##### 



As filed with the Securities and Exchange Commission on June 10, 2004    UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 20-F ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 December 31, 2003  001-15030
 COMPANHIA VALE DO RIO DOCE
    
    VALE OVERSEAS LIMITED(Exact name of Registrant as specified in its charter)
    
    (Exact name of Registrant as specified in its charter)Federative Republic of Brazil
    
    Cayman Islands
  Avenida Graça Aranha, No. 26
20030-900 Rio de Janeiro, RJ, Brazil
(Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act: Name of Each ExchangeTitle of Each Class
    
    on Which RegisteredPreferred class A shares of CVRD, no par value per share
    
    New York Stock Exchange*American depositary shares (as evidenced by American
depositary receipts) each representing one preferred
class A share of CVRD
    
    New York Stock ExchangeCommon shares of CVRD, no par value per share
    
    New York Stock Exchange*American depositary shares (as evidenced by American
depositary receipts) each representing one common share
of CVRD
    
    New York Stock Exchange
   *
    
    Shares are not listed for trading, but only in connection with the
registration of American depositary shares pursuant to the requirements of the
New York Stock Exchange. Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None The number of outstanding shares of each class of stock of CVRD as of December 31, 2003 was: 245,267,973 common shares, no par value per share
138,571,729 preferred class A shares, no par value per share
1 golden share, no par value per share Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes x    No o Indicate by check mark which financial statement item the registrant has
elected to follow. Item 17
o
    Item 18 x




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##### 



TABLE OF CONTENTS PageGlossary
    
    
    3Presentation of Financial Information
    
    
    6Presentation of Information Concerning Reserves
    
    
    6Forward-Looking Statements
    
    
    7PART I
    
    
    7Item 1. Identity of Directors, Senior Management and Advisers
    
    
    7Item 2. Offer Statistics and Expected Timetable
    
    
    7Item 3. Key Information
    
    
    8Selected Financial Data
    
    
    8Exchange Rates
    
    
    9Risk Factors
    
    
    10Item 4. Information on the Company
    
    
    19Business Overview
    
    
    19General
    
    
    19Incorporation of CVRD and Vale Overseas
    
    
    20Acquisitions, Asset Sales and Significant Changes in 2003 and 2004
    
    
    21Business Strategy
    
    
    24Lines of Business
    
    
    26Mining
    
    
    26Logistics
    
    
    40Aluminum-Related Operations
    
    
    44Steel Investments
    
    
    48Energy Investments
    
    
    49Regulatory Matters
    
    
    51Mining
    
    
    51Railroads
    
    
    52Energy
    
    
    52Environmental Matters
    
    
    54Patents and Trademarks
    
    
    55Insurance
    
    
    55Capital Expenditures
    
    
    56Item 5. Operating and Financial Review and Prospects
    
    
    59Overview
    
    
    59Key Factors Affecting Revenue and Results of Operations
    
    
    59Critical Accounting Policies and Estimates
    
    
    64Translation Adjustments
    
    
    64Mineral Reserves and Life of Mines
    
    
    65Environmental and Site Reclamation Costs
    
    
    65Impairment of Long-Lived Assets and Goodwill
    
    
    66Derivatives and Hedging Activity
    
    
    66Income Taxes
    
    
    66Contingencies
    
    
    67Employee Post-Retirement Benefits
    
    
    67Results of Operations2003 Compared to 2002
    
    
    68Revenues
    
    
    68Operating Costs and Expenses
    
    
    70Operating Income by Segment
    
    
    72Non-operating Income (Expenses)
    
    
    73Income Taxes
    
    
    73Affiliates and Joint Ventures
    
    
    74Results of Operations2002 Compared to 2001
    
    
    75Revenues
    
    
    75
 i




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##### 



PageOperating Costs and Expenses
    
    
    77Non-Operating Income (Expenses)
    
    
    78Income Taxes
    
    
    79Affiliates and Joint Ventures
    
    
    79Liquidity and Capital Resources
    
    
    81Overview
    
    
    81Sources of Funds
    
    
    81Uses of Funds
    
    
    81Debt
    
    
    82Shareholder Debentures
    
    
    83Contractual Obligations
    
    
    83Off-balance Sheet Arrangements
    
    
    83Recent Accounting Pronouncements
    
    
    83Item 6. Directors, Senior Management and Employees
    
    
    85Board of Directors
    
    
    85Executive Officers
    
    
    88Fiscal Council
    
    
    90Advisory Committees
    
    
    91Compensation of Directors, Executive Officers, Fiscal Council Members and Advisory Committees
    
    
    92Employees
    
    
    93Item 7. Major Shareholders and Related Party Transactions
    
    
    95Major Shareholders
    
    
    95Related Party Transactions
    
    
    98Item 8. Financial Information
    
    
    98Legal Proceedings
    
    
    98Dividends and Interest on Shareholders Equity
    
    
    99Item 9. The Offer and Listing
    
    
    101Share Price History
    
    
    101Trading Markets
    
    
    101Item 10. Additional Information
    
    
    103Memorandum and Articles of Association
    
    
    103Common Shares and Preferred Shares
    
    
    103Material Contracts
    
    
    110Exchange Controls and Other Limitations Affecting Security Holders
    
    
    110Taxation
    
    
    111Documents on Display
    
    
    116Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    116Interest Rate and Exchange Rate Risk
    
    
    118Commodity Price Risk
    
    
    120Item 12. Description of Securities Other than Equity Securities
    
    
    122PART II
    
    
    122Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    122Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    122Item 15. Controls and Procedures
    
    
    122Item 16A. Audit Committee Financial Expert
    
    
    122Item 16B. Code of Ethics
    
    
    122Item 16C. Principal Accountant Fees and Services
    
    
    122PART III
    
    
    123Item 17. Financial Statements
    
    
    123Item 18. Financial Statements
    
    
    123Item 19. Exhibits
    
    
    124Signatures
    
    
    126Index
to Consolidated Financial Statements
    
    
    F-1
  ii




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##### 



GLOSSARY Alumina
    
    Aluminum oxide. It is extracted from
bauxite in a chemical refining process
and is the principal raw material in the
electro-chemical process from which
aluminum is produced.Bauxite
    
    A rock composed primarily of hydrated
aluminum oxides. It is the principal ore
of alumina, the raw material from which
aluminum is made.Beneficiation
    
