Vale (mining company)

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Vale
Type Public (NYSE: RIO)
Founded 1942
Headquarters Flag of BrazilRio de Janeiro, Brazil
Key people Roger Agnelli, CEO
Fabio Barbosa, CFO
Industry Mining, Logistics, Energy, Steel
Products Basic metal materials, logistics optimization, railway transport, port operations
Revenue ▲$36.5 billion USD (2007)[1]]
Net income ▲$11.82 billion (2007)[2]
Employees 52,646 [3]
Subsidiaries Vale Inco Limited
Website www.vale.com

Vale is a diversified mining multinational corporation and one of the largest logistics operators in Brazil[4]. In addition to being the second-largest mining company in the world, [5]Vale is also the largest producer of iron ore[6], pellets[7], and second largest of nickel.[8] Vale also produces manganese, ferroalloys, copper, bauxite, potash, kaolin, alumina and aluminum. In the electric energy sector, the company participates in consortia and currently operates nine hydroelectric plants.[9]

Contents

[edit] History

Companhia Vale do Rio Doce (CVRD), as the company was known until 2007, was founded in Itabira as a public company by the Brazilian Federal Government on June 1, 1942. One year later the Vitória a Minas railroad was inaugurated.[10] CVRD, just seven years after its foundation, was already responsible for 80% of Brazilian iron ore exports.[10] In 1966, the company inaugurated in Espirito Santo the Port of Tubarão, which was to become the most important port for CVRD[10] and is still used to export iron ore mined from the Iron Quadrangle in Minas Gerais.

The Carajás Mine, on which Vale still has over 1.5 billion tonnes of iron ore in reserves[11], started to have Vale as a majority stakeholder in 1970.[10] In 1974, Vale became the world's biggest exporter of iron ore, title which it still holds today.[10] Then, in 1982, Vale began to diversify itself after it started to produce aluminum in Rio de Janeiro.[10] Throughout its history, CVRD’s activities, once restricted to the Southeast, were expanded to the Northeast, Central-West, and North of Brazil, diversifying its mineral product portfolio and consolidating logistics services.

Vale in 1985 started to explore the Carajás Mine in the state of Pará just after the Carajás railroad was opened and in 1986 Ponta Madeira port terminal, which is still used to export iron ore mined at the Carajás Mines, was inaugurated in the state of Maranhão.[10]

[edit] Vale's privatization in 1997

Vale had its control transferred from the Brazilian Federal Government to the private sector (privatization) on May 6, 1997, when the Consórcio Brasil (Brazil Consortium), led by the National Steel Company - CSN acquired 41.73% of the Federal Government’s common stock for R$ 3,338 billion,[10] or $3.14 billion at that time.[12] The decision to privatize Vale caused much controversy and some politicians opposed the privatization [13] . Vale remained a public traded company both in the Bolsa de Valores de São Paulo (BOVESPA) and NYSE (through American Depositary Receipt - ADR).

[edit] Focus and diversification on the mining business

After being privatized, Vale decided to focus exclusively on the mining business.[14] Vale's operations on the energy and logistics sectors are meant to primarily reduce the costs and the risks of the company's mining operations and not to generate revenues, so for example even though Vale has invested over $880 million on various energy projects,[15] the energy business generates not even 1% of Vale's total revenues.[16] The company's logistics operations contribute with around 7% of total revenues.

Vale's plan to focus on the mining business had three phases:

  • Sale of non strategic assets - mainly the steel and wood pulp businesses.
  • Consolidation through acquisition of the Brazilian iron ore industry. - completed with the purchase of MBR.
  • Diversification of its mining business in order to reduce Vale's dependence on the iron ore business - achieved with the acquisition of Inco.

[edit] Steel and wood pulp businesses are sold

In line with Vale's decision to focus exclusively on its mining business,[14] the company between 2000 and 2007 sold over $2.9 billion in businesses that operated on the steel and wood pulp sectors[17] and effectively withdrew itself from those industries.

