. This was a new record, with was opened, together with a set of new iron ore stockyards, Vale accounting for 32.9% of the global seaborne market in 2003.154 following an investment of US$35.1 million. These facilities were mainly used for iron ore and pellets, supporting expansion in Logistics restructuring Carajás, whose annual iron ore production capacity had recently In 2004, CVRD completed an important restructuring operation risen by 14 million metric tons.150 involving its stakes in logistics companies. Vale sold its interests When Pier III began operating, Ponta da Madeira Maritime in Companhia Ferroviária do Nordeste (CFN) and Sepetiba Tecon in Terminal was then able to export 74 million metric tons of ore and Rio de Janeiro. At the same time, it further expanded its majority general cargo per year. After this project was completed, work began stake in FCA. In September 2003, authorized by the National Land on expanding facilities in Carajás in order to raise the North System’s Transport Agency (ANTT), the company took control of the FCA iron ore production capacity to 70 million metric tons per year.151 concession company, having acquired 99.9% of its shares. The deal involved an investment of around R$1 billion.155 By officially taking Seaborne market over a new railroad and announcing an expansion in its supply of This expansion in production capacity had a target in mind: the transportation services, Vale enabled the country’s exports to grow.156 Chinese market. Over the course of 2003, China would be the main Between 2004 and 2006, the company allocated approximately player responsible for raising global demand for iron ore and pellets, US$488 million to the FCA in order to modernize its assets.157 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 152 - See the 2003 and 2004 Annual Reports. transfer its shares in Ferroban to the latter’s controlling shareholders, following the 153 - Idem. necessary approval from the government entity responsible for railroad concessions. See 154 - See the 4Q03 US GAAP Results. Available at
Vale Our History Vale Our History 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.
The leading operator in Brazilian logistics That same year, Vale acquired 2,986 railroad cars and 101 Tubarão Complex in Vitória, Espírito Santo, to handle exports of 308 In 2003, Vale accounted for 16% of all cargo transportation in Brazil, locomotives to transport iron ore and general freight, through the 2004/2005 harvest.170 309 65% of bulk solids handled at the country’s ports and approximately an investment of US$156 million, expanding its transportation That same year, the company announced that its logistics 40% of Brazil’s foreign trade transportation, accompanying capacity for all sectors and markets served by its railroads.165 area was “directly linked to the strong performance of Brazilian the country’s economic expansion.158 Logistics service revenue Meanwhile, the South System’s grain handling capacity was agricultural exports.”171 The figures backed this claim up: Vale amounted to US$604 million, up 31.9% from 2002.159 The railroad expanded when two new silos came on line at the Diverse Products accounted for 16% of all soy exported from Brazil that year, with transportation of steel for export, which grew by 82%, and the Terminal at Tubarão Complex – which experienced a 78% increase the company handling more than 5 million metric tons of soybeans volume of freight transported by the EFVM from factories to the in the volume of fertilizers imported that year.166 and byproducts, up 21% from the previous year. The company’s São Paulo market, which expanded 2.7 times, were the highlights Also in 2003, in the shipping sector, Docenave sold two ships logistics-related businesses earned gross annual revenue of R$3.02 of CVRD’s logistics results that year.160 for US$36 million, meaning that it now owned just five ships.167 In billion, up 42% from 2003.172 The total volume of general cargo transported by the EFVM, EFC all, the company had sold 14 ships for the total sum of US$134.7 Also in 2004, the total volume of general freight transported by and FCA in 2003 was a record 26.3 billion metric ton-kilometers, up million. Only three ships now remained from Docenave’s former Vale’s railroads – the EFVM, EFC and FCA – surpassed the previous 5% from 2002.161 long-distance fleet. That year, Vale’s shipping services generated year’s record by 9.1%, reaching 28.7 billion metric ton-kilometers.173 In addition, around 26.5 million metric tons of cargo were revenues of US$87 million.168 In Maranhão, Ponta da Madeira Maritime Terminal shipped out handled for third parties by the port terminals controlled and A partnership with Japanese company Mitsui led to the a record 65.4 million metric tons of goods, up 12% from the 56.9 operated by Vale in 2003 – up 35% from the previous year. Ponta creation of DCNDB Overseas S.A.,169 a Docenave subsidiary. Mitsui million metric tons exported in 2003.174 da Madeira Maritime Terminal, for example, shipped out 58.4 contributed its knowhow and technology in the areas of container Tubarão Port Complex shipped 101 million metric tons of million metric tons of goods, representing annual growth of 5.4% transportation management and the development of a feeder products in 2004, up 9.3% from 2003. Shipments of iron ore and and setting a new record. This included 54 million metric tons of service for long-distance container shipping. pellets rose by 8.1% to 78.5 million metric tons, while the volume manganese and 3 million metric tons of general cargo (pig iron of miscellaneous goods exported increased by 13.8%, reaching and soybeans).162 Export corridors 21.1 million metric tons.175 Elsewhere in Espírito Santo, Vila Velha Tubarão Complex exported 98.4 million metric tons in 2003, In 2004, Vale invested to expand the capacity of two of the Terminal at the Port of Capuaba handed 2.9 million metric tons of against 86.7 million the previous year. This total included 72 million country’s main transportation corridors, fundamental to the miscellaneous products that year, up 17.5% from 2003.176 metric tons of iron ore and pellets and 19.5 million metric tons of export of grains, called the Vitória Corridor and the Center-North miscellaneous cargo, most notably coal, pig iron and soybeans.163 Vila Corridor. The following facilities of importance to agriculture were Velha Terminal handled 2.4 million metric tons, up 17% from 2002.164 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
158 - Idem.
