CHAPTER 4 The Defining Years: CVRD as a World-Class ... · 104 105 Vale Our History Vale Our History 4.2 CVRD in the 1960s If there is one word to describe CVRD’s ambitions for

Vale Our HistoryOur HistoryVale

103metric tons. Tubarão was built in partnership with business people from the Japanese steel industry, and definitively marked a change in Vale’s export strategy. Long distances, large ships, long-term contracts, and enormous quantities of ore: it was a superlative vision of what lay ahead. With a pier that sticks out nearly four kilometers into the sea, Vale was pointing to its future.

The work included constructing a breakwater, a pier alongside 16-meter-deep water, riprap along the shore, where facilities to move and store iron ore and coal were located, a railroad yard, and rolling stock maintenance workshops. The mechanized facilities for moving iron ore and coal were equipped with modern technological apparatus. Ore was unloaded from trains (with up to 150 cars) using a rotary car dumper, in a completely automated operation. The ore was transported along 60-inch-wide conveyor belts directly to a ship loader or to the stockyard, which was capable of storing 1 million metric tons of different types of ore. In addition, a screening center was installed between the car dumper and the stockyard to separate ore into the different particle size categories that were sold. Ore was reclaimed from the stockyard and conveyed to ships using four excavators, in an operation that could move 6,000 metric tons per hour.2

2 - See Rangel, Orlando. A Companhia Vale do Rio Doce e o mercado de minério de ferro, 1966, p. 15.

4.1 All paths lead to the sea

It is one of those remarkable stories that stand out in CVRD’s history: on the day before the official opening of Tubarão Maritime Terminal in Espírito Santo, in 1966, one of the car dumpers designed to rotate train cars, dumping their ore onto conveyor belts leading to ships, had stopped working. The system’s manufacturer had forbidden unauthorized people from touching the machines and, to make things worse, a technician would have to come from Canada to resolve the problem. It certainly was a problem. In a little under 24 hours, the President of the Republic, Marshal Castelo Branco himself, would be activating the mechanisms for the first official operation at the terminal, whose construction had begun under João Goulart’s government in 1962. It was April 1. A stage, decorated with the Brazilian flag and the company’s logos, had already been erected.

The solution was to resort to the wisdom of a shy but competent Spanish electrician who said that he could make the machine work. He was indeed successful. Authorized to try to solve the problem, he managed to repair the mechanism temporarily and the load carried by the train was reduced. When the crucial moment arrived, the train cars were finally rotated, making the ore fall onto a belt and then into Swedish ship Lapplang, the first to dock at Tubarão. The band played the national anthem. President Castelo Branco clapped his hands in satisfaction. Tubarão was open for business.1

Tubarão Maritime Terminal was built at a location around 12 kilometers from the center of Vitória. The existing name of the place, Tubarão (meaning “Shark”), was perfect to demonstrate the aggressiveness of the company’s new plans. Designed by Eliezer Batista four years before it opened, the terminal could receive ships with the capacity to transport up to 150,000 metric tons of ore – at a time when few of the world’s ships could carry more than 60,000

1 - See the statement by José Clovis Ditzel, former president of Rio Doce Internacional, in Histórias da Vale, 2002, p. 87.

CHAPTER 4

The Defining Years: CVRD as a World-Class Exporting Company

1944193119441966

104 105


4.2 CVRD in the 1960s

If there is one word to describe CVRD’s ambitions for the 1960s, it is exportation. Between 1961 and 1967, the amount of iron exported by the company rose from 6.1 to nearly 11 million metric tons. The company as a whole – including the iron extracted from its mines, its railroad tracks, and even its investments – pointed towards the terminal. There was a leap in exports. At the end of this period, Vale was one of the world’s biggest exporters, selling 26 different types of mineral.3

For some time already, the United States had not been Vale’s main commercial partner. The amount of ore exported from Brazil to America was declining – in absolute terms and (especially) in relative terms. (See Table 1 in Chapter 3.) Meanwhile, West Germany and Japan were becoming the company’s main markets. Existing contracts were bolstered and new ones established, involving many European countries, including in the Soviet bloc. Beneath these changes lay a new way of doing business.

CVRD’s strategy for winning new markets was focused on the use of contracts – now long-term. Another innovation that served the company’s expansion was the ending of exclusive agents, to be replaced by subsidiaries.4 Each subsidiary – in fact an arm of the company – negotiated contracts directly with international buyers.

Another important step was the signing of contracts with S.A. Mineração da Trindade (Samitri) and Companhia de Mineração de Ferro e Carvão Ferteco (Ferteco), by which CVRD committed to transporting the output of these two foreign-owned companies, which in exchange would grant Vale access to major European steel companies.

In order to meet its commitments, which involved ever larger quantities of iron ore, the company needed to reorganize its

3 - See Board of Directors’ Report, 1967, p. 6.

4 - This subject was discussed in Chapter 3.

maritime transport arrangements. In 1962, CVRD established a shipping subsidiary, Vale do Rio Doce Navegação S.A. (Docenave). In turn, the need to transport iron ore in ships with deeper drafts led the company to modernize its port infrastructure, building Tubarão Maritime Terminal in Vitória, opened in 1966. Tubarão – as seen in the years that followed its opening – is a special chapter in Vale’s history.

Concerned to raise its iron ore output – to serve both rising foreign demand and the fast-growing Brazilian steel industry – Vale acquired new mines in the state of Minas Gerais. At the same time, it had to adapt its production to the changing steel industry’s new needs, as Siemens-Martin furnaces were replaced with Linz-Donawitz (LD) furnaces, which required better quality ore.

The growing importance of mineral sector activities in Brazil – spanning iron to oil, as well as coal and essential steelmaking inputs – was evident in the establishment of the Ministry of Mines and Energy (MME).5 Since the 1940s, technicians at the DNPM and the National Mines and Metallurgy Council had been calling for the creation of such a ministry, and President Vargas announced plans for one in his message of 1952 to the National Congress. In due course, the MME was established on July 22, 1960 during the Kubitschek administration, although it only began functioning on February 1, 1961, one day after Jânio Quadros was sworn in as the country’s president.

The Ministry of Mines and Energy incorporated the DNPM, the National Council of Water and Electric Power, the National Mines and Metallurgy Council, the National Petroleum Council, and the Commission on the Export of Strategic Materials. It was also responsible for CVRD, the São Francisco Hydroelectric Company (Chesf), Petrobras, the National Nuclear Energy Commission, and the Executive Commission of the National Coal Plan, as well as other corporations partially owned by the federal government.

5 - For information about the creation and initial organization of the MME, see Ministry of Mines and Energy, Três anos de revolução no MME, pp. 17-19.

The first Minister of Mines and Energy was João Agripino, a state deputy from Paraíba, who left his position when Jânio Quadros stood down as President of the Republic in August 1961. During João Goulart’s government, the ministry was run by Gabriel Passos (September 1961 to July 1962), João Mangabeira (July to September 1962), Eliezer Batista (September 1962 to June 1963) and Antonio de Oliveira Brito (June 1963 to April 1964). The changes in the ministry accompanied the political instability of Brasília. Vale reported directly to the MME and its administration reflected the government’s policy for the sector. The shift from the Goulart government to the military regime, as will be seen later on, led to a change in the MME’s orientation, with consequences for CVRD.

All the initiatives taken by CVRD throughout the 1960s took place alongside a complex process of administrative reform, activated under the management of Eliezer Batista, who for a time was both Minister of Mines and Energy and the president of the company (1961-1964). This process continued under the management of Paulo José de Lima Vieira (1964-1965) and Oscar de Oliveira (1965-1967), and moved forward in the administration of Antônio Dias Leite Jr. (1967-1969). Changes in the company’s structure were basically dictated by the notable expansion of its activities. CVRD had grown – and it was necessary for its workforce to be ready for new times.6

4.3 The global iron ore market grows and Vale changes its strategy

In the 1960s, the emergence of new iron ore producing countries, particularly Australia,7 increased supply above levels of demand. The effect was a reduction in prices, stirring up competition between producers and turning the international market upside down. Whereas in the 1950s the sellers had dictated the rules of the game, now it was the turn of the buyers. The fall in ore prices was severe. From 1951 to 1954, the average price of ore shipped from Vitória on an FOB basis was US$12.93 per metric ton, while between 1960 and 1972, the price fell to US$7.99.8

CVRD had to review its commercial policy, until then based on annual agreements, to maintain its position in the market. Under Eliezer Batista’s management, the first long-term contracts were

6 - See Board of Directors’ Report, 1961, p. 25.

7 - In 1966, Australia, which had not previously participated actively in international trade in iron ore, became a major competitor. The discovery of large iron ore reserves in Western Australia at the start of the decade led the Australian government to suspend restrictions that still limited exports of the product. Exports soon rocketed, from 6.8 million metric tons in 1965 to 11.8 million metric tons in 1966. By 1977, exports had reached 97.5 million metric tons. Some years before, in 1962, Mauritania, a former French colony in West Africa, had entered the global iron ore market. In 1963, it exported around 1.3 million metric tons to Europe. See Kury, Mário da Gama, op. cit., pp. 62, 68.