Vale's wood pulp and paper businesses were all sold in 2001, sales which totaled $990.5 million. Bahia Sul was sold for $320 million, while Cenibra was bought away for $670.5 million.[14]

Vale's steel businesses took longer to be sold away, given the fact that Vale owned participation in many steel companies. The $1.91 billion divestment program began in 2000, when the company sold its stake at Açominas and Companhia Siderúrgica Nacional for $10 million and $249 million, respectively.[14] Then in 2004 Vale earned $579 million by selling its stake at CST.[18] In 2006 all Vale's stake at Gerdau and Siderar were sold for $67 million and $108 million respectively, also on that year Vale got $176 million by selling some of its shares of Usiminas. An additional $728 million was earned in 2007 when Vale sold yet more shares of Usiminas, Vale now owns just 3% of Usiminas.[19]

[edit] Vale consolidates the Brazilian iron ore industry

The consolidation process that Vale started in 2000 consumed over $4.9 billion[20] when it finished in 2007 Vale had under its control over 85% of Brazil's 300 million tonnes annual iron ore production.[21] Below is a table containing Vale's acquisitions prior to the purchase of Caemi, which was the most significant one of Vale's consolidation drive in Brazil.

Vale's acquisitions on the brazilian iron ore industry[14]
Name Price Annual iron ore production at the time Reserves at the time Year Vale's ownership
Socoimex $55 million 7 million tonnes 106 million tonnes 2000 100%
MBR[14][22] $25 million 2001 5%
Samitri $710 million 17 million tonnes 709 million tonnes 2001 100%
Ferteco $523 million 11.4 million tonnes[23] 138 million tonnes[24] 2001 100%
Rio Verde $47 million 3.5 million tonnes[25] 37 million tonnes[26] 2006 100%

MBR's acquisition

On March 31, 2006, Vale, which already owned 60.2% of Caemi, acquired in a stock swap the remaining 39.8% of Caemi for $2.55 billion.[27] In all Vale spent over $3.2 billion acquiring 100% of Caemi. The acquisition of Caemi gave Vale 84.75% of MBR, Brazil's second largest iron ore producer, mining over 60 million tonnes.[28] Together with the 5% stake of MBR acquired in 2001, the acquisition of Caemi at the end of 2006 gave Vale a 89.8% ownership of MBR.[29]

Then in 2007 Vale purchased another 3.1% of MBR for $231 million from Mitsui and other Japanese investors. That meant that the company raised its stake at MBR to 92.9%, the remaining 7.1% stake at MBR was acquired in lease agreement by Vale for the next 30 years for a down payment of $60 million plus an annual fee of $48.1 million.[30] In this way, Vale now owns 100% of MBR for the next 30 years (period of the Lease Agreement).

The acquisition of MBR marked the end of an acquisition campaign that began in 2000, this acquisition campaign was the consequence of Vale's decision to consolidate the iron mining business in Brazil. After MBR's purchase Vale became the owner of all Brazilian iron ore exporters.[31]

[edit] Diversification

Vale's diversification program sought to increase the participation of non-ferrous metals on total revenues reducing, in the process, Vale's dependence on the price of the iron ore for both net income and revenues. Business diversification has been achieved mainly with the acquisition of Inco and to a lesser extent with the acquisition of Caemi and managed to increase the participation of non-ferrous metals on total revenues from 7% in 2000 to around 34% in 2006.[32][33]

Vale branched into copper mining in 2001 when it bought for $48.5 miilion the Sossego Mine located in the Carajás complex.[34] The Sossego Mine, inaugurated in 2004, was the first Brazilian copper mine. The company expects to extract around 650 thousand tonnes of copper a year from that mine by 2010.[10]

The acquisition of Caemi in 2006 also helped Vale's diversification strategy by making the company a kaolin producer through former Caemi subsidiaries CADAM S.A. and PPSA. With that acquisition Vale now owns 61.48% and 85.57% of those subsidiaries respectively.[35][36]

