This article is from the First Quarter 2011 issue of NYSE Magazine, a quarterly publication of NYSE Euronext, provides insights into the world’s best companies, giving readers a close-up look at the distinguished leaders that constitute the NYSE community. Each issue centers around opinions, strategies and ideas from senior executives who lead the corporate world, focusing on what makes companies succeed.
“What we are investing in new technologies – to reduce emissions, to develop new products and to [be] more cost-efficient – will drive Vale’s growth.” – Roger Agnelli, president and CEO, Vale
With skills in banking and a passion for engineering, Agnelli aims to make Vale the biggest mining company in the world.
In northern Brazil, in the heart of the Amazon rain forest, is the Carajás mining complex, where a reported 300,000 tons of iron ore are extracted each day. To ensure that the mines at Carajás are working as efficiently as possible, owner Vale SA (VALE), Brazil’s largest mining company as measured by revenue, built an operational control center within the complex in 2007 that essentially acts like the mine’s brain, explains President and CEO Roger Agnelli.
He says everything to do with operations within the enormous mine — the equipment used there, treatment plants for the ore, and dispatch facilities — is monitored and controlled remotely through the use of satellites. Engineers, he points out, can see what’s happening at any stage of production: how a particular piece of equipment is working, for example, or how much ore is in a crusher at any given moment. They can also make corrections or changes in real time.
Walking through this control center and visiting Vale’s geologists and engineers to see what new ideas they have dreamed up is one aspect that Agnelli, 50, says he truly enjoys about his job. “I’m crazy about technology and innovation,” he says from the company’s Rio de Janeiro headquarters. “I love to visit the different operations to see what they’re working on and how they’re figuring things out.” Agnelli oversees a global mining empire with 115,000 employees (its own and contractors) spread across 38 countries on five continents.
Vale, pronounced like the word valley, is the world’s largest producer of iron ore (the main component of steel) and the second largest producer of nickel (a key strengthening agent in steel), analysts say. It has a market cap of about $175 billion, about 55 times greater than its value when the Brazilian government privatized the company in 1997 and approximately 19 times greater than when Agnelli took over in 2001, the company reports.
Aside from identifying problems that could slow production, Vale’s satellite technology helps engineers find the most energy-efficient routes between where the iron ore is extracted and the facility in the complex where it will be processed. Massive off-highway trucks capable of hauling upward of 240 tons of material (10 times more than what a typical commercial construction truck can carry) currently transport the ore from the mine to the processing plants. But beginning in 2014, giant automated conveyor belts, which are now under construction, will replace the trucks, explains Luiz Mello, director of technology and innovation at Vale.
The advantages of the conveyor belts are easy to see. Unlike trucks, the belts are powered by electricity, not fossil fuels. They’re also less affected by rainy weather conditions found in the Amazon rain forest that often make the ramps and roads the trucks use as slippery as ice. The biggest technological challenge, explains Mello, was engineering the new conveyor belts to handle the enormous weight of the iron ore for distances of up to 10 miles. “We had to figure out how to make the supporting structure stronger and tested it repeatedly to ensure it could handle the sheer stress of the iron ore’s weight,” he says.
The conveyor belts, which will also be controlled through the operations center, are a good example of Agnelli’s belief in the power of technology. “What we are investing in new technologies — to reduce emissions, to develop new products and to find better, more cost-efficient ways to run the business — will drive Vale’s growth in the future,” he says.
A Banker by Trade
Before stepping into the role of CEO of Vale in 2001, Agnelli had spent the 1980s and 1990s as an investment banker at the Brazilian financial firm Banco Bradesco SA (BBD). In that position, he worked on his share of important deals. But the one he helped usher through in 1992 for pulpmaker Aracruz Celulose SA — which merged with Votorantim Celulose e Papel SA in August 2009 to form Fibria Celulose SA (FBR) — was the deal that put Agnelli on the map: It would be the first Brazilian company to list its shares on the New York Stock Exchange. Bankers in both the U.S. and Brazil viewed the deal as pioneering and a precursor to the important place Brazil would come to occupy on the world financial stage in the years ahead.
But just as the offering was about to be priced, in May 1992, news broke in the Brazilian press about President Fernando Collor de Mello and allegations of corruption. (Collor was eventually impeached and resigned the presidency in December 1992; he was later acquitted of corruption charges.) “This deal was supposed to be the poster child for the new, cleaned-up Brazil, and suddenly it had a whiff of the old, bad Brazil,” recalls Nicolas Grabar, a partner at the New York branch of international law firm Cleary Gottlieb Steen & Hamilton LLP, who worked with Agnelli on the Aracruz deal.