8 - See Fernandes, Francisco do Rego, op. cit., vol. 1, p. 30 (note).

Antônio Dias Leite Jr. Antônio Dias Leite Jr. (born in Rio de Janeiro in 1920)1 was

appointed to run CVRD in March 1967, at the age of 47. A qualified engineer, at the time of his appointment he was a respected professor at the Economics Institute of the Federal University of Rio de Janeiro (UFRJ). His study Caminhos do desenvolvimento (“Paths to development”), published in 1966, discussed the economy’s growth prospects and pointed to the potential for foreign trade. It was a kind of letter of intent. Not surprisingly, his leadership of CVRD was marked by encouragement of exports. Dias Leite sought direct contact with iron-consuming companies, enabling the joint construction of ore pelletizing plants. In 1969, he opened Vale’s first pelletizing plant in Tubarão, Espírito Santo, with production capacity of 2 million metric tons per year. Dias Leite left the company to serve as Minister of Mines and Energy. In this role, which he performed for five years, he placed great importance on investment in mineral prospecting, leading to an increase in the number of known reserves in Brazil.

1 - See “Vieira, Paulo José de Lima,” DHBB, vol. 5, p. 6,078-6,079, and “Conheça todos os presidentes da história da Vale” (Learn about all the presidents in Vale’s history), Exame magazine, April 5, 2011.

Previous photo: a view of Tubarão Maritime Terminal in Espírito Santo. Facing page (in the center): former president of CVRD, Antônio Dias Leite Jr.


107

signed – enabling better target planning – with major steel companies around the world. If the prices were not so good, the solution was to improve the quality of the product exported and reduce logistics costs. And having a modern port, enabling ships with deeper drafts to dock, was fundamental to lowering shipping costs. Work on Tubarão began.

It all started in April 1962, when the company signed an agreement with a consortium of 10 Japanese steel companies, providing for the supply of 50 million metric tons of iron ore over a period of 15 years. The contract was conditional upon the construction by CVRD of a maritime terminal at the Port of Tubarão in Vitória, to permit the docking of larger ships – necessary to reduce transportation costs. This was a decisive element in making it economically feasible to sell iron ore to a country like Japan, located an enormous distance from Brazil.9

Samitri and Ferteco: long-term contractsOpened on April 1, 1966 as scheduled, Tubarão Maritime Terminal was the largest and most modern wharf for the mechanized handling of bulk solids in Brazil. The start of operations at Tubarão was a key factor in the signing, in 1967, of a new contract with Japanese steel companies, involving the export of 35 million metric tons of iron over a 12-year period. Added to the 50 million metric tons in the previous agreement, this raised CVRD’s sales to Japan to an annual average of 6 million metric tons as of 1969.10

The new policy adopted by Vale was not limited to long-term agreements with foreign customers. In October 1962, CVRD signed a long-term contract with S.A. Mineração da Trindade (Samitri), part of the Luxembourg-based ARBED group, which controlled Companhia Siderúrgica Belgo-Mineira. The agreement provided for the export of 4 million metric tons per year to Belgium, Luxembourg and the Saarland region of West Germany, opening up new markets in Europe for Brazilian iron ore.

The new agreement also enabled iron ore reserves located in the Piracicaba River region of Minas Gerais to be integrated into Vale’s system. This area was served, between the stations of Desembargador Drumond (in Nova Era) and Costa Lacerda (in Santa Bárbara), by a branch line of the Central do Brasil Railroad, which had passed under the control of CVRD’s Vitória-Minas Railroad in 1961.11 Sales of Samitri’s iron began in 1963.

9 - See Kury, Mário da Gama, op. cit., pp. 57-59, and Board of Directors’ Report, 1962, p. 5.

10 - See See Board of Directors’ Report, 1967, p. 6. According to Francisco do Rego Fernandes, op. cit., vol. 1, p. 31, “the construction of the Port of Tubarão generated pressure from various major international iron ore producers, as they saw the threat that it meant in terms of markets lost to Vale.”

11 - See See Board of Directors’ Report, 1962, p. 6, and Kury, Mário da Gama, op. cit., p. 59.

The sales formula used was particularly successful in contracts with German group Thyssen, the country’s biggest steel producer, and which participated in the administration of Ferteco in Brazil. Under the terms of the agreement, for each metric ton of Ferteco’s iron ore that CVRD transported to the Port of Vitória, German steel companies would buy an equal quantity of iron ore produced by Vale. In this way, the sale of around 1.5 million metric tons per year of iron ore for a period of 15 years was assured. The contract also determined that the profits made by Ferteco must be reinvested in Brazil.12 Iron ore mined by Ferteco began to be exported in 1965.

Germany, 1964: the company’s first office abroadIn the middle of the decade, CVRD set up two subsidiaries to undertake direct operations with foreign consumers without any kind of intermediation. In 1964, Itabira Eisenerz GmbH was established in Düsseldorf, West Germany, tasked with operating in the European market. Two years later, Vale created Itabira International Corporation (Itaco), to be responsible for the company’s sales, and also purchases, on the American and Canadian markets.13 They were CVRD’s first experiences in running sales offices abroad.

The signing of long-term contracts with steel companies in Japan and West Germany soon made these two countries CVRD’s main markets. In 1967, the West Germans consumed around 30% of the company’s iron exports, while the Japanese accounted for 21%. Furthermore, the number of countries that bought from Vale rose from 14 in 1960 to 21 in 1967.

In Western Europe, until then Vale’s biggest market, new customers such as Portugal, Spain and Luxembourg were added to traditional ones such as West Germany, France, Italy and England. In Eastern Europe, Romania and Yugoslavia joined Czechoslovakia (now two countries: the Czech Republic and Slovakia), Poland and Hungary, becoming regular purchasers of the company’s iron ore. In Latin America, Argentina and Mexico began to buy Vale’s ore in 1962 and 1967, respectively. The United States’ share fell significantly over the course of the decade, with the exception of a brief recovery in 1965 and 1966. In 1967, the American market absorbed less than 5% of the company’s total iron ore sales.

12 - See Kury, Mário da Gama, See Kury, Mário da Gama, op. cit., p. 65.

13 - Idem, ib., pp. 65, 68. According to the Board of Directors’ Report, 1967, p. 43, Itabira Eisenerz GmbH, “which has been operating since 1964, has presented satisfactory results, and the second company [Itabira International Corporation] should be established in the early months of 1968.” In Francisco do Rego Fernandes, op. cit., vol. 1, p. 31, it is stated that the Itabira International Corporation was established in 1969, “with its head office in New Providence (Bahamas) and offices in New York and Geneva.”

Men working on the construction of Tubarão Maritime Terminal, Espírito Santo, in 1965.

108 109


TABLE 1CVRD’S EXPORTS OF IRON ORE BY CONSUMING COUNTRY, 1961-1967 (METRIC TONS)

COUNTRY 1961 1962 1963 1964* 1965 1966 1967

West Germany 1,870,746 2,126,361 1,601,816 2,431,572 2,497,417 2,651,623 3,278,140

% 37.35 34.64 25.45 34.27 28.16 29.09 32.85

Argentina - 113,493 198,146 393,392 436,986 292,530 120,457

% - 1.85 3.14 5.54 4.92 3.20 1.20

Austria - - 167,284 256,144 350,495 315,939 329,386

% - - 2.65 3.60 3.95 3.46 3.30

Belgium - - - - - 318,089 95,288

% - - - - - 3.49 0.95

Canada 120,532 68,260 241,251 269,159 174,749 198,182 14,871

% 2.41 1.11 3.83 3.89 1.97 2.17 0.14

Spain - - - - - 99,266 -

% - - - - - 1.08 -

United States 727,783 939,714 588,247 651,018 1,090,459 1,451,263 512,313

% 14.53 15.31 9.34 9.17 12.29 15.92 5.13

Finland - 13,615 - 10,465 12,253 - -

% - 0.22 - 0.14 0.13 - -

France 105,529 196,948 585,466 325,768 469,993 515,807 938,876

% 2.17 3.21 9.30 4.59 5.29 5.76 9.41

Netherlands 103,949 45,766 52,159 204,738 287,658 131,451 1,036,962

% 2.08 0.75 0.82 2.88 3.24 1.44 10.39

Hungary - - 20,249 - - - -

% - - 0.32 - - - -

England 541,184 536,179 753,951 501,026 634,336 718,512 770,374

% 10.80 8.73 11.98 7.06 7.15 7.88 7.72

Italy 293,749 674,364 777,737 1,006,781 1,325,063 771,417 1,020,089

% 5.86 10.99 12.36 14.19 14.94 8.64 10.22

Yugoslavia 38,126 83,123 30,328 - - - -

% 0.76 1.35 0.48 - - - -

Japan 399,079 329,813 358,067 489,116 838,429 1,768,869 2,271,265

% 7.97 5.37 5.69 6.89 9.45 19.40 22.76

Luxembourg - 112,520 - - - 118,990 -

% - 1.83 - - - 1.30 -

Mexico - - - - - - 15.20

% - - - - - - 0.14

Poland 296,545 312,708 359,058 158,311 102,096 279,029 137,162

% 5.92 5.09 5.60 2.23 1.02 2.76 1.27

Portugal - - - - 32,266 54,488 42,573

% - - - - 0.36 0.59 0.42

Romania 48,379 135,752 106,771 95,606 320,799 - -

% 0.97 2.21 1.69 1.35 3.61 - -

Czechoslovakia 459,988 450,286 451,833 302,293 302,922 335,206 205,883

% 9.18 7.34 7.18 4.26 3.41 3.67 2.06

TOTAL 5,008.589 6,138.902 6,293.363 7,095.448 8,868.295 9,113.692 9,976.337

% 100.00 100.00 100.00 100.00 100.00 100.00 100.00

(*) It was decided to include the 726,037 metric tons sold by Samitri in 1961. This decision was taken because of the fact that, as the sources do not break down the foreign company’s destination markets, it would be impossible to accurately determine the percentages related to the share of each country in the table, if the amount exported by Samitri were to be excluded. Sources: Board of Directors’ Reports, 1961-1967.


