Few companies offer a more stunning testimonial to the benefits of privatization–and fortuitous timing–than the formerly state-owned Brazilian mining firm Companhia Vale do Rio Doce. In the 55 years following its founding in 1942, Vale, as it is now known, grew into a comfortably large domestic player. Since being unshackled from Brazil’s state bureaucracy in 1997, Vale has soared into the ranks of global-commodities powerhouses, with net income rising from $680 million in 2002 to $9.2 billion in the first nine months of 2007, placing it as one of the top-three diversified mining and metals firms in the world. The industry has become blast-furnace hot: witness BHP Billiton’s hostile $147.4 billion bid for iron-ore-rich Rio Tinto Group.
Already the world’s largest producer of iron ore and one of the largest producers of nickel, Vale is also a growing force in copper, manganese, bauxite, precious metals, aluminum, coal, steel and energy. Its stock price has more than doubled in the past year, to nearly $33, and the company’s market value is about $160 billion, 16 times what it was in 1997. Douglas B. Silver, an industry veteran and CEO of Colorado-based International Royalty Corp., calls Vale “the most effective giant mining company in the world,” not just for its size but also for its skill at operating in difficult emerging markets. Along the way, Vale has built what could be a model for other formerly state-run enterprises hoping to make a mark on the world stage.
Roger Agnelli, a 48-year-old investment banker, became CEO in 2001. He inherited a company whose historic strength lay deep in the Amazon, in the massive iron-ore deposits of Carajas. Iron ore then accounted for 75% of Vale’s revenues, and Agnelli’s first move was to consolidate domestically, by selling off peripheral holdings in paper and forestry (Agnelli’s family business) and using the proceeds to swallow eight rival firms. This gave the company new reserves and more sway over prices to the domestic steel industry, just before the commodities boom really kicked off in 2003 with China’s explosive growth. But instead of allowing costs to expand with growth, Agnelli reduced overhead, turning logistics, for example, into a core competency. Vale now owns numerous ports and 10,000 miles (about 16,000 km) of rail. That’s critical in a country as vast as Brazil.
The cost-cutting boosted earnings and fueled the firm’s next phase–diversification. Agnelli bought significant copper holdings from Arizona-based Phelps Dodge (now part of Freeport-McMoRan Copper & Gold) and London-based Anglo-American. At the time, during a glut in 2001-02, the deal raised eyebrows. But when demand for copper exploded soon after, these investments quickly paid for themselves.
Vale’s biggest deal came in October 2006 with its $18 billion purchase–in cash–of Inco, a Canadian firm with nickel assets across North America and as far away as the French territorial island of New Caledonia in the Pacific. The acquisition came just before nickel prices nearly tripled. Inco now accounts for about 40% of Vale’s revenues, and gained the company important technology and highly skilled personnel. “It was a major step for us,” says Tito Martins, executive director for corporate affairs and energy at Vale. More recently, Vale has made a play for Swiss miner Xstrata in a deal estimated at $90 billion.
For the rest of this article, please go to the Time Magazine website: http://www.time.com/time/magazine/article/0,9171,1715295,00.html