159 - See the 4Q03 US GAAP Results. Available at
Vale Our History Vale Our History Train cars laden with iron ore on the Vitória-Minas Railroad (EFVM) in Governador Valadares, Minas Gerais, in 2001. 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
310 Integrated systems Believing in the logistics sector, Vale invested to expand and that point onward, the company reported the two systems’ 311 Vale’s 2005 Annual Report announced that the company now had enhance its infrastructure in this field. The company acquired results separately.185 three integrated logistics systems. In addition to its longstanding 5,414 railroad cars and 125 locomotives to transport its products Located in the Iron Quadrangle region of Minas Gerais, the South System and North System, with their reserves of iron and and general freight for customers along its three railroads: the EFC, Southeast System’s iron ore mines were divided into three areas: other minerals, mines, processing facilities, and integrated railroads EFVM and FCA.180 This helped Vale to bolster its position as the Itabira, Central Mines and Mariana. The Vitória-Minas Railroad and port terminals, the company presented its new MRS System. leading supplier of logistics services in Brazil, accounting for 68% (EFVM) connected the mines situated in these areas to Tubarão This system was acquired in April 2001, when Vale took full control and 27% of the volumes transported along the country’s railroads Complex in Vitória, Espírito Santo.186 All of the Southeast System’s of Ferteco Mineração S.A., which at the time owned a 10.5% stake and handled in its ports, respectively.181 iron ore was extracted by means of open-pit mining from reserves in MRS Logística S.A., a railroad company whose tracks linked the Logistics services generated revenues of US$1.21 billion in with a high itabirite-hematite ratio.187 states of Minas Gerais, Rio de Janeiro and São Paulo. Subsequently, 2005, up 38.7% from the previous year.182 In the company’s full- Straddling the states of Minas Gerais and Rio de Janeiro, the Vale expanded its direct and indirect interest in MRS Logística to year consolidated results, railroad transportation of general new South System encompassed mines in two areas: West and 37.2% of its voting capital and 40.5% of its total capital. freight generated US$881 million, port services contributed US$204 MBR. All of the iron ore mined in this system was transported by Some of Vale’s iron ore production activities were then conducted million, and coastal shipping and auxiliary port services earned MRS Logística to Guaíba Island Terminal and the Sepetiba Bay Port by subsidiary Minerações Brasileiras Reunidas (MBR). It “operates US$131 million.183 Company, both in the state of Rio de Janeiro. its mines in the Iron Quadrangle region of Minas Gerais and exports In 2006, the three railroads administered by Vale together In December 2006, Vila Velha Terminal in Espírito Santo, its products from its own maritime terminal on Guaíba Island in transported 28.92 billion metric ton-kilometers of general freight Mineração Andirá in Minas Gerais and Tercam Intermodal Terminal Sepetiba Bay, Rio de Janeiro.”177 MRS Logística was responsible for for customers, very similar to the previous year’s figure of 28.37 in Camaçari, Bahia, were transferred to Docenave, whose corporate transporting all of MBR’s iron ore sent to Guaíba Island Terminal. billion metric ton-kilometers. The company’s ports and maritime name was changed to Log-In Logística Intermodal S.A. (Log-In). MRS’s railroad tracks extended for 1,674 kilometers.178 terminals handled 29.6 million metric tons of general cargo, It was predicted that this transfer would generate revenues of In turn, MBR was responsible for operating three important compared with 30.53 million metric tons in 2005.184 US$104 million.188 mining complexes in the state of Minas Gerais: Pico Complex, consisting of the Pico, Sapecado and Galinheiro mines, as well Restructuring of operations in the South System as one main processing plant and three secondary ones; Vargem In the third quarter of 2006, Vale reorganized the administration of Grande Complex, encompassing the Tamanduá, Capitão do Mato its long-established South System in order to make it more efficient. and Abóboras mines and a processing plant; and Paraopeba Its original structure was split up into two iron ore production and Complex, composed of the Jangada and Capão Xavier mines. All of distribution units, called the Southeast and South systems. From 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) 180 - Idem. process in open-pit operations.179 185 - See the 2006 Form 20-F Report. 181 - Idem. 186 - Idem. 182 - See the 4Q05 US GAAP Results. Available at
Vale Our History Vale Our History Aerial view of Porto Estrela Hydroelectric Plant in Minas Gerais, in 2002.
312 9.10 More power (2002-2006) In December 2002, the first phase of the Funil Hydroelectric 313 Plant, a partnership between Vale and Centrais Elétricas de Minas As Brazil was still recovering from the severe energy crisis Gerais (Cemig), came into operation. Located in Minas Gerais and of 2001 and 2002, Vale was already generating 9.9% of its total possessing 180 megawatts (MW) of installed capacity, the plant electricity consumption from its own hydroelectric plants. By was built in 27 months, a record time for a project of its size. investing in hydroelectric power, the company protected itself The total amount invested in the plant was US$47.6 million, from price volatility, as well as guaranteeing supplies and better equivalent to US$519 per kilowatt (kW) installed. Vale’s share of competitiveness.189 These investments proved useful, as between the power generated by the Funil Plant was allocated for use by 1990 and 2000, the country’s power consumption rose by 49%, Tubarão Complex.194 while its installed capacity only expanded by 35%.190 Some months before, in July 2002, a consortium in which Vale To keep up with rising demand, rather than building new hydro had a 30% interest had won an auction to build and operate the or thermal power plants, use was made of the water available in Estreito Hydroelectric Plant, located on the border between the the country’s reservoirs. By harnessing these reserves (officially states of Tocantins and Maranhão.195 allocated for use during droughts), the risks of energy shortages Constructing hydroelectric plants in 2003 involved investment increased,191 until the droughts of 2001 and 2002 triggered the crisis. of US$57 million, most of which was dedicated to the Aimorés In 2002, Vale’s investments in building power plants and in the (US$19 million), Candonga (US$17 million) and Amador Aguiar I licensing process for future projects amounted to US$78 million. (US$10 million) plants, all in the state of Minas Gerais.196 The company had stakes in nine hydroelectric plant consortia, and At the start of 2003, pelletizing plants I and II, the Ore Terminal three of the plants were already operating, namely Funil, Igarapava and the Coal Terminal, all located at Tubarão Complex in Espírito and Porto Estrela, all in Minas Gerais. Two plants were scheduled Santo, started to receive power generated by Vale itself, joining to come on line by 2003 – Candonga and Aimorés, also in Minas company facilities in Itabira and Timbopeba, in Minas Gerais, Gerais – and work had begun on building another five.192 which had already been consuming energy produced by the The Machadinho Hydroelectric Plant in the state of Santa company since 1999.197 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