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Brazilian iron ore exports. This can be explained by the growing exports of large private mining companies controlled by foreign capital, such as MBR, and the initiation of foreign sales by Samitri and Ferteco. Table 2 shows CVRD’s share of Brazilian iron sales on the global market.

Table 1 shows CVRD’s iron ore exports between 1961 and 1967, broken down by consuming country, including the quantity purchased annually by each one and its share of total sales.

CVRD’s exports continued to grow but, compared with the 1950s, there was a slight decline in the company’s share of total

TABLE 2CVRD’S SHARE OF BRAZIL’S TOTAL IRON ORE EXPORTS (METRIC TONS)

YEAR CVRD’S TOTAL EXPORTS BRAZIL’S TOTAL EXPORTS CVRD/BRAZIL (%)

1961 5,008,589 6,236,834 80.3

1962 6,138,902 7,527,858 81.5

1963 6,292,363 8,207,094 76.7

1964 6,369,411 9,729,630 65.5

1965 8,885,921 12,731,228 69.8

1966 9,113,692 12,910,465 70.6

1967 9,976,337 14,279,231 69.9

Sources: Board of Directors’ Reports, 1961-1967 (for CVRD’s exports); and Anuário Estatístico do Brasil (Statistical Yearbook of Brazil), 1964, p. 161; 1967, p. 226; 1968, p. 261 (for Brazil’s exports).

Two ships waiting to be loaded up with iron ore at

Tubarão Maritime Terminal in Espírito Santo.

Previous pages, left to right: opening of an office

in Vila Técnica Areão in Itabira, Minas Gerais, in

July 1965; aerial view of construction work at Tubarão Maritime

Terminal, Espírito Santo, in 1964; a ship docked at

Tubarão; and details of S.A. Mineração da Trindade (Samitri) stock certificates.

With the start-up in 1963 of two steel mills in which it owned stakes – Usiminas14 and Ferro e Aço de Vitória – CVRD increased its sales of iron ore to domestic customers.15 Construction work on the Usiminas plant began in 1958, and it took five years and considerable investment to reach full operation, but the payback was soon apparent. In 1967, CVRD sold 878,869 metric tons on the domestic market, of which 875,628 metric tons were bought by

14 - In 1962, CVRD had signed a contract with Usiminas through which the former would In 1962, CVRD had signed a contract with Usiminas through which the former would supply all the iron ore required by the latter. See Board of Directors’ Report, 1962, p. 6.

15 - See Kury, Mário da Gama, See Kury, Mário da Gama, op. cit., p. 63. Even so, CVRD’s sales on the domestic market were not very significant, to the extent that it was only in 1967 that company reports started to provide specific information on them.

Usiminas.16 While it invested in partnerships in Brazil, the company also sought ways of increasing foreign trade. The entry of Docenave on the scene helped to improve CVRD’s financial position, as will be seen below.

Established in October 1962, Vale do Rio Doce Navegação S.A. (Docenave) gave the company unified control over the transportation of its iron ore from its mines to destination ports.17 The subsidiary negotiated directly with customers, and helped to

16 - See See Board of Directors’ Report, 1967, p. 19.

17 - At the time it was established, Docenave had the following shareholders: CVRD – At the time it was established, Docenave had the following shareholders: CVRD – 62.70%; Companhia Siderúrgica Vatu – 30%; and CVRD employees – 7.3% (cf. Vale do Rio Doce Navegação S.A. – Docenave, n.p.). At the end of 1965, CVRD significantly raised its stake in the company.

112 113


Eliezer BatistaThe first career employee to occupy the top job at

Vale, Eliezer Batista (born in Nova Era, Minas Gerais in 1924)1 was one of the company’s most important leaders. Serving as CVRD’s president for two periods, he prepared the company for the spectacular growth that would occur starting in the 1980s.

Eliezer created a strategy for selling ore in large volumes and for long periods to the Japanese steel companies. In order for the strategy to work, CVRD needed a port capable of receiving ships with capacity of up to 150,000 metric tons. Tubarão Maritime Terminal – planned during Eliezer’s first period as Vale president (1961-1964), when he was also Minister of Mines and Energy (1962-1964) – enabled CVRD’s exports to double.

Eliezer Batista’s second period as president of CVRD (1979-1986) coincided with implementation of the Carajás Iron Project – which in due course would be fundamental in transforming the company into the biggest iron miner in the world. Eliezer joined Vale in 1949 as an engineer on the Vitória-Minas Railroad (EFVM).

1 - See “Batista, Eliezer,” DHBB, vol. 1, pp. 588-589. Faro, Luiz Cesar; Pousa, Carlos; and Fernández, Claudio. Conversas com Eliezer, Editora Insight, 2005.

offset the trend of falling iron ore prices by cutting costs. Docenave was also responsible for shipping the coal imported by Usiminas from the United States, as part of an agreement between the two companies signed in 1961. Docenave’s ships took iron ore one way and came back with coal for steel mills.

Combining the shipping of bulk solid exports (iron ore) and imports (coal) permitted significant cost savings. Brazilian steel companies “had paid around US$6 in freight costs per metric ton of coal imported from the United States, but in the first iron ore export return shipment, freight costs fell to US$2.80.”18

Docenave’s successful experience with chartering transport services led it to invest in building its own fleet of ships. In November 1967, it signed contracts with two large Japanese shipyards involving the financing and construction of two ore/oil carriers, each of 104,000 deadweight tonnage (DWT),19 to be used to transport Vale’s iron ore to Japan. The vessels were scheduled for completion in 1970. Besides these two ships, in 1967 Docenave also ordered a 53,000-DWT bulk carrier from a Brazilian shipyard, to be used to take CVRD’s ore to the United States and Europe. On its return trips, the ship would bring coal for Usiminas and CSN. The same year, Docenave signed a deal with Petrobras to transport some of its oil bought in the Middle East.20


19 - Weight that a ship can carry, including not just its commercial cargo and crew, Weight that a ship can carry, including not just its commercial cargo and crew, but everything necessary to move it (fuel, water, etc.) and to supply the crew (food, clothes, etc.).


Eliezer Batista, serving as both Minister of Mines and Energy and president of

Vale, observes the signing of an iron ore export contract between CVRD and Cia.

Belgo-Mineira, on October 3, 1962. Facing page: the Docevale at the Nippon Kokan K. K. shipyard in the city of Tsu, Japan.

The Docevale was the second of two ships ordered by Vale do Rio Doce Navegação S.A.

(Docenave) from Japanese shipowners. It was delivered in March 1970, and its first

captain was Arnoldo Waldemar Stamm.

114 115


4.4 CVRD’s responses to technological innovations in the steel industry

CVRD’s fast growth between 1961 and 1967 was not only due to its direct sales policy, its signing of long-term contracts, the opening of Tubarão Maritime Terminal and the establishment of Docenave. Another key factor was the successful transformation of the company’s production structure, enabling it to be adapted to profound technological changes in the global steel industry,21 especially the use of Linz-Donawitz (LD) furnaces.

The use of LD furnaces necessitated the use of higher grade iron ore, and also led to demands by purchasers for stricter chemical and particle-size specifications. As a result, raw materials’ share of total production costs rose from one-third to two-thirds.

In 1961, in order to conduct research to make better use of its minerals, CVRD established Beneficiamento de Itabirito S.A. (Benita), in partnership with American and European investors. Benita’s mission was to provide industrial and technical services to itabirite mining concession-holders in the Iron Quadrangle region, in particular aiming at the concentration and agglomeration of ore in order to make it profitable.22

This initiative, however, was not enough for Vale to guarantee its position in international trade. Heightened competition, with the entry of new producers in the market, rising shipping freight charges and ever greater demand for new coarse types of high-grade iron ore for direct charging into blast furnaces led the company to intensify its studies on how to diversify and enhance the quality of its ores. Pelletizing was key to this.

Iron ore pelletizing represented an important technological innovation because, as seen earlier, it enabled the use of ultrafine ores that had accumulated at mines, raising production

21 - Idem, ib., p. 30.