    The process of separating, concentrating
and classifying ore by particle size or
some other characteristic (e.g., specific
gravity, magnetic susceptibility, surface
chemistry, etc.) in order to obtain the
mineral or metal of interest.Concentration
    
    Physical, chemical or biological process
to increase the grade of the metal or
mineral of interest.Copper Concentrate
    
    Material produced by concentration of
copper minerals contained in the copper
ore. It is the raw material used by the
smelters to produce copper metal.Copper
    
    A reddish brown metallic element. Copper
is remarkably conductive, both thermally
and electrically. It is highly malleable
and ductile and is easily rolled into
sheet and drawn into wire.DR
    
    Direct Reduction. Process that converts
iron ore into DRI or HBI using natural
gas.DRI
    
    Direct Reduced Iron. Processed iron ore
(lump or pellets) into Direct Reduction
process, used as a scrap substitute in
electric furnace steelmaking.DWT
    
    Deadweight ton. The measurement unit of
a vessels capacity for cargo, fuel oil,
stores and crew, measured in metric tons
of 1,000 kg. A vessels total deadweight
is the total weight the vessel can carry
when loaded to a particular load line.Fe unit
    
    A measure of the iron content in the iron
ore that is equivalent to 1% iron content
in 1 ton of iron ore.Ferroalloys
    
    Ferroalloys are alloys of iron that
contain one or more other chemical
elements. These alloys are used to add
these other elements into molten metal,
usually in steelmaking. The principal
ferroalloys are those of chromium,
manganese ore, and silicon. Manganese
ore is essential to the production of
virtually all steels and is important to
the production of cast iron. Manganese
ore is used to neutralize the harmful
effect of sulfur and as an alloying
element.FOB
    
    Free on Board. It indicates that the
purchaser pays for shipping, insurance
and all the other costs associated with
transportation of the goods to their
destination.Grade
    
    The proportion of metal or mineral
present in ore or any other host
material.HBI
    
    Hot Briquetted Iron. Direct reduced iron
that has been processed into briquettes.
Instead of using a blast furnace, the
oxygen is removed from the ore using
natural gas and results in a substance
that is 90%-92% iron. Because DRI
(direct reduced iron) may
 3




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##### 



spontaneously
combust during transportation, HBI is
preferred when the metallic material must
be stored or moved.Kaolin
    
    A fine white aluminum silicate clay used
as a coating agent, filler, extender and
absorbent in the paper, ceramics and
pharmaceutical industries.Lump ore
    
    Iron ore or manganese ore with the
coarsest particle size in the range of
6.35 mm to 50 mm diameter, but varying
slightly between different mines and
ores.Manganese ore
    
    A hard brittle metallic element found
primarily in the minerals pyrolusite,
hausmannite and manganate.Mineral deposit(s) or
  mineralized material(s)
    
    Refers to a mineralized body that has
been intersected by a sufficient number
of closely spaced drill holes and/or
underground/surface samples to support
sufficient tonnage and grade of metal(s)
or mineral(s) of interest to warrant
further exploration-development work.
The deposit does not qualify as an ore
body until it can be legally and
economically extracted at the time of ore
reserve determination.Open pit mining
    
    The extraction method by which surface or
barren rock is removed so that ore may be
removed using power shovels, front-end
loaders, hydraulic excavators, draglines,
etc.Oxides
    
    Compounds of oxygen with another element.
For example, magnetite (Fe3O4) is an
oxide mineral formed by the chemical
union of iron with oxygen.Pellet feed (Ultra-fine)
    
    Ultra-fine (less than 0.15 mm) iron ore
particles generated by the mining,
grading, handling and transporting of
iron ore, with no practical direct
application in the steel industry, unless
the material is aggregated into pellets
through an agglomeration process.Pellets
    
    Agglomerated ultra-fine iron ore
particles of a size and quality suitable
for particular steelmaking processes.
Our pellets range in size from 8 mm to 18
mm.Pig iron
    
    Melted iron produced in a blast furnace.Potash
    
    A potassium chloride compound, chiefly
KCl, used in the production of
fertilizer.Primary Aluminum
    
    White metal that is obtained in the
electro-chemical process of reduction of
the aluminum oxide.Probable (indicated) reserves
    
    Reserves for which quantity and grade
and/or quality are computed from
information similar to that used for
proven (measured) reserves, but the sites
for inspection, sampling and measurement
are farther apart or are otherwise less
adequately spaced. The degree of
assurance, although lower than that for
proven (measured) reserves, is high
enough to assume continuity between
points of observation.Proven (measured) reserves
    
    Reserves for which (1) quantity is
computed from dimensions revealed in
outcrops, trenches, workings or drill
holes; (2) grade and/or quality are
computed from the results of detailed
sampling; and (3) the sites for
inspection, sampling and measurement are
spaced so closely and the geologic
character is so well defined that
 4




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##### 



size, shape, depth and mineral content of
reserves are well-established.Reserve
    
    Refers to that part of a mineral deposit
that could be economically and legally
extracted or produced at the time of the
reserve determination.Run-of-mine
    
    Ore in its natural (unprocessed) state,
as mined, without having been crushed.Seaborne market
    
    Comprises the total ore trade (imports
and exports) between countries using
ocean bulk vessels.Sinter feed (Fines)
    
    Refers to iron ore with particles in the
range of 0.15 mm to 6.35 mm diameter.
Suitable for sintering.Sintering
    
    Refers to the agglomeration of small
particles into a coherent mass by heating
without melting.Slabs
    
    The most common type of semi-finished
steel. Traditional slabs measure 10
inches thick and 30-85 inches wide (and
average about 20 feet long), while the
output of the recently developed thin
slab casters is approximately two inches
thick. Subsequent to casting, slabs are
sent to the hot-strip mill to be rolled
into coiled sheet and plate products.Ton
    
    Metric ton, equaling 1,000 kilograms.Troy ounce
    
    One troy ounce equals 31.103 grams.Underground Mining
    
    Mineral exploitation in which extraction
operations are carried out beneath the
earths surface.
 5