189 - See the 2002 Annual Report. 190 - Tolmasquim, Mauricio Tiomno. “As origens da crise energética brasileira.” Ambiente & Sociedade magazine, no. 6-7, January-June. Available at
Vale Our History Vale Our History 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
INSTALLED START UP PLANT VALE’S STAKE LOCATION CAPACITY (MW) (1st MACHINERY)
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 314 9.11 Community relations and culture generating wealth, improving health services, doing maintenance 315 Amador Aguiar II 210 48.42% July 2007 Rio Araguari, Minas Gerais work at schools and establishing small crop fields.211 In 2004, as part of a regional socioeconomic development Foz do Chapecó 855 40.00% October 2010 Rio Uruguai, Santa Catarina / Rio Grande do Sul In 2002, Vale resumed its efforts to develop the capacity of its local suppliers of goods and services, with the aims of improving supply program called “Cidade Vale Mais,” the Vale Foundation ran a project Estreito 1,087 30.00% March 2012 Rio Tocantins, Maranhão / Tocantins logistics, generating jobs and enabling its suppliers to adopt new in Corumbá, Mato Grosso do Sul, to support the socioeconomic technologies. In all, 626 suppliers employing around 40,000 people revitalization and sustainable development of the city’s port Source: 2003, 2004 and 2005 Annual Reports; 2011 Form 20-F Report. benefited from this initiative that year. The company established a area. The project entailed producing a sustainable development partnership with the Service to Support Micro and Small Companies plan, restoring a historical harbor building, creating the Estação In 2004, Brazil’s federal government established a new granted for the Foz do Chapecó Hydroelectric Plant, located on (Sebrae) to run special workforce training programs in deprived regions, Natureza Pantanal, a permanent wildlife-themed multimedia regulatory framework for the electricity sector,198 setting out the border between the municipalities of Águas de Chapecó (Santa and then recommended that its suppliers hire these professionals.208 exhibition, and opening the Latin American Culture Center in the general operational guidelines. The new framework was announced Catarina) and Alpestre (Rio Grande do Sul). In November, the The same year, CVRD supported programs involving indigenous Moinho Mato-Grossense, a former industrial building. Around 500 by Mines and Energy Minister Dilma Rousseff.199 At the same time, construction license for the Aimorés Hydroelectric Plant in Minas communities, developed with technical guidance from the National Brazilian and Bolivian children participated in activities as part of CVRD opened the Candonga Hydroelectric Plant in Minas Gerais, Gerais was renewed.202 Indian Foundation (Funai). Also in 2002, Vale directly supported the project.212 thereby expanding its presence in the energy sector. The plant’s In July 2005, the Aimorés plant’s first turbine came on line, and the Xikrin, Gavião and Sororó indigenous communities in Pará, and license was issued in June of that year, enabling Vale’s fourth plant by December all of the plant’s three turbines were operating.203 the Awá, Guajajara and Urubu Kaapor communities in Maranhão, Water management in Itabira to start generating power in September.200 In the same month, the Amador Aguiar I Hydroelectric Plant in benefiting 3,300 indigenous people in all. In addition, the company Also in 2004, Vale unveiled the Itabira Water Master Plan, designed As of 2004, the company had stakes in consortia for nine Minas Gerais obtained its operating license, allowing it to begin assisted Funai in demarcating the Awá Indigenous Reserve.209 to reduce losses and guarantee supplies of treated water for the hydroelectric plants, of which four – Igarapava, Porto Estrela, commercial operations in February 2006.204 In 2003, through the intermediation of the Federal Public people of Itabira, Minas Gerais, which then had around 90,000 Funil and Candonga – were operating and three were being In turn, operations at the Amador Aguiar II plant, also located Prosecution Ministry, Vale signed agreements with Funai and inhabitants. The plan involved automating, modernizing and built. The four plants already operating that year generated in Minas Gerais, started up in the first quarter of 2007, helping to indigenous leaders of the Gavião and Xikrin peoples to implement upgrading the town’s water treatment plants and reservoirs, as well 970 gigawatt hours (GWh), enough to light more than 800,000 meet Vale’s power demand in southeastern Brazil.205 In 2006, 100% an integrated community and agricultural production development as replacing some parts of the old water distribution network.213 average-sized homes.201 of the electricity consumed in the company’s Southeast System project. The aim of the Gavião people was to produce foods both One year later, Vale’s 2005 Annual Report highlighted the concept In March 2004, work began on building the Amador Aguiar II was produced by the Igarapava, Porto Estrela, Funil, Candonga, for their own consumption and for sale. For the Xikrin people, of “social license to operate,” in which the risks and impacts associated Hydroelectric Plant on the Araguari River in Minas Gerais. In May Aimorés and Amador Aguiar I hydroelectric plants,206 which also Vale built a 110-kilometer road from the village of Cateté to with a business are identified and presented to the community in of the same year, the biggest ever private electricity auction on supplied 22% of the power consumed in the South System.207 Highway PA-006 and the town of Água Azul do Norte, improving order “to promote reflection and understanding about them, and to the liberalized power market took place, with Albras acquiring the community’s mobility, and provided support to cultivate new assess their repercussions for the local population,” as happens in from Eletronorte 750 MW, on average, up to 2006 and 800 MW, family-run fields.210 In Maranhão, Funai, indigenous leaders and the process of granting environmental licenses. Impact management, on average, up to 2024. In September, a construction license was Vale created a community development project with the aim of conducted by various business areas with the support of the Vale Foundation, would become one of the pillars of the company’s 202 - Idem. sustainability model. This model also included investment in social 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. 203 - See Vale’s 2005 Annual Report. 199 - “Dilma saboreia o anúncio do modelo e diz que agora regras são estáveis,” O Globo, 204 - Idem. July 31, 2004. 205 - See Vale’s 2007 Form 20-F Report. 208 - See the 2002 Annual Report. 211 - Idem. 200 - See Vale’s 2004 Annual Report. 206 - See Vale’s 2006 Form 20-F Report. 209 - Idem. 212 - Idem. 201 - Idem. 207 - Idem. 210 - See the 2003 Annual Report. 213 - Idem.