22 - See Rangel, Orlando, See Rangel, Orlando, op. cit., p. 17. CVRD owned a 51.24% stake in Benita.

costs and contributing to falling mining income. In addition, ultrafines could cause environmental damage. Pellets had been in widespread use in blast furnaces in the United States since the 1950s, due to their significant advantages over run-of-mine ore, and they were now catching on in Japan and Europe, fundamental markets for the company.23

Vale had built up large quantities of ultrafines as a consequence of its mining of high-grade ore. Ultrafines were considered waste material because, due to their small particle size, they were unsuitable for direct use in blast furnaces. To make it economic to use ultrafines, it would be necessary to agglomerate them through the pelletizing process. Free from impurities, pellets acquired high iron content, making them ideal for use in blast furnaces, as they did not crumble, produce dust or block the circulation of air and gases inside blast furnaces.24

In 1964, CVRD’s board was convinced that, in the contest between pellets and sinter, the former would end up winning, mainly because of their permeability and faster reduction, raising the productivity of the steelmaking process.25 For this reason, the company decided to build its first pelletizing plant, with the intention of using its high-grade ultrafines, and subsequently the ultrafines resulting from the concentration of itabirite.

In fact, back in 1962, CVRD’s Development Division, working in collaboration with steel company Vatu, had begun studies on building a pelletizing plant, with the support of technical and scientific organizations from Brazil, the United States, Europe and Japan. The responsibility for producing the overall design of the plant, which would in theory be capable of producing 2 million metric tons per year, was assigned to American firm Arthur G. McKee

23 - Idem, ib., p. 23.

24 - See Lopes, Lucas. See Lopes, Lucas. O Brasil no mercado mundial do minério de ferro (conference held at the National Economic Council), p. 113.


of Cleveland.26 One year before this, the company had developed another initiative in this field by setting up a model laboratory in Itabira, with the aim of enhancing control over the quality of the ores produced.27

In the mid-1960s, Australia’s entry in the global iron ore market further intensified competition between the producing countries. This fact obliged CVRD, once more, to improve its production and processing methods for different types of minerals. At the end of 1965, the company set up the Mineral Development Center (Centro de Desenvolvimento Mineral, or CDM) in Santa Luzia, Minas Gerais, primarily dedicated to studies on itabirite processing.28

CVRD’s efforts to adapt to the market’s new demands were successful. By 1966, the company was producing 26 types of ore with different grain-size characteristics, and some with different chemical specifications.29 The goal of the entire technological innovation process employed was market diversification. The production of different types of ore based on the use of ultrafines, each one with its own blast furnace-usage specifications, was a necessity at a time when the global market demanded a mining industry that was more economically viable.

In 1966, studies began on a project to grow timber in plantations in order to export pulp.30 In October 1967, Vale set up a subsidiary, Florestas Rio Doce S.A., to provide reforestation services in the Doce River Valley region of Minas Gerais.31

26 - See Rangel, Orlando, See Rangel, Orlando, op. cit., p. 23, and Board of Directors’ Report, 1966, p. 6.


28 - Source: Vale’s Innovation website: Source: Vale’s Innovation website: Nossos centros de pesquisa. Available at <http://www.vale.com.br/pt-br/o-que-fazemos/mineracao/estudo-e-desenvolvimento-mineral/paginas/default.aspx>.



31 - See See Board of Directors’ Report, 1967, p. 44, and Board of Directors’ Report, 1969, p. 38.

In 1964, CVRD’s board was convinced that, in the contest between pellets and sinter, the former would end up winning,

mainly because of their permeability and faster reduction, raising the productivity of the steelmaking process

A Linz-Donawitz (LD) furnace, which requires better quality iron ore.


1174.5 The MME and the government’s nationalist orientation

Established in 1960, the Ministry of Mines and Energy (MME) would play a decisive role in shaping the course of the Brazilian economy, always in line with the policies of the country’s president at the time. JK’s government combined a firm belief in the need to attract foreign capital with state intervention in planning (involving targets and executive groups), creating expansion that generated considerable scope for private Brazilian companies and greater dynamism in markets. After Juscelino came Jânio Quadros. And after Jânio’s resignation came João Goulart, known as Jango.

João Goulart had been the most popular federal deputy in Rio Grande do Sul before serving as vice-president in Juscelino’s government. At that time, there were separate, direct elections for president and vice-president. In 1955, Juscelino Kubitschek was elected on behalf of the Social Democratic Party (PSD) and João Goulart for the Brazilian Workers’ Party (PTB). The same thing happened five years later, except that Jânio Quadros was elected on the platform of the Christian Democratic Party (PDC) as President of the Republic.

Jânio was elected on a pledge to clean up national politics. The symbol of his campaign was a broom, with which he would metaphorically sweep the corruption out of the country. He won 5.6 million votes – a new record for Brazil. It was a government of contradictions. While he prohibited cockfighting and threatened to ban the wearing of bikinis on beaches, Jânio gave a medal to Che Guevara, one of the leaders of the Cuban revolution, which had recently seized power. In August 1961, less than seven months after taking office, claiming to be persecuted by “hidden forces,” Jânio resigned as president.

No one could have been more unlike Jânio than João Goulart. The vice-president had strong connections with the labor unions, a repertoire of inflammatory speeches, and an unfriendly stance towards interference by American businessmen in the national

economy. Jango also had a background linked to the workers’ movement of Getúlio Vargas, a short fuse and nationalist ideas on how to treat national resources, especially minerals. In fact, since Jânio’s time in office, the Ministry of Mines and Energy had reflected these nationalist ideas.32

In little more than three years of government, the MME had five ministers – João Agripino, Gabriel Passos, João Mangabeira, Eliezer Batista and Oliveira Brito – all to a greater or lesser extent strongly influenced by decisions coming from a recently inaugurated Brasília. When Jango started governing, the MME’s main goal was to restrict the scope of foreign capital, particularly American, to run companies considered strategic, including mining enterprises.

From the beginning, João Agripino focused his attention on the activities of international companies. The minister decided to make a thorough examination of the legal status of mineral reserves and natural resources in general, with the intention of issuing a decree to rescind the concessions of foreign companies that remained unexploited.33 Among these companies was the Hanna Mining Company, which, as mentioned earlier, had bought the St. John d’El Rey Mining Company34 in 1958 in order to mine the iron deposits situated on its land in the Paraopeba River Valley, on the edge of the Iron Quadrangle region. However, St. John’s rights to exploit these reserves were not legally secure.

The English company – which represented to the government more or less what the Itabira Iron Ore Company had represented at the start of the century – had located mineral deposits in the 1920s, but had not been interested in exploiting them on an industrial scale. As a result of legal changes introduced by the 1934

32 - Portal CPDOC-FGV/PresidentesdoBrasil/Janio. Almanaque Folha on-line (1961-1962). Portal CPDOC-FGV/PresidentesdoBrasil/Janio. Almanaque Folha on-line (1961-1962).

33 - See See Comissão Parlamentar de Inquérito para estudar o problema do minério de ferro, sua exploração, transporte e exportação, bem como as atividades do Grupo Hanna no Brasil através de suas subsidiárias, pp. 508-509 (hereafter CPI do ferro).

34 - The Information related to St. John was taken from The Information related to St. John was taken from CPI do ferro, p. 510, and Pereira, Osny Duarte, op. cit., pp. 68-77.

Previous page: the President of the Republic, João Goulart, in

1963, extends his hand to railroad workers who have gathered to see

him in Vitória, Espírito Santo.

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Viaduct on the Fazenda Alegria-Fábrica rail link in Minas Gerais, part of the Vitória-Minas Railroad.

120 121


Mining Code, it had not been possible for St. John to mine iron ore, given that it had only declared its possession of gold mines. The deposits of iron, manganese and other minerals were considered to be unexploited reserves. For the reserves to be mined, explicit authorization from the federal government would be necessary.

At the end of 1934, after establishing Companhia de Mineração Novalimense, St. John made a request to the Ministry of Agriculture to alter its previous declaration, claiming that it had begun exploiting its deposits before the enactment of the Mining Code and so they should be considered to be mines. The minister ruled in favor, explaining that the deposits had in fact been mined on a small scale. An annotation written in the margin of the record provided the legal foundation for St. John’s authorization in 1939 to exploit the reserves in question. It was precisely this annotation, transforming the declared mineral deposits into mines, that became the subject of a long legal dispute starting in 1961.