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##### 



PRESENTATION OF FINANCIAL INFORMATION We have prepared our financial statements appearing in this annual report
in accordance with generally accepted accounting principles in the United
States (U.S. GAAP), which differ in certain respects from accounting practices
adopted in Brazil (defined as Brazilian GAAP). Brazilian GAAP is determined by
the requirements of Law No. 6,404, dated December 15, 1976, as amended (the
Brazilian Corporate Law), and the rules and regulations of the Comissão de
Valores Mobiliários, or CVM, the Brazilian Securities Commission. We also
publish Brazilian GAAP financial statements in Brazil, which we refer to as our
Brazilian Corporate Law financial statements. We use our Brazilian Corporate
Law financial statements for:  
    
    reports to Brazilian shareholders;
    
    filings with the CVM;
    
    determination of dividend payments; and
    
    determination of tax liability. Our financial statements and the other financial information appearing in
this annual report have been translated from Brazilian reaisinto U.S. dollars
on the basis explained in Note 3(a) to our financial statements unless we
indicate otherwise. References to real, reaisor R$ are to Brazilian reais(plural) and
to the Brazilian real(singular), the official currency of Brazil. References
to U.S. dollars, dollars or US$ are to United States dollars. Unless otherwise specified, metric units have been used, e.g., tons refer
to metric tons. References to us or we are to CVRD, its consolidated subsidiaries and
its joint ventures and other affiliated companies. References to CVRD are to
Companhia Vale do Rio Doce. References to Vale Overseas are to Vale Overseas
Limited. References to affiliated companies are to companies in which
Companhia Vale do Rio Doce has a minority investment, and exclude controlled
affiliates that are consolidated for financial reporting purposes. References to ANEEL are to Agência Nacional de Energia Elétrica, the
Brazilian energy regulatory agency. References to ANTT are to Agência Nacional de Transportes Terrestres,
the Brazilian regulatory agency for the transportation sector. References to our ADSs or American depositary shares include both our
common American depositary shares (our common ADSs), each of which represents
one common share of CVRD, and our preferred American depositary shares (our
preferred ADSs), each of which represents one preferred class A share of CVRD.
American depositary shares are represented by American depositary receipts
(ADRs) issued by JPMorgan Chase Bank, as depositary. 
 PRESENTATION OF INFORMATION CONCERNING RESERVES The estimates of the proven and probable reserves at our mines and the
estimates of mine life, as of December 31, 2003, included in this annual report
have been calculated according to the technical definitions required by the
U.S. Securities and Exchange Commission, or the SEC. We derived estimates of
mine life described in this annual report from such reserve estimates. We have
adjusted ore reserve estimates for extraction losses and metallurgical
recoveries during extraction for manganese ore and bauxite deposits. Our
reserve estimates of iron, kaolin, copper and potash are reported as in situ
tons with adjustments for dilution and mining losses. See Item 3. Key
InformationRisk FactorsRisks Relating to Our Businessfor a description of
risks relating to reserves and reserves estimates. We have retained Golder
Associates S.A., or Golder, to audit and verify most of our estimates of proven
and probable reserves as of December 31, 2003. 6




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##### 



FORWARD-LOOKING STATEMENTS This annual report contains statements that constitute forward-looking
statements within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995. Many of the forward-looking statements contained in this annual
report can be identified by the use of forward-looking words such as
anticipate, believe, could, expect, should, plan, intend,
estimate and potential, among others. Those statements appear in a number
of places in this annual report and include statements regarding our intent,
belief or current expectations with respect to:  
    
    our direction and future operation;
    
    the implementation of our principal operating strategies, including
our potential participation in privatization, acquisition or joint
venture transactions or other investment opportunities;
    
    our acquisition or divestiture plans;
    
    the implementation of our financing strategy and capital expenditure plans;
    
    the exploration of mineral reserves and development of mining facilities;
    
    the depletion and exhaustion of mines and mineral reserves;
    
    the declaration or payment of dividends;
    
    industry trends, including the direction of prices and expected levels of supply and demand;
    
    other factors or trends affecting our financial condition or results of operations; and
    
    the factors discussed under Item 3. Key InformationRisk Factors. We caution you that forward-looking statements are not guarantees of
future performance and involve risks and uncertainties. Actual results may
differ materially from those in the forward-looking statements as a result of
various factors, including those identified under Item 3. Key InformationRisk
Factors. 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, factors relating to the
iron ore business and its dependence on the global steel industry, which is
cyclical in nature, and factors relating to the highly competitive industries
in which we operate. For additional information on factors that could cause
our actual results to differ from expectations reflected in forward-looking
statements, please see Item 3. Key InformationRisk Factors, and our reports
filed with the SEC. Forward-looking statements speak only as of the date they
are made, and we do not undertake any obligation to update them in light of new
information or future developments. 
 PART I 
 Item 1. Identity of Directors, Senior Management and Advisers Not applicable. 
 Item 2. Offer Statistics and Expected Timetable Not applicable. 7




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##### 



Item 3. Key Information 
 SELECTED FINANCIAL DATA The table below presents selected consolidated financial information as of
and for the periods indicated. You should read this information together with
our consolidated financial statements appearing in this annual report. For the Year Ended December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003(in millions of US$)Statement of Income DataNet operating revenues
    
    US$
    3,076
    
    
    US$
    3,935
    
    
    US$
    3,935
    
    
    US$
    4,123
    
    
    US$
    5,350Cost of products and services
    
    
    (1,806
    )
    
    
    (2,429
    )
    
    
    (2,272
    )
    
    
    (2,263
    )
    
    
    (3,128
    )Selling, general and administrative expenses
    
    
    (138
    )
    
    
    (225
    )
    
    
    (241
    )
    
    
    (224
    )
    
    
    (265
    )Research and development
    
    
    (27
    )
    
    
    (48
    )
    
    
    (43
    )
    
    
    (50
    )
    
    
    (82
    )Employee profit sharing plan
    
    
    (24
    )
    
    
    (29
    )
    
    
    (38
    )
    
    
    (38
    )
    
    
    (32
    )Other expenses
    
    
    (155
    )
    
    
    (180
    )
    
    
    (379
    )
    
    
    (119
    )
    
    
    (199
    )Operating income
    
    
    926
    
    
    
    1,024
    
    
    
    962
    
    
    
    1,429
    
    
    
    1,644Non-operating income (expenses):Financial income (expenses)
    
    
    (33
    )
    
    
    (107
    )
    
    
    (200
    )
    
    
    (248
    )
    
    
    (249
    )Foreign exchange and monetary losses, net
    
    
    (223
    )
    
    
    (240
    )
    
    
    (426
    )
    
    
    (580
    )
    