Vale Our History Vale Our History Previous page: parade by the Acadêmicos do Grande Rio samba school, telling Vale’s story at the Rio de Janeiro carnival of 2003.
the region221 for projected economic growth of 18% per year.222 The Bayóvar project in Peru provided another example of how Considering local economic growth trends, it was concluded that Vale seeks integration with local communities. In 2006, more than agriculture was as important as mining. 50 meetings were held with people in the towns and villages around From that point onward, meetings with leaders strengthened the project, under the coordination of the San Martin de Sechura partnerships between Vale, the community and the public sector, Rural Community. Workshops were also conducted with local leading to the production of a participatory master plan for people in order to explain the project. Following these meetings, each municipality and helping to raise income levels and permit the project’s approval rating among participants exceeded 90%. investments in other sectors. In 2005, Vale invested R$8.5 million in Vale also conducted a socioeconomic diagnosis to identify local Banco Produtor (“Producer’s Bank”)223 and R$2.13 million in Banco demands and establish priorities for social investments, including do Cidadão (“Citizen’s Bank”).224 agreements with universities and workforce training centers, as Also in 2005, CVRD worked with 13 traditional quilombola well as support for programs to reduce infant mortality.230 communities225 in Moju, Pará. In that region, the company invested dialogue through the Vale Community Program, encompassing the through agribusiness and ecotourism, once more as part of the in the construction of various facilities,226 such as a health clinic, More education Meeting with Leaders project, which grouped together leaders from Vale Network program.218 bridges and roads. It also implemented a “Rural Family House” project In 2003, CVRD created an education and people development different communities, giving them a direct communication channel However, the Vale Foundation’s flagship initiatives focused on and supported the implementation of volunteering projects there.227 department, called Valer, in order to train manpower and promote 316 with CVRD. This dialogue enabled the company to understand education. One of its most important programs, called Vale School, 317 local development by giving access to education, jobs and income. the real conditions and specific needs of each community, while was begun in 1999, and in 2008 alone it involved 101,328 people, Other lands, new people Through partnerships with teaching institutions across the world, publicizing Vale’s social initiatives and, above all, its environmental including teachers, supervisors, school principals, students and The company’s concern to integrate with the communities around the company became active in basic education, technical training, control measures.214 Another project implemented as part of the Vale technical teams. The program’s effectiveness has been verified by its projects is not restricted to Brazil. In Mozambique, Vale has had managerial development, corporate citizenship, culture and art.231 Community Program was called the “Culture Network.” This involved the Institute of Development in Education, Culture and Community to adapt its practices to local traditions. Mozambicans believe that Valer expressed the company’s vision to use education as developing interfaces in the areas of education, social action, health Action (Ideca).219 In 2005, approximately 12,000 people took a course their land provides a link with their ancestors. As a result, it was a fundamental mechanism to promote competitiveness and and the environment, with the aims of establishing regional dialogue, run by the Vale Information Technology Program, which since 1999 necessary to conduct a ritual with local leaders before starting excellence in performance as a strategy for attracting, developing facilitating the circulation of artistic and cultural goods, transmitting has benefitted 50,100 students.220 mining activities in Moatize.228 The people have a strong connection and retaining qualified professionals. After opening 34 units in information and knowledge, and strengthening new local, regional Social initiatives were implemented by Vale’s operational with nature, not least with the baobab, a giant tree considered Brazil, Valer expanded its presence to Canada, China, Oman and and national partnerships. All of this was designed to promote the areas and the Vale Foundation through programs conducted in sacred in the region. Many people bury their loved ones under one, Switzerland between 2006 and 2011. Valer has now provided development of local culture and income generation.215 partnership with NGOs and public sector entities. In 2005, the and a lot of Vale’s African employees have asked to receive their training to around 70,000 employees.232 Together with teaching company adopted the Front-End Loading (FEL) methodology, which salaries at the foot of a baobab.229 institutions, Vale has developed training courses for professionals. Network of good results requires detailed assessments of health, safety, the environment One example of this was a partnership with the Catholic University In Espírito Santo, mobilization among the public, private and third and community relations at all project development stages in of Minas Gerais (PUC Minas) to train railroad engineers. In 2005, 39 sectors generated remarkable results. The fashion sector expanded order to promote regional sustainability. Elements that are not professionals completed the first course, and another 26 people in the municipality of Cariacica when a manufacturing cluster was exclusively economic have a decisive influence on the formulation 221 - The plan covers six municipalities (Parauapebas, Canaã dos Carajás, Curionópolis, participated the following year.233 established by around 150 entrepreneurs, generating 800 formal of projects. From the very start of a project, each decision must Marabá, Ourilândia do Norte and Tucumã) and also influences Eldorado dos Carajás. See jobs and 2,000 informal ones. This was achieved through the Vale consider values or service standards arising from analysis