Companhia Vale do Rio Doce Positioned for sustained profitable growth

Transcription

1 Companhia Vale do Rio Doce Positioned for sustained profitable growth New York February 22,

2 Disclaimer This presentation may contain statements that express management s expectations about future events or results rather than historical facts. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected in forward-looking statements, and CVRD cannot give assurance that such statements will prove correct. These risks and uncertainties include factors: relating to the Brazilian economy and securities markets, which exhibit volatility and can be adversely affected by developments in other countries; relating to the iron ore business and its dependence on the global steel industry, which is cyclical in nature; and relating to the highly competitive industries in which CVRD operates. For additional information on factors that could cause CVRD s actual results to differ from expectations reflected in forward-looking statements, please see CVRD s reports filed with the Brazilian Comissão de Valores Mobiliários and the U.S. Securities and Exchange Commission. 2

3 Agenda Business outlook: tight markets to stay The battle for profitable growth The challenges ahead 3

4 Business outlook: tight markets to stay 4

5 Despite the oil price shock, we foresee the global economy on a sustainable growth path 6% global GDP growth % 5% 4% 3% 2% 1% 0% E 2006E Sources: IMF and CVRD 5

6 Leading indicators continue to signal strong industrial production creating potential for a demand rebound for m&m in 2006 Mfg industry: flying on all engines Japan USA Eurozone Global index /02 05/02 09/02 01/03 05/03 09/03 01/04 05/04 09/04 01/05 05/05 09/05 01/06 Sources: JPMorgan and Institute for Supply Management 6

7 Chinese GDP growth, the main driver of global demand growth for m&m, is expected to remain very strong until 2010 China s GDP growth 16% 14% 12% 10% 8% 6% 4% 2% 0% Sources: CEIC and CVRD E 2007E 2008E 2009E 2010E

8 Due to the strong Chinese growth, the disequilibrium between demand and supply for iron ore might stay for longer China RoW iron ore global seaborne market E 2007E 2008E World China RoW CAGR % 31.5% 3.2% CAGRE E 08E 6.5% 12.8% 1.6%

9 Over the past 20 years, the iron ore industry has been running at a 7% average idle capacity. Currently there is none 75% 60% 45% idle capacity average iron ore prices change 25% 20% 15% 30% 10% 15% 5% 0% 0% -15% % Source: CVRD 9

10 The supply response lag to market disequilibrium is being lengthened Shortages of equipment are contributing to an extension of lead times months 05/04 total Trucks Tires Loaders Locos Rails

11 Metals prices are expected to remain well above the levels prevailing in the late 90 s Demand strength Flow of fund investment Chronically low inventories Supply disruptions Lagged supply response 11

12 The battle for profitable growth 12

13 How to sustain profitable growth? Organic growth is the main driver of shareholder value creation Decision making based on strong discipline in capital allocation Our world-class assets and the exploration synergies with an efficient logistics infrastructure provide opportunities for high rates of return on projects 13

14 Capital management committed to value creation our priorities Reinvestment in high-return projects ROIC 2005¹ => 38.2% Average ROIC => 32.0% Return of capital to shareholders Minimum dividend 2006 => US$ 1.3 billion Dividend yield => 5.3% ¹ Jan/Sept 2005 annualized. 14

15 Debt management committed to minimize cost of capital New debt issuance reflecting better risk perception US$ 1 billion, 10-year notes, YTM 6.254% py Active liability management - US$ 600 million over the LTM Reducing debt cost and refinancing risk Building liquid markets on our debt issues 15

16 CVRD has an excellent track record of delivering: 14 major projects over the last four years average ROIC : 33.7% Pellets São Luís Bauxite Trombetas Mn alloys Mo I Rana Port Pier III PDM Iron ore Capão Xavier Iron ore Fábrica Nova Potash Taquari-Vassouras 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 Alunorte 3 Sossego Aimorés Funil Alumina Carajás 70 Mtpa Copper Candonga Energy Alunorte 4 Energy Iron ore Energy Alumina 16

17 Capex continues to be growth-focused: 77% of budget dedicated to growth 2006 capex budget US$ 4.6 billion Stay-in-business US$ 1.07 billion Projects US$ 3.07 billion R&D US$ 491 million 17

18 Capex budget is well balanced among different business areas EBITDA LTM 3Q05 capex budget 2006 Others 0.3% Logistics 7.0% Others 8.8% Ferrous minerals 45.8% Aluminum 10.0% Non ferrous minerals 2.8% Ferrous minerals 79.9% Coal 2.7% Logistics 17.0% Aluminum 16.8% Non ferrous minerals 8.9% 18

19 Despite the strong cost increases, CVRD capacity expansions are being implemented at costs lower than the industry average iron ore¹ CVRD world average US$ 24/ton US$ 47/ton alumina¹ CVRD world average US$ 437/ton US$ 800/ton nickel² CVRD world average US$ 24,900/ton US$ 30,090/ton ¹ brownfield projects ² greenfield projects Sources: CVRD and companies reports 19

