1944193119441967 - Vale. · PDF fileThe Biggest Iron Ore Exporter in the World 1944193119441967. 138 139 Vale Our History Vale Our History ... CVRD began supplying iron ore to China,

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around. The indigenous peoples (Assurini2 and Xikrin3) were not very friendly and, worst of all, Breno often had to fly over the jungle in very unreliable helicopters.

It was on one of these flights, on July 11, 1967, on board a red helicopter with room for two passengers, that the history of mining in Brazil (and the world) began to change. Since then, Carajás4 – named for the tribe that lived on the banks of the Araguaia River – has been synonymous with iron ore.

In the mid-1960s, the Amazon region was being mapped by large American companies looking for electrolytic manganese, essential for the manufacture of batteries. The recommended location was the Sereno Mountains, known as the “Serra Rica” (“Rich Mountains”). In geological jargon, there is a saying that “You only look for elephants where there are elephants.” Pará – where enormous manganese deposits had already been found near Marabá – was the “elephant” of the moment.

The strategy adopted by mining companies was to plot routes starting from Belém, and crossing to Santarém and Altamira. Initially, Breno’s team, led by Gene Tolbert, was going to be based in Altamira, but Union Carbide, US Steel’s main competitor, discovered its plans and got there first. The solution found was to create an alternative route via Marabá, where camps were set up around the

2 - According to geologist Breno dos Santos in an interview given to Vale, while flying over an indigenous village as part of a prospecting flight over the Xingu River, he saw the until-then unknown Assurini tribe. “The Indians came out running and we found out later that the village didn’t yet have any contact with civilization. They only became acquainted with Western culture when the Trans-Amazon Highway was built,” he explained.

3 - The Xikrin do Cateté people belong to the Kayapó group (their language is also Kayapó) and they live on the banks of the Cateté River, a tributary of the Itacaiúnas River, between Água Azul do Norte and Parauapebas, in the Carajás Mountains of Pará. See Enciclopédia Povos Indígenas do Brasil. Available at: <http://pib.socioambiental.org/pt/povo/xikrin-kayapo/1630>.

4 - Carajá or Karajá is the name of the indigenous group of people occupying the broad strip between the Araguaia River valley and the island of Bananal in what is now the state of Tocantins, near its borders with Pará, Goiás and Mato Grosso. Karajá is actually a Tupi word meaning “big monkey.” In their own language, they call themselves “iny” (“we”). The Karajá family belongs to the Macro-Jê linguistic branch, and is divided into three languages: Karajá, Javaé and Xambioá. See Enciclopédia Povos Indígenas do Brasil. Available at: <http://pib.socioambiental.org/pt/povo/karaja/364>.

5.1 An adventure in the Amazon

“You can send us the snakebite serum.”The telegram on the desk of American geologist Gene Tolbert,1

in Rio de Janeiro, was short and incredibly promising. Snakebite serum, in this case, had nothing to do with snakes – it was the code used among geologists at Companhia Meridional de Mineração, the Brazilian arm of American giant US Steel, to announce the discovery of a major deposit. The telegram was sent from Belém by Breno dos Santos, also a geologist, and the cryptic message served to protect against the spying that went on between the mining companies scouring northern Brazil in search of riches. There were no snakes, but there was manganese, and above all, a spectacular amount of iron. Gold, silver, copper, bauxite and zinc, as well as nickel, chromium, tin and tungsten would also be found in due course.

Breno was 27 years old. He was a recently qualified geologist who had accepted – more through lack of options than idealism – a job at Companhia Meridional de Mineração, which was looking for manganese in the Amazon. It was an adventure in every sense. It wasn’t an easy job: the salary wasn’t great, the food was terrible, there were mosquitoes everywhere, and there were few geologists

1 - Gene Edward Tolbert was born in Kansas, USA in 1925, and died in October 1989 in Virginia, USA. He served in the American Air Force during the Second World War. He moved to Washington in 1949 to work for the United States Geological Survey (USGS). He arrived in Brazil in the early 1950s, where he completed his doctoral thesis, The Geology of Raposos Gold Mine, Nova Lima, presented at Harvard University in 1956. In Brazil, he worked on a zirconium and uranium mineral project in Poços de Caldas, Minas Gerais. He was invited by the USGS to work as a professor of Economic Geology at the University of São Paulo (USP), where he lectured from 1957 to 1961. He ran the Brazilian office of US Steel at the time of the discoveries of the Carajás mineral deposits. See Gomes, Celso de Barros. Geologia Usp: 50 Anos. São Paulo: Editora da Universidade de São Paulo/Instituto de Geociências da USP, 2007, p. 67, 181-182.

CHAPTER 5

The Biggest Iron Ore Exporter in the World

1944193119441967

138 139


Above: members of the Xikrin indigenous people pose for a photograph on July 22, 1967. Below: geologist Breno dos Santos on December 17, 1967.

Previous page: men crossing the Itacaiunas River in Pará by canoe on August 11, 1967.

Team of geologists on a helicopter flight over the Itacaiunas River in Pará in 1967.

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city, in places with precarious landing strips cleared alongside nut and rubber plantations.

From his camp, Breno and his team members would leave on short explorative flights.5 The geologist called his team “the Incredible Army of Brancaleone,” in reference to the movie by Mário Monicelli that tells the story of a hapless group of soldiers who try to conquer a kingdom of dreams in medieval Europe. Breno’s reference made sense. The kingdom idealized by the Brancaleone of the Amazon was initially a whitish clearing, covered with stunted plants known by the local people as “canelas de ema” (“emu shins”) – but the location was an El Dorado of iron.

“The clearing was enormous, and there was low undergrowth around, which normally characterizes a ‘canga,’ meaning a region rich in ore very close to the surface, impeding the growth of trees. When I knocked in my hammer, a red substance came out, and I saw it wasn’t manganese – it was iron. I thought: ‘Wow! Everything here is iron!’” recounts Breno. The geologist had already seen similar clearings on previous flights, and was starting to think that everything was part of an immense mineral reserve, of a kind that had never before been discovered on the planet.

“I had been working as a geologist for a short time, I was enthusiastic about my discovery, but at the same time I was afraid I could be making a very embarrassing mistake.” But it was no mistake: Breno had discovered 17 billion metric tons of high-grade iron – and as of 1984 (after a lot of research, legal disputes, technological adventures, heroism, political battles, and enterprise), it would lead to a new stage in Vale’s history.

5 - The team that discovered Carajás was organized into four units. The first, belonging to Meridional, was composed of chief geologist Gene E. Tolbert, and geologists E. C. Ferreira, G. C. Machamer, R. Strong and C. D. Reynolds. The second group monitored research in Rio de Janeiro: Francisco Sayão Lobato, mining engineer and consultant; and Jean Robert Maligo, administrative assistant. The third unit was the field team: Breno A. dos Santos, geologist and head of the team; João E. Ritter, geologist; Erasto B. de Almeida, geologist; Noé D. dos Santos, field administrator; C. Marbus, draftsman; Feliciano T. Tenório, supervisor; Francisco Gadelha and Francisco Braga, foremen; and 10 other employees. Finally, the aerial support group was composed of Adão Coelho de Barros, autonomous pilot; and José M. de Aguiar, Carlos A. A. Ratto and Leno A. Compasso, helicopter pilots (working for Helitec).

5.2 Vale becomes the global iron ore leader

In the late 1960s,6 Companhia Vale do Rio Doce’s commercial prospects were excellent. In 1968, the company signed its first long- and medium-term contracts to supply iron ore to Usinor, a French state-owned steel company (for 10 years), and Italian steelmakers (for three years). Also in 1968, CVRD signed its third contract with seven steel companies in Japan, involving the supply of 2.8 million metric tons of iron per year, for eight years starting in 1971 – a decisive step in strengthening its presence in the Japanese market. This deal shocked the Australian iron producers, who thought their position in Japan was assured, given their geographical proximity.

Benefiting from the global steelmaking boom that began in 1969, CVRD exported 21.8 million metric tons of ore in 1970 (an increase of nearly 100% in relation to 1968), bringing in around US$160 million of revenue to the country. Japan bought practically one-third of this total – which included, for the first time, 750,000 metric tons of pellets. As of 1969, Japan had overtaken West Germany to become CVRD’s biggest customer.

By the end of 1970, the company’s long-term sales commitments amounted to 324 million metric tons of run-of-mine ore and pellets, destined for customers in various countries. In the same year, Vale renewed its agreements, made in 1962 and 1964 with Samitri and Ferteco, respectively, involving the use of its railroad and port facilities to transport iron ore produced by these two foreign companies in the Iron Quadrangle region.

However, the seesaw of global steel production continued with its ups and downs. The boom of 1969-1970 was followed by a slowdown for two years. Even so, in 1972 the company exported 26.1 million metric tons of iron ore and pellets. The following year, as the steel industry heated up once more, the company’s sales

6 - This section of text is based on Fernandes, Francisco do Rego (org.), Os maiores mineradores do Brasil: perfil empresarial do setor mineral brasileiro, vol. 1, pp. 3-7, 32-33, 60-62 and 93-96: Board of Directors’ Reports, 1968-1978, and Kury, Mário da Gama, A Companhia Vale do Rio Doce: 40 anos, op. cit., pp. 70-96.

Ship being loaded with ore at Tubarão Maritime

Terminal in Espírito Santo.

Previous page, left to right: camp on Buritirama, an island in the Itacaiunas River in Pará, in 1967.

Aerial view of Marabá, Pará, on July 25, 1967.

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in the international market skyrocketed, reaching a total of 37.5 million metric tons. Continuing with its policy of entering new markets, CVRD began supplying iron ore to China, Scotland and East Germany, and reestablished sales to Romania and Yugoslavia. In 1973, the company’s long-term commitments to supply iron ore amounted to 402 million metric tons, reserved for customers in West Germany, Argentina, Austria, Spain, the USA, France, The Netherlands, England, Italy, Japan, Poland and Turkey.