Minister João Agripino set up a commission to study, from various angles (geological, pedological, forestry, economic, social and legal), the mines and mineral deposits of the Paraopeba Valley, including Hanna’s. The commission’s final report was submitted to President Jânio Quadros, who, based on this work, signed a resolution annulling the illegal authorizations granted to Hanna and reclaiming the iron deposits for the national reserve. The president’s order instructed the MME to conduct the necessary administrative processes to annul the authorizations granted irregularly and to declare the lapse of mining authorizations in violation of the Mining Code.35

Gabriel Passos, the Minister of Mines and Energy in the first parliamentary cabinet of the Goulart government, proceeded in line with the course established by João Agripino in his position. In June 1962, he even mandated the shutdown of Hanna’s activities in Brazil, and ordered the expropriation of the deposits belonging

35 - See Pereira, Osny Duarte, See Pereira, Osny Duarte, op. cit., p. 149.

to various mining companies, including Companhia Novalimense and Mineração Águas Claras, a company established in 1958 by an American group in the Iron Quadrangle. Hanna went to the Federal Court of Appeal and was awarded its concessions back, although it still lacked the ability to develop more lasting mineral development programs.36

The deadlock between the government and the Americans also led the MME, under the management of Oliveira Brito, to instruct the DNPM to conduct a survey of the state of Hanna’s mineral deposits and the social repercussions that the shutdown of the company’s activities could generate. The hypothesis of handing Hanna’s mines to CVRD was also considered. This option was ruled out when it was verified that Hanna’s mines were far from the Vitória-Minas Railroad’s tracks, making the project economically unfeasible. Oliveira Brito then limited himself to ordering the execution of the sentence ruled previously by the Federal Court of Appeal, making Hanna’s deposits available to other parties. As a result of this decision, the federal government and the foreign company resorted to the Supreme Federal Court.37

Alongside the legal battle between the federal government and Hanna, the idea of establishing a state-owned company along the lines of CVRD to mine iron in the Paraopeba Valley – an orientation that had been included in Document no. 18 – gained ground among the government. The establishment of a state-owned company in the Paraopeba Valley was part of the strategy of nationalist groups eager to contain Hanna’s advances in the area. It would prevent Hanna from obtaining a local monopoly on the extraction and sale of iron ore, which would certainly create serious obstacles

36 - In 1964, according to In 1964, according to CPI do ferro, pp. 514-515, total reserves in the Iron Quadrangle were around 4 billion metric tons of hematite iron. The companies with the largest reserves were the Hanna group, with 770 million metric tons, the Azevedo Antunes group, with 440 million metric tons, Ferteco, with 240 million metric tons, Samitri-Belgo-Mineira, with 225 million metric tons, and Companhia Vale do Rio Doce, with 110 million metric tons.

37 - See Fernandes, Francisco do Rego, See Fernandes, Francisco do Rego, op. cit., vol. 2, p. 359.

for the activities of small and medium mining companies in the Paraopeba Valley.38

In January 1963, the Council of Ministers approved MME Explanatory Memorandum no. 3, issued by Minister Eliezer Batista, who was also CVRD’s president at the time. The document identified the following tasks for the future Companhia do Vale do Paraopeba (Paraopeba Valley Company): “1 – Build and operate maritime terminals to ship ore and unload raw materials in general; 2 – Use the services of the Federal Railroad Network to transport ore for export; 3 – If necessary, provide funding for the Central do Brasil Railroad to execute necessary improvements and branch lines, as well as purchase locomotives and train cars.”39

The main shareholder in the new company would be CVRD, which would have the power to appoint its president and commercial director. The company would transport and export iron ore, acquiring it from its shareholders and small mining enterprises, regardless of their stake in the company.40

Also in December, a decree signed by President João Goulart determined a complete review of all governmental mineral deposit concessions, as well as the cancelation of concessions that had not been exploited in the previous 20 years, including those of Hanna. In the same month, the federal government set maximum prices for the lubricant oils sold by companies such as Esso, Texaco and Shell, weakening foreign distributors’ control of the Brazilian market, and granted Petrobras a monopoly on the import of petroleum.41

By this point, opposition between nationalists and liberals had reached the streets. In January 1964, nationalist groups held a “Popular Week to Defend Mining” in Minas Gerais, in order to raise public awareness of the importance of mining in the country and show support for government acts to defend sovereignty and

38 - See See CPI do ferro, p. 537.

39 - Ibid.

40 - Ibid.

41 - See Ferreira, Marieta de Moraes. “Goulart, João” entry, See Ferreira, Marieta de Moraes. “Goulart, João” entry, DHBB, vol. 2, p. 1,518.

underground resources. Once more, the question of mining was developing into an ever greater political clash. The situation was clear on January 25, at the Latin American Miners’ Congress, held in Minas Gerais during the Popular Week to Defend Mining, which was attended by delegates from Chile, Peru and Bolivia. The meeting’s letter of principles mixed popular slogans with articles from the Mining Code. It argued for the establishment of a state monopoly to mine iron under the control of CVRD. Finally, the document spoke of the “dilapidation of our mineral deposits” and “demanded” that the right to exploit reserves be exclusively reserved for Brazilians.42

4.6 The military regime and opening up to foreign capital

João Goulart was deposed in April 1964; a military junta took power and the country’s political and economic life took a new course. The mining sector was affected by changes in the economic field, as the new regime promoted “a type of development intimately linked to foreign investments.”43

Soon after Marshal Humberto Castelo Branco was sworn in as President of the Republic, an inter-ministerial commission was established to produce guidelines for the mining sector. It was composed of Octávio Gouvêa de Bulhões (Finance), Roberto Campos (Planning and Economic Coordination, a role created by the new government), Mauro Thibau (Mines and Energy), Daniel Faraco (Industry and Trade), Juarez Távora (Transport and Public Works), and Ernesto Geisel (head of the Military Cabinet). Among other issues, the commission was tasked with analyzing the immediate exploitation of mineral resources, the regulation of


43 - See Dias, Maurício. “Revolução de 1964” entry See Dias, Maurício. “Revolução de 1964” entry, DHBB, vol. 4, p. 2,955.

Buckets on an aerial cableway at the Conceição and Dois Córregos mines in Itabira, Minas Gerais. Facing page: aerial view of the final phase of work to build a pelletizing plant.

122 123


unclear or unworkable legal provisions in the revised Mining Code and, above all, the role of the state in the sector.44 Companhia Vale do Rio Doce – in all its activities, from mining to foreign trade in ore – lay at the center of discussions.

This commission’s points of view were certainly reflected in Explanatory Memorandum no. 391/64 of June 25, 1964, in which Mauro Thibau presented the broad outline for managing the sector. Denouncing the interventionist character of the previous government, which had inhibited the participation of private companies, Thibau stated that, when he took over as Minister of Mines and Energy, “around 1,400 processes for authorizing prospecting and granting mining concessions were awaiting resolution. Particularly with regard to iron ore, the orientation of hindering the activities of private companies predominated, causing the loss of markets and consequently reducing our exports.”

In the text, the minister criticized the “insufficient knowledge of the country’s underground resources” and “the unsatisfactory exploitation of known reserves.” These factors were said to contribute to “increasing the rate of error in planning development, imposing exaggerated costs on the balance of payments and revealing the underutilization of mining as an instrument for national progress.”45

CVRD’s board did not hide its discontent with the government’s mining sector policy proposed by Minister Thibau, which relegated the state to a supplementary role. Disagreeing completely with this stance, Vale’s board, led by company president Paulo José de Lima Vieira, sent the minister a document dated July 16, 1964, outlining an array of difficulties that could arise from the establishment of foreign mining companies in the country, especially Hanna.46 In fact, the company was concerned about the secondary role accorded to state enterprises (and the incentives offered by the government to foreign companies), which could seriously compromise its expansion plans.

Vale argued that the new mining policy could induce the Brazilian government to approve projects without any prior demands or conditions. This would represent a setback in relation to the advantageous contracts signed with Samitri and Ferteco, through

44 - See Keller, Vilma. “Bulhões, Otávio Gouvêa de” entry, See Keller, Vilma. “Bulhões, Otávio Gouvêa de” entry, DHBB, vol. 1, p. 505.

45 - See See Três anos de revolução do MME, op. cit., pp. 80-81.

46 - Information on CVRD’s position with respect to government policy was taken from Information on CVRD’s position with respect to government policy was taken from the document submitted to the Minister of Mines and Energy, entitled Comentários sobre a nova política mineral contida na Exposição de Motivos no 391/64, of June 26, 1964, issued by the Ministry of Mines and Energy, regarding the interests of Companhia Vale do Rio Doce, n.p.

which these international groups had committed not to interfere in CVRD’s markets. On the contrary, they showed themselves to be willing to facilitate the company’s entry into new markets, and they were obliged to reinvest the resources obtained from exporting iron ore in Brazil, preferably in steelmaking projects.

From CVRD’s perspective, the competition that could be introduced would pit the government – represented by Vale do Rio Doce – against private groups supported by infrastructure provided by the government itself, namely its railroads and port facilities. Moreover: “While CVRD would bear all the costs of building, maintaining and equipping its railroad and port, its competitors would have the advantages provided by the suggested policy in the railroad sector and [...] in the port sector.” The target, once again, was the Hanna group.47

The overall principles of the mining policy were confirmed in the Government Economic Action Program (Programa de Ação Econômica do Governo, or PAEG), which defined the strategy of Castelo Branco’s administration. Produced by the Ministry of Planning and Economic Coordination, led by Minister Roberto Campos, the PAEG argued that the government, in order to stimulate Brazilian exports, should “authorize private entities to build port terminals and respective railroad branch lines to connect with main lines, to transport iron ore from the Paraopeba Valley, provided that such projects do not involve requests for financial resources from government entities. Existing port facilities would be predominantly used by small and medium mining companies.”48

The federal government’s new policy for the mining sector was encapsulated in Decree 55,282 of December 1964, which authorized the participation of private capital in mining and extended to foreign capital the right to buy stakes in Brazilian companies operating in the sector. The production of oil, coal and nuclear-related minerals was not included in this initiative. The document also established measures for boosting exports of iron ore, including the construction of private loading terminals in Sepetiba Bay. CVRD was guaranteed the right to export ore from the Doce River Valley, either directly or through contracts with the region’s private mining companies, and through agreements with the Federal Railroad Network and the National Railroads Department, authorizing

47 - Ibid.