of the 2007 Sustainability Report. Network program, a partnership between the Vale Foundation and these variables, aligning social and environmental requirements 222 - To this end, municipalities will be able to count on their own investment capacity, Culture: “O Nosso Brasil que Vale” samba song NGO Rede Cidadã, which seeks to train young people and help them with other future business demands such as location, the level of which should generate current savings of US$504 million between 2006 and 2010. See the The year 2003 was also a musical time for Vale, as Rio de Janeiro 2007 Sustainability Report. enter the job market.216 Cariacica, which lies within Greater Vitória, definition of engineering designs, and implementation planning. samba school Acadêmicos do Grande Rio celebrated the history 223 - Support for new projects that contribute to Pará’s socioeconomic development. has a large number of poor families (with family income of up to The social and environmental diagnoses conducted by the Vale of mining and CVRD’s 60th anniversary in its annual samba song, 224 - Granting of credit to micro and small business owners, up to a limit of R$10,000 217 written by renowned carnival composer Joãosinho Trinta. Vale’s half of one minimum salary). Meanwhile, in the inland mountain Foundation make it possible to anticipate the impacts of Vale’s (Pará). See the 2005 Annual Report. presence on Rio’s samba parade ground contributed to the school’s area of Espírito Santo, a 20-year Sustainable Development Plan was future operations on communities. An integrated socioeconomic 225 - The 13 communities are São Bernardinho, Santa Luzia do Tracuateua, Nossa Senhora implemented to provide a roadmap for strengthening the region diagnosis of southeast Pará, for example, presented forecasts das Graças, Santa Maria do Tracuateua, São Manoel, Santa Maria de Oxalá de Jacundaí, third place ranking in that year’s Special Group contest, giving it related to economics, demographics and the demand for public Vila Nova, Ribeira, Centro Ouro Bom Jesus, Santana do Baixo, Santo Cristo, Conceição do the right to perform once more in the Champions’ Parade on the Mirindeua, and Santa Maria do Mirindeua. In all, 650 families live in these communities, Monday following carnival. services and infrastructure, and identified that the region would and around 215 of them have a direct relationship with the project. 214 - See Vale’s Press Office, “Projetos sociais na região das Minas Centrais,” October 5, 2006. need significant investments to correct deficiencies and prepare 226 - Following claims made by members of the community in Moju, in December 2006, Available at
Vale Our History Vale Our History 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 Complex, including a prognosis aligned with its rising production. in Espírito Santo, at Tubarão Complex, the eighth station in the Dust-suppression solutions were employed in strategic locations Automated Network for Monitoring Air Quality in Greater Vitória Vale’s 2003 Annual Report stated that that year would go down where pellets where handled, using new technologies developed (known by Portuguese acronym Ramqar) was installed in 2005, in the company’s history for its excellent results in all areas, by Vale itself.239 under the supervision of state environmental regulator IEMA.243 including the environmental and social fields. “Vale has stood out In 2004, the Manganese Department’s units implemented In August 2005, Vale unveiled a new anti-pollution product: as a leading corporate investor in environmental protection in enhancements related to atmospheric emissions of pollutants a dust suppresser for pellets. An organic binder was used to cut 320 the regions where it conducts its activities. The social area is also and the management of wastes and water resources at ferroalloy pelletizing plants’ emissions of particulate matter, minimize the 321 a priority for us,” said the message from the Board of Directors. plants in Ouro Preto, Barbacena, São João del-Rei and Santa Rita amount of water used to dampen piles of iron ore, and improve Since the turn of the century, the company’s internal policies for de Jacutinga (Minas Gerais), Simões Filho (Bahia), and Corumbá, the pellet manufacturing process. The benefits extended to controlling the impacts of its activities had become stronger. In including Urucum Mine and River Terminal (Mato Grosso do Sul). customers, who could now handle the product free of emissions at 2002, Vale’s investments in environmental preservation amounted Meanwhile, environmental restoration work at the Morro da Mina their ports and in their stockyards and plants. CVRD’s investment to US$238.1 million. That year, the following Vale units received unit in Conselheiro Lafaiete, one of the oldest mines operating in in developing the dust suppressor, testing it and building related ISO 14001 certification:234 Docenave Tugboat Quay (Espírito Santo); Brazil, was recognized by the local environmental regulator as a facilities amounted to R$4 million.244 Itabira and Conceição Iron and Gold Mining Complex (Minas best practice in Minas Gerais.240 In 2006, CVRD invested R$286 million in social actions and Gerais); Gongo Soco Iron Mine (Minas Gerais); Sociedade Mineira The following year, in 2005, Vale invested R$147 million in another R$317 million in environmental initiatives. The latter de Mineração Manganese Mine (Minas Gerais); Ferteco Mineração environmental initiatives, including R$108 million in projects at the enabled the conservation of 1.4 million hectares of vegetation in Iron Mines (Minas Gerais); and Sepetiba Bay Port Company company’s operational sites and R$39 million in external programs Pará, Espírito Santo and Minas Gerais, among other achievements. Maritime Terminal (Rio de Janeiro). The company received 12 and projects. The same year, the Vale do Rio Doce Environment The company reduced its pelletizing plants’ primary water certifications by the end of 2002.235 New electrostatic precipitators Institute (known by Portuguese acronym IAVRD) produced an consumption by 45% compared with 2003 levels, beating its target capable of retaining more than 95% of particulate matter were inventory of 1,409 hectares of vegetation in Carajás, Pará. In all, for a 