At the end of 1974, despite the first signs of a new downturn in global steelmaking arising from the oil crisis of the previous year,7 CVRD celebrated a new record for exports: 46.2 million metric tons of iron ore and pellets – equivalent to 81% of Brazil’s mineral exports and 5.5% of the country’s total exports.

A new factor in this period was an upturn in sales to the United States, which rose by 88% between 1973 and 1974. This was because the American government had suspended operations at the Reserve Mining Company’s pelletizing complex due to its pollution record. In 1974, CVRD signed long-term contracts with customers in the USA, Romania, Poland and East Germany, involving around 70 million metric tons of ore.

Despite adverse conditions on the international market, aggravated by a deepening crisis in the steel industry, CVRD ended 1975 with very positive results. Modest growth in its physical volume of exports (up 3.5% from the previous year) was outweighed by a 36% rise in their value, due to an increase in the ore price (from US$9.74 to US$12.92 per metric ton). The company was now the world’s biggest exporter of iron ore, accounting for 16% of seaborne trade in the product.8

7 - The crisis in the steel industry was not a mere reflection of the global economic recession. Excess capacity, cost pressures and protectionism were other factors that contributed decisively to the weak performance of steelmaking powers and the geographical displacement of steel production to emerging countries, including Brazil itself, as well as Argentina, Mexico, Iran, Iraq, South Korea and the Philippines. See the Board of Directors’ Report, 1977, n.p.

8 - In 1975, Brazil, Australia, Sweden and Canada, together, were responsible for 64% of the seaborne trade in iron ore.

A summary of CVRD’s performance in the first half of the 1970s makes clear how important this period was to the company’s history. Between 1970 and 1975, the volume of ore it exported rose by 116%, and the average price per metric ton increased by 77%,9 resulting in growth in export revenue of around 285%, from US$160 million to US$615 million. The start of the 1970s saw advances in the international division of labor, a process in which developed countries invested heavily in emerging countries such as Brazil in sectors that directly or indirectly made intensive use of natural resources. This included the development of projects with intensive power consumption, especially in sectors with major environmental impacts, such as mining and pulp.

“Go ahead, Brazil!”In 1976, CVRD’s export volumes stayed at practically the same level as in 1975. However, thanks to a further rise in the average price of ore, which reached US$15.15 per metric ton, the company received export revenues of around US$717 million. CVRD was now the biggest contributor to Brazil’s trade balance. To maintain this position, though, government intervention was increasingly necessary.

General Ernesto Geisel became president of Brazil in March 1974, succeeding General Emílio Garrastazu Médici, who was known for his overall control of spending and political intolerance. Geisel’s government, which lasted until 1979, was marked by the start of the “political opening” process in the country. In the economic field, the president invested in infrastructure, signing a controversial nuclear agreement with Germany and allocating large sums of money to build the Itaipu hydroelectric power project. During his administration – and in particular, together with the Minister of Mines and Energy, Shigeaki Ueki – mining was treated as a matter of state. This would be perceived in the outcome of the legal deadlock between CVRD and US Steel concerning the Carajás Iron Project in 1976, and in the approach to foreign trade in iron ore.

President Geisel’s visit to Japan in mid-1976 reanimated CVRD’s commercial prospects. The company’s second and third long-term sales contracts with Japanese steel mills, due to expire in 1978, were renewed, involving the supply of 5.7 million metric tons per year of iron ore for 15 years. In addition to these deals, a fifth contract was signed, involving annual sales of 6.5 million metric tons of iron ore and 6 million metric tons of pellets for 15 years.

9 - In 1970, the average price for one metric ton of iron ore was US$7.30, rising to US$8.08 in 1973, US$9.74 in 1974 and US$12.92 in 1975. See Abranches, Sérgio and Dain, Sulamis, A empresa estatal no Brasil, 1978, p. 71.

If the future seemed guaranteed – thanks to the long-term contracts with Japanese steel companies – the present was not yet assured. In 1977, for the first time since 1948 (at the height of the post-war crisis), Vale’s performance went into reverse. Its exports fell by 14% in relation to the previous year, from 47.3 to 39.8 million metric tons. On top of lower volumes and export revenues, and despite the fact that the average iron ore price reached US$15.51 per metric ton, rising operating costs and a stronger cruzeiro contributed to a significant fall in the company’s profits. The combination of an appreciation in Brazil’s currency and a falling average iron ore price would subsequently be experienced at various moments, with adverse effects for the company’s financial status.

Faced with the steel industry crisis in the main capitalist economies, CVRD sought new customers in developing countries that were seeing some growth in their steel production. In 1977, the company signed its first long-term contracts with mills in Iraq, Qatar, South Korea, Indonesia and the Philippines. At the end of the year, its supply contracts involved future commitments for 609 million metric tons – more than half represented by the Asian market (316 million metric tons), and the rest accounted for by Western Europe (200 million metric tons), Eastern Europe (55.5 million metric tons) and the Americas (38.2 million metric tons). It was now selling to 63 customers in 26 countries.

In 1978, there was a slight recovery in CVRD’s sales on the international market (to 41.9 million metric tons). New contracts were signed with China (to supply 250,000 metric tons on a trial basis, followed by 4 million metric tons between 1979 and 1980),10 Poland, Argentina (sale of pellets for five years), Czechoslovakia, Portugal (a five-year extension of an iron ore sales contract) and France (an extension of CVRD’s contract with Usinor, again, for five years).

Also during 1978, Japan, despite 30% of its steelmaking capacity being idle, resumed its customary pace of purchases from CVRD. A new feature was the inclusion of a “flexibility clause” in contracts, giving Japanese steel companies more freedom to change their volume of imports beyond the existing margin of 10%.

10 - Given the limited capacity of China’s ports, CVRD made an agreement with Kawasaki Steel to permit Brazilian ore transported on Docenave’s large ships to be unloaded at its port facilities on the island of Mindanao, in the Philippines, where the Chinese could transfer it onto their small ships. In exchange, Petrobras imported Chinese oil.

Raymundo Mascarenhas Raymundo Mascarenhas (Prado, Bahia, 1928 – Linhares,

Espírito Santo, 1987)1 joined the company in 1957, and 12 years later became its president – the second in-house employee to occupy this position. During his career, he led Docenave and was the general superintendent of sales. His experience in the latter function became the hallmark of his administration, when the company’s exports rose from 11.550 million metric tons in 1968, to 16.056 million metric tons in 1974.2 This increase in sales was also linked to the development of a new export product for CVRD: pig iron produced in Minas Gerais.

In 1974, the last year of his first term, he founded Celulose Nipo-Brasileira (Cenibra) in partnership with Japanese investors. In the same year, Vale became the world’s biggest iron ore exporter.

After leaving CVRD’s presidency, Mascarenhas – a qualified engineer who graduated from the Polytechnic School of Bahia – was appointed to run Companhia Bozano, Simonsen Comércio e Indústria, where he remained until 1983. The following year, he returned to CVRD as its commercial director. In May 1985, he was appointed Eliezer Batista’s vice-president and, in April of the following year, he served once again as the company’s president.

1 - About this subject, see “Mascarenhas, Raimundo,” DHBB, vol. 3, pp. 3,625-3,626 and “Conheça todos os presidentes da história da Vale” (Learn about all the presidents in Vale’s history), Exame magazine, April 5, 2011.

2 - See Table 1.

CVRD president Raymundo Pereira Mascarenhas (on the right) and

Eximbank executives during a signing ceremony for loans to the company,

in the United States in 1970.

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TABLE 1CVRD’S EXPORTS OF IRON ORE AND PELLETS BY CONSUMING COUNTRY, IN MILLION METRIC TONS (1968-1974)*

COUNTRY 1968 1969 1970 1971 1972 1973 1974

West Germany 3,217,958 4,200,317 4,397,090 5,051,822 4,944,124 6,189,613 6,314,645

% 27.9 26.2 20.2 20.0 18.8 16.5 13.7

East Germany - - - 57,071 103,571 304,492 284,742

% - - - 0.2 0.3 0.8 0.6

Argentina 64,329 136,293 367,676 533,313 486,499 765,774 800,773

% 0.5 0.8 1.7 2.1 1.9 2.0 1.7

Austria 1,018,537 1,386,246 1,527,132 1,634,597 1,194,570 1,196,130 1,780,667

% 8.8 8.6 7.0 6.5 4.6 3.2 3.9

Belgium 272,315 361,941 459,189 354,825 520,480 429,897 616,091

% 2.4 2.3 2.1 1.4 2.0 1.1 1.3

Canada - 2,032 - 27,723 - 374,456 448,112

% - - - 0.1 - 1.0 1.0

China - - - - - 46,745 53,672

% - - - - - 0.1 0.1

Spain 82,211 185,049 1,092,247 1,121,550 1,209,244 1,296,746 1,448,202

% 0.7 1.2 5.0 4.4 4.6 3.2 3.1

Scotland - - - - - - 31,566

% - - - - - - 0.1

United States 481,067 742,672 1,313,775 1,022,850 815,731 3,093,395 5,828,709

% 4.2 4.6 6.0 4.0 3.1 8.3 12.6

France 1,098,305 1,318,957 1,639,088 1,905,371 2,373,849 2,706,693 4,086,884

% 9.5 8.2 7.5 7.5 9.1 7.2 8.9

Netherlands 668,736 513,441 295,833 572,786 1,015,363 1,774,552 1,352,709

% 5.8 3.2 1.4 2.3 3.9 4.7 2.9

England 541,448 1,072,526 1,580,285 1,467,570 1,762,040 1,948,210 2,423,636

% 4.7 6.7 7.2 5.8 6.7 5.2 5.2

Italy 1,299,409 1,197,794 1,150,327 1,558,063 1,860,047 2,149,110 2,723,652

% 11.3 7.5 5.3 6.2 7.1 5.8 5.9

Yugoslavia - - - - - 233,236 339,824

% - - - - - 0.6 0.7

Japan 2,487,386 4,417,190 7,140,081 9,036,758 9,191,163 13,779,881 16,000,116

% 21.5 27.5 32.7 35.7 35.1 36.8 34.6

Luxembourg 2,032 153,952 191,758 290,952 39,488 135,394 244,671

% - 1.0 0.9 1.2 0.2 0.4 0.5

Mexico 79,484 154,749 56,142 - - - -

% 0.7 1.0 0.3 - - - -

Poland 73,182 134,601 318,749 269,958 201,049 442,672 507,493

% 0.6 0.8 1.5 1.1 0.8 1.2 1.1

Portugal 45,835 - - - - - -

% 0.4 - - - - - -

Romania - - 98,726 - - 101,104 214,062

% - - 0.4 - - 0.3 0.5

Czechoslovakia 117,945 78,777 145,448 141,481 173,750 323,133 535,542

% 1.0 0.4 0.7 0.5 0.7 0.8 1.2

Turkey - - 26,482 248,525 287,487 262,482 178,203

% - - 0.1 1.0 1.1 0.7 0.4

TOTAL 11,550,179 16,056,537 21,800,028 25,295,215 26,178,455 37,513,272 46,213,971

% 100 100 100 100 100 100 100

* Approximate values. Sources: Board of Directors’ Reports, 1968-1974.