    
    242Gain on sale of investments
    
    
    
    
    
    
    54
    
    
    
    784
    
    
    
    
    
    
    
    17Subtotal
    
    
    (256
    )
    
    
    (293
    )
    
    
    158
    
    
    
    (828
    )
    
    
    10Income before income taxes, equity results
and minority interests
    
    
    670
    
    
    
    731
    
    
    
    1,120
    
    
    
    601
    
    
    
    1,654Income taxes benefit (charge)
    
    
    (33
    )
    
    
    32
    
    
    
    218
    
    
    
    149
    
    
    
    (297
    )Equity in results of affiliates and joint
ventures and change in provision for losses
on equity
investments
    
    
    (227
    )
    
    
    322
    
    
    
    (53
    )
    
    
    (87
    )
    
    
    306Minority interests
    
    
    2
    
    
    
    1
    
    
    
    2
    
    
    
    17
    
    
    
    (105
    )Change in accounting practice for asset
retirement obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Net income
    
    US$
    412
    
    
    US$
    1,086
    
    
    US$
    1,287
    
    
    US$
    680
    
    
    US$
    1,548Total cash paid to shareholders(1)
    
    US$
    452
    
    
    US$
    246
    
    
    US$
    1,066
    
    
    US$
    602
    
    
    US$
    675
   (1)
    
    Total cash paid to shareholders consists of cash paid during
the period in respect to interest on shareholders equity. For the Year Ended December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003(in US$ except recorded
dividends and interest on shareholders equity per share in Brazilian reais and share numbers)Per Share Data  Earnings and DividendsBasic earnings per Common and
Preferred Class A
Share(1)
    
    US$
    1.07
    
    
    US$
    2.82
    
    
    US$
    3.34
    
    
    US$
    1.77
    
    
    US$
    4.03Distributions on shareholders equity
per share in US$(2)
    
    US$
    1.30
    
    
    US$
    0.66
    
    
    US$
    2.64
    
    
    US$
    1.69
    
    
    US$
    1.76Distributions on shareholders equity
per share in Brazilian reais(2)
    
    R$
    2.26
    
    
    R$
    1.17
    
    
    R$
    5.64
    
    
    R$
    4.99
    
    
    R$
    5.04Weighted average number of shares
outstanding (in thousands):Common shares(1)
    
    
    249,983
    
    
    
    249,983
    
    
    
    249,864
    
    
    
    249,864
    
    
    
    245,268Preferred class A shares(1)
    
    
    134,917
    
    
    
    134,917
    
    
    
    135,042
    
    
    
    135,042
    
    
    
    138,571Total
    
    
    384,900
    
    
    
    384,900
    
    
    
    384,906
    
    
    
    384,906
    
    
    
    383,839
   (1)
    
    Each common American depositary share represents one common share and
each preferred American depositary share represents one preferred class
A share.(2)
    
    Our distributions to shareholders may take the form of dividends or
of interest on shareholders equity. Since 1997, all distributions have
taken the form of interest on shareholders equity. The amount shown
represents distributions paid during the year. 8




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##### 



At December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003(in millions of US$)Balance Sheet DataCurrent assets
    
    US$
    2,490
    
    
    US$
    2,502
    
    
    US$
    2,638
    
    
    US$
    2,589
    
    
    US$
    2,474Property, plant and equipment, net
    
    
    3,943
    
    
    
    3,955
    
    
    
    3,813
    
    
    
    3,297
    
    
    
    6,484Investments in affiliated companies and joint
ventures and other investments
    
    
    1,203
    
    
    
    1,795
    
    
    
    1,218
    
    
    
    732
    
    
    
    1,034Other assets
    
    
    1,052
    
    
    
    1,543
    
    
    
    1,839
    
    
    
    1,337
    
    
    
    1,442Total assets
    
    US$
    8,688
    
    
    US$
    9,795
    
    
    US$
    9,508
    
    
    US$
    7,955
    
    
    US$
    11,434Current liabilities
    
    
    2,072
    
    
    
    2,136
    
    
    
    1,921
    
    
    
    1,508
    
    
    
    2,253Long-term liabilities (1)
    
    
    601
    
    
    
    1,061
    
    
    
    772
    
    
    
    774
    
    
    
    1,201Long-term debt (2)
    
    
    1,321
    
    
    
    2,020
    
    
    
    2,170
    
    
    
    2,359
    
    
    
    2,767Total liabilities
    
    
    3,994
    
    
    
    5,217
    
    
    
    4,863
    
    
    
    4,641
    
    
    
    6,221Minority interest
    
    
    3
    
    
    
    9
    
    
    
    5
    
    
    
    27
    
    
    
    329Stockholders equity:Capital stock
    
    
    1,927
    
    
    
    1,927
    
    
    
    2,211
    
    
    
    2,446
    
    
    
    2,869Additional paid-in capital
    
    
    498
    
    
    
    498
    
    
    
    498
    
    
    
    498
    
    
    
    498Reserves and retained earnings
    
    
    2,266
    
    
    
    2,144
    
    
    
    1,931
    
    
    
    343
    
    
    
    1,517Total stockholders equity
    
    
    4,691
    
    
    
    4,569
    
    
    
    4,640
    
    
    
    3,287
    
    
    
    4,884Total liabilities and stockholders equity
    
    US$
    8,688
    
    
    US$
    9,795
    
    
    US$
    9,508
    
    
    US$
    7,955
    
    
    US$
    11,434
   (1)
    
    Excludes long-term debt.(2)
    