48 - Programa de Ação Econômica do Governo (PAEG), p. 201.

the company to complete and operate a railroad linking Itabira to Belo Horizonte.49

The authorization for private companies to build port terminals and railroad branch lines was debated actively in the press and the National Congress. It was claimed that, through this measure, the government was in practice favoring the Hanna group’s companies, which constituted a serious error, given that the Americans still did not have the legal right to exploit their mineral deposits and mines.50

Reactions were not limited to the traditional opposition sections of society. Governor Carlos Lacerda of Guanabara (now the state of Rio de Janeiro), and Governor Magalhães Pinto of Minas Gerais – important civilian players in the movement that brought down João Goulart – also argued against the terms of the decree. On December 23, 1964, Lacerda issued an official statement that described the decree establishing the new mining policy as “unconstitutional and illegal.”

In a letter to President Castelo Branco, Magalhães Pinto warned that granting Hanna a concession for a private port in Sepetiba Bay would lead Brazil to remain a mere supplier of raw materials.51 There were also serious repercussions at CVRD. Due to disagreements with government guidance, company president Paulo José de Lima Vieira resigned in January 1965. The same month, Oscar de Oliveira was appointed in his place.

Even before the enactment of Decree 55,383, the opening up of mining activities to foreign capital had led to the establishment, in November 1964, of a Parliamentary Commission of Inquiry (Comissão Parlamentar de Inquérito, or CPI). The CPI was tasked with studying the problems surrounding iron ore and its mining, transportation and export, and the activities of the Hanna group’s subsidiaries.52 Led by rapporteur Roberto Saturnino Braga, a deputy from the state of Rio de Janeiro, the CPI worked on the issues until October 1965. The final report expressed the parliamentarians’ concern that the American company, besides competing with the small and medium miners of Paraopeba, could inhibit the development of the regional steel industry. The fact that Hanna

49 - The data related to Decree 55,282 were taken from the DHBB, in the “Castelo Branco, The data related to Decree 55,282 were taken from the DHBB, in the “Castelo Branco, Humberto” entry, by Monica Kornis (vol. 1, p. 716) and the “Thibau, Mauro” entry (by the same author), (vol. 4, p. 3,348), and Três anos de revolução do MME, p. 85-86.


51 - See “Thibau, Mauro,” See “Thibau, Mauro,” DHBB, vol. 4, p. 3,348. This same source states that Lacerda accused Thibau of having been one of the technicians hired, years earlier, by Consultec to evaluate St. John’s assets, now belonging to Hanna.

52 - On this subject, see Pereira, Osny Duarte, On this subject, see Pereira, Osny Duarte, op. cit., pp. 456-487.

Paulo José de Lima Vieira In April 1964, when Paulo José de Lima Vieira (born

in Ouro Preto, Minas Gerais, 1916-2010)1 took over as president of Vale, it was impossible to distinguish business policy from what was happening in the rest of the country. The military coup that had removed João Goulart from office had just happened, and managerial functions – especially those linked to state-owned companies – were fundamental to the strategies of the new government. Vieira had served as president of the National Steel Company (Companhia Siderúrgica Nacional, or CSN) before being appointed to run CVRD. His administration was marked by the implementation of the first long-term iron ore sales contracts with Japan, which had been signed previously. He continued the construction work at Tubarão Maritime Terminal in Espírito Santo, and maintained the commitments given to mining companies Samitri and Ferteco, which needed the Costa Lacerda-Fábrica railroad link to export their goods. In January 1965, Vieira stood down due to his disagreement with the government mining sector policy announced by President Castelo Branco.

1 - See “Vieira, Paulo José de Lima,” DHBB, vol. 5, p. 6,078-6,079, and “Conheça todos os presidentes da história da Vale” (Learn about all the presidents in Vale’s history), Exame magazine, April 5, 2011.

Previous page: Paulo José de Lima Vieira, former president

of CVRD, giving a speech about the company in Vitória,

Espírito Santo, in 1964.

124 125


would be able to dominate iron ore mining in the Paraopeba Valley could oblige state-owned steel companies – such as Companhia Siderúrgica Nacional (CSN), Companhia Siderúrgica Paulista (Cosipa) and Companhia Siderúrgica da Guanabara (Cosigua), the latter still in the study phase – to acquire raw materials from a foreign company, which was seen as way of controlling the domestic steel industry.

Governor Carlos Lacerda expressed particular concern about this issue. The building of Cosigua’s plant involved total investment of US$250 million, funded by Krupp (West Germany), Sybetra (Belgium) and CAFL (France), among other groups. Estimated initial output was around 500,000 metric tons per year of steel ingots. The loan from foreign companies would be paid back partly by supplying “1.5 to 2 million metric tons of iron ore per year, for 18 to 20 years, to be mined in the Paraopeba Valley.”53 Among other facilities, the steel mill would need to have a port in Sepetiba Bay that could receive ships of up to 23,000 metric tons of capacity. Lacerda feared that if Hanna gained control of the mineral deposits, as well as the transportation and shipment of ore, Cosigua could in practice end up a subsidiary of the American company.

CVRD’s position in the Parliamentary Commission of InquiryIn terms of competition with Companhia Vale do Rio Doce, the CPI considered that this problem was less serious than might be supposed. According to the majority of people who testified to the CPI, the state-owned company had already acquired business maturity and international experience to the extent that it had no need to fear competition from Hanna. Although the CPI as a whole concluded that Hanna interfered little with CVRD’s businesses, some members of the commission voiced their disagreement. Senator João Agripino noted that “Hanna has mineral reserves in other parts of the world and also sells coal, giving it an excellent chance of surpassing CVRD on the international market [...] Dealing with two

53 - Idem, ib., p. 227.

products, and maneuvering with more than one company, it could lower the price of one and raise the price of the other, whenever the market or its underlying objectives require it to, resulting in good final results for the company.”54

The CPI’s rapporteur emphasized the fact that the American company operated on markets where Vale also participated in Western Europe and Japan. “In Europe, it even operates large, modern ore unloading facilities at the Port of Rotterdam, one of the main terminals where CVRD’s goods also end up.”55

Despite the various opinions voiced against the government’s guidelines, in June 1966, the Supreme Federal Court made its decision, transferring to the executive branch the administrative process related to Hanna brought by the MME, and leaving the legal issue unresolved. In practice, this meant leaving the final decision on the matter to the President of the Republic. On March 13, 1967, two days before stepping down from the government, and based on the technical opinion of the DNPM and an explanatory memorandum issued by ministers Mauro Thibau, Roberto Campos, Octávio Gouvêa de Bulhões and Juarez Távora, Castelo Branco gave back Hanna its former concessions.56

Even before the pending legal issue had reached its conclusion, in 1965 the American group entered into an association with Brazilian group Companhia Auxiliar de Empresas de Mineração (Caemi), controlled by Augusto Trajano de Azevedo Antunes, as a way of getting around the lawsuit and also improving its public image. The association with Caemi safeguarded the multinational’s presence in the Iron Quadrangle in political and legal terms, while strengthening the Brazilian group’s business interests.

54 - See See CPI do ferro, p. 505.

55 - Ibid, p. 504.

56 - This and other information about the development of the Hanna case was taken from This and other information about the development of the Hanna case was taken from Fernandes, Francisco do Rego, op. cit., vol. 2, pp. 359-360.

Stimulating discoveries, expanding knowledge of the country’s mineral resources, and using mineral production

as an instrument to accelerate economic and social development were principles of the new Mining Code

Collection of ore samples at Cauê Mine, Minas Gerais, in 1963.

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companies, and should only act directly in a supplementary role. In such cases, the state must follow the same norms applied to private companies, including with respect to labor rights and taxes payable. The changes introduced by the new Constitution led to a comprehensive revision of the 1940 Mining Code.

Sanctioned by Decree-Law 227 of February 28, 1967, the new Mining Code58 consisted of eight chapters and 97 articles. Its general principles were as follows: stimulate discovery and widen knowledge of the country’s mineral resources; use mineral production as an instrument to accelerate economic and social development through the intensive use of known mineral resources, whether for internal consumption or export; promote the economic utilization and productivity of mineral resource extraction, distribution and consumption activities; ensure supplies of mineral products for the domestic market; encourage private investment in prospecting and the exploitation of mineral resources; and create legally secure mineral rights in order to avoid obstacles to the exploitation of mineral resources and to stimulate private investment in mining.

Innovations in the new Mining CodeThe main innovation introduced by the 1967 Code in relation to preceding legislation was the transfer of the landowner’s preferential mineral prospecting right to the first entity to request authorization to conduct prospecting or to register a license. In this new situation, the landowner was only entitled to compensation for damage caused during prospecting, a share of mining profits once mining was under way, and income for occupation of the property.