With nervous bankers and investors wondering if Brazil’s maiden U.S. listing was in jeopardy, Agnelli sprang into action. He imposed calm on the proceedings, Grabar remembers, reassuring everyone that the company and its financials were solid, and kept the deal on track to completion. “Roger has this unique combination of being very excitable and passionate and yet completely unflappable,” he says. “He knew the deal was going to be okay and was determined to make sure everybody else knew it too. He’s pretty much an unstoppable force.”
JUST THE FACTS
• Headquarters: Rio de Janeiro
• 2009 sales: $23.3 billion
• Market cap: $174.6 billion*
• Employees: 115,000
• Listed since: June 20, 2000
*Market cap as of Dec. 14, 2010
Agnelli’s extensive investment banking connections made him the logical choice for Vale. After the Aracruz deal, he was often involved in discussions concerning the financing of many of Brazil’s most promising companies. Three years after the government privatized Vale in a nearly $3.2 billion transaction in 1997, Agnelli was offered the position of chairman. Fourteen months later, he was named president and CEO.
According to Agnelli, the chance to run Vale let him put into practice all he had absorbed during his deal-making days: the importance of decisiveness; the absolute need to invest in technology and use it to control costs; and, perhaps most important, the foresight to understand the crucial role that emerging markets would play in the mining industry. “I was involved in lots of restructuring processes of companies in Brazil,” the CEO says of his banking life. “I saw the good results when a company was managed well, and the bad results — how not to run a business.”
Vale has benefited from Agnelli’s skill at the negotiating table, as evidenced by the 15 acquisitions he’s made since arriving. “Roger is a very effective negotiator and sees the big picture without losing his grasp of the details of a deal,” Grabar adds. “He knows how to find the path where everyone feels like they’re benefiting.”
For all his skill in deal-making and finance, Agnelli, a married father of a son and daughter, both in their twenties, claims his first love isn’t banking. “To be honest, I wanted to be an engineer,” he says. But with a degree in economics from the Fundação Armando Alvares Penteado, a university in São Paulo, Agnelli joined Banco Bradesco in 1981. “When I was starting out, Brazil was a very closed country,” he explains. “If a Brazilian company wanted to raise money, only the official banks were available. I thought we needed to have better capital markets, so that’s why I decided to go into banking.” After a big, hearty laugh, he adds, “I think it was a good thing, no?”
Focus on Asia
Vale was a domestic player of respectable size when Agnelli joined the company, with about 75 percent of its revenues coming from the iron ore it mined deep in the Amazon rain forest. The rest came from mining a smattering of other minerals, such as copper and nickel. This strategy didn’t give Vale much heft or leverage in the marketplace, analysts say. “When I came to Vale, mining was seen as a very slow and heavy kind of industry,” Agnelli explains. “In investment banking, everything is fast and light. You look at the facts, make decisions and move, and I think that is a good thing for business. So I brought some of that speed and fast decision-making to Vale.”
And of course, he made deals. Agnelli’s first order of business was to unload operating units that weren’t likely to be long-term winners, including paper and forestry, he says. He then used the money to gobble up smaller mining companies in Latin America, Africa and Asia, as well as to diversify and bolster Vale’s portfolio with copper, nickel and fertilizer. “If we were going to be in any of these businesses, we had to build up each one and be strong,” he says.
To drive home the point that he intended to make Vale a force in more than iron ore, Agnelli completed the acquisition of rival Canadian nickel miner Inco Ltd. in 2007. Vale says it financed the $18 billion purchase — the biggest in its history — with the help of UBS AG (UBS), Credit Suisse Group AG (CRP), Banco Santander (Brasil) SA (BSBR), ABN AMRO Group NV and 33 other banks from around the world. One of the largest syndicated loans ever secured in an emerging country, according to the international financial services law firm Milbank, Tweed, Hadley & McCloy LLP, the funding further proved that Agnelli’s banking acumen was being put to good use. With nickel’s use in home construction as well as the making of stainless steel appliances and electric car batteries, Agnelli says he is confident that Vale’s nickel business will continue to grow.
The move to fortify its portfolio, especially in iron ore and nickel, highlights Agnelli’s beliefs about the company’s future. “Our traditional market used to be Europe,” he says. “It’s not anymore. Asia is the strongest and largest market for our products.”
With millions of people moving from rural areas to cities in China, the spending on housing, cars, apartments and food — all big users of metals and minerals — is growing, explains independent mining analyst John Tumazos. Indeed, by 2004, with the commodities boom in full swing thanks to China’s exploding growth, Vale was already beginning to see signs of this transformation. Today, 60 percent of the company’s nearly $25 billion in sales are in Asia, observes Vale CFO Guilherme Cavalcanti, and that number, he adds, is projected to reach 80 percent by 2020. Adds Agnelli: “Ten years ago, people looked at China, Africa and Indonesia as low-cost producers. Today, everyone is looking upon these places as a market for their products.”
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