In 2005, Vale bought Canico Resources, a Canadian nickel mining company, for $800 million.[37][38] This acquisition increased Vale's business diversifiction by bringing non-ferrous metals to its product line up.[39]

Also in accordance with its diversification strategy, Vale has entered the coal mining business. In 2007 the company purchased the Australian coal mining company AMCI Holdings for $656 million.[40][41]

[edit] Inco is acquired for $18.9 billion

In October 2006, Vale acquired Canada's second largest mining company, Inco, for $18.9 billion, [42] paying Inco's shareholders $17.7 billion in cash [43] and absorbing Inco's debt of $1.2 billion.[44] This purchase was the largest acquisition ever made by a Brazilian company.

In order to assure the Canadian government's approval of the Inco acquisition, Vale agreed to keep Inco open as its nickel mining division, with its head office to remain in Canada and also agreed that the Inco division would assume responsibility for all Vale's nickel mining business.[45]

Inco, which is now called Vale Inco Limited, specialized in nickel mining. The acquisition of Inco was the most remarkable event of Vale's divesification strategy because it turned Vale into the world's second biggest mining company[46] and the world's biggest nickel producer.[47]

[edit] Vale today

Vale is headquartered in Rio de Janeiro and has its logistical office in São Paulo.

Vale's Global Operations
Vale's Global Operations

Vale, besides being present in 16 Brazilian states is also present in 6 continents: South America, North America, Europe, Africa, Asia and Oceania.

Vale has managed to establish itself as a global mining company through joint ventures and acquisitions abroad. As it can be seen on Vale's Global Operations map[48], Vale has participation on mining operations in Finland, Canada, Australia, Mongolia, China, India, Angola, South Africa, Chile, Peru and other countries. Not only that, Vale also has offices in places such as Tokyo, Vaud, Buenos Aires, Seoul, Lima, Toronto,London, Johannesburg, Singapore and Shanghai.

On November 2007, the company retired the brand CVRD in favor of the new brand Vale.[49] The company has announced it will spend $50 million establishing its new logo and brand worldwide.

Vale has an investment budget of $11 billion for 2008, the largest annual investment program ever undertaken by Vale or by any mining company in the world. The 2008 budget is part of the firm’s strategic plan and underpins the 5 year, $59 billion investment program, and consequently involves a significant increase in capex for organic growth as compared with the period 2003-2007, estimated at $18 billion.

[edit] Mining business

Vale Operations in Brazil in 2006
Vale Operations in Brazil in 2006

Iron Ore: Vale is the world leader in the iron ore and pellets market. The company which produced around 90 million tonnes in the mid 90s[50][51] is now producing over 250 million tonnes of iron ore and pellets[52]. This means that Vale produces over 60% of all the iron in Brazil and around 15% of all the iron in the world.[53] Brazil has one of the largest iron ore reserves in the world, the mineral that is the most produced and consumed in the planet.

Manganese and Alloys: In 1999, Vale incorporated the manganese and alloy business into its structure. Consolidated as the second largest manganese producer in the world, CVRD annually produces close to 2.3 million tons of manganese ore and 500,000 tons of manganese alloys.

Nickel: Vale has become the world’s largest producer of nickel, with a production of 250,600 tons. Found in nature in association with iron and sulphur, nickel is a transition element that presents ferrous and non-ferrous metal properties such as resistance to corrosion, alloy formation, ductility and electro-coating settlement among others. By virtue of this characteristic to confer properties to the more noble metallic steels, nickel is demanded mainly by the metallurgical sector, and 63% of such demand is destined to the production of stainless steel.

Copper: Vale's copper production began in the first half of 2004, with the start-up of the Sossego Mine, whose average installed capacity is 140 thousand tons per year of copper in concentrate. The start-up of the copper cathode production plant with extraction by solvent and electrowinning - Project 118 - is estimated for the beginning of 2007. This project will have an installed capacity of 45 thousand tons/year of copper cathodes. Other projects such as Salobo (in feasibility studie) and others under intensive geological survey works in the Carajás region, in Chile and in Peru. In 2006, the consolidation of CVRD Inco also increased the total sale of concentrated copper, which amounted to 169 thousand tons.