TABLE 2CVRD’S EXPORTS OF IRON ORE AND PELLETS BY CONSUMING GEOGRAPHICAL AREA, IN MILLION METRIC TONS (1975-1978)

AREA 1975 1976 1977 1978

Asia 18.3 18.3 17.3 15.6

Western Europe 19.6 20.4 16.2 17.9

Eastern Europe 1.8 3.7 3.7 4.2

Americas 7.6 4.9 2.6 4.2

TOTAL 47.3 47.3 39.8 41.9

Sources: Board of Directors’ Reports, 1975-1978.

Table 1 shows the movements in CVRD’s sales of iron ore and pellets on the global market between 1968 and 1974, broken down by consuming country, including the quantity purchased annually by each one and its share of total sales. It was necessary to produce a separate table (Table 2) for the years 1975 to 1978 in order to

reflect a change in the criteria used in the company’s reports, which meant that data from different countries were grouped into major markets (Asia, Western Europe, Eastern Europe and the Americas). In addition, the figures are more approximate for this latter period.


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Vale’s excellent commercial performance on foreign markets between 1968 and 1978 can be attributed to the company’s efforts to adapt its maritime transport infrastructure to its ever more ambitious export targets

Aerial view of Tubarão Maritime Terminal

in Espírito Santo.

Besides exporting its own production, CVRD, through the Vitória-Minas Railroad (EFVM) and its port facilities, also transported the output of Ferteco and Samitri, as described in Chapter 4. The expansion provided through contracts signed almost a decade earlier with these two companies generated good results. The figures available for the years 1974 to 1978, encompassing the exports of both companies, amounted to 33.1 million metric tons. The markets served by Samitri were Western Europe (France, Belgium, West Germany and Luxembourg) and North America (the United States and Canada). Ferteco’s ore was largely sold to West Germany. In 1977, CVRD also began exporting pellets produced by its affiliates, shipping around 500,000 metric tons of the products. The following year, this figure rose to 1.9 million metric tons.

CVRD’s average share of Brazil’s total sales of iron ore and pellets between 1968 and 1978 was slightly higher than in the 1961-1967 period, rising from 73.5% to 74.9%. It was not just Vale – by far – that recorded enormous growth in its export volumes. The three largest foreign iron miners operating in Brazil – MBR, Samitri and Ferteco – also experienced extraordinary growth in their foreign sales, due to the growing specialization of production between developed and emerging countries. MBR accounted for approximately 12% of Brazil’s iron exports during this period, while Samitri and Ferteco each represented slightly over 5%.

CVRD’s fleet of ships and international tradeCVRD’s excellent commercial performance on foreign markets between 1968 and 1978, especially in the early 1970s, may largely be attributed to the company’s efforts to adapt its maritime transport infrastructure to its ever more ambitious export targets.

In order to consider investing in the building of Docenave, CVRD’s shipping subsidiary, its own fleet was fundamental. The lack of efficient, coordinated logistics systems resulted in higher operating costs, reducing the competitiveness of companies. Investment was made in global supply chains’ logistics systems to

improve geostrategic positioning, overcoming the peripheral effect of domestic logistics. In these systems, leadership was awarded to the countries that had structures for planning, regulating and investing to ensure a strategic network of logistics infrastructure, based on production centers that continuously added value for consumer markets.

Aware of this competitive strategy, in 1970 Docenave received its first new ships, with total transportation capacity of 570,000 deadweight tonnage (DWT). This fleet, composed of ore-oil carriers, was expanded in the following years, reaching a total of 15 ships in 1976, with total transportation capacity of 1.261 million DWT. This included Docecanyon, an ore-oil carrier of 269,500 DWT, delivered by Japanese shipyard Nippon Kokkan in 1973.

Another important measure was the renewal, in 1968, of a contract with Petrobras by which Docenave committed to transporting large quantities of oil from the Middle East, using its ships returning from Japan, ensuring attractive freight costs in both directions. Likewise, Docenave entered into an agreement with Usiminas to transport the metallurgical coal imported by the steel company. The practice of freight sharing (combining the transportation of different types of cargo, in accordance with the itinerary) would be further intensified in the coming years. The company was improving its competitiveness while helping to develop Brazil’s industrial system.

The sales structure that CVRD established abroad had three main components: Itabira Eisenerz, a subsidiary succeeded by Rio Doce Europa (RDE), founded in January 1974 and headquartered in Brussels, responsible for selling the company’s products in Europe, as well as importing equipment and materials from there; Itabira International Corporation (Itaco); and Rio Doce America (RDA), a wholly owned subsidiary of Itaco, headquartered in New York, tasked with selling iron ore and pellets in the USA, Canada, Mexico, and Trinidad and Tobago. CVRD’s negotiations with Japan continued to take place directly between the company and Japanese trading companies.

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As it expanded its exports, Vale also significantly increased its sales in Brazil. Its share of the domestic iron ore market rose from 18.3% in 1976 to 34.4% in 1978. Among the various deals made during this period, it is worth emphasizing contracts signed in 1973 for the long-term supply of a special type of pellet to Usina Siderúrgica da Bahia (Usiba) and Aços Finos Piratini (in Rio Grande do Sul), companies that were pioneering direct-reduction steel production in Brazil.11 CVRD’s steady expansion of sales in the country – largely to Usiminas, its biggest customer, but also to Cosipa, CSN, Usiba and other smaller steel mills – justified the establishment, in 1973, of Navegação Rio Doce Ltda., a Docenave subsidiary dedicated exclusively to coastal shipping12 rather than long-distance shipping.

Table 3 presents information on the company’s sales volumes in Brazil between 1968 and 1978, showing the quantity purchased by each main customer and its share of total sales, sources permitting.

11 - This process involves the production of sponge iron for immediate use in steel production. To this end, small modules are used (each weighing an average of 400,000 metric tons), composed of pellets (60%) and lump ore (30%). When conducted on a small scale, the direct-reduction process has a number of advantages over the use of blast furnaces.

12 - Coastal shipping is also known as “cabotage,” a word named after Sebastián Caboto, a Venetian sailor who explored the coast of North America in the 16th century in the service of the Spanish Crown.

TABLE 3CVRD’S DOMESTIC MARKET SALES, IN METRIC TONS (1968-1978)

YEAR SALES CUSTOMER

1968 877,366 -

1969 1,021,674 Usiminas – 1,011,884; others (Itabira Agro-Industrial and Fertimetal) – 9,790

1970 1,163,102 Usiminas – 1,146,672; others (Itabira Agro-Industrial, Fertimetal, Ferroval, and Cobrac) – 16,430

1971 1,317,122 Usiminas – 1,305,088; others – 12,034

1972 1,876,477 Usiminas – 1,540,364; Cosipa – 76,214; CSN – 251,209; others (Usiba, Aços Finos Piratini, etc.) – 8,690

1973 2,117,225 Usiminas – 1,628,899; Cosigua – 112,306; Usiba – 19,467; CSN – 255,427; others – 101,126

1974 2,244,008 Usiminas – 1,382,149; Cosipa – 263,463; Usiba – 239,757; CSN – 106,670; others – 251,969

1975 2.8 million -

1976 3.2 million -

1977 5.9 million -

1978 9.5 million* Usiminas, Cosipa, CSN, Usiba, Aços Finos Piratini, and Cimetal

* Including sales of concentrate to the company’s pellet-producing affiliates. Sources: Board of Directors’ Reports, 1968-1978.

Fernando Roquete ReisAs soon as General Ernesto Geisel became President

of the Republic in 1974, Fernando Roquete Reis (Belo Horizonte, Minas Gerais, 1932 – Rio de Janeiro, 1983)1 was appointed president of Vale. Mining in Brazil was going through strategic changes, with a focus on diversification and foreign trade, and Reis, who had a solid background in economic policy (having served as director of Brazil’s Central Bank, finance minister of Minas Gerais State Government, and organizer of the postgraduate Economics course at UFMG, among other positions), seemed the right man to run the company in its new phase. It was within Brazil’s frontiers, namely in the Carajás Mountains, that Reis would prove that Geisel’s choice had been wise. Reis led the entire legal dispute involving Vale and United States Steel (partners in Amazônia Mineração S.A.) for control of the exploitation of the world’s biggest iron ore reserve.

1 - About this subject, see “Reis, Fernando Antônio Roquete,” DHBB, vol. 5, pp. 4,954-4,955.

Left: CVRD president Fernando Roquete Reis giving a speech,

observed by the President of the Republic, Ernesto Geisel. Opposite

page, left to right: a pile of iron ore at Tubarão Maritime Terminal

in Vitória, Espírito Santo, in the 1970s. Japanese and Brazilian

flags on display in Japan indicate Ernesto Geisel’s visit to the country

from September 15 to 21, 1976.