40% reduction. During this period, the plants’ reduction in installed in the pelletizing plants at Tubarão Complex (Espírito 441 bird species, 102 species of amphibians and reptiles, and 145 consumption of new water totaled 2 million cubic meters, saving Santo). In 2002, Vale invested around R$23 million in projects to mammal species were evaluated. The site’s air quality was also approximately R$1.5 million.245 rehabilitate mined areas.236 monitored using three automated substations that began operating Between 2005 and 2006, there was a 50% fall in the mortality A waste management plan was put into practice in 2003, in May 2005. This equipment takes hourly measurements of levels rate among animals relocated to clear vegetation at copper, focused on proper segregation, temporary storage and final of non-respirable dust and total suspended dust at iron and iron and manganese mines in Carajás, Pará. Meanwhile, new disposal of residues.237 The following year, CVRD created the Vale manganese mines, as well as in Carajás urban center.241 electrostatic precipitators were installed at the entrance and do Rio Doce Botanical Park at Tubarão Complex after planting Between 2005 and 2008, Vale invested R$2 million in a program exit of the furnace and screening facilities at Plant 7 at Tubarão more than 6 million trees on a 33-hectare site. This was the biggest to restore tree cover along rivers and streams in northern Espírito Pelletizing Complex in Vitória, Espírito Santo. Dust suppressor green area in Vitória, Espírito Santo’s state capital. In 2004 alone, Santo. Covering 180 hectares, the initiative was responsible for was also deployed in the transportation and handling of pellets, approximately 3,900 employees, 8,000 contractors and 6,300 local planting 1.5 million trees of various Atlantic Forest species, practically eliminating emissions.246 students and teachers visited the park as part of the company’s grown at the Vale do Rio Doce Natural Reserve (now called the environmental education programs.238 Between 2002 and 2004, Vale Vale Natural Reserve) in Linhares.242 The program was conducted produced a full inventory of its particulate emissions at Tubarão by IAVRD in partnership with 56 farmers in the region. Elsewhere
239 - Idem. 234 - Set of environmental management standards, designed to reduce the impact of business activities on the environment. See the International Organization for 240 - Idem. 243 - See Vale’s Press Office, “Onze empresas vão monitorar ar,” September 14, 2005. Standardization (ISO)’s website:
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 The complexity of the global economic environment in 2002 Brazil Risk rating, which in September 2002 – shortly before the infected the markets, leading to volatility and growing risk elections – reached its highest ever level, of 2,446 basis points.248 aversion. In Brazil, the financial markets took some time to get Foreigners’ apprehension of investing in Brazil was even greater used to the imminent first victory of Luiz Inácio Lula da Silva than during the severe Asian and Russian crises of the late 1990s. and the Workers’ Party (Partido dos Trabalhadores, or PT) in the The following chart shows the change in the Brazil Risk rating presidential elections.247 between 1995 and 2011:249
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 247 - “Crise financeira de 2002 foi mais perigosa para o Brasil do que a atual, diz Armínio and III at Ponta da Madeira Fraga,” Agência Brasil, January 20, 2009. Available at
Vale Our History Vale Our History Aerial view of a pelletizing plant at Ponta da Madeira Maritime Terminal in São Luís, Maranhão. Following page: iron ore sample.
Brazil’s currency was also heavily affected. At the start of R$2.04 billion.255 That year, Vale strengthened its leading position reached 539,000 metric tons. Consolidated gross revenue from 324 September 2002, one US dollar would buy around R$3; at the end in the global seaborne iron ore market, with record sales of 163.91 manganese and ferroalloys rose by 34.6% from 2001 to 2002, to 325 of the same month, the same dollar was worth nearly R$4.250 Amid million metric tons, up 11.5% from the previous year. As a result, R$845 million.261 this great volatility, stock markets suffered: between January and 29.4% of the global iron market now belonged to Vale.256 Sales of October 2002, the São Paulo Stock Exchange’s main Ibovespa index iron ore reached 135.187 million metric tons, 12% higher than in Aluminum and fertilizers fell by more than 40%.251 2001. Pellet sales rose 9.4% to 28.729 million metric tons. Of the In 2002, aluminum sector businesses contributed 11.6% of Vale’s The markets only recovered when it was realized that the new total volume sold in 2002, 84.1% was exported – up 15% from the total consolidated gross revenue, reaching R$1.76 billion, up government would not interrupt the economic policy established previous year’s figure.257 58.1% from 2001’s figure of R$1.11 billion.262 In the same year, during the two-term government of Fernando Henrique Cardoso. US$81.6 million was spent on building a pelletizing plant work on expanding Alunorte’s annual production capacity to The maintenance of the pillars of stability – such as the floating and related infrastructure in São Luís, Maranhão, which began 2.4 million metric tons was completed, and the company’s third exchange rate regime adopted in 1999, the inflation-targeting commercial operations in the second half of 2002. Vale also invested production line started up in January 2003. Investment in this system and the setting of primary government surplus targets – US$35.1 million to expand its iron ore transportation capacity in expansion totaled US$277.6 million, and the production cost per gradually won over the pessimism.252 From that point onward, the the North System.258 This sum provided for the construction of Pier metric ton was under US$350, very competitive by aluminum São Paulo Stock Exchange entered a bull market and the Ibovespa III at Ponta da Madeira Maritime Terminal in Maranhão and the sector standards.263 went from 14,000 points in 2002 to over 44,000 in 2006.253 creation and expansion of iron ore stockyards, in which the company Meanwhile, at Taquari-Vassouras Mine in the state of Sergipe, In contrast to slow global growth, with an economic crisis in invested US$18.4 million and US$14.8 million, respectively.259 sales and production levels hit new records. The mine’s potash the United States and a debt moratorium in Argentina, the ups In 2002, Vale owned and operated four manganese mines: Azul, sales, all allocated to the domestic market, came to 731,000 and downs of the global economy confirmed Vale’s stability. At the Urucum, MMN and Morro da Mina. It also had seven ferroalloy metric tons, up 45.3% from 2001. Gross revenue of R$272 million end of the turbulent year of 2002, the company’s market value was production plants: Corumbá, Santa Rita, Barbacena, Rancharia, was generated.264 US$11 billion, up 20.3% from its US$9.2 billion value in December São João del-Rei, Sibra and Rio Doce Manganèse Europe (RDME). 