Incorporated: 1942
NAIC: 212210 Iron Ore Mining; 212299 All Other Metal Ore
SIC: 1011 Iron Ores; 1099 Metal Ores Nec; 1041 Gold Ores; 1044 Silver Ores; 4011 Railroads - Line-Haul Operating; 4412 Deep Sea Foreign Transportation of Freight
Companhia Vale do Rio Doce (CVRD) is the world's largest producer and exporter of iron ore and the largest diversified mining company in the Americas. Starting from two integrated mine-railroad-port systems, CVRD grew to become a symbol of Brazil's industrial prowess over the course of the second half of the twentieth century. With a network of railways, ports and shipping lines to move the millions of tons of ore it produces each year, CVRD is truly a multi-faceted industrial jewel that remains a source of pride for Brazilians.
To fully understand the history behind CVRD, one must look at the economic and geo-political environment of Brazil over the last 50 years. Beginning centuries before the founding of CVRD, explorers had traveled Brazil's remote Doce River Valley in search of gold and other precious natural resources. In 1891, Brazil's first Republican Constitution dramatically altered the nation's mining regulations to allow landowners the rights to mineral reserves found on their property. However, the law allowed the underground mineral reserves to be worked by foreign-owned companies. At that time, geological explorations began to reveal abundant supplies of iron concentrated in the rich earth of the remote Minas Gerais state, where three billion tons of the ore lay buried. Huge mining companies in France, the United Kingdom, the United States and Belgium swiftly purchased many of these iron-ore beds at well below market value. In 1919, United States entrepreneur Percival Farquhar purchased the Itabira Iron Ore Company from its British founders. With the help of his other company, the Vitoria-Minas Railroad, Farquhar planned to build a monopoly in Brazilian iron ore production and exports.
In the 1930s, Brazil was facing a major economic and political crisis. The outcome of that year's presidential election was challenged by a political-military insurrection, with power ultimately handed to Getulio Vargas. The so-called 1930 Revolution and Brazil's newest leader championed a movement toward nationalism. The Vargas years (1930-1945) in Brazil are characterized by the creation of a powerful interventionist federal government, and this sentiment applied to the nation's valuable supply of mineral reserves. Political concerns arose over the growing foreign ownership of mines at this time. In a conciliatory gesture, Farquhar and other mine owners "Brazilianized" the Itabira Iron Ore Company, splitting it into Companhia Brasileria de Mineracao and Itabira Mineracao.
As Vargas tightened his political control over Brazil, he began to focus on a pro-development philosophy. The Vargas regime pushed for a transition from an agricultural economy to an industrialist one in Brazil.
In 1940, Vargas sought to establish capital-intensive national industries, with emphasis on steel, electricity, transportation and weaponry. With World War II now in full swing, Europe and its allies had a growing need for iron ore. Mineral-rich Brazil used this to its advantage, garnering favors from the Allied nations. The Washington Agreements were signed in March 1942 by Brazil, the United Kingdom and the United States, defining the bases for establishing iron ore production and export in Brazil. Vargas obtained a $45 million EXIMBANK loan from the United States to establish the first major steel-producing plant in Latin America, Companhia Siderugica Nacional (CSN). The Washington Agreements also called for the transfer of United Kingdom-owned Itabira Mines to the Brazilian government along with the Vitoria-Minas Railroad. In exchange, Brazil declared war against the Third Reich. Vargas also obtained another $14 million loan from the US EXIMBANK to purchase machinery and equipment.
On June 1, 1942, Vargas created the Companhia Vale do Rio Doce (CVRD), in accordance with the Washington Agreements, and began fulfilling his plan to modernize the Brazilian economy.
CVRD was originally designed to provide raw materials for CSN. In 1949, the company was supplying 80 percent of Brazil's iron ore exports. By this time Vargas had been out of power for four years, but he was elected to the presidency again in 1951. Vargas quickly resumed his industrialization plan for Brazil and in 1952 created the National Bank for Economic Development (BNDE) to finance industrial pursuits. It was also this year that the Brazilian government took over definitive control of CVRD operations.