150 151


This project was completed in 1977.15 Meanwhile, considerable sums were also invested in expanding the Port of Tubarão.16 Work at the port, executed between 1970 and 1974, included dredging the access channel and ship-turning basin; building a new pier with a water depth of 24 meters, capable of receiving bulk carriers of more than 250,000 DWT, where two ship loaders would be installed; and creating a goods yard around 500,000 m2 in area and a new fines stockyard, built on land reclaimed from the sea using dredged material, and sheltered by a breakwater.

By the end of the decade, the Port of Tubarão, now consisting of two piers and a dry dock for maneuvers, and protected by a breakwater, had an annual loading capacity of 75 million metric tons. The port’s loading and unloading operations, totally mechanized, basically consisted of removing ore from train cars using four car dumpers, and then taking it by conveyor belt to its scheduled destination – the holds of ships or one of the two stockyards.

The stockyards, equipped with three stackers, were capable of storing 5.6 million metric tons of 10 different kinds of products. When the time came to ship out the ore, the company used bucket wheels to remove it from the piles and place it onto conveyor belts leading to the piers. While the ore was being transferred onto vessels, small samples of the product were constantly taken to be examined at sampling stations located next to the terminal, providing information on the cargo’s grain size and chemical composition, to ensure that purchasers’ specifications were met. To make any necessary corrections, alongside the quay CVRD installed a screening plant capable of processing 12,000 metric tons of ore per hour.

15 - This year, after installing an automatic control and signaling system on both tracks, and based on an agreement with the Federal Railroad Network (RFFSA) and Usiminas, CVRD began constructing a transshipment yard near Miguel Burnier Station, in order to interconnect the EFVM (metric gauge) with the RFFSA’s Central Line (broad gauge). This facility, completed in 1978, cut 180 kilometers off journeys between steel producers in the region served by the EFVM and centers of consumption. Given that this route used to be served by trucks, this interconnection also resulted in significant fuel savings.

16 - Regarding the expansion of CVRD’s port facilities, see Fernandes, Francisco do Rego (org.), op. cit., vol. 1, pp. 91-93, and Board of Directors’ Reports, 1969-1978.

5.3 Expansion of the mine-railroad-port complex

Rising exports and new production targets demanded constant improvements in CVRD’s mine-railroad-port complex, the structure around which the company revolved. A large share of investment was focused on expanding the transportation capacity of the EFVM,13 which had practically reached saturation point, especially after the incorporation in 1969 of a further 168 kilometers of track by the Desembargador Drumond branch line, extending it from Costa Lacerda to Fábrica in Minas Gerais, and establishing a link with the Central do Brasil Railroad.

The extension of this branch line significantly increased train movement on the railroad. Besides serving CVRD, Samitri and Ferteco, the EFVM also transported imported metallurgical coal for Usiminas, Acesita, Belgo-Mineira and other steel companies in the Iron Quadrangle region.

With its new branch line, the EFVM started to function as an export corridor for the output of small steel mills and pig iron manufacturers located in the west of Minas Gerais. Before long, steel products were in third place – behind iron ore and coke – in the list of items transported by the railroad, which also included timber, charcoal and grains, as well as passengers.14

Things were also changing at the other end of the railroad tracks, at the port. In the late 1970s, the company began implementing a centralized, integrated communications and traffic control system, in order to optimize traffic capacity along the railroad with maximum safety. Locomotive movements would be controlled from a single dispatch center. The project also involved implementing an automatic train car identification system and acquiring two automatic scales to weigh moving trains.

To definitively resolve the EFVM’s overloading problem, in 1971 work began on double-tracking 548 kilometers of the main line.

13 - Regarding EFVM’s investments, see Board of Directors Reports, 1968-1978, and Fernandes, Francisco do Rego (org.), op. cit., vol. 1, pp. 89-91.

14 - In 1978, the railroad carried (for CVRD and third parties) 48.7 million metric tons of iron ore for export, 8.9 million metric tons of iron ore for the domestic market, 1.6 million metric tons of coal, 1.3 million metric tons of steel, 926,000 metric tons of pig iron, 497,000 metric tons of limestone, 353,000 metric tons of oil products, 326,000 metric tons of timber, 178,000 metric tons of charcoal, and 76,000 metric tons of manganese, among other freight, and 2.2 million passengers. See Fernandes, Francisco do Rego (org.), op. cit., vol. 1, p. 91.

151

Locomotive on the Vitória-Minas Railroad (EFVM).


Aerial view of expansion work at Tubarão Maritime Terminal in Espírito Santo, between 1971 and 1972. Opposite page: the iron ore stockyard at Tubarão.

154 155


The ship Docecanyon at Tubarão Maritime Terminal in Espírito Santo.


157

5.4 Cauê: the biggest mine in the West in the 1970s

Back at the other end of the complex – the mines – production also demanded new technologies, in particular to make use of low-grade ores. In 1969, the company began constructing a plant to recover itabirite deposits from Cauê Mine, which had until then remained unexploited due to their lower levels of iron content. The new Cauê Plant was designed to produce 9 million metric tons per year of sinter feed and pellet feed (high-grade concentrates) through the electromagnetic concentration of ore fractions smaller than 1 mm across. At the same time, in order to make full use of extracted ores, the company began work on installing a facility next to the mine to crush, screen and classify hematite fines, which would also be fed with granular fractions of itabirite.

Cauê Mine has been in operation ever since CVRD was established in 1942 – and sampling work was carried out even earlier, in the 1920s, at the instigation of Percival Farquhar. Cauê’s mining plan, the top priority during the company’s early years, was explained in detail by CVRD’s first president, Israel Pinheiro, in a speech given at the Engineering Club in August 1943: “The facilities designed to extract, crush and transport ore, and then load it onto the Vitória-Minas’ railroad cars, will be modern and perfect. The initial workings will be at an altitude of 1,200 meters, 170 meters below the top of Cauê Peak. The first extraction will take place at this level, producing an estimated 80 million metric tons from the deposit between 1,200 and 1,370 meters of altitude. At the 1,200-meter level, a platform will be made sufficiently large to install initial equipment and a truck-turning area. This platform will be the starting point for a road to go around the peak, enabling excavation to take place by means of tunnels or directly at the pit faces established [...] In the zone where galleries have been made, calculations indicate a quantity of 173 million metric tons of exportable ore of compact hematite with metallic iron content ranging between 68% and 70%.”17

Between 1942 and 1949, the company would remove approximately one million metric tons of compact hematite from

17 - See “O Brasil e seu minério de ferro.” O Observador Econômico e Financeiro, no. 117, October 1945, pp. 50 and 64.

the mine.18 During the following decades, the Itabira region would continue to be CVRD’s main source of high-grade iron ore. However, as waste products accumulated, high-grade ore began to be used up, and the company was left with deposits of lower-grade itabirite, it was clear that the company would have to dig deeper at Cauê.

New facilities at Cauê Mine were opened in 1973, and in the same year, CVRD began selling its output of concentrates (3.7 million metric tons), most of which was exported. Cauê Mine – something of a symbol of CVRD’s development – then became the biggest mine in the West.

The year 1973 was also marked by the implementation of the Conceição Project, to make full use of the iron ore deposits of the mines of Conceição and Dois Córregos. The project involved the construction of new mechanized facilities for processing ore at both mines and a single tertiary crushing and screening unit next to Conceição Mine, together with a dry and wet classification plant for hematite fines, and a concentration plant for itabirite fines, both adjacent to the mine. In all, around US$240 million was invested in Conceição Complex, which was opened at the start of 1979. It was capable of processing 28 million metric tons per year of itabirite and hematite, generating 24.2 million metric tons per year of products such as blue dust, pellet feed, sinter feed and lump ore.

It was known that performance could be greatly improved by making use of ultrafines (until then considered a waste product) through pelletizing. Consequently, the company decided to build two industrial pellet plants next to the Port of Tubarão.

CVRD’s first pelletizing plant, which had a nominal production capacity of 2 million metric tons of pellets per year, was opened in 1969. The same year, in light of research pointing to growth in global demand for pellets, due to their superior performance in blast furnaces and the spread of new direct-reduction steelmaking processes, Vale began building its second unit, designed to produce 3 million metric tons per year, which it opened in 1973.

Exhaustion of mineral depositsAll these initiatives to optimize the production of the Itabira mines faced a serious limitation: if the pace of extraction were to be maintained, the mines’ high-grade ore deposits would be completely exhausted by the end of the century. It was vital for CVRD to find new sources of minerals at once.

Over the course of the decade, this concern led CVRD to intensify its purchases of ore from small producers in the Itabira region19 and to seek to expand its mining rights both inside and outside

18 - See Pimenta, Dermeval. Exportação de minério de ferro pelo Vale do Rio Doce. University of São Paulo Polytechnic School. Geology and Metallurgy. Newsletter no. 7. Published by Centro Moraes Rego, October 1949, p. 66.

19 - For figures on CVRD’s ore acquisitions year by year, see the Board of Directors’ Reports, 1968-1978.

the Iron Quadrangle region of Minas Gerais – either by applying for new concessions from the National Mineral Production Department (DNPM), or by incorporating third parties’ reserves. In 1970, CVRD acquired 520,000 metric tons of ore from small miners in Itabira, a volume that rose progressively until reaching 6.9 million metric tons in 1975, equivalent to 13.2% of its own production.

