Companhia Vale do Rio Doce. Reaping the fruits of the long cycle

Transcription

1 Companhia Vale do Rio Doce Reaping the fruits of the long cycle Rio de Janeiro, August 25, 2005

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 forwardlooking 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 CVRD launches dividend reinvestment plan Automatic purchase of CVRD shares with dividends received by shareholders. Mechanism designed for retail investors. Stimulates savings at low costs. Purchase of small number of shares with transaction costs equivalent of large operations. 3

4 Agenda Riding high Market fundamentals strengthen 4

5 Riding high 5

6 CVRD delivered the best quarterly results of its history records YoY Iron ore production 60.7 Mt 17.8% Iron ore & pellets sales 62.4 Mt 11.8% Gross revenues US$ 3.7 billion 83.0% Adjusted EBIT US$ 1.8 billion 112.9% Adjusted EBITDA US$ 2.0 billion 109.4% Net earnings US$ 1.6 billion 223.4% 6

7 A strong global demand and investment in capacity expansion allowed CVRD to achieve a new all-time high in iron ore & pellets shipments million tons São Luís % 5.1% % % 5.2% Carajás 70 Mtpy % Capão Xavier % % % Fábrica Nova % 30% 25% 20% 15% 10% 5% % yoy growth 0 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 0% ª Proforma data for 2002 and It includes Caemi data to facilitate comparison. 7

8 The flip side of the long cycle: cost pressures. However, price pressures on cost are easing Contribution to cost increase¹ 2T05 vs 2T04² 2T05 vs 1T05³ 41.3% 33.7% 35.2% 27.5% 20.4% 14.0% 10.7% 13.5% 3.7% 0.0% BRL appreciation Volumes Iron ore purchases Depreciation Prices ¹ COGS + SG&A ² US$ 625 million ³ US$ 283 million 8

9 Revenue growth was the main driver of yoy (1) adjusted EBITDA increase (44) (173) US$ million 983 volumes dividends received depreciation and amortization others BRL appreciation 2, prices 2Q04 2Q05 9

10 Thirteen consecutive quarters of adjusted EBITDA growth 2Q05 adjusted EBITDA US$ billion Others 1.1% Logistics 6.4% LTM adjusted EBITDA US$ billion Non ferrous minerals 2.2% Aluminum 7.3% Ferrous minerals 83.0% Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 10

11 We believe CVRD cash generation will be more diversified in the future EBITDA composition estimated for 2010 Coal 3% Logistics 9% Ferrous minerals 65% Non ferrous minerals 10% Aluminum 13% 11

12 Starting to benefit from the investment grade rating Jul => rating announcement CVRD 2013 CVRD 2034¹ 172 bp spreads in basis points bp 97 bp Moody s Baa3 DBRS BBB low 151 bp Jul 10-Jul 13-Jul 16-Jul 19-Jul 22-Jul 25-Jul 28-Jul 31-Jul 03-Ago 06-Ago 09-Ago 12-Ago 15-Ago 18-Ago Source: JP Morgan ¹ Spreads between the Brazilian sovereign debt and bonds issued by CVRD with maturity in 2013 and

13 Green light for Vermelho 1H05 Capex US$ 1.4 billion Stay-inbusiness US$ 303 million Projects US$ 1,018 million R&D US$ 71 million Vermelho nickel project Capex: US$ 1.2 billion Start up: 4Q08 Capacity: 46,000 tpy nickel 2,800 tpy cobalt Opex: US$ 1.67/lb Ni 13

14 The new value creation platform: infrastructure improvement Ponta da Madeira Fourth shiploader and third car dumper. Aimorés 85 Mtpy capacity more flexibility Full operation in October. Meeting the Southern System energy needs 14

15 The new value creation platform: production capacity expansion Potash - Taquari Vassouras: ramp up to increase the mine to 850,000 tpy. 710,000 t in 2005 and 850,000 t in 2006 Alumina - Alunorte stages 4&5: additional capacity of 1.8 Mtpy, ramp up will start in 1Q Mt in 2006 and 4.3 Mt in

16 CVRD alumina expansion, a low cost project in a high price environment: global alumina shortage is not expected to be corrected in Alumina spot prices % of LME 3 month aluminum price 30% % % US$ per ton % % % 100 5% 0 0% Jan-98 Aug-98 Mar-99 Oct-99 May-00 Dec-00 Jul-01 Feb-02 Sep-02 Apr-03 Nov-03 Jun-04 Jan-05 Aug-05 Sources: Metal Bulletin, LME and Bloomberg 16

17 Iron ore capacity expansion, supported by LT contracts, will allow CVRD production to reach 275 Mt in Estimated production increase 24 Brucutu 15 Fábrica Nova million tons Fazendão Fábrica Itabira (10) (14) Depletion Ramp up 275 Carajás 1H05 output: Mt E 17