    Excludes current portion. At December 31, 2003, we had extended
guarantees for borrowings of joint ventures and affiliated companies in
an aggregate amount of US$ 283 million. These contingent liabilities do
not appear on the face of our consolidated balance sheets, but are
disclosed in Note 18(a) to our consolidated financial statements. 
 EXCHANGE RATES There are two principal foreign exchange markets in Brazil:  
    
    the commercial rate exchange market, and
    
    the floating rate exchange market. Most trade and financial foreign-exchange transactions are carried out on
the commercial rate exchange market. These transactions include the purchase
or sale of shares or the payment of dividends or interest with respect to
shares. Foreign currencies may only be purchased through a Brazilian bank
authorized to operate in these markets. In both markets, rates are freely
negotiated but may be influenced by the Central Bank of Brazil intervention.
In 1999, the Central Bank of Brazil placed the commercial rate exchange market
and the floating rate exchange market under identical operational limits, which
led to a convergence in the pricing and liquidity of both markets. Since
February 1, 1999, the floating market rate has been the same as the commercial
market rate. However, there is no guarantee that these rates will continue to
be the same in the future. Despite the convergence in the pricing and
liquidity of both markets, each market continues to be regulated differently. Since 1999, the Central Bank of Brazil has allowed the real/U.S. dollar
exchange rate to float freely, and during that period, the real/U.S. dollar
exchange rate has fluctuated considerably. In the past, the Central Bank of
Brazil has intervened occasionally to control unstable movements in foreign
exchange rates. We cannot predict whether the Central Bank of Brazil or the
Brazilian government will continue to let the realfloat freely or will
intervene in the exchange rate market through a currency band system or
otherwise. The realmay depreciate or appreciate substantially in the future.
For more information on these risks, see Item 3. Key InformationRisk
FactorsRisks Relating to Brazil. 9




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The following table sets forth the commercial selling rate, expressed in
reaisper U.S. dollar (R$/US$) for the periods indicated. Average forPeriod-end
    
    Period
    
    Low
    
    HighYear endedDecember 31, 1999
    
    
    R$1.789
    
    
    
    R$1.851
    (1)
    
    
    R$1.208
    
    
    
    R$2.165December 31, 2000
    
    
    1.955
    
    
    
    1.835
    (1)
    
    
    1.723
    
    
    
    1.985December 31, 2001
    
    
    2.320
    
    
    
    2.353
    (1)
    
    
    1.936
    
    
    
    2.801December 31, 2002
    
    
    3.533
    
    
    
    2.998
    (1)
    
    
    2.270
    
    
    
    3.955December 31, 2003
    
    
    2.889
    
    
    
    3.059
    (1)
    
    
    2.822
    
    
    
    3.662Month endedDecember 2003
    
    
    R$2.889
    
    
    
    R$2.916
    (2)
    
    
    R$2.888
    
    
    
    R$2.943January 2004
    
    
    2.941
    
    
    
    2.872
    (2)
    
    
    2.802
    
    
    
    2.941February 2004
    
    
    2.914
    
    
    
    2.946
    (2)
    
    
    2.904
    
    
    
    2.988March 2004
    
    
    2.909
    
    
    
    2.908
    (2)
    
    
    2.875
    
    
    
    2.941April 2004
    
    
    2.945
    
    
    
    2.913
    (2)
    
    
    2.874
    
    
    
    2.952May 2004
    
    
    3.129
    
    
    
    3.081
    (2)
    
    
    2.957
    
    
    
    3.205June 2004 (through June 8, 2004)
    
    
    3.115
    
    
    
    3.134
    
    
    
    3.112
    
    
    
    3.157
   (1)
    
    Average of the rates of each period, using the average of the exchange
rates on the last day of each month during each period.(2)
    
    Average of the lowest and highest rates in the month.
Source: Central Bank of Brazil. On June 8, 2004, the commercial selling rate was R$3.115 per US$ 1.00. 
 RISK FACTORS Risks Relating to Our Business Due to our dependence on the global steel industry, fluctuations in the demand
for steel could adversely affect our business. Sales prices and volumes in the seaborne iron ore mining industry depend
on the prevailing and expected level of demand for iron ore in the world steel
industry. The world steel industry is cyclical. A number of factors, the most
significant of these being the prevailing level of worldwide demand for steel
products, influence the world steel industry. During periods of sluggish or
declining regional or world economic growth, demand for steel products
generally decreases, which usually leads to corresponding reductions in demand
for iron ore. Driven primarily by strong demand from Chinese steelmakers, together with
a modest expansion in other markets, the global seaborne iron ore market
experienced high demand and rising iron ore and pellet prices in 2003. We
cannot guarantee the length of time that demand will remain at current high
levels or the direction of future prices. Sustained declines in world contract
prices or sales volumes for iron ore could have a material adverse effect on
our revenues. The mining industry is an intensely competitive industry, and we may have
difficulty effectively competing with other mining companies in the future. Intense competition characterizes the worldwide iron ore industry. We
compete with a number of large international mining companies. Some of these
competitors possess substantial iron ore mineral deposits at locations closer
to our principal Asian and European customers. Competition from foreign or
Brazilian iron ore producers may result in our losing market share and
revenues. Our aluminum, manganese ore, copper concentrate and other activities
are also subject to intense competition and are subject to similar risks. Demand for iron ore in peak periods may outstrip our production capacity,
rendering us unable to satisfy customer demand. Our ability to rapidly increase production capacity to satisfy increases
in demand for iron ore is limited. In periods where customer demand exceeds
our production capacity, we generally satisfy excess customer demand by
reselling iron ore and pellets purchased from joint ventures or third parties.
If we are unable to satisfy excess customer demand by purchasing from joint
ventures or third parties, we may lose customers. Similarly, because it takes
time to increase production capacity, we may fail to complete our iron ore
expansion projects in time to take 10




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advantage of the current high levels of worldwide demand for iron ore. In
addition, operating at or above full capacity may expose us to higher costs,
including demurrage fees due to capacity restraints in our ports. Aluminum, gold and copper are actively traded on world commodity exchanges,
and their prices are subject to fluctuations. Aluminum, gold and copper are sold in an active world market and traded on
commodity exchanges, such as the London Metals Exchange and the Commodity
Exchange, Inc. Prices for these metals are subject to wide fluctuations and
are affected by many factors, including international economic and political
conditions, levels of supply and demand, the availability and cost of
substitutes, inventory levels maintained by producers and others, and actions
of participants in the commodity markets. Prices for these metals are more
volatile than iron ore and pellet prices because they respond more quickly to
actual and expected changes in supply and demand. Sustained declines in world
market prices for our aluminum-related products could have a material adverse
effect on our revenues. Commencement of our copper operations will expose us to new risks. We recently began producing and marketing copper concentrate from our
Sossego mine in Carajás. Copper is a new business for CVRD. Among others,
risks involved with our expansion into the copper business include:  
    
    copper concentrate is sold at prices determined by reference to
copper prices on the London Metals Exchange, which are more volatile
than prices in our core iron ore and pellet businesses;
    
    we may experience higher than expected treating and refining costs that decrease our margins;
    
    capacity increases by other copper producers may place downward pressure on copper prices; and
    