This policy resulted in the implementation of three projects in Minas Gerais: the Guanhães Project, which involved iron prospecting in the Itamarandiba region; the Porteirinha Project, to assess and possibly exploit reserves located in the Rio Pardo region in the north of the state; and the Piçarrão Project, to operate a mine in the municipality of Nova Era acquired by the company in 1967. Piçarrão Mine had estimated reserves of 20 million metric tons of extractable ore. The Piçarrão Project included building a plant to make sinter feed and laying a 17-kilometer railroad branch line to connect the mine to EFVM’s station in Desembargador Drumond.20

The company expanded its frontiers in 1976 through three acquisitions in Minas Gerais. Firstly, it bought a 99% stake in Caraça Ferro e Aço S.A., a company that owned Caraça Mine in the Santa Bárbara region of the state, with estimated reserves of 42 million metric tons. Secondly, it purchased a 51% interest in Minas d’El Rey Dom Pedro, which held the rights to mine iron and gold reserves in Mariana. The other shareholders in this company were Gold Fields of South Africa (30%) and a private Brazilian group called Hugo Gouthier (19%). Thirdly, CVRD acquired mining rights to the São Luís, Tamanduá and Almas deposits, located near Fazendão, where the EFVM had a railroad yard.

Caraça Mine began operating in 1976, producing 1.2 million metric tons by the end of the year. The mine’s output rose to 1.5 million metric tons in 1977, and increased further to 2 million metric tons in 1978. Minas d’El Rey started up in 1977, and produced 800,000 metric tons in its first year. Given the lack of a railroad link between the mine and CVRD’s network, its output was transported by road to the Port of Rio de Janeiro. However, at the end of the decade, given constantly rising freight costs (accounting for 70% of export prices in 1977), CVRD decided to suspend the company’s activities, which were considered uneconomic, maintaining its deposits as strategic reserves.

In August 1974, after 13 years of negotiations between CVRD and Aços Especiais de Itabira (Acesita), the two companies established a joint venture (51% owned by CVRD), Itavale Ltda., to facilitate the exploitation of Acesita’s Periquito and Chacrinha deposits in the Itabira region of Minas Gerais. The shareholders’ agreement established that CVRD would immediately begin operating Periquito Mine through a lease, and would also be responsible for selling the ore produced. This contract was valid for three years,

20 - Regarding CVRD’s new iron ore projects, see Fernandes, Francisco do Rego (org.), op. cit., vol. 1, pp. 64-73.

Above: a handful of pellets. Below: Piçarrão Mine in

Nova Era, Minas Gerais, in September 1978.

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(IDB). Brazilian funding agencies that lent to the company during this period included the National Economic Development Bank (BNDE),22 Banco do Brasil, and the Minas Gerais Development Bank.

TABLE 4CVRD’S IRON ORE PRODUCTION AND ITS SHARE OF BRAZILIAN IRON ORE OUTPUT(MILLION METRIC TONS)

YEAR CVRD'S PRODUCTION

BRAZILIAN PRODUCTION

CVRD/BRAZIL %

1968 11.830 25.123 47.1

1969* 14.875 27.157 54.8

1970* 20.654 36.381 56.8

1971* 19.749 37.486 52.7

1972* 25.043 46.471 53.8

1973* 30.304 55.020 55.1

1974* 42.675 91.488 46.6

1975 52.227 108.162 48.3

1976 49.883 107.395 46.4

1977 42.796 100.817 42.5

1978 45.000 103.896 43.3

* From 1969 to 1974, CVRD’s export volume exceeded its production level. This is

explained by its increasing use of stocks of fines accumulated by the company. Sources:

Fernandes, Francisco Rego (org.), op. cit., vol. 1, p. 176; AEB 1978, p. 418.

22 - The BNDE was established in 1952 to promote the government’s national economic development policy. In the early 1980s, the bank incorporated the management of a new tax associated with social issues. As a result, in 1982 the bank’s name was changed to the National Economic and Social Development Bank (Banco Nacional de Desenvolvimento Econômico e Social, or BNDES). See BNDES – História, available at <http://www.bndes.gov.br/SiteBNDES/bndes/bndes_pt/Institucional/O_BNDES/A_Empresa/historia.html>.

and it could be renewed if more time were required for Itavale to complete studies of its reserves and produce a definitive plan to extract them. Mining activities at the Periquito deposit began in 1976, and in its first year the mine produced 3.6 million metric tons of iron ore, rising to 3.8 million metric tons in 1977 and 5.9 million metric tons in 1978.

A second project aimed to develop Capanema Mine, in the municipality of Ouro Preto, Minas Gerais, whose mining rights belonged to the Kawasaki Steel Corporation. To proceed with the project, a new company, Mineração Serra Geral (MSG), was set up in October 1976, through an association between CVRD (51%) and a group of Japanese companies led by Kawasaki Steel.21

In order to process the ore produced at Capanema Mine, in 1977 CVRD began another initiative, called the Timbopeba Project. As well as processing ore from Capanema, this project also involved mining and processing ore from the neighboring deposit of Timbopeba, also in Ouro Preto. Acquired by the company in 1967, the Timbopeba reserves contained an estimated 110 million metric tons of hematite and 50 million metric tons of itabirite.

CVRD’s traditional mines of Cauê, Conceição and Dois Córregos, together with the new mining operations developed elsewhere in Minas Gerais, produced rapid growth in output in the 1970s. The company’s set of mining operations in the Iron Quadrangle produced 390 million metric tons of ore over the course of the decade, giving rise to various types of products. Output of pellet feed and sinter feed grew significantly during this period, and by 1977, these items accounted for 13.8% and 36%, respectively, of CVRD’s total production. However, there was a decline in the company’s share of Brazilian iron ore output, from 56.8% in 1970 to 48.3% in 1975 and 43.3% in 1978, as shown in Table 4.

CVRD’s investments to expand its mine-railroad-port complex were to a large extent enabled by funding and loans from various international entities, notably Eximbank, the Export Development Corporation (EDC), Chase Manhattan Bank, Chemical Bank, Commerzbank AG, Austrian group Vereinigte Oesterreichische Eisin-und Stahlwerke Ag (VOEST), Mitsubishi Bank Ltd., Nissho-Iwai Co. Ltd., Mitsui & Co. Ltd., and the Inter-American Development Bank

21 - Kawasaki Steel had a 24.5% stake in MSG, together with Mitsubishi Mining (5.62%), Nomura Trading Co. (7.16%), Kawasho Corp. (4.22%), Kawatetsu Bussan Co. (2.6%), Nissho-Iwai Co. (1.96%), C. Itoh and Co. (1.96%), and Toyo Menka Haisha (0.98%).

Employees of the “Mechanized I” unit – a system for ore crushing,

screening, conveyor belt transportation, storage and dispatch – at Cauê Mine in Itabira, Minas Gerais.

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5.5 Arriving in Carajás

It is said that during a visit to the Carajás Mountains in Pará, Zhao Ziyang,23 the prime minister of China, seeing a large outcropping of iron ore sticking out of the ground, told CVRD’s geologists: “Your ancestors must have pleased God for him to have given you so much. I am envious of you!” Ziyang, who was in Brazil from October 30 to November 4, 1985,24 was the second most senior official in the Chinese government and the person responsible for the country’s economic liberalization.

The Carajás Mountains are a set of ridges and plateaus rising to between 300 and 400 meters above the surrounding land, reaching altitudes of around 660 meters above sea level. Located between the Itacaiunas and Parauapebas rivers, tributaries of the Tocantins, the mountains are almost entirely covered with equatorial forest. In the highest region, there are a number of small lakes that, at first glance, might appear to indicate the presence of limestone, but which in this case are related to iron deposits. The region also has manganese, copper, gold, nickel and much more.

Most of the world’s metallic mineral deposits are situated in pre-Cambrian areas, belonging to the longest period in the formation of the Earth’s crust, which lasted from the solidification of the planet’s surface until 570 million years ago. The physical and chemical conditions during this period were very different from those of today, with a much thinner crust, making it easier for metals to rise up from the deepest parts of the Earth.

Pre-Cambrian zones cover around 40% of the Amazon. Their volcanic-sedimentary sequences, granite intrusions, acid and intermediate volcanic flows, alkaline-ultrabasic and basic-ultrabasic complexes, and sedimentary covers present the potential

23 - Zhao Ziyang was the prime minister of China from 1980 to 1987, and secretary-general of the Chinese Communist Party between 1987 and 1989.

24 - See Veja magazine, “Visita pioneira,” edition 896, November 6, 1985, pp. 48-53, and Jornal da Vale. “Vale negocia com China e URSS,” no. 86, November 1985, pp. 3 and 5.

for a great variety of mineral deposits. This type of formation is conductive to the presence of concentrations of iron, manganese, aluminum, copper, zinc, nickel, chromium, titanium, phosphates, gold, silver, platinum, palladium, rhodium, tin, tungsten, niobium, tantalum, zirconium, rare earth minerals, uranium and diamonds – a veritable El Dorado of the 20th century.

In Carajás – and this continues to be confirmed as time goes on – this concentration and variety of mineral deposits extends to levels never before imagined. Hence the Chinese prime minister’s remark about Brazilians having “pleased God.”25

CVRD arrived in Pará some time after geologist Breno dos Santos first knocked his hammer into the earth on top of the Carajás Mountains, revealing the region’s potential to the world. Although it had made its discovery three years previously, US Steel subsidiary Companhia Meridional de Mineração had not yet started to exploit the area’s minerals, for various reasons. The ensuing dispute for control of the iron ore reserves of Carajás between the Brazilian state-owned enterprise and the American company that discovered them constitutes an important chapter in CVRD’s history in the 1970s.

As seen earlier, the research conducted by Companhia Meridional in the Carajás Mountains, which resulted in the discovery of the region’s iron-bearing potential, had the original objective of finding new manganese reserves. Before Meridional came to the region, Union Carbide had discovered manganese deposits in 1966 in the Sereno Mountains, also in Pará. At first, Meridional demonstrated no interest in its iron discovery, given that its objective was manganese. Breno dos Santos recounts that he had to take his boss, Gene Tolbert, to see the location of the discovery in person in order for him to take it seriously. And then things changed.

