Project Resource Shortages Restrain CVRD’s $11 Billion 2008 Investment

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Researched by Industrial Info (Sugar Land, Texas)-- Companhia Vale do Rio Doce (NYSE:RIO) (Rio de Janeiro, Brazil), one of the world’s largest iron ore mining and exporting companies, has launched an $11 billion investment budget for 2008. The budget, the largest investment program ever undertaken by the company, is part of a five-year $59 billion program. It involves a significant increase in capital expenditure for organic growth when compared with the $18 billion over the 2003-07 period. Some of the goals are to double copper production and to significantly increase the output of nickel and iron ore.

Announcing the investment program, the company said the decision to invest on such a huge scale was based on its confidence in the long-term fundamentals of the global economy and on the belief in a structural change in the demand for minerals and metals. Concentrating on organic growth, with the development of a worldwide portfolio of projects, the company intends to invest heavily in logistics infrastructure and energy generation. The implementation of the strategic plan is aimed at maintaining a solid increase in cash generation, the production of solid shareholder value and the creation of thousands of jobs.

At the same time as announcing the large investment program CVRD’s CEO Roger Agnelli said at a briefing in New York that the company could have invested more than $15 billion in 2008 but had been inhibited by the limited availability of resources in terms of equipment, engineering and personnel. He said that gaining environmental licenses for projects and securing energy supplies at competitive prices, particularly for aluminum smelters, had also prevented greater investment. He said the company was investing as much as it could while facing physical project restraints. Agnelli added that investment in new lower cost mines combined with increased automation and efficiencies would allow CVRD to reduce production costs to the operating levels of 2004.

Agnelli said that growth prospects in China and India were good. He estimated that China’s share of global iron ore consumption would increase from 45% in 2006 to 54% in 2011. Other rises in global share of mineral resources would be nickel (17.3% to 21%), aluminum (25.5% to 412%) and copper (21% to 30%).

More than 30 projects are included in the program. These are located in Brazil, Peru, Chile, Canada, Australia, Indonesia, New Caledonia, Mozambique and Oman. The $8 billion to be invested in Brazilian projects in 2008 amounts to 73% of the total. $8.4 billion of the 2008 budget will be invested in organic growth, $7.5 billion will go to project execution, and $884 million will go to research and development. $349 million will be used for the company’s mineral-exploration program.

Nonferrous metals projects will receive $3.6 billion. This will go into the final phases of the Goro and Onca Puma nickel projects and the beginning of the development of Vermelho (nickel), Totten (nickel), Salobo 1 (copper), Papomono (copper) and Bayovar (phosphate).

Iron ore production will increase to 450 million tons per annum through 2012, up from 300 million in 2007, with heavy investment in new mines, plant construction and increased logistics infrastructure. Ferrous metals projects will receive $3.25 billion in 2008. Aluminum will receive $755 million. Energy generation will receive $470 million, and coal will receive $390 million.

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