Coal: Vale is present in Venezuela, Australia, South Africa, Mozambique and Angola with offices, ore search works and development of new businesses of coal. Currently it has minority stakes on Chinese coal producers, such as Longyu and Shandong Yankuang International Coking Co. Meanwhile, its major project, Moatize, in Mozambique, estimated to produce 14 million ton of metallurgic and energetic coal for 70 years is in economical feasibility study. With AMCI acquisition, CVRD added to its coal portfolio the underground coal deposit in Belvedere, Queensland State, Australia, with estimated resources of 2,7 billion of ton.

Potash[54]: CVRD produces potash at The Taquari-Vassouras Operational Unit, an underground mine with a treatment plant on the surface. “Taquari-Vassouras” is the name of the ore deposit. This unit is the single manufacturer of potassium chloride (KCl) in activity in Brazil. Potassium Chloride is an important component for the manufacture of fertilizers, and it is obtained through the underground mine of sylvite and later on improved by the flotation process. Presently all production is for domestic market and assure 13% of the Brazilian demand for the product. Since 1992 production comprised 24.7 million tonnes of ROM with an average grade of 31.80 percent KCl, containing a total of 7.8 million tonnes of KCl.

Kaolin: a fine White aluminum silicate used as a coating agent, filler, extender and absorbent in the paper, ceramics and pharmaceutical industries. Despite being abundantly found in nature, its commercial reserves are restricted to Brazil, United Kingdom and the US. At 2006, Vale shipped 1.323 million tons, a volume 8.6% higher than that sold in 2005.

[edit] Aluminium

Vale is involved in all stages of the aluminum chain, from bauxite mining and alumina refining to primary aluminum production.

Vale strategy for the aluminium business is to focus on the upstream of the production chain - developing low-cost bauxite and alumina projects. We have large, undeveloped high-quality bauxite reserves and opportunities for low-cost expansions in alumina refining. We are currently working on the development of these opportunities. For primary aluminium our strategy focuses on the development of projects in countries with low energy costs.

Alumina is the main raw material for primary aluminum production. It is obtained from the refining of bauxite, an ore abundant in the state of Pará, especially in the regions of the Trombetas River and Paragominas.

[edit] Logistics

Railroads[55] From 2000 to 2006 Vale invested more than $1.3 billion on the acquisition of over 361 locomotives and around 14,090 freight cars, those locomotives were primarily for iron ore transportation, but some were for regular cargo. [56][57][58][59][60][61] Some of the locomotives purchased were secondhand for refurbishment but at least 55 of the locomotives acquired were new ones of the model EMD SD70M, each one costing about $2 million.[62][63]

After those investments, Vale became the owner of over 800 locomotives and more than 35,000 freight cars [64] but the company informed that it will reduce its investment in rolling stock in the coming years.[65]

Vale owns the concession of three Brazilian railways: Vitória a Minas railroad (EFVM), Ferrovia Centro Atlântica (FCA) and Carajás railroad (EFC).

Ferrovia Centro-Atlântica and Vitória a Minas railroads
Ferrovia Centro-Atlântica and Vitória a Minas railroads
  • Vitória a Minas railroad - Vale operates under a 30 year contract this 905 km railroad, which is used to transport iron from the Iron Quadrangle in Minas Gerais to the Port of Tubarão in the state of Espírito Santo . The concession expires in 2027. This railroad also carried 1.1 million passengers in 2006.
  • Carajás railroad - The concession of this 892 km railroad also expires in 2027, it links Carajás iron ore mines in the state of Pará to Ponta Madeira port terminal in the state of Maranhão. Vale plans to operate a train of 3.2 km and 340 cars on this railroad.
  • Ferrovia Centro-Atlântica - Vale controls this railroad through the subsidiary FCA. As it is shown on the Vale's operations map above, this 7,000 km railroad extends through 6 brazilian states, this railroad originally belonged to the RFFSA. Vale's concession of this railroad expires in 2026.