Tolbert immediately put in a request to US Steel’s American headquarters to send down technicians with specialist knowledge

25 - See Santos, Breno Augusto dos. “Recursos minerais da Amazônia,” Estudos Avançados, vol. 16, no. 45, May-August, São Paulo, 2002.

of iron to assess the region’s capacity. From a hotel in Rio de Janeiro’s South Zone transformed into the company’s main office in Brazil, various applications were submitted to the DNPM for research permits to appraise the mineral deposits found in Pará. The Carajás Mountains began to be definitively mapped.

Although US Steel had the legal right of preference to conduct research of the deposits it had discovered, its intention to exploit the mineral wealth of Carajás was not viewed favorably by the Brazilian government. Based on restrictions established in the Mining Code on the number of prospecting licenses that a single company could hold, the DNPM stalled the process of granting permits for the region until mid-1969. That was when the government managed to persuade the American company to include CVRD as majority partner in a unified mineral research project covering an area of 160 million hectares. The agreement was signed in April 1970, establishing the Amazônia Mineração S.A. (AMZA) joint venture, owned by CVRD (51%) and Companhia Meridional de Mineração (49%). AMZA was tasked with implementing the Carajás Iron Project.

Later in 1970, AMZA began the geological surveying of its reserves, completed in 1972, which would reveal the existence of around 17.9 billion metric tons of ore with an average iron content of 66.1%. Given these results, the joint venture immediately initiated technical and financial feasibility studies for exploiting the deposits, to be conducted by Valuec Serviços Técnicos Ltda.,26 as well as negotiations with the DNPM to obtain the right to mine in the region.

The conclusions of these studies were presented in May 1974 and, the same year, the DNPM authorized mining operations. Budgeted at US$930 million, the Carajás Iron Project planned to extract 12 million metric tons of iron ore per year as of 1979, reaching output of 50 million metric tons per year by 1985. The main

26 - This engineering and planning services company was established as a subsidiary of Rio Doce Engenharia e Planejamento (RDEP), a company controlled by CVRD, and USS Engineers & Consultants, a US Steel subsidiary.

Left: Vale employee in front of a company poster in the Carajás Mountains of Pará

in 1974. Opposite page, left to right: visit by an official delegation from China,

attended by Zhao Ziyang and Eliezer Batista; and geologist Gene Tolbert in

Carajás, Pará, on September 17, 1967.

162 163


Aerial view of Carajás Mine, Pará, on January 14, 1985.

164 165


destinations for the ore would be the North American, European and Japanese markets. To transport the ore from the mine to the coast, an 892-kilometer railroad – the Carajás Railroad – would be built, linking Marabá in Pará to Ponta da Madeira in São Marcos Bay in the municipality of Itaqui, Maranhão, near São Luís. Here, a port capable of receiving ore carriers of up to 280,000 DWT would be constructed.

The environment, nationalism and controversyCarajás Iron was no ordinary project. All stages of its development involved money, politics, the environment, human lives, nationalism – and a great deal of controversy. One of the most contentious points was AMZA’s decision to build a railroad rather than using waterways. The initial option was to make use of the Tocantins and Itacaiunas rivers. Some sectors of society argued that implementing a waterborne solution – involving the construction of a port in Espadarte, at the mouth of the Pará River, near Belém – would not only benefit communities along the rivers, but would also avoid spending on imported locomotives, tracks and metal bridges. The solution could be implemented by the Brazilian shipbuilding industry, which was fully able to deliver the undertaking. Some people even suspected that US Steel’s preference for a railroad was the result of confidential agreements with CVRD guaranteeing the American group the right to supply the equipment required to build and operate the railroad.

In fact, CVRD’s preference for the railroad solution was based not only on technical and financial considerations, but above all on strategic factors. The Port of Espadarte would only be able to receive small ships. At that moment, selecting Espadarte could make it unfeasible to sell ore to Japan, which the company then considered its priority market, thereby making the project completely dependent on the North American market.27

The discussions concerning which transportation system should link the mine to the port (waterway or railroad) also involved, among other actors, the governments of Pará and Maranhão, each one seeking to guarantee for its state the benefits arising from the project. The issue continued to be debated until 1976, when the federal government, through Decree 77,608, granted AMZA a concession to build and operate the Carajás-Itaqui Railroad.

While these controversial discussions were taking place, in the first half of 1975 the first conflicts between CVRD and US Steel began to surface. Although the Brazilian company had a majority interest in AMZA and appointed four of its directors, including the president, the shareholders’ agreement signed in 1970 gave the minority partner a veto over all strategic decisions taken by Vale.

US Steel also appointed the most important directors, including the director of engineering, which in practice gave it management

27 - See Fernandes, Francisco do Rego (org.), op. cit., vol. 1, pp. 107-108.

control of the project. Using these powers, US Steel blocked CVRD’s proposals to expand AMZA’s paid-up capital and delayed the start of construction work in Carajás, alleging that conditions on the global iron ore market were unfavorably affected by the crisis in the steel industry in the main industrialized countries.

There then began a long and fierce dispute between the partners for effective management and technical control of the joint venture. CVRD’s strategy, backed by the Brazilian government, was to exert pressure to revise key contractual clauses and bring in other foreign partners by acquiring a part of US Steel’s stake in the venture. An important step in the negotiations, conducted personally by CVRD’s president, Fernando Roquette Reis, was the approval in 1976 of a “purchase clause.” This clause established that in the case of an irremediable disagreement about an issue of vital interest to the majority partner, the latter would have the right to acquire the dissenting group’s shares for a price agreed to at the time and with a relatively flexible payment timeframe. At the same time, CVRD managed to force the dissolution of Valuec, dominated by the American group, and to obtain more control over AMZA’s engineering department, which would take on the activities of the dissolved subsidiary.

The disagreements between the two companies, aggravated by US Steel’s refusal to abide by its ore purchase commitment,28 culminated in the official exit of the American company from the venture in June 1977, after receiving compensation of US$50 million. CVRD then became AMZA’s sole shareholder.

CVRD’s role in ending the dispute was highlighted by Francisco do Rego Fernandes: “CVRD negotiated in a tough, inflexible manner. [...] Possessing basic technological knowledge of iron ore, already accounting for around 20% of the seaborne iron ore market, and aware of concrete proposals for external funding, for example from the World Bank [...], CVRD considered itself to be in a comfortable

28 - Although US Steel had made a commitment to buy up to 50% of Carajás’ output, at the time the company was negotiating to consume just 9 million metric tons per year.

position to negotiate with US Steel, which did not assure it a considerable market share, was not injecting resources into the project, and [...] was in a downward managerial and economic phase, with a deteriorating financial situation.”29

The first measure taken by the “new” AMZA, now entirely controlled by Companhia Vale do Rio Doce, was to undertake new studies to reappraise the most appropriate production scale for the project and verify the possibilities of rationalizing its costs, which had already grown from the US$930 million originally budgeted in 1973 to around US$3.5 billion. These studies resulted in a new initial production target of 20 million metric tons per year, as of 1984, rising to 35 million in 1987. The project’s costs were reassessed at US$2.4 billion. At the same time, CVRD intensified its negotiations to find new foreign investors, as well as external and internal funding for the necessary construction work.

The company’s efforts to find new partners were unsuccessful. There then followed a period of saturation in the international iron ore market, impacted by the crisis in the steel industry. Even the Brazilian government began to doubt the possibility of guaranteeing, without risks, the start-up of production in Carajás. The Minister of Mines and Energy, Shigeaki Ueki, argued that the development of the Carajás Iron Project should be delayed until economic conditions were favorable.

Despite these obstacles, CVRD insisted on the project’s economic feasibility and the need to implement it immediately, based on two arguments. Firstly, the company explained, it was impossible to meet the steel industry’s growing demand for high-grade fines (sinter feed) exclusively from production in the Iron Quadrangle, whose richest reserves were running out. The use of lower-grade

29 - See Fernandes, Francisco do Rego (org.), op. cit., vol. 1, p. 110. As of November 1976, CVRD had contributed 73.9% of AMZA’s total paid-up capital, although the joint venture’s shareowner composition had not been modified. These share issues, fully subscribed by CVRD, involved a special type of share, without voting rights (“D-class” shares), a solution found by the company to enable the project to move ahead, given that the Americans refused to continue investing while negotiations were ongoing.

Joel Mendes Rennó When he was appointed CVRD’s president in 1978, Joel

Mendes Rennó (Belo Horizonte, Minas Gerais, 1938)1 was already intimately familiar with the country’s mining policy. Since 1975, he had been an advisor on strategic affairs to the Minister of Mines and Energy, Shigeaki Ueki, and was responsible for relations between the ministry and state-owned companies. Rennó’s main goal as president was to implement the Greater Carajás Project, which in fact occurred in 1979.

A qualified engineer who graduated from the Federal University of Itajubá, Rennó spent a relatively short time – a little over one year – as the president of CVRD. During his administration, he prioritized the construction of the Carajás Railroad, which would transport iron ore from Pará to the Port of São Luís. He was responsible for designing and implementing the new mine-railroad-port complex, fundamental to the development of the region and to the company’s success. Rennó left his post in 1979, when General João Figueiredo took over as President of the Republic. He later served as president of Petrobras, remaining in this position for almost seven years, between 1992 and 1999.

1 - About this subject, see “Rennó, Joel Mendes,” DHBB, vol. 5, pp. 4,964-4,965 and “Conheça todos os presidentes da história da Vale” (Learn about all the presidents in Vale’s history), Exame magazine, April 5, 2011.

By that time, it was thought that Carajás’ output, given its excellent quality, would enable the company to meet new demands and also serve markets already supplied

by the mines of the Doce River System, retaining the reserves of Minas Gerais to be allocated preferentially to

support the Brazilian steel industry

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Previous page: CVRD president Joel Mendes Rennó (seated on the left) at the signing ceremony for the Albras/Alunorte agreement in July 1978. Opposite: aerial view of Carajás Mine, Pará, amid the green Amazon Rainforest.

reserves, in turn, would require new and growing investment in processing. Therefore, high-grade iron from Carajás would be welcome on the international market.