By that time, an aging Vargas realized his political clout was waning and he began losing favor among the Brazilian industrial elite. Besides his creation in 1953 of Petrobas, a government-owned oil monopoly, the last years of Vargas' rule were lacking in industrial-based achievements. Political rivals and rumors of corruption began to plague Vargas, who committed suicide in the presidential palace in 1954. A new president, Juscelino Kubitschek, advocated many of the same modernization ideas of Vargas, but his equally ambitious plan involved a triangulated strategy between the Brazilian state-owned companies, private Brazilian firms, and European and American nationals. With the Kubitshcek plan underway, the late 1950s proved to be the most productive in Brazil's history.
In 1959, CVRD inaugurated the Paul Wharf at the Port of Vitoria with the start-up of regular exports of fines and run-of-mine ores. Later, the company incorporated its own shipping arm, Vale do Rio Doce Navegacao SA--Docenave, which has grown to become one of the top 10 shipping companies in the world. The company's first long-term iron ore supply contracts were also signed in 1962. Five years later, CVRD incorporated another important subsidiary, Florestas Rio Doce (FRDSA). CVRD reached another important milestone that year. By 1967, the company ranked among the six largest export companies in the world.
In 1968, CVRD employee Jose Eduardo Machado, a geologist with the Ore Prospecting Center, reached Carajas, or Amazonia, for the first time. Geological surveys would later prove that Carajas held the world's largest iron ore reserves, more than 18 billion tons. The next year, the first CVRD palletizing plant was inaugurated at Tubarao, Espirito Santo State.
CVRD continued to incorporate numerous subsidiaries during the next two decades. The company, in association with US Steel, incorporated the Amazonia Mineracao SA mining company in 1970. The next year it incorporated a prospecting subsidiary, Rio Doce Geologia e Mineracao--Decegeo. The company absorbed $82 million in investments over the next seven years as it completed the widest ranging geological survey ever carried out in Brazil. It was through this prospecting drive that CVRD discovered 35 new deposits of 11 different minerals in 13 Brazilian states. In 1973, CVRD incorporated the Celulose Nipo-Brasileria XA-CENIBRA pulp mill and Companhia Italo-Brasileria de Pelotizacao-Itabrasco palletizing plant (with CVRD owning 50.9 percent and with Italy's Finsider International owning the balance).
Four additional subsidiaries were incorporated in 1974. A pelletizing plant, Companhia Nipo-Brasileira de Pelotizacao-Nibrasco, was set up as a joint venture with a group of Japanese steel mills headed by Nippon Steel that year. Companhia Hispano-Brasileira de Pelotizacao, another pelletizing plant, was set up by CVRD with Spain's Ensidesa. Aluminio Brasileiro SA-Albras was incorporated as a joint venture aluminum production company by CVRD and Nippon Amazon Aluminium to produce primary aluminum. Mineracao Rio do Norte--MRN, a multinational mining consortium set up to work bauxite deposits along the Trombetas River, Para State, was incorporated in 1974 as well.
In 1975, CVRD became the world's largest iron ore exporter, a title the company still holds, with 16 percent of the sea-born market for this product. By 1976, the company was bringing in export revenues of $717 million through its products and became Brazil's leading foreign exchange earnings generator. Two more mining subsidiaries were incorporated that year: Minas da Serra Geral--MSG and Urucum Mineracao SA, a mining company set up to work the Urucum and Jacadigo manganese reserves near Corumba, Mato Grosso State. In 1977, CVRD was awarded exclusive mining rights for Carajas. Just as it had done with the Vitoria-Minas railroad, CVRD began constructing an integrated mine-railroad-port system to accommodate the ore mined from Carajas. In 1978, CVRD began work on the Carajas Railroad.
CVRD incorporated another aluminum subsidiary in 1978 called Alumina do Norte do Brasil. The early 1980s saw several more start-ups for CVRD. Valesul Aluminio SA and Minas Serra Geral, mining iron ore, began operating in 1982. The next year, CVRD started operations at the Coaling Terminal in Ponta de Tubarao and at the Timbopeba Iron Ore Mining Project. In 1984, CVRD started gold production at Fazenda Brasileiro in Bahia State.