2001, despite the overall fall in stock markets and even a decline in These operations were located in four Brazilian states – Pará, Latin America’s largest private company the share prices of other companies in the same sector.254 Mato Grosso do Sul, Minas Gerais and Bahia – and France.260 That In 2003, Vale maintained its top ranking among Brazil’s biggest year, Vale achieved record manganese ore production of 2.33 exporters, with net exports of US$3.42 billion. This meant that Third highest net profit since the company was founded million metric tons, up 29.5% from 2001, and sales of this product 13.8% of the country’s trade surplus (the difference between In 2002, the company celebrated its 60th anniversary after having amounted to 665,000 metric tons. The volume of ferroalloys sold exports and imports) was guaranteed by CVRD’s activities.265 made the third highest annual net profit since it was established: 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 256 - This sum includes the amount sold by the parent company and Nibrasco, Kobrasco,
Vale Our History Vale Our History generating at least 60,000 direct and indirect jobs.266 The statistics Incorporated by Vale in December 2003, Mineração Vera are even more impressive if compared with those of other Cruz began geological research in the Miltônia Plateau 5 area in companies in the sector: for example, while market values across Paragominas, Pará, and in Tiracambu, Maranhão. Supplementary the mining industry rose by an average of 63.45% in 2003, Vale’s geological and technological research work in the Miltônia Plateau value increased by 102.35%.267 Consequently, by the end of the year, 3 area, also in Paragominas, confirmed reserves of 142.5 million Vale had become Latin America’s largest private company, with a metric tons of bauxite.276 market value of nearly US$22 billion. At the start of the same year, Good results were also attained in steelmaking, copper, its market value had been US$11 billion.268 manganese and kaolin. In 2003, California Steel Industries (CSI), a Research and development provided the foundations for these joint venture between Kawasaki Steel Corporation and Vale located results. In 2003, Vale invested US$69 million in mineral exploration in California, USA, achieved its best ever financial results since it and development projects, up 33% from the previous year. Of this was established 19 years before. The steel producer’s net revenue total, US$50.5 million was spent by CVRD and US$18.5 million was R$2.35 billion, up R$115 million from 2002.277 326 was provided by BNDES as part of the Carajás Mineral Province In 2003, the company’s mines produced 2.24 million metric tons 327 Risk-Sharing Contract signed in 1997. Vale intensified its mining of manganese ore. Sales to third parties rose by 33.1% to 885,000 research activities, accounting for 18% of its 2003 budget.269 metric tons. Over the course of the year, Vale developed its cored That year, Vale also conducted research in partnership with the wire business278 by acquiring two machines to use at Rio Doce universities of São Paulo (USP) and São Paulo State (UNESP) in the Manganèse Europe (RDME) in Dunkirk, France.279 field of biotechnology, with the federal universities of Minas Gerais Pará Pigmentos S.A. (PPSA) and Cadam S.A. – which produced (UFMG) and Ouro Preto (UFOP) in the hydrometallurgy sector, and kaolin in Pará and Amapá, respectively – sold 731,000 metric tons with the federal universities of Rio Grande do Sul (UFRGS) and Pará in 2003, up 62.1% from the previous year. PPSA produced a total of (UFPA) concerning kaolin. The company also carried out research in 422,800 metric tons of kaolin from its sites in Ipixuna do Pará and partnership with the Minas Gerais Technology Center Foundation Barcarena, up 28% from the 330,300 metric tons produced in 2002. (Cetec), the Mineral Technology Center (Cetem) and the Alberto Two new paper coating products called Paraprint and Century S Luiz Coimbra Institute of Postgraduate Engineering Studies and were produced on an industrial scale in 2003, in addition to Century Research at the Federal University of Rio de Janeiro (Coppe/UFRJ), HC, PPSA’s main product.280 which focused on characterizing ores.270 Vale’s academic research activities were not restricted to Brazil. In Australia, the company The highest profit ever made by a private-sector Brazilian company conducted research together with CSIRO271 (mineralogy), ANSTO272 The year 2004 saw the best ever results in Companhia Vale do Rio (radionuclides) and AMIRA273 (milling and flotation). In South Africa, Doce’s 62-year history. Gross revenue totaled R$29.02 billion and Vale worked with Mintek (platinum group metal and manganese net income reached R$6.46 billion – up 43.3% from the previous ore characterization), and in the USA, it worked with Hazen (copper year and at that time the highest profit ever made by a private- pyrometallurgy). In Canada, Vale joined with Cominco Engineering sector Brazilian company.281 Services Ltd. (copper hydrometallurgy). Finally, in Chile, the company In four years (2001-2004), Vale’s market value had risen from exchanged technological knowledge with CIMM274 (milling).275 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.282 266 - See the 4Q03 US GAAP Results. Available at
Vale Our History 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 Taquari- Vassouras Mine in Rosário do Catete, Sergipe, in 2002.