Secondly, CVRD made an optimistic diagnosis of the market’s prospects, forecasting an upturn in sales as of 1985. By that time, it was thought that Carajás’ output, given its excellent quality, would enable the company to meet new demands and also serve markets already supplied by the mines of the Doce River System, retaining the reserves of Minas Gerais to be allocated preferentially to support the Brazilian steel industry.

Carajás Mineral ProvinceIn order to implement the Carajás Iron Project, Eliezer Batista, then president of Vale, needed the support of the World Bank (among other institutions), at the time led by Robert McNamara, former Secretary of State in John F. Kennedy’s government. Eliezer described McNamara as one of the most intelligent and fascinating people he had ever met. “No one could convince him with the sales pitch of a carpet salesman,” he said. “As a banker, he wanted a return on investment.” Eliezer personally checked every detail of the project, and four years of work was necessary before he presented it. Yet in just three meetings with the American, he got the green light. However, this was not enough to get the project off the ground.30

Information reported by both the Brazilian and foreign press, obtained by researchers and non-governmental organizations engaged in defending the rights of indigenous peoples, showed the need for the Brazilian government to work together with indigenous communities. This contributed to the World Bank – one of the

30 - ISTOÉ Dinheiro, “As 7 lições de Eliezer,” edition 350 of April 19, 2004.

main financers of the Greater Carajás Project31 – imposing certain conditions on the granting of further resources to continue the venture. Accordingly, the World Bank indirectly took on the role of supervising it, representing the interests of the other creditors, and the Bank’s support would guarantee the success of the initiative’s implementation.32 From this point on, funding for the Brazilian government would depend on government actions to ensure the sustainability of indigenous peoples.33

Occupying the region – with housing, people, commerce and basic infrastructure – was fundamental to the project’s success. The eastern portion of the Amazon was considered a region that was hard to integrate, almost impenetrable. By this time, major reserves of bauxite, manganese, cassiterite, copper, nickel and gold had already been discovered in the region, and it would be possible to harness them together by using the Carajás Iron Project’s infrastructure.

In February 1978, convinced of the importance of the venture, the Economic Development Council authorized the construction of the Carajás Railroad, which began in July, with the building of the first 82-kilometer stretch. The project was only implemented more intensively, however, as of 1979, during the government of João Figueiredo.

From that point onward, Carajás would become CVRD’s top-priority project.

31 - Besides the World Bank, with US$305 million, participants in funding the Carajás Iron Project also included the BNDE, the European Economic Community, Japan and, later, American commercial banks and the USSR. See more about the topic in Antonini, Giorgio de. “O Programa Piloto para Proteção das Florestas Tropicais do Brasil (PPG-7) e a globalização da Amazônia.” Revista Ambiente & Sociedade, vol. XIII, no. 2, pp. 299-313, July to December 2010 (available at <http://www.scielo.br/pdf/asoc/v13n2/v13n2a06.pdf>).

32 - Regarding this issue, see Marguilis, Sérgio. “O desempenho do governo brasileiro e do Banco Mundial com relação à questão ambiental do Projeto Ferro Carajás.” IPEA, August 1990. Available at: <http://www.dominiopublico.gov.br/download/texto/td_0193.pdf>.

33 - See Centro de Tecnologia Mineral (CETEM), Parauapebas (Pará): A mão de ferro do Brasil na implantação do Programa Grande Carajás.

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Finally, there was the establishment of Docegeo, which would unify CVRD’s geological research (by introducing planning and, above all, technology) and employ some of the country’s best geologists.

Interested in expanding and diversifying its investments in the mining sector, in July 1971 CVRD established Rio Doce Geologia e Mineração S.A. (Docegeo). A wholly owned subsidiary, Docegeo was tasked with exploring and harnessing mineral deposits, both in Brazil and abroad. The subsidiary’s articles of incorporation also predicted “searching for, researching and mining solid mineral and fossil fuel substances, and the distribution and sale of its products, whether raw, processed or industrialized.” The pioneering age of geological research – with men driven by instinct, rustic maps, hammers and courage – was coming to an end. The company had realized that its productivity would multiply through prior research and the use of technical apparatus capable of anticipating discoveries of mineral deposits and their economic value. Docegeo – as will be seen below – soon set the benchmark for more feasible exploration of the country’s underground resources. It would also complement the diversification plan developed by CVRD at the end of the decade.

According to its articles of incorporation, the new company would not be restricted to CVRD projects, and could also “participate in other companies directly or indirectly related to its corporate objectives, as partner or shareholder,” as well as “provide third parties with any services related to the aforementioned corporate objective.”36

In practice, the company was the pioneer in mineral prospecting in the country. Its dedication to geological investigation and the development of underground sampling and exploration technologies had a significant effect: three years after establishing this subsidiary, CVRD would become the world’s leading iron exporter, accounting for 16% of the seaborne trade in the product.

36 - Cited by Fernandes, Francisco do Rego (org.), op. cit., vol. 1, p. 219.

5.6 Docegeo: geological research and technology

Three initiatives between the 1950s and 1970s34 marked the manner in which the Brazilian government – including CVRD – demonstrated its interest in geological research in the country.

The first initiative, which occurred under Juscelino’s goverment, in 1957, was the creation of the first Geology course in Brazil at the Geology School of Porto Alegre. Until then, the work of geologists was performed by mining engineers. The teaching of Geology at universities resulted from the activities of the Campaign to Train Geologists (Campanha de Formação de Geólogos, or Cage). That same year, geology schools would also be established in São Paulo, Ouro Preto and Recife. The specific work of geologists, as seen in the adventure of the discovery of Carajás, was key to the rapid growth of the mining sector during this period.

Another important initiative was the foundation, in 1969, of the Mineral Resources Research Company (Companhia de Pesquisa de Recursos Minerais, or CPRM). Established under the administration of the Minister of Mines and Energy, Antônio Dias Leite (who had also been president of Vale), the CPRM had the main mission of intensifying the harnessing of water and mineral resources in the country. The CPRM would operate as a service provision company, performing mining-related work for third parties, carrying out its own research and, as a finance company, supplying risk capital to mining companies that requested it.35

34 - The information related to this item was taken from the following works: Fernandes, Francisco do Rego, (org.), op. cit., vol. 1, pp. 216-227; Machado, Iran. Recursos minerais: política e sociedade. São Paulo: Edgard Blücher, 1989, pp. 373-376; and Pereira, Diamantino et al. Geografia, ciência e espaço: o espaço brasileiro. São Paulo: Atual, 1993.

35 - See “CPRM lança as bases para a modificação de assistência financeira à pesquisa mineral.” Mineração Metalurgia, August 1979, p. 6, and “A Companhia de Pesquisa e Recursos Minerais (CPRM) está comemorando seu 2o aniversário,” Mineração Metalurgia, February 1972, p. 38.

Samples of ore from Carajás Mine, Pará, in the 1960s.

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Headquartered in Rio de Janeiro, Docegeo began operating in 1972 with a workforce of 73 geologists. To determine its subsidiary’s operational details, CVRD hired the services of consulting firm Terraservice, owned by American geologist Gene Tolbert, one of the people responsible for discovering Carajás. The consultancy’s first measure was to hire foreign geologists, geochemists and geophysicists in order to train the Brazilian team.

Docegeo’s initial objectives were defined in its First Three Year Plan for Geological Prospecting (1972-1975), which established the priority of working with 14 minerals, namely bauxite, beryllium, cassiterite, lead, copper, chromite, fluorite, phosphate, manganese, nickel, gold, titanium, tungsten and zinc. Vale wanted more than just global leadership in iron ore production.

Significant investment was made in the new company. In the early 1970s, Docegeo had a total of 2,000 employees. By the late 1970s, the subsidiary had 1,200 employees in Belém alone, while a project was being conducted in the Pelada Mountains of Pará. Besides geologists and scientists, the company employed professionals with expertise in aerial and waterway transportation, as well as land vehicles (jeeps, pickup trucks, and large trucks).

The geological equipment produced in Brazil – probes and drills, for example – was now obsolete. Domestic industry had not kept up with the innovations in machinery developed in countries such as Canada and Australia. Consequently, Docegeo conducted a program to bring together Brazilian companies and the BNDE, which in turn, based on this demand, created a funding program for the technological updating of Brazilian geological machinery.37

The prospecting strategy adopted was very wide-ranging, covering research into already known deposits, based on negotiations with concession-holders, surveying of new deposits near known ones, and the search for new reserves in virgin areas. The priority, however, was on projects targeting associations of different minerals.

37 - Luiz Antonio Godoy, lawyer and former director of Docegeo and the Vale Foundation, in an exclusive interview with Vale.

To facilitate its activities on a national scale, between 1971 and 1972, Docegeo formed four regional prospecting districts, determined in line with planned projects: the Amazon, covering the North region and Maranhão, headquartered in Belém; the Center-West, encompassing the states of Goiás, Mato Grosso and Piauí, headquartered in Goiânia; the Center-East, covering Minas Gerais, Espírito Santo and Rio de Janeiro, headquartered in Belo Horizonte; and the East, headquartered in Salvador, to operate in the Northeast region. Besides these districts, offices were also opened in Araxá (Minas Gerais) and Cachoeiro do Itapemirim (Espírito Santo). In 1976, a new Southeast district was formed, headquartered in São Paulo, extending the company’s activities towards the south of the country. The latter district was closed down two years later, however.

Also in 1973, in accordance with the recommendation of the first National Development Plan, the government approved a Basic Scientific and Technological Development Plan. Within the scope of the Ministry of Mines and Energy, this plan prioritized three projects related to mining: the implementation of CVRD’s Technological Research Center, to support Docegeo’s geological prospecting program; stimulation for CVRD’s CPM research program; and the establishment of the CPRM Research Center on Fundão Island in Rio de Janeiro, in 1973 and 1974.38 All of these projects sought to contribute to removing one of the biggest obstacles to raising the country’s mineral production: a lack of expertise in ore processing technology.