In 1985, CVRD inaugurated the Carajas Iron Ore Project. That year the company used local and foreign capital to start operations at Eletrovale, Nova Era in Minas Gerais State. In 1987, CVRD incorporated Bahia Sul Celulose, in association with Companhia Suzano de Papel e Celulose, to produce bleached eucalyptus pulp.
By the late 1980s, political and economic turmoil in Brazil prompted Constitutional reform efforts in the Congress. After decades of military rule, democracy came to the forefront with the drafting of the new Constitution in October 1988. Among the elements of the so-called Citizenship Constitution were limits on presidential terms and enhanced voting rights for citizens. Some argued the document gave the government too many responsibilities, while imposing undesirable restrictions on foreign investors. But Brazil was in the midst of an economic crisis during these years, and citizens were ready for new solutions that were not explored during the years of military rule. One effect of the constitutional changes was that a more negative attitude developed toward the state monopolies held in energy and mining, and it was this shift in attitude that paved the way toward the eventual privatization of these industries.
During the years that led to the privatization of CVRD, the company acquired stakes in a number of steel and pulp mills. In 1992, CVRD started operations at its Bahia Sul Celulose pulp mill, and it inaugurated the Capitao Eduardo--Costa Lacerda branch line in Minas Gerais State, linking the Vitoria-Minas Railroad to the Federal Railroad Network (RFFSA). The new 46-kilometer stretch of track sped the outflow of products from the cerrado savannas while significantly reducing freight costs. On June 10, CVRD signed its first management contract with the Brazilian government, its majority stakeholder.
In 1993, CVRD purchased a stake in steel-maker Companhia Siderurgica Nacional (CSN), which likewise held a small share in CVRD. That year, CVRD became the leading gold producer in Latin America with 12 tons per year. In 1994, the company announced record iron ore sales of 101 million tons. The 1995 acquisition of stock control of SEAS, a manganese iron ore plant in France, opened up fresh prospects for CVRD products on the European market.
The Brazilian government's $45 billion plan for privatization soon extended to its prized industrial conglomerate. CVRD was included in Brazil's National Privatization Program by Decree No. 1,510 on June 1, 1995, but the road to privatization would not be a smooth one. For the last 50 years, the state had directly intervened in the Brazilian economy by running its largest industrial companies, including CVRD. Once the task of modernization was nearly complete, it was time for private enterprise to take over to improve the efficiency of the economy. With Brazil then accounting for 40 percent of Latin America's economy as a whole, this was a significant undertaking. Given Brazil's history, it looked as if attracting foreign investors would remain a challenge.
The sale of CVRD was considered controversial because, unlike other state-owned companies, it was profitable and well-managed. By early 1997, President Fernando Henrique Cardosa had planned to sell the government's 51 percent of CVRD for an estimated $5 billion. A year earlier, CVRD had signed its first private sector partnership agreement with Southern Star Resources Ltd, an American company, to work the gold deposits. Still, progress toward privatization was slow in order to ensure public support.
After weeks of worker-led protests outside the Rio de Janeiro stock exchange and court-ordered delays, a Brazilian consortium led by CSN emerged as the winner of the privatization auction for CVRD in May 1997. CSN bid $3.4 billion for 41.73 percent of the common shares held by the Brazilian government, with a premium of 19.99 percent over the asking price. The consortium also included four Brazilian pension funds, Banco Opportunity and NationsBank of the United States. CSN, which was itself privatized in 1993, shocked investors by winning the CVRD prize. Although CSN was Brazil's largest steel maker, two more powerful Brazilian consortiums were considered the likely winners of the auction. CSN was under the direction of Benjamin Steinbruch, who was 43 and considered to be a relative upstart in the Brazilian business community, but CVRD's iron ore business, transportation network and other business assets made Steinbruch's company an overnight giant in the steel industry.
