Brazil’s Super Miner: Vale

Established in 1942 by the Brazilian Federal Government as Companhia Vale Do Rio Doce (CVRD), Vale—as the company is now known—influences all levels of Brazil’s mining industry. Privatized in 1997, Vale is now positioned as the world’s second largest mining company with 2009 revenues of $28.5 billion and a permanent staff of 115,000. While Vale is a diversified mining company with operations ranging from nickel extraction in Canada to potash in Argentina, the company’s core revenue driver is the export of iron ore from Brazil, which represents 65% of the company revenues.

Vale is by far and away the world’s largest producer of iron ore with an output of 230 million mt/y. Similarly to BHP Billiton and Rio Tinto in the Pilbara, Vale’s key to success is the immense infrastructure the company owns with more than 10,000 km of railway lines, 216 locomotives, nine ports and a vast fleet of ships. Almost every single equipment supplier and services company with operations in Brazil has Vale as a major customer. Vale is an omnipresent force throughout Brazil’s mining industry.

Vale’s lead in Brazilian production is matched by the company’s leadership in technological innovation and investment in sustainable practices and technologies. Having recently announced the establishment of the Vale Technology Institute (VTI), the company is in the process of establishing three international research centers throughout Brazil, with a focus on developing new and innovative technologies in the areas of mining, sustainable mining development and renewable energies that will better equip both Vale and the industry in general to overcome the challenges of the future. The VTI represents the largest public-private research partnership ever seen in Brazil.

“The idea is that interaction between the company, universities and government entities will stimulate high-quality domestic scientific output, and therefore make the institutions better able to attract government funds,” said Luiz Mello, director, VTI. “This will generate a virtuous cycle that will benefit the whole community.”

A recent innovation of particular note is the development of bio-fuel facilities based upon palm oil, planned to transform Vale’s entire rail fleet by 2014.

Unsurprisingly for a major Brazilian mining company, corporate social responsibility activities are of huge importance to Vale’s overall business model, having invested $900 million in this area in 2009. Underpinning the benefit of mining to regions such as the Amazon, Vale has more than 2 million hectares of forest, equivalent to 3 billion trees under the company’s protection. Over the course of the past three years Vale has planted more than 26 million trees.

Described by The Economist as “the biggest company you have never heard of,” Vale is now starting to emerge from its backyard in Brazil and is making a huge impact upon a diverse range of national mining industries all over the world. Following a $19-billion takeover of Canadian nickel giant Inco, Vale has encountered controversy and strike actions from employees with regard to pay conditions, pensions and the breakdown in negotiations between the company’s Brazilian managers and Canada’s unions.

Moreover, there is widespread speculation regarding latent tensions between the left leaning leadership of the Brazilian government and Vale’s management, whose focus is to maximize overall shareholder value for the New York Stock Exchange listed company. Lula has used both the Brazilian government’s 5.6% shareholding and the Brazilian media to pressure Vale to expand its investment program and subsequent job creation within Brazil’s borders. Prioritizing national development often runs in direct contradiction to Vale’s international agenda.

Vale has consistently rebuffed speculation that the government exerts a major influence on company strategy. Logic would also dictate that the 5.6% government holding is far from enough to consolidate any substantial influence over the direction of the Vale board.

Vale has recently made several successful investments internationally, most notably in Guinea-Conakry’s iron ore reserves and Mozambique’s coal and logistics industry. Despite rumors to the contrary, the general consensus is that Vale’s transition from the biggest company no one has ever heard of to the pinnacle of the world’s diversified super major mining company is well under way.

 

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