The National Post is Canada’s second largest national paper. This article was originally published in the Financial Post on March 29, 2011. pkoven@nationalpost.com
TORONTO — In Brazil, politics appear to be trumping profits. President Dilma Rousseff’s government is working hard to force the chief executive of mining giant Vale SA out of his job. Despite Vale’s tremendous success in recent years, the government wants the company to change its investment focus in order to boost Brazil’s economy.
As CEO, Roger Agnelli played a key role in transforming Vale into a global powerhouse from its humble roots as a state-owned company, making it a huge winner for investors in the process. The company earned a net profit of US$17.3-billion last year, and sports a market value of almost US$170-billion.
A change at the top could have huge implications in the global mining industry. If Vale is forced to look inward in Brazil, it leaves a question mark over its international assets, including all the Canadian ones it acquired when it bought Inco Ltd. for about $19-billion.
If Mr. Agnelli does depart because of political pressure, investors would likely be very unhappy. The move would also raise questions about how much the Brazilian government should involve itself in the affairs of a private business.
“This is a country that has done a lot to show it’s not interventionist and more free market. So this doesn’t look good,” said a mining executive doing work in Brazil.
“[Mr. Agnelli] hasn’t done anything wrong. He’s made business decisions instead of political ones.”
Mr. Agnelli has had on-and-off-clashes for the past couple of years with the government, which owns “golden shares” that give it a veto over the company’s strategy. The government has argued that Vale is not investing enough money in Brazil, even though the vast majority of the company’s capital spending goes into its home country.
The clashes have gotten worse in recent weeks. In particular, the government has pressured Vale to invest more in steel mills, where the returns are much lower than in the company’s flagship iron ore business.
There is also lingering resentment over Mr. Agnelli’s decision to cut jobs and reduce spending during the commodity downturn in early 2009.
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