Another important contribution of the Code, by establishing that authorizations or concessions would be granted to Brazilian people, mining companies or other legal entities, was to eliminate the contradiction existing between the text of the 1940 Code, which demanded that company partners be of Brazilian nationality, and the Constitution, which required companies merely to be constituted in the country.

Under the new Code, there were now five regimes for exploiting mineral substances: 1) authorization, when exploitation depended on the issuing of a prospecting permit from the director-general of the National Mineral Production Department (DNPM); 2) concession, when exploitation required a mining ordinance from the State Minister of Mines and Energy; 3) licensing, when it depended on a license issued in compliance with local regulations and registration

58 - Information about this subject was taken from the Mining Code itself, reproduced in Information about this subject was taken from the Mining Code itself, reproduced in Pereira, Osny Duarte, op. cit., pp. 409-439.

It was agreed that the Brazilian group would have control of the new entity (51%), a maritime terminal would be built and operated on Guaíba Island in Sepetiba Bay, and a formal contract would be signed with Rede Ferroviária S.A. to guarantee basic transportation infrastructure.

4.7 The 1967 Constitution and the new Mining Code

From the short administrations of Jânio and Jango to the new times of the military government, nationalist issues remained the order of the day. Mining policy – which still employed the rhetorical appeal of “my land” – stirred up the debates ever more. The case of Hanna – which as noted, developed into a modern version of the Itabira Iron Ore Co. – spurred a review of the 1946 Mining Code. The question of who owned the land – whether it was the state, whoever discovered the deposits, or the person/entity (Brazilian or foreign) that took the initiative to exploit them – needed to be resolved as a matter of urgency. The military, depending on international agreements that sustained the coup, wanted changes. And the new Constitution would be the basis for making them.

The new Constitution, enacted in January 1967, incorporated all of the government’s orientation on mining policy. In short, the new text maintained the authorization and concession regimes, but ended landowners’ preferential right to exploit mineral deposits on their land, which was present in the 1946 Constitution. Deposits belonged to the federal government. Landowners would lose their preferential right to exploit deposits discovered by third parties, but in compensation they would gain the right to a share of mining income.

As in the previous Constitution, the right to exploit deposits, mines and other mineral resources would be given exclusively to Brazilians or companies constituted in Brazil. This precept guaranteed the right of foreign companies to participate in mining activities, provided that they merely establish a company in the country or associate with a Brazilian company.57

The principles established by the post-1964 mining policy were confirmed in article 165, which gave preference to private companies with regard to the right to organize and execute economic activities. The state was responsible for supporting and stimulating private

57 - Paragraph 1 of article 161 states: “The exploration and usage of reserves, mines and Paragraph 1 of article 161 states: “The exploration and usage of reserves, mines and other mineral resources, as well as hydraulic energy potential, will depend on a federal authorization or concession, in accordance with the law, granted exclusively to Brazilians or companies established in the country.”

Ore stacker at Tubarão Maritime Terminal in Espírito Santo.

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of the license with the DNPM; 4) extraction, when defined in a Ministry of Mines and Energy ordinance; and 5) small-scale prospecting permit, issued by the director-general of the DNPM.59

Deposits, defined as “individualized masses of mineral or fossil substances, on the ground surface or under the earth, and of economic value,” were grouped into nine classes.60 Mines, defined as “deposits being mined, even if mining is suspended,” were classified in two categories: declared mines, related to situations created by the 1934 Code; and granted mines, obtained by federal government decree.

Charges and fees were created, to be paid by prospectors and transferred to the National Mining Fund in order to support mineral prospecting in the country. The Single Minerals Tax (Imposto Único sobre Minerais), provided for in specific legislation and incorporated into the Constitution of 1967, constituted the main source of revenue.

Prospecting authorization was the responsibility of the Minister of Mines and Energy, and the granting of mining concessions was conditional upon the results of prospecting and subject to a presidential decree. If after one year, the holders of prospecting permits did not request a concession, they would lose the right to it.

The new Code sought to stimulate large mining companies, as it established that mining authorizations would only be granted to mining companies, with no restrictions on the number of concessions granted to the same firm. In order to raise productivity, the Code allowed the holders of nearby or neighboring concessions to join together in mining consortia and/or mining groupings. The intention was not only to rationalize mining, but also “solve the problem of small miners, incapable individually of surviving in an activity that often demands large-scale production to be economic.”61 The Code also regulated the work of small-scale prospectors, obliging them to register and determining situations in which this activity could be prohibited.

59 - The registration regime and provisions for small-scale rudimentary prospecting The registration regime and provisions for small-scale rudimentary prospecting were abolished by Law 7,805, published in the official gazette (DOU) of July 20, 1989, which created a new small-scale prospecting permit regime. For more information about mining regimes, see the DNPM website: <http://www.dnpm.gov.br/go/conteudo.asp?IDSecao=655>.

60 - The classes specifi ed in the Code were as follows: Class I – deposits of metal-bearing The classes specified in the Code were as follows: Class I – deposits of metal-bearing mineral substances; Class II – deposits of mineral substances for immediate use in construction; Class III – fertilizer deposits; Class IV – solid fossil fuel deposits; Class V – deposits of bituminous and shale rocks; Class VI – deposits of gems and ornamental stones; Class VII – deposits of industrial minerals, not including the preceding classes; Class VIII – deposits of mineral water; and Class IX – deposits of underground water. See Pereira, Osny Duarte, op. cit., p. 411.

61 - Mining consortia and mining groupings differed in the following ways: while the Mining consortia and mining groupings differed in the following ways: while the former were composed of the holders of nearby or neighboring mine concessions, opened up or situated on the same deposit or in the same mineral zone (article 86), mining groupings were consolidated mining entities that brought together various mining concessions with the same owner and the same mineral substance (article 53). See Pereira, Osny Duarte, op. cit., p. 105.

Another innovation introduced by the Code was permission for aerial surveys, which mainly benefited multinationals. It was expensive, specialist work, and only large foreign groups were able to make this kind of investment.

The expansion of penalties for violating legal provisions was another new feature of the 1967 Code. In the Code of 1940, only one sanction was provided for – the lapse of prospecting permits or mining concessions – thereby providing scope for many irregularities given the rigidity of the law itself. The 1967 Code established a sliding scale of penalties, ranging from warnings to fines and, for serious violations, the loss of permits or concessions, following an administrative process.

Less than one month after it was enacted, the Mining Code experienced major changes as a result of Decree-Law 318 of March 14, 1967.62 The National Security Council issued a statement, declaring its concern regarding possible impacts of the new Mining Code on “the nation’s most important interests” and national security itself. The response would come in the form of a new wording for the preamble to the Code. Instead of references to the changes that article 161 of the 1967 Constitution had caused by ending landowners’ right to preference, the decree emphasized the importance of evolution in techniques and the need to safeguard “higher national interests” and preserve the country’s competitiveness on international markets.

Items I and II of article 2 were also rewritten. Item I now referred only to the concession regime, while item II described the authorization and licensing regimes, given that both required measures and acts to be undertaken by the Ministry of Mines and Energy, unlike concessions, which were awarded by the federal government itself.

The most important modification introduced by Decree-Law 318 was reserved for the repeal of item IV of article 16 of the Mining Code. The elimination of this item, which referred to proving Brazilian nationality in requirements to obtain prospecting permits, greatly facilitated the entry of foreign capital. The path to a more effective presence of foreign companies in mining activities in Brazil was now open. Another major change was the removal of article 59, which determined that public-sector companies could only operate in the sector in a supplementary role to support the private sector. As a result, state intervention was guaranteed in areas considered to be of interest to national security.

62 - Idem, ib., pp. 439-442.

Train cars loaded up with iron ore on the opening

day of Tubarão Maritime Terminal in Vitória, Espírito

Santo, on April 1, 1966.

130 131


Oscar de Oliveira Oscar de Oliveira (born in Rio de Janeiro in 1915)1 was

appointed to run CVRD in January 1965. Brazil’s mining policy at the time centered on an economy geared to producing strategic inputs and internal funding. Oscar was already a company employee at the time he was appointed president, and he had the backing of the President of the Republic. The biggest milestone in his administration was the opening in 1966 of Tubarão Maritime Terminal, a project begun four years previously during João Goulart’s government, when Eliezer Batista was the company’s president. After the opening of Tubarão, which was able to accommodate large ships, the company quadrupled its exports and paved the way for further achievements on the international market over the next two decades. Oscar de Oliveira’s administration also oversaw the opening of the Costa Lacerda-Desembargador Drumond branch line on the Central do Brasil Railroad (EFCB), and the establishment of two subsidiaries: Itabira International, and Seamar, a shipping company based in Liberia. Oliveira stood down as president of CVRD in March 1967, at the end of President Castelo Branco’s administration.

1 - See “Oliveira, Oscar de,” DHBB, vol. 4, pp. 4,173-4,174, and “Conheça todos os presidentes da história da Vale” (Learn about all the presidents in Vale’s history), Exame magazine, April 5, 2011.