Ports and Container terminals[66]

  • Port of Tubarão - Vale owns and operates this port located in Vitória in the state of Espirito Santo.[67] It's the largest iron ore embarking port in the world.[68] Around 80 million metric tons of iron ore are shipped through the this port,[69] this means that roughly 30% of Vale's iron ore production are shipped through the Tubarão Port.
  • Ponta Madeira port terminal - Located in the state of Maranhão, it ships around 70 million metric tons mostly of iron ore, but also of manganese and copper for the company.
  • Port of Sepetiba - Vale operates two maritime terminals in the Port of Sepetiba area located in the state of Rio de Janeiro, together they ship around 60 million metric tons of iron ore.

Vale also operates port terminals in the state of Sergipe and two others in the state of Espirito Santo.

[edit] Energy

Vale's energy business is focused at power production to fulfill the needs of its mining operations, as well as supplying the general Brazilian power grid. In 2005 it consumed 16,9 TWh of electrical power, accounting for 4,4% of Brazil's total consumption in that year.

Vale has participation in 8 hydroelectric plants, with 7 of these located in the state of Minas Gerais. Vale's investment in hydroeletric power plants totals $880 million.[70] The company also plans to build a 600 MW thermoeletric power plant in the state of Pará.[71]

Vale's Hydroeletric power plants[72][73]
Name Location Production Capacity Vale's Ownership Vale's Investment Start of Operations
Aimorés Minas Gerais 330 MW 51% $141 million July 2005
Candonga Minas Gerais 140 MW 50% $46 million September 2004
Capim Branco I Minas Gerais 240 MW 48.42% $90 million February 2006
Capim Branco II Minas Gerais 210 MW 48.42% $90 million May 2007
Estreito Tocantins 1,087 MW 30% $355 million August 2009
Funil Minas Gerais 180 MW 51% $49 million December 2002
Igarapava Minas Gerais 210 MW 38.15% $88.1 million January 1999
Porto Estrela Minas Gerais 112 MW 33.33%% $20 million September 2001

Vale also operates hydroeletric plants in Canada and two others in Indonesia. The company is building a third hydroeletric plant on the Larona River, Indonesia.[74]

[edit] References

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  4. ^ BIC
  5. ^ BBC NEWS | Business | Brazilian miner buys Canada rival
  6. ^ SEC Info - BHP Billiton Ltd - 6-K - For 5/31/00
  7. ^ CVRD Approves Increase in Pellet Production Capacity
  8. ^ FT.com / Columnists / European View - Minority investors caught in the Russian crossfire
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  10. ^ a b c d e f g h i Vale: History
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  13. ^ Iron Ore in 1997
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  25. ^ http://www.dnpm.gov.br/assets/galeriaDocumento/SumarioMineral2007/ferro_SM2007.doc
  26. ^ Folha Online - Dinheiro - Caemi compra Rio Verde Mineração por US$ 45 milhões - 06/01/2006
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  38. ^ Canico Resource Corp. | Vancouver, Canada | Company Profile, Research, News, Information, Contacts
  39. ^ CVRD Successfully Completes Take-Over Bid for Canico
  40. ^ CVRD buys AMCI Australia for $A863m - Breaking News - Business - Breaking News
  41. ^ Vale
  42. ^ SEC Info - Companhia Vale do Rio Doce - 20-F - For 12/31/06
  43. ^ CVRD Announces Proposed All-Cash Offer to Acquire Inco
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  46. ^ BBC NEWS | Business | Brazilian miner buys Canada rival
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  63. ^ EMD: JT2CWR
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  67. ^ Porto e Negócios
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  71. ^ A CVRD Anuncia a Construção de uma Térmica a Carvão - Adriano Pires: O Globo Online
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  74. ^ SEC Info - Companhia Vale do Rio Doce - 20-F - For 12/31/06

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