194419312002 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 <http://www.imf.org/external/pubs/ft/weo/2009/update/01/>. 4 - See Vale’s 2005 Annual Report. 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.