In June 1976, due to CVRD’s need to centralize its mineral research activities, until then conducted independently by CPM and Docegeo, it established its Mineral Research Superintendent’s Office (Superintendência de Pesquisas Minerais, or Supem), linked to the company’s administrative structure. Supem was made responsible for geological and mineral research in all sectors except iron ore.

38 - See Presidência da República, Plano Básico de Desenvolvimento Científico e Tecnológico, 1973/1974, pp. 75-76.

Between 1971 and 1978, CVRD transferred around US$82 million to Docegeo, most of which was invested in the Amazon district. Major achievements in this district during this period included the following: the discovery in 1972 and 1973 of significant bauxite deposits in Paragominas, Almeirim and the Jutaí Mountains in Pará, leading CVRD to implement an aluminum production complex in the north of the country; the discovery in 1974 and 1975 of cassiterite deposits in Antônio Vicente, near São Fidélis do Xingu in Pará; geological prospecting work conducted in the Araguaia-Xingu zone in Pará, where occurrences of copper, lead and zinc were found; an experimental mining project involving gold deposits found in 1976 in the Andorinhas Mountains to the south of the Carajás Mountains; and the sale of gold extracted by prospectors in the Pelada Mountains region, sold to Caixa Econômica Federal and the Brazilian Central Bank.39 As of 1977, the Amazon district took on the work of assessing manganese and copper deposits recently discovered in the Carajás region, previously performed by AMZA.

Docegeo’s activities in the Center-East district centered on evaluating the Tapira and Salitre phosphate and titanium reserves in Minas Gerais, and identifying the limestone deposits of Cachoeiro do Itapemirim in Espírito Santo.

The Southeast district, during its two years of existence, contributed through the discovery of some promising occurrences of lead and zinc, which were transferred to the Votorantim and Banespa groups, and an evaluation of copper and molybdenum deposits detected in Caçapava do Sul in the state of Rio Grande do Sul.

Overall, the work conducted by Docegeo during the 1970s allowed CVRD to add more than 35 new mineral deposits to its portfolio, containing 11 types of minerals and located in 15 different parts of Brazil. Finally, it is worth noting the valuable work performed by CVRD’s Technological Research Department (Departamento de

39 - The permit to sell gold from the Pelada Mountains was granted exclusively to Docegeo by the federal government.

Pesquisas Tecnológicas, or Deteg), based at the “km 14” point on the BR-262 highway 25 kilometers from Belo Horizonte. Deteg’s work enabled the economic exploitation of mineral deposits discovered and studied by Docegeo. Deteg’s main achievements in the 1970s included technological capacity-building projects to make full use of the company’s iron reserves in the Iron Quadrangle, and the development of processes to concentrate phosphate rock and anatase ore from the Tapira and Salitre deposits and for the mechanical, metallurgical and chemical processing of bauxite, nickel, manganese, copper and gold deposits discovered in the Carajás region.

Between 1969 and 1973, CVRD established around 30 small subsidiaries. At the end of the decade, the CVRD group, including AMZA, Docegeo and this set of subsidiaries, had managed to significantly expand its mineral rights, holding 1,151 research permits for metallic and non-metallic minerals in 13 Brazilian states, covering a total of 3,914 hectares.

As will be seen in the following chapters, until 2003, Docegeo would be the company’s main research unit. From that point onwards, new technology projects and institutes would be constructed, continuing and extending the work begun by geologists in the late 1960s.

5.7 Going beyond iron

At the end of the 1960s,40 Vale was interested in expanding and, above all, diversifying its activities beyond iron ore production. At that time, the company’s leaders believed that Vale’s path

40 - The basic sources used in this study on CVRD’s diversification policy were the following: Fernandes, Francisco do Rego (org.), op. cit., vol. 1, pp. 32-38; Abranches, Sérgio and Dain, Sulamis, op. cit., pp. 69-95; Board of Directors’ Reports, 1969-1978; and Kury, Mário da Gama, op. cit., pp. 70-120.

Previous page: camp used by the Companhia Meridional de Mineração’s manganese prospecting work, in Barra

do Buritirama, Marabá, Pará, in 1968. Left: geologists

McCandless, Hirata, Rigon and Midleton visiting Docegeo’s camp

in Rio Novo, Pará, in 1976.

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to growth could not be based exclusively on the sale of iron ore. The implementation of this policy, however, was delayed until the end of the next decade, given that the company’s resources were committed to the expansion of its mine-railroad-port complex, especially the construction of the Port of Tubarão. Docegeo was an important driver in this area.

CVRD’s first diversification project was the establishment in 1967 of Florestas Rio Doce S.A., a subsidiary focusing on reforestation activities in Minas Gerais. In 1969, the company set up another subsidiary with the same purpose, this time in Espírito Santo: Rio Doce Madeiras S.A. (Docemade). Over the next 10 years, driven by the vigorous expansion of its iron ore sales, CVRD multiplied its areas of activity, especially in the mining and metallurgical sectors, becoming involved simultaneously in various projects to produce bauxite, alumina, aluminum, manganese, titanium, phosphates/fertilizers, and timber/pulp.

Alongside these ventures, which diversified CVRD horizontally, new vertical investment projects were also developed to process and industrialize the company’s iron ore output, involving the manufacture of pellets, magnetic ferrites and steel products.41 From the start, this vertical diversification policy was also an evident priority for the new sectors that CVRD entered.

To support the company in executing its diversification program, Rio Doce Engenharia e Planejamento (RDEP) was established in 1971 to provide technical assistance in the field of engineering. This subsidiary was tasked with conducting feasibility studies and managing new industrial projects. (This company was closed down in 1979.) In December 1976, CVRD set up another subsidiary, Rio Doce International Finance Ltd. (RDIF), headquartered in Georgetown,

41 - In fact, CVRD’s first attempts to develop its activities vertically, represented by the establishment of Companhia Siderúrgica Vatu and Beneficiamento de Itabirito S.A. (Benita), did not progress far. In 1968, Vale decided to liquidate Vatu, in line with guidance from the federal government (cf. Board of Directors’ Report, 1968, p. 43). Benita never started up operating activities “given that the company itself developed suitable processes for concentrating itabirites” (cf. Board of Directors’ Report, 1970, n.p.).

Guyana, to provide financial and marketing consultancy services. RFID was directly controlled and 90% owned by CVRD. The remaining shares in RFID were owned by group subsidiaries Rio Doce Europa (5%) and Seamar Shipping Corporation (5%).

CVRD controlled some of its new projects exclusively through its subsidiaries. Most of the time, however, it opted to establish joint ventures with private Brazilian companies and foreign groups with which it already had commercial relationships. CVRD always ensured it was the majority partner in such ventures, but they were given the autonomy to take strategic and operational decisions in a fast, dynamic manner.

A number of factors justified this new corporate policy. On the one hand, it had become necessary to “dilute the risks of enormous investments focused on a single export product.”42 On the other hand, the massive expansion in the company’s iron ore exports in the first half of the 1970s had generated more resources than could be reinvested in an economically feasible way in its core activities.

CVRD’s strategy seems to have been determined much more by market considerations than by the need for capital or technology, although these factors were also important. The entry of external capital enabled the simultaneous development of various projects, which generally involved heavy investment and long maturity periods. For foreign investors, in turn, the establishment of joint ventures with the Brazilian state-owned enterprise was of interest, above all, as a means of guaranteeing the regular supply of raw materials and basic inputs for their plants and reducing their costs of production.

This explains CVRD’s partnerships with business groups from Japan, its main iron ore customer, to jointly develop projects directly related to the Japanese economy’s needs (aluminum, pellets and pulp).

42 - See CVRD, Divisão de Desenvolvimento (Development Division), Relatório Decenal, 1962-1972, O Minério, May 1973, cited by Abranches, Sérgio and Dain, Sulamis, op. cit., p. 83.

CVRD employee on top of a pile of iron ore pellets at Tubarão Maritime Terminal in Vitória, Espírito Santo.

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Finally, CVRD’s diversification policy aimed to serve government interests. In the Brazilian government’s opinion, the experience acquired by the company in mining, transportation and foreign trade, as well as its elevated status outside the country, needed to be applied to attract foreign investment and expand exports.

Accordingly, besides operating as a profit-making enterprise, CVRD also played a strategic role in implementing national development plans and executing Brazil’s mining policy.43

Beginning in 1974, CVRD’s diversification projects acquired a growing weight in its investment program. In the company’s budget for the 1976-1980 five-year period, such projects were allocated 32.7% of all its planned investment for 1976. As of 1978, more money was invested in diversification initiatives than in the expansion of iron ore production. The most favored sector was aluminum, which received 30% of the diversification program’s investments in 1976 and 1978, slightly more than the Carajás Iron Project.

43 - See Mascarenhas, Raymundo Pereira, “Conferência na ESG,” September 1970, cited by Abranches, Sérgio and Dain, Sulamis, op. cit., p. 84.

This trend would be reversed at the end of the decade due to a number of internal and external factors. On the one hand, the decline in CVRD’s profits from iron ore sales, caused by a downturn in the global steel industry, reduced its investment capacity. On the other hand, a worsening of the international economic crisis limited the possibility of raising new funds abroad, aggravating the company’s financial situation and compromising the development of its diversification projects. Given this situation, as of 1979, CVRD would be pressured by the government led by General João Figueiredo to review its investment program, concentrating resources on mineral extraction ventures (especially the Carajás Iron Project) and transferring control of some of its projects to the private sector.

For foreign investors, the establishment of joint ventures with the Brazilian company was of interest, mainly as a means of guaranteeing the regular supply of raw materials and basic inputs for their industry

Visit by technicians from Nippon Steel, during the filing of ore samples from Cauê Mine, in Minas Gerais.

Documents

1944193119441967 - Vale. · PDF fileThe Biggest Iron Ore Exporter in the World 1944193119441967. 138 139 Vale Our History Vale Our History ... CVRD began supplying iron ore to China,