4.8 CVRD’s performance and administrative reform

In the midst of all the discussions in the highest spheres of government, CVRD continued to expand. Solving issues concerning land ownership, the participation of foreign capital and mineral extraction rights (including the administration of railroads and ports) was fundamental to the company’s future – but in the meantime, Vale could not stop.

In 1964, CVRD began to implement an expansion program that, in line with PAEG guidelines, aimed to reach 20 million metric tons of annual exports by the end of the decade. Of this total, 10 million metric tons of iron ore would come from its own mines, 2 million metric tons would consist of pellets, and 8 million metric tons of ore would be produced by other mining companies, including small and medium miners in the Doce River Valley region as well as Samitri and Ferteco. In order for the company to produce 12 million metric tons of iron ore and pellets, the program provided for the mechanization of the Conceição and Dois Córregos mines in Itabira, requiring investments of the order of US$8.5 million.63

Heavy investment in transportationIn the transport sector, there were plans for investment of around US$29 million to be spent on improving the Vitória-Minas Railroad and building new branch lines to guarantee access to mineral deposits situated in the Piracicaba River Valley. The following construction work was planned: the straightening of a stretch of the Central do Brasil Railroad between Desembargador Drumond and Costa Lacerda, operated by CVRD through an agreement with the Federal Railroad Network; the building of the Costa Lacerda-Fazenda Alegria link in order to transport ore produced in Samitri’s mines; and the construction of the Fazenda Alegria-Fábrica link to enable access to Ferteco’s mines.

Building these branch lines enabled CVRD to continue its policy of expanding its iron ore reserves, begun in June 1961 with the signing of a contract with Acesita to lease the Periquito and Chacrinha deposits for 10 years. Located in Itabira, the two reserves contained 110 million metric tons of iron ore, around 30% of which was easy to extract.64 In 1967, the company acquired two new deposits, already prospected, with reserves of approximately 70 million metric tons of high-grade ore: the first, Timbopeba, was situated along the Costa Lacerda-Fábrica branch line; while the second, Piçarrão, was located 17 kilometers from Desembargador Drumond, on the Vitória-Minas’ main line.65

63 - Although planned in the 1950s, the mechanization of the Conceição and Dois Córregos Although planned in the 1950s, the mechanization of the Conceição and Dois Córregos mines did not go ahead in that period.


65 - See See Board of Directors’ Report, 1967, pp. 7-8.

Although decisions taken within the scope of its commercial policy guaranteed CVRD the financial autonomy it needed, its expansion program required the support of external resources to be feasible. After months of negotiations, in November 1964 the Inter-American Development Bank approved a US$28.8 million loan to be allocated as follows: Tubarão pelletizing plant – US$16.5 million; Tubarão Maritime Terminal – US$1.5 million; railroad equipment – US$4.9 million; equipment for new mining facilities – US$5.6 million; and control/monitoring costs involving the IDB – US$300,000.66

The company’s improving financial situation permitted a gradual rise in investment in the development of the Doce River region. Between 1961 and 1967, the resources CVRD transferred to the Fund for the Improvement and Development of the Doce River Zone were allocated to the following uses, in descending order of magnitude: agriculture/industry; studies and projects; infrastructure (electrification, transportation, water supply and treatment, and sewerage services); and education, health and social welfare.67

Besides controlling subsidiaries Docenave, Vatu, Benita and Itabira Eisenerz, as of 1967 CVRD also had stakes in various companies, in both the public and private sectors, including CSN, Cosipa, Usiminas, Usina Siderúrgica da Bahia (Usiba), Centrais Elétricas de Minas Gerais (Cemig), Espírito Santo Centrais Elétricas S.A. (Escelsa), Companhia Pernambucana de Borracha Sintética (Coperbo), Companhia Agrícola de Minas Gerais (Camig) and Frigorífico Mucuri S.A.68

All of this process of expansion was supported by a wide-ranging administrative reform, begun at the start of the decade. In 1961,


67 - See See Companhia Vale do Rio Doce. 1942-1967. n.p.


following a decision by company president Eliezer Batista, CVRD began studies on adapting its administrative and functional structure to the pace of expansion of its business activities.69

Administrative reformIn 1962, the company reformulated its standards and techniques for selecting personnel. New employees were now hired exclusively on their individual merit, and they were required to take aptitude and psychometric tests. This initiative was progressively implemented over the course of the 1960s.

An assessment of Vale’s administrative reform in the 1960s reveals great concern among company leaders to maintain business autonomy in relation to its majority shareholder – the state. In accordance with the terms of Decree-Law 2,627 of September 26, 1940, which provided the basis for corporate law at the time, CVRD’s directors were elected at General Shareholders’ Meetings, in compliance with strictly standardized procedures.

As majority shareholder, the state could freely appoint or replace directors, thereby threatening the continuity of policies in the process of being implemented. The increasing number of company divisions, the closer relations between the general superintendents of these divisions and the president, and the elimination of the position of general superintendent for the company as a whole (and this position’s replacement, in practice, with a Planning and Coordination Group), can be interpreted as proof that Vale intended to guarantee its organic unity and normality in its decision-making flows.


The company’s expansion program required the support of external resources to be feasible. After months of negotiations, in November 1964 the Inter-American

Development Bank approved a US$28.8 million loan to expand Tubarão Maritime Terminal, among other investments

132 133


Men working with a spike driver on the Vitória-Minas Railroad in January 1963.

Previous page: former president of CVRD, Oscar de Oliveira (in light-colored suit), leading a group of Japanese executives visiting Tubarão Maritime Terminal soon after it opened in 1966.

134 135


CVRD’s soccer clubs

As well as iron, there was a time when Vale also produced soccer stars – or at least good players. Valeriodoce Esporte Clube (in Itabira, Minas Gerais) and Desportiva Ferroviária (in Cariacica, Espírito Santo) were soccer teams supported and funded by Vale. Neither of these teams won major national trophies, but there is no shortage of interesting stories to tell about them. Valeriodoce and Desportiva share a history of dreams (in the best sense of the word, given that both are still professional teams), adventures, heroic victories, dramatic defeats, talented players, some rather weaker players, romance and a deep-seated identification with the company that founded them. Valeriodoce and Desportiva – even though they have never played against each other in an official championship – have always led what might be called the “Iron League.”1

Valeriodoce, the older of the two teams, was founded in 1942, in the same year that Vale was established. It is said that the team’s kit is red and white in honor of the company president, Israel Pinheiro (for whom the club’s stadium is named). The popular explanation is that when signing the club’s founding statute, finding himself without any other pen, Pinheiro signed his name in red ink. The official version of the story is that the team’s colors are a tribute to América, a team in Rio that uses the same colors. Whatever the truth, the fact is that the “Red Dragon of Itabira” (a fond reference to the steam trains formerly used in the town) has a strong record in soccer in the state of Minas Gerais, despite having been in the second division for over a decade. The team’s greatest achievements include twice winning the Minas Gerais second division championship, and a game against Botafogo (featuring Didi and Garrincha, among others!) in 1957. The poster for this match, which erroneously referred to Nilton Santos as Newton Santos”, heralded “the greatest sports event of Itabira… Come see the pellet masters.” Valeriodoce won the game, 2-1.

Desportiva Ferroviária at one point was the best soccer team in Espírito Santo. From its founding in 1963 to 1989, it won no fewer than 13 state championships, overtaking the performance of its greatest rival, Rio Branco. During this period, the team participated in four editions of the “A” Series Brazilian Championships, achieving 15th place in 1980, its best ever ranking. Desportiva was founded by CVRD railroad workers – it is not by chance that its mascot is a locomotive engineer, and the team’s stadium is named for João Araripe, a Vale railroad engineer. The team has revealed stars such as Geovane (who subsequently played for Vasco and the national team) and Sávio (who later played for Flamengo). In 2011, Desportiva – then playing in the second division in Espírito Santo – notified the soccer federation that it would be suspending its activities, but promised to return soon. Its song – which should be sung to the rhythm of a moving train – says: “Pra frente Desportiva / Pra frente é seu destino / Quem fica não conquista / Grandes marcas em sua vida” (“Forward, Desportiva! / Onward to your destination / By standing still, no one wins / Great milestones in life”).

1 - See: Histórias da Vale. Museu da Pessoa, 2002, p. 44; Valeriodoce Esporte Clube <www.clubevaleriodoce.com.br>; and Nilo Dias Repórter <http://nilodias-reporter.blogspot.com.br/2011/06/os-orfaos-da-mineradora.html>.

Aerial view of construction work at Tubarão Maritime Terminal in

Espírito Santo. Facing page, left to right: Valeriodoce Soccer Team in

the 1940s, and a poster announcing a historic match in Itabira, Minas

Gerais, between Vale’s team and Botafogo, whose lineup included

Garrincha, Nilton Santos and Didi. Valeriodoce won the game, 2-1.

Documents

CHAPTER 4 The Defining Years: CVRD as a World-Class ... · 104 105 Vale Our History Vale Our History 4.2 CVRD in the 1960s If there is one word to describe CVRD’s ambitions for