In 1998, CVRD reported its best-ever financial performance with profits of 1,029 billion Reals, a new record for private companies in Brazil. That same year, CVRD produced record iron ore output at Carajas of 45.8 million tons. CVRD remained under the leadership of Steinbruch as chairman and CEO until 1999, when former ambassador Jorio Dauster was appointed the new CEO of the company. Dauster took on a complex shareholder structure and a cumbersome group of non-core businesses when he inherited the helm. The company began divesting non-core assets in order to revive interest in CVRD stock, which had begun to lose value since privatization.
In 2000, CVRD began to focus on its core businesses of mining and logistics. The company looked to sell off its pulp and paper assets along with non-core assets in its steel and transportation sectors. In early 2001, CVRD sold its interest in Bahia Sul as a first step toward withdrawing from the pulp and paper industry, and in March of that year the company sold its 10.3 percent stake in CSN. Expansion also remained an important goal that year, with CVRD planning to develop five more copper mines in Carajas. The company also looked to diversify in order to decrease its reliance on iron ore revenues, which in 2001 comprised up to 60 percent of group sales. Dauster announced plans in 2001 to expand CVRD's low-level alumina, aluminum and bauxite base to build stronger alternate sources of revenue. The company also began forming Valepontocom and other Internet ventures to develop an e-commerce business. In 2001, CVRD began developing portals related to its mining and logistics businesses.
Principal Subsidiaries
Ferrous: Urucum Mineracao SA; Mineracao Mato Grosso; S/A Min. Trindade SAMITRI; RDME; SIBRA; CPFL; NORPEL--Pelotizacao do Norte SA. Non Ferrous: Docegeo; 24 Mining Companies; Para Pigmentos; Brazil Kaolin Company Ltd. Logistics: TVV--Terminal de Vila Velha SA; Docenave; Navedoce; Seamar. Holdings: Aluvale; Florestas Rio Doce; Celmar; Valepontocom; Solostrata S/A; Multistrata S/A. Energy: vale Do Rio Doce Energia SA. Others Abroad: Rio Doce International; Rio Doce Asia; Rio Doce Europa Servicos e Comercio; Rio Doce International Finance; Itabira Internacional Servicos e Comercio; Itabira Rio Docia Company Ltd ITACO; Rio Doce America; Rio Doce Ltd; CVRD Overseas; CVRD Finance.
Principal Competitors
Anglo American; BHP; Rio Tinto plc.
Further Reading
"A Sorry State," Economist, March 27, 1999, p. 9.
Barham, John, "Shaping Up for the Struggle of the Titans: Interview Jorio Dauster: Recasting the Mining Group Will Tax All the Ex-diplomat's Skills," Financial Times, July 8, 1999, p. 12.
Colitt, Raymond, "Vexed Question of Ownership: A Tangled Web of Cross-shareholdings Bedevils the Future of Brazil's Iron and Steel Industry," Financial Times, May 15, 2000.
De Lima, Paulo-Tarso Flecha, "Liberalism versus Nationalism: The Prodevelopment Ideology in Recent Brazilian Political History (1930--1997)," Presidential Studies Quarterly, June 1999 p. 370.
Dolan, Kerry A., "Resurgent Brazil," Forbes, June 2, 1997 p. 116.
Dyer, Geoff, "CVRD Kicks Off Disposals With Bahia Sul Sale," Financial Times, February 23, 2001.
Katz, Ian, "Look Who's Buying Up Brazil's Crown Jewels," Business Week, June 2, 1997, p. 130B.
"Nerves of Steel in Brazil," Economist, May 10, 1997, p. 64.
Oppenheimer, Andres, and Ellison, Katherine, "Latin America for Sale? Awaiting the Broader Shift to Private Enterprise, Latin America Frets Over Pitfalls of the Past," Miami Herald, August 17, 1996, p. A1.
Osava, Mario, "Government Claims Victory in Battle Over Privatization," Interpress Service, May 7, 1997.
"The Iron Chancellor," Economist, January 17, 1998, p. 63.
Wang, Michael, "CVRD Mulling Plans to Beat Brazil Energy Woes," Dow Jones Newswires, May 8, 2001.
— Update: Rebecca Rayko Cason