20 We are developing six very attractive iron ore projects total capacity start-up investment increase US$ million Mtpy Carajás 85 Mtpy Carajás 100 Mtpy Brucutu /07 Itabira Fazendão Fábrica ROM 20

21 CVRD iron ore production grew at 15% per annum from 2001 to It is expected to reach 300 Mtpy in 2007 iron ore production Mtpy E E

22 Exploring the long-term upward trend of pellets consumption three new highly competitive plants total capacity start-up investment increase US$ million Mtpy Itabiritos¹ Tubarão VIII Samarco² 1, Pellet plant, concentration plant and a short slurry pipeline ² Samarco is a JV. Its project is not included in CVRD capex program. Involves pellet plant, concentration plant and a slurry pipeline 22

23 Realizing our significant growth potential in the aluminum business Paragominas, a new big bauxite mine Capex US$ 548 million Capacity 2007: 5.4 Mtpy 2008: 9.9 Mtpy Alunorte, the world s lowest expansion cost Capex US$ 1.4 billion Capacity 2006: 4.5 Mtpy 2008: 6.4 Mtpy 23

24 CVRD alumina production grew at 13% per year from 2001 to 2005 and it is expected to reach 6.4 Mtpy in E alumina production Mtpy E E E

25 Entry into the nickel market: world class assets total capacity start-up investment increase US$ billion Ktpy Vermelho¹ Onça Puma² Final product: nickel cathodes and cobalt (2.8 Mtpy). ² To be approved. Final product: ferronickel. 25

26 CVRD s second copper project: 118 Capacity: 36 ktpy of copper cathode (SxEw) Capex: US$ 232 million Estimated start-up: 2Q08 Synergies with Sossego and Vermelho 26

27 Fostering iron ore consumption in Brazil: attracting steelmaking projects to take advantage of a low cost platform Ceará Steel capacity: 1.5 Mtpy CVRD Capex: US$ 25 million DR pellets consumption: 2.5 Mtpy estimated start-up: 2009 CSA capacity: 4.1 Mtpy CVRD Capex: US$ 200 million iron ore & pellets consumption: 7.1 Mtpy estimated start-up:

28 An exciting project pipeline Greenfield 118 USC Iron Ore & Pellets Coal Aluminum Tubarão VIII* CSA* Metallics & Semi-finished Potash Itabiritos Estreito Logistics Power Plant ABC* Copper Nickel Shandong Coke Capim Branco I and II HM plant Onça Puma* Salobo I* Salobo II* Brucutu I Paragominas I Vermelho Moatize Mozambique* Southern System* Alemão* Alunorte Stages 4 and 5 Carajás 85 Mtpy Tubarão Port Carajás 100 Mtpy Brucutu II Fábrica Fazendão Itabira Alunorte Stages 6 and 7 Paragominas II Guaíba Sepetiba Andrade* Albras* Paragominas III* Reference US$ 100 MM Brownfield * To be approved 28

29 Developing a global portfolio Tete, Mozambique mine project mine life: 70 years ROM: 21 Mtpy product: 14 Mtpy Moatize Coal current status: feasibility study - 3Q06 start-up:

30 Developing a global portfolio Belvedere Coal Queensland, Australia project underground mine (longwall) expected tonnage: 600 Mt product: 11 Mtpy current status: scoping study - 1Q07 30

31 Developing a global portfolio Piura, Peru project open pit Bayovar Phosphate start-up production of 1 Mtpy in 2010, full production of 3.3 Mtpy expected tonnage: % P2O5 product: phosphate rock current status: feasibility study - 4Q07 31

32 Developing a global portfolio Neuquén Potash Neuquén, Argentina project expected production: 1 Mtpy KCl expected tonnage: % KCl current status: pre-feasibility study - 4Q06 32

33 A natural outcome of our growth process is diversification Global diversity mitigates political risk Asset portfolio diversification will contribute to reduce and to increase multiples Asset portfolio diversification into nickel and coking coal will allow CVRD to become a one-stop shop for the steel industry and to explore additional economies of scale and scope 33

34 The challenges ahead 34

35 In the short term, one of the challenges is to deal with the surge in costs 68% of the increase of costs of production per unit is due to higher input prices and 32% to the appreciation of the BRL Most of input price increases are cyclical and they seem to be easing We are making several efforts to cut costs Reducing demurrage charges Excellence programs => maintenance, operation and investment execution 35

36 Minimization of cost of capital is key for our long-term competitiveness We estimate a cost of capital reduction of 300 basis points over the last couple of years Investment grade-rating was a major achievement The preservation of a strong balance sheet, discipline in capital allocation and an enterprise-wide risk management are our main instruments to continue to improve risk perception 36

37 Human capital development is one of the main challenges to going global policies and programs were put in place to support globalization: fly-in/fly-out, expats,, local hiring, international trainee program number of employees as of December 31, ,054 1, expats 1,629 locals total employees employees outside Brazil 37

38 Our workforce structure is changing, becoming more appropriate to deal with globalization We are developing specific training programs with some of the best business schools in the world Labor force is becoming younger, higher skilled and more international 38

39 CVRD A global leader rio@cvrd.com.br 39