    we may encounter unexpected setbacks in launching and expanding our
copper operations due to construction delays or difficulties obtaining
required environmental licenses. Brazilian export products (e.g., grain and steel) could lose their
international competitiveness, reducing the internal demand for logistics
services. Agriculture and steel industries are currently the primary drivers of
demand for logistics services. In 2003, almost 60% of our logistics revenues
were attributable to these markets. A reduction in world demand for Brazilian
steel or agriculture exports could reduce demand for our logistics services and
harm the profitability of our logistics business. We are vulnerable to adverse developments affecting the world economy,
especially China. The world economy is the primary driver of demand in the global seaborne
market for iron ore and pellets. In recent years, China has been the main
driver of our sales increases. In 2003, 14% of our iron ore and pellet gross
revenues were attributable to customers in China, and customers in China
accounted for 10.5% of our total consolidated net operating revenues. During
the same period, 7.6% of our consolidated net revenues were attributable to
Japanese customers and 32.2% were attributable to sales to European customers.
A weakened global economy or a weakened economy in specific markets where we
sell our products, such as China, could reduce demand, leading to lower
revenues and profitability. Our reserve estimates may be materially different from mineral quantities that
we may actually recover, our estimates of mine life may prove inaccurate and
market price fluctuations and changes in operating and capital costs may
render certain ore reserves or mineral deposits uneconomical to mine. Our reported ore reserves and mineral deposits are estimated quantities of
ore and minerals that have the potential to be economically mined and processed
under present and anticipated conditions to extract their mineral content.
There are numerous uncertainties inherent in estimating quantities of reserves
and in projecting potential future rates of mineral production, including many
factors beyond our control. Reserve engineering is a subjective process of
estimating underground deposits of minerals that cannot be measured in an exact
manner, and the accuracy of any reserve estimate is a function of the quality
of available data and engineering and geological interpretation and judgment.
Estimates of different engineers may vary, and results of our mining and
production subsequent to the date of an estimate may lead to revision of
estimates. Reserve estimates may require revision
based on actual production experience and other factors. For example,
fluctuations in the market price of metals, 11




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reduced recovery rates or increased
production costs due to inflation or other factors may render proven and
probable reserves containing relatively lower grades of mineralization
uneconomic to exploit and may ultimately result in a restatement of reserves. We may not be able to replenish our reserves, which could adversely affect our
mining prospects. We engage in mineral exploration, which is highly speculative in nature,
involves many risks and frequently is nonproductive. Our exploration programs,
which involve significant capital expenditures, may fail to result in the
expansion or replacement of reserves depleted by current production. If we do
not develop new reserves, we will not be able to sustain our current level of
production beyond the remaining life of our existing mines. Even if we discover minerals, we remain subject to drilling and production
risks, which could adversely affect the mining process. Once we discover minerals, it can take us a number of years from the
initial phases of drilling until production is possible, during which the
economic feasibility of production may change. It takes substantial time and
expenditures to:  
    
    establish ore reserves through drilling;
    
    determine appropriate metallurgical processes for optimizing the recovery of metal contained in ore;
    
    obtain environmental and other licenses;
    
    construct mining and processing facilities for greenfield properties; and
    
    obtain the ore or extract the metals from the ore. If a project proves not to be economically feasible by the time we are
able to exploit it, we may incur substantial write-offs. In addition,
potential changes or complications involving metallurgical and other
technological processes arising during the life of a project may result in cost
overruns that may render the project not economically feasible. We face rising extraction costs as our deposits decrease. Ore reserves gradually decrease in the ordinary course of a given mining
operation. As reserves decrease, it becomes necessary to use more expensive
processes to extract the remaining ore. As a result, over time, we usually
experience rising unit extraction costs with respect to each mine. Several of
our mines have operated for long periods, and we will likely experience rising
extraction costs per unit in the future at these operations. An increase in fuel costs may adversely affect our business. Our operations rely heavily on fuel sources. Oil and gas represented
11.2% of our cost of goods sold in 2003. Fuel costs are a major component of
our total costs in our logistics and pellets businesses, and indirectly affect
numerous other areas of our business, including our mining and aluminum-related
businesses. An increase in oil and gas prices may lead to lower margins in our
logistics, mining and aluminum-related businesses. We are subject to ongoing antitrust investigations. We are currently involved in 14 proceedings before the Conselho
Administrativo de Defesa Econômica, or CADE, which is the primary Brazilian
antitrust regulator. Most of these proceedings involve post-transaction review
of acquisition or joint venture transactions, which is required for nearly all
of our acquisitions and joint ventures. The remaining are administrative
proceedings alleging that we have engaged in illegal anticompetitive conduct in
connection with our logistics and aluminum businesses. We intend to defend
these claims vigorously. We cannot predict the outcome of these proceedings.
If CADE were to determine that undue concentration exists in any of our
industries, it could impose measures to safeguard competition, which could
include requirements that we divest operations or respect price restrictions.
If CADE were to find that we have engaged in anticompetitive conduct, it could
order us to cease the conduct and/or to pay fines, which could be substantial. 12




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Our principal shareholder could have significant influence over our company. Valepar, our principal shareholder, currently owns 53.3% of our
outstanding common stock and 34.1% of our total outstanding capital. For a
description of the ownership of our shares, see Item 7. Major Shareholders and
Related Party TransactionsPrincipal Shareholder. As a result of its share
ownership, Valepar can control the outcome of any action requiring shareholder
approval. Further, the Brazilian government owns a golden share in us that
gives it limited veto powers over certain actions that we could propose to
take. For a detailed description of the veto powers granted to the Brazilian
government by virtue of its ownership of this golden share, see Item 10.
Additional InformationCommon Shares and Preferred SharesGeneral. Many of our operations depend on joint ventures; our business could be
adversely affected if our joint venture partners do not observe their
commitments. We currently operate important parts of our pelletizing, energy, aluminum
and steel businesses through joint ventures with other companies. Our
forecasts and plans for these joint ventures assume that our joint venture
partners will observe their obligations to make capital contributions, purchase
products and, in some cases, provide managerial talent. If any of our joint
venture partners fails to observe its commitments, the affected joint venture
may not be able to operate in accordance with its business plans or we may have
to increase the level of our investment to give effect to these plans. For
more information on our joint ventures, see Item 4. Information on the
CompanyLines of Business. Our risk management strategy may not be effective. We are exposed to fluctuations in interest rates, foreign currency
exchange rates, and prices relating to our aluminum production, and since the
start-up of our copper operations in Carajás, we are be subject to fluctuations
in copper prices. In order to partially protect ourselves against unusual
market volatility, we periodically enter into hedging transactions to manage
these risks. See Item 11. Quantitative and Qualitative Disclosures About
Market Risk.Our hedging strategy may not be successful in minimizing our
exposure to these fluctuations. In addition, to the extent we hedge our
commodity price exposure, we limit the upside benefits that we would otherwise
experience if commodities prices were to increase. We do not hedge risks
relating to iron ore price fluctuations. We may not have adequate, if any, insurance coverage for some business risks
that could lead to economically harmful consequences to us. Our businesses are generally subject to a number of risks and hazards, including:  
    