328 329 In 2004, Vale had mineral exploration offices in Argentina, Targets were surpassed in the areas of iron ore, manganese, Consolidated gross revenue from manganese ore and ferroalloy More than US$184 million was invested by Vale in mineral Chile, Peru, Venezuela, Gabon, Angola, South Africa, Mozambique potash, kaolin, bauxite, alumina and primary aluminum. In addition, sales soared by 89.8% to R$2.08 billion.293 Expansion in Chinese research and development in 2004, more than any other Brazilian and Mongolia. Over the course of the year, the company signed the excellent results achieved in recent years in freight transportation consumption and a recovery in steelmaking on a global level, company invested in R&D that year and up 86% from 2003. In order to around 65 contracts with major customers in the Americas, Europe (average annual growth of 11% in freight transportation for third together with the closure of ferroalloy plants in Europe and identify and assess new mineral deposits, Vale conducted geological and Asia to sell a total of approximately 1.1 billion metric tons of parties between 2001 and 2004)288 confirmed Vale’s position as the temporary disruptions at plants in China and the United States, studies in South America (Brazil, Chile, Peru and Argentina), Africa iron ore and pellets over an average weighted period of 10 years.283 biggest logistics operator in Brazil.289 raised the prices of manganese ferroalloys to levels two or three (Gabon, Angola and Mozambique) and Asia (Mongolia).295 That year, global iron ore production was a record 1.2 billion Between 2003 and 2004, Pará Pigmentos S.A.’s annual kaolin times higher than their historic averages.294 In 2005, all of Vale’s mining complexes once more attained new metric tons, up 5.5% from the previous year. China’s imports sales rose by 8.8% from 423,000 to 460,000 metric tons, and its records. The following graph shows these results.296 continued to exceed all market estimates and they seemed set to production rose by 9.5% to 463,000 metric tons. In turn, Cadam grow even more. In 2003, the country became the world’s largest sold 744,000 metric tons in 2004 and produced 750,000 metric tons, importer of iron ore, followed by Japan.284 Vale made the most of up 5.5% from the previous year.290 2003-2005 SALES MILLION METRIC TONS the favorable moment. In 2004, its sales of iron ore and pellets In 2004, approximately 90% of the work to expand the production amounted to 231.5 million metric tons, another all-time record, up capacity of Taquari-Vassouras potash mine in Sergipe was completed. 23.9% from 2003. This enabled Vale to maintain its leadership of In all, US$78 million was invested to expand annual potassium 2003 2004 2005 the global seaborne market, accounting for 32.1% of the volume of chloride output from 600,000 to 850,000 metric tons. Gross revenues iron ore and pellets sold that year across the world.285 from potash sales reached R$362 million, against R$289 million in In 2004, the company produced record volumes of iron ore: 98.8 2003. This rise was due to a large increase in the average price of million metric tons in the South System (up from 92.8 million the potash, more than making up for a fall in production.291
previous year) and 69.4 million metric tons in the North System Global primary aluminum production grew by 17% in 2004 to 252.189 5.429 5.600 1.805 1.738 488 498 398 1.218 229.881 (up from 58.9 million). Annual pellet production also increased, nearly 30 million metric tons, boosted once more by China, the 1.678 477 1.207 4.326
286 186.812
from 31.2 to 35.3 million metric tons. On December 24, 2004, world’s leading producer. Albras and Valesul represented 36% of 269 731 Tubarão Complex in Vitória, Espírito Santo, reached a major the volume produced in Brazil.292 production milestone: 500 million metric tons of pellets since the The manganese ore and ferroalloy market, closely linked to first pelletizing plant there began operating in 1969.287 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. Bauxite Alumina Aluminum Kaolin Copper* Iron ore and pellets
283 - Idem. 288 - Idem. * Production initiated in 2004. Source: Vale’s 2005 Annual Report. 284 - See the 2004 Annual Report. 289 - Idem. 285 - Idem. 290 - See the 2004 Annual Report. 286 - Idem. 291 - Idem. 293 - See the 2004 Annual Report. 295 - Idem. 287 - Idem. 292 - Idem. 294 - Idem. 296 - See the 2005 Annual Report, p. 31.
Vale Our History Vale Our History Iron ore stockyard at Tubarão Complex, Vitória, Espírito Santo.
2003-2006 SALES MILLION METRIC TONS
2003 2004
2005 2006* 272.682 169 1.207 1.218 1.323 252.189 5.429 5.600 3.207 488 477 498 510 229.881 4.326 4.085 119 186.812 731 1.805 1.738 1.678 81
330 331 Alumina Aluminum Bauxite Kaolin Copper* Iron ore and pellets
The 2006 figure includes two months of CVRD Inco’s production. Source: Vale’s2006 Sustainability Report.
Records were also broken in the area of potassium chloride, In 2006, Vale’s gross revenues were broken down as follows: an important raw material used by the fertilizer industry: 641,000 ferrous minerals – 59.1%; non-ferrous minerals – 18.2%; aluminum metric tons were produced and 640,000 metric tons were sold. sector products (bauxite, alumina and aluminum) – 11.8%; logistics In the aluminum sector, 6.9 million metric tons of bauxite, 2.6 services – 7.3%; and steel products – 3.2%.302 million metric tons of alumina and 496,000 metric tons of primary That year, the company achieved new production records for aluminum were produced. In 2005, all of Vale’s bauxite production alumina, copper, potash and kaolin, with annual growth of 53.2%, corresponded to a 40% share, proportional to its equity stake, of 12.8%, 14.2% and 11.1%, respectively. These results were directly the output of Mineração Rio do Norte, which reached 17.2 million linked to important records in that year’s shipments: iron ore and metric tons.297 pellets – 272.68 million metric tons; alumina – 3.2 million metric In 2006, the company’s net profit was R$13.4 billion, up 29% tons; primary aluminum – 510,000 metric tons; copper – 169,000 from 2005. Exports totaled US$9.7 billion, up 37.5% from the metric tons; potash – 733,000 metric tons; and kaolin – 1.32 million previous year. Vale became the second biggest mining and metals metric tons.303 The graph above shows these results and reveals company in the world, in terms of market value.298 CVRD’s growth.304 Between December 2001 and February 2007, the company’s A number of major expansion projects were also completed in market value expanded eight-fold.299 For shareholders, this 2006. Carajás’ annual production capacity increased to 85 million represented an annual return of 42.7% over that period. In 2006, metric tons in the third quarter of the year.305 Alunorte’s alumina operational activities generated gross revenue of R$46.7 billion, refinery was also expanded, with its production capacity reaching up 32% from 2005.300 With its total net exports of US$8.8 billion, 4.4 million metric tons per year.306 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
297 - See the 2005 Annual Report. 302 - Idem. 298 - See the 2006 Sustainability Report. 303 - Idem. 299 - Idem. 304 - See the 2006 Sustainability Report, pp. 20, 39. 300 - Idem. 305 - See the 2006 Form 20-F Report. 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 332 major role in this partnership. Opened in 1985 – following research in the region going back to 19675 – the project 333 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
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
Vale Our History Vale Our History