18 CVRD ROIC remains high, despite the strong BRL appreciation 1,5 2 BRL/USD ROIC % , , ¹ ¹ LTM ended at June 30,

19 Shaping the future CVRD is starting to develop a global portfolio of mineral exploration projects legend 1 - conceptual study 2 - pre-feasibility study 3 - feasibility study Peru Brazil Bayóvar phosphates² Argentina Rio Colorado potash¹ Piauí SJ Piauí nickel¹ Carajás Cristalino copper³ Pará bauxite¹ Pará copper¹ Goiás Agua Branca nickel¹ Minas Gerais iron ore³ Gabon Franceville manganese² Mozambique Moatize coal³ Australia Belvedere coal² 19

20 Market fundamentals strengthen 20

21 Leading indicators are signaling a synchronized acceleration of global IP growth, supporting a strong demand for mineral products manufacturing PMIs USA Euroland Japan Global index Sources: JPMorgan and ISM 21

22 Chinese GDP is growing above 9% for the eighth consecutive quarter. FAI high growth anticipates domestic steel consumption to remain stronger for longer Apparent steel consumption Fixed asset investments (FAI) million tons YoY %

23 Chinese steel exports are loosing strength, reflecting the internal consumption increase 5 net imports net exports million tons Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 net imports = imports - exports

24 Iron ore spot prices continue to stay above benchmark prices. Lower freight rates are offsetting the effect of iron ore price increases for Hebei spot prices US$/ton $52.7 $18.4 $20.5 $30.5 $ SSF C&F Beilun prices 20 0 June/04 July/04 Aug/04 Sept/04 Oct/04 Nov/04 Dec/04 Jan/05 Feb/05 March/05 Apr/05 May/05 Jun/05 Jul-05 Sources: CVRD, Clarksons and mysteel.com 24

25 The downturn trend in freight rates is mainly determined by the expansion of the global shipping fleet 150 CAGR = 3.7% CAGR E = 10.2% 20% 18% 125 Capesize bulkcarrier fleet YoY % chg 15% million DWT % 10% 8% 5% 3% 0% -3% E 2006E 2007E -5% Source: Clarksons 25

26 Chinese iron ore imports are growing at a very fast pace 30 Jan/Jul 2005 = Mt (+29.4%) 150% 25 Chinese iron ore imports YoY % chg 125% 100% 20 75% million tons % 25% 0% 5-25% 0-50% Jan-02 Abr-02 Jul-02 Out-02 Jan-03 Abr-03 Jul-03 Out-03 Jan-04 Abr-04 Jul-04 Out-04 Jan-05 Abr-05 Jul-05 Source: CEIC 26

27 The long term outlook: steel consumption in China has a long way to grow before peaking 1200 Steel consumption peaks and incomes 1000 Taiwan 1993 Korea 2003 Kg / capita¹ UK 1970 Japan 1973 Germany 1974 France 1973 USA China Per capita income² 000' US$ ¹ per capita steel consumption ² PPP Sources: IISI, World Bank and CVRD 27

28 The upward trend in Mn alloys prices was reversed due to excess capacity buildup Bulk ferroalloy prices - Europe MCFeMn HCFeMn SiFeMn US$/ton Source: CRU 28

29 Global Mn alloys output overreacted to demand stimulus. 60% of the increase between 2001 and 2004 was due to China. CVRD is shutting down temporarily one third of its capacity Global Mn alloys production in 000 tons CAGR 12% 7,398 8,132 9,077 10, Source: International Manganese Institute 29

30 Copper prices are tracking higher due to a strong Chinese demand, concentrate bottlenecks and all-time low inventories Total stocks - LME, Comex and SHFE Copper prices LME-3 month '000 of tons USD/ton Sources: LME, Comex, SFE and Bloomberg 30

31 Global IP growth acceleration and high power costs in the US and Europe may keep aluminum prices at relatively high levels 2000 Inventories (LME + Comex + SHFE) Aluminum prices LME 3 month '000 of tons US$ / ton Jul-99 Apr-00 Jan-01 Oct-01 Jul-02 Apr-03 Jan-04 Oct-04 Jul-05 Sources: LME, Comex and Bloomberg 31

32 CVRD A global leader Companhia Vale do Rio Doce rio@cvrd.com.br 32

33 Appendix Reconciliation of non-gaap information and comparable GAAP information (1) adjusted EBITDA (US$ million) Reconciliation between adjusted EBITDA vs. operating cash flow 2Q04 1Q05 2Q05 Operating cash flow ,426 Income tax Monetary and foreign exchange losses (46) (25) (6) Financial expenses (14) Net working capital Unrealized losses with derivatives Others (27) adjusted EBITDA ,033 33