    industrial accidents;
    
    railroad accidents;
    
    labor disputes;
    
    slope failures;
    
    environmental hazards;
    
    electricity stoppages;
    
    equipment or vessel failures; and
    
    severe weather and other natural phenomena. These occurrences could result in damage to, or destruction of, mineral
properties, production facilities, transportation facilities, equipment or
vessels. They could also result in personal injury or death, environmental
damage, waste of resources or intermediate products, delays or interruption in
mining, production or transportation activities, monetary losses and possible
legal liability. The insurance we maintain against risks that are typical in
our business may not provide adequate coverage. Insurance against some risks
(including liabilities for environmental pollution or certain hazards or
interruption of certain business activities) may not be available at a
reasonable cost or at all. As a result, accidents or other negative
developments involving our mining, production or transportation facilities
could have a material adverse effect on our operations. 13




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Difficulties in implementing enterprise resource planning software may
interfere with the normal functioning of our business. We are in the process of implementing enterprise resource planning
software. If we are unable to replace, upgrade or modify our information
technology systems to adapt to this new software in a timely and cost effective
manner, our ability to capture and process financial transactions may be
impacted. Implementing the software may prove more costly or take longer than
expected, result in the loss of data or lead to system malfunctions that
interfere with the normal functioning of our business. If we are unable to
successfully manage the process of implementing the new software our results of
operations may be adversely affected. Risks Relating to Brazil The Brazilian government has historically exercised, and continues to
exercise, significant influence over the Brazilian economy. Brazilian
political and economic conditions have a direct impact on our business and the
market price of our securities. The Brazilian government frequently intervenes in the Brazilian economy
and occasionally makes substantial changes in policy, as often occurs in other
emerging economies. The Brazilian governments actions to control inflation
and carry out other policies have in the past involved wage and price controls,
currency devaluations, capital controls and limits on imports, among other
things. Our business, financial condition and results of operations may be
adversely affected by factors in Brazil including:  
    
    currency fluctuations;
    
    inflation;
    
    monetary policy and interest rates;
    
    fiscal policy;
    
    international trade policy;
    
    foreign exchange controls;
    
    energy shortages; and
    
    other political, social and economic developments in or affecting Brazil. Inflation and government measures to curb inflation may contribute
significantly to economic uncertainty in Brazil and to heightened volatility
in the Brazilian securities markets and, consequently, may adversely affect
the market value of our securities. Brazil has in the past experienced extremely high rates of inflation, with
annual rates of inflation reaching as high as 2,708% in 1993 (as measured by
the Índice Geral de Preços do Mercadopublished by Fundação Getúlio Vargas, or
IGP-M Index). More recently, Brazils rates of inflation were 9.9% in 2000,
10.4% in 2001, 25.3% in 2002, 8.7% in 2003 and 5.3% in the five months ended
May 31, 2004 (as measured by the IGP-M Index). Inflation, governmental
measures to combat inflation and public speculation about possible future
actions have in the past had significant negative effects on the Brazilian
economy, and have contributed to economic uncertainty in Brazil and to
heightened volatility in the Brazilian securities markets. If Brazil
experiences substantial inflation in the future, our costs may increase, our
operating and net margins may decrease and, if investor confidence declines,
the price of our securities may fall. Inflationary pressures may also curtail
our ability to access foreign financial markets and may lead to further
government intervention in the economy, which could involve the introduction of
government policies that may adversely affect the overall performance of the
Brazilian economy. Fluctuations in the value of therealagainst the U.S. dollar may result in
uncertainty in the Brazilian economy and the Brazilian securities market and
could have a material adverse effect on our net income. The Brazilian currency has historically suffered frequent devaluation. In
the past, the Brazilian government has implemented various economic plans and
exchange rate policies, including sudden devaluations, periodic
mini-devaluations during which the frequency of adjustments has ranged from
daily to monthly, floating exchange rate 14




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systems, exchange controls and dual
exchange rate markets. Although over long periods depreciation of the
Brazilian currency generally is correlated with the differential in the
inflation rate in Brazil versus the inflation rate in the U.S., depreciation
over shorter periods has resulted in significant fluctuations in the exchange
rate between the Brazilian currency and the U.S. dollar and other currencies. The realappreciated by 22.3% against the U.S. dollar in 2003, and
depreciated by 8.3% during the first five months of 2004. The exchange rate
between the realand the U.S. dollar may continue to fluctuate and may rise or
decline substantially from current levels. Depreciation of the realagainst the U.S. dollar reduces the U.S. dollar
value of distributions and the dividends on our American depositary shares and
may also reduce the market value of our securities. In addition, exchange rate
variations often have a significant effect on our net income. Depreciation of
the realrelative to the U.S. dollar may require us to record substantial
foreign exchange and monetary losses on our U.S. dollar-denominated debt,
whereas appreciation of the realagainst the U.S. dollar generally leads to the
opposite effect. These foreign exchange and monetary gains or losses can be
substantial, which can make our earnings from one period to the next more
volatile. Exchange rate variations also have a substantial impact on our
revenues and costs, because most of our revenues are in U.S. dollars and most
of our costs are in reais.As a result, appreciation of the realagainst the
U.S. dollar generally results in lower revenues and higher costs, which can
hurt our operating profitability. Exchange rate variations also influence the
Brazilian economy and inflation rates, which may lead the Brazilian government
to adopt policies that may have an adverse impact on our business. For
additional information about historical exchange rates, see Item 3. Key
InformationExchange Rates. Access to and the cost of borrowing in international capital markets for
Brazilian companies are influenced by investor perceptions of risk in Brazil
and other emerging economies, which may hurt our ability to finance our
operations at acceptable cost or reduce the trading price of our securities. International investors generally consider Brazil to be an emerging
market. As a result, economic and market conditions in other emerging market
countries, especially those in Latin America, influence the market for
securities issued by Brazilian companies. Economic crises in one or more
emerging market countries may reduce overall investor appetite for securities
of emerging market issuers. Past economic crises in emerging markets, such as
in Southeast Asia, Russia and Argentina, have resulted in significant outflows
of U.S. dollars from Brazil and caused Brazilian companies to face higher costs
for raising funds, both domestically and abroad, and have effectively impeded
the access to international capital markets for extended periods. We cannot
assure you that international capital markets will remain open to Brazilian
companies or that prevailing interest rates in these markets will be
advantageous to us. In addition, future financial crises in emerging market
countries may have a negative impact on the Brazilian markets, which could
adversely affect the trading price of our securities. Brazilian government policies in the energy sector may have an adverse impact
on the cost or supply of electricity for our aluminum-related and ferroalloy
operations. We are a significant consumer of Brazils electricity production, and
accounted for approximately 4.5% of total consumption in Brazil in 2003.
Electricity costs are a significant component of the cost of producing aluminum
and ferroalloys. Brazil faced a shortage of energy during the second half of 2001, which
led to an energy-rationing program that required a decrease in energy
consumption by at least 20%. As a result of this program, we experienced a
temporary reduction in our aluminum and ferroalloy production, both of which
use significant amounts of electricity. Although the energy shortages ended in
late 2001, and energy-use restrictions were lifted in March 2002, we cannot
assure you that Brazil will not experience future energy shortages. Future
shortages and government policies to respond to or prevent shortages may have
an adverse impact on the cost or supply of electricity for our aluminum and
ferroalloy operations. The Brazilian power generation business depends on concessions granted by
the government and is regulated and supervised by ANEEL. A new law for the
electricity sector was recently approved by the Brazilian Congress
and the Federal Government is studying other proposals for significant
changes in many of the regulations that relate to the new sector law and govern
the Brazilian electricity sector. Changes in the laws, regulations or
governmental policies regarding the power sector or concession requirements
could lower the returns we are expecting from our investments in power
generation. For more information on the regulations governing our energy
production, see Item 4. Information on the CompanyRegulatory Matters. 15




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Our mining and logistics activities depend on authorizations of regulatory
agencies, and changes in regulations could have an adverse effect on our
business. Our mining and logistics activities in Brazil depend on authorizations and
concessions by regulatory agencies of the Brazilian government. Our
exploration, mining, mineral processing and logistics activities are also
subject to Brazilian laws and regulations, which can change at any time. If
these laws and regulations change in the future, modifications to our
technologies and operations could be required, and we could be required to make
unbudgeted capital expenditures, which could lead to an increase in our
borrowing costs. For a more detailed discussion about the authorizations and
concessions by regulatory agencies of the Brazilian government upon which our
mining and logistics activities depend, see Item 4. Information on the
CompanyRegulatory Matters. Brazilian environmental laws may adversely affect our mining and energy
businesses. Our operations often involve using, handling, disposing and discharging
hazardous materials into the environment or the use of natural resources, and
are therefore subject to the environmental laws and regulations of Brazil.
Environmental regulation in Brazil has become stricter in recent years, and it
is possible that more regulation or more aggressive enforcement of existing
regulations will adversely affect us by imposing restrictions on our
activities, creating new requirements for the issuance or renewal of
environmental licenses, raising our costs or requiring us to engage in
expensive reclamation efforts. Our projects often require us to obtain or renew environmental licenses.
Difficulties in obtaining those licenses may lead to construction delays or
cost increases and in some cases may lead us to abandon a project. We are also subject to recent Brazilian environmental legislation that
requires companies undertaking projects with significant environmental impact
to pay an environmental compensation fee in the amount of at least 0.5% of
the total investment in the venture. There are numerous uncertainties about
how this law will be applied in practice. If we were required to pay this fee
with respect to past investments or if the level of the fees actually charged
were increased above 0.5%, it would significantly increase our costs and,
depending on the magnitude of the fees involved, could have a material adverse
effect on our liquidity. Uncertainties regarding calculation and payment of
these fees may strain our relations with the Brazilian environmental
authorities or lead to delays in obtaining necessary environmental permits.
See Item 8. Financial InformationLegal Proceedings. Brazilian laws restricting development in the Amazon river basin and
surrounding areas may place limits on our ability to expand certain of our
operations and to fully exploit our mineral rights in those regions. See Item
4. Information on the CompanyRegulatory MattersEnvironmental Matters. Several Brazilian states in which we operate are currently considering
implementing water usage fees under the National Hydrological Resources Policy.
This may require us to pay usage fees in the future for water rights that we
currently use for free, which could considerably increase our costs in areas
where water resources are scarce. In addition, we are currently a defendant in an action brought by the
municipality of Itabira, in the state of Minas Gerais, which alleges that our
Itabira iron ore mining operations have caused environmental and social
damages. If we do not prevail in this lawsuit, we could incur a substantial
expense. For more information on environmental laws and the legal challenges
we face, see Item 4. Information on the CompanyRegulatory
MattersEnvironmental Mattersand Item 8. Financial InformationLegal
Proceedings. Risks Relating to the American Depositary Shares Restrictions on the movement of capital out of Brazil may hinder your ability
to receive dividends and distributions on American depositary shares, and the
proceeds from any sale of American depositary shares. From time to time, the Brazilian government may impose restrictions on
capital outflow that would hinder or prevent the custodian who acts on behalf
of the depositary for the American depositary shares from converting
proceeds from the shares underlying the American depositary shares into
U.S. dollars and remitting those proceeds abroad. Brazilian law permits the
government to impose these restrictions whenever there is a serious imbalance
in Brazils balance of payments or reason to foresee a serious imbalance. The Brazilian government imposed remittance restrictions for approximately
six months in 1989 and early 1990. If enacted in the future, similar
restrictions would hinder or prevent the conversion of dividends, distributions
or the proceeds from any sale of shares from reaisinto U.S. dollars and the
remittance of the U.S. dollars abroad. In 16




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##### 



that event, the custodian, acting on
behalf of the depositary, will hold the reaisit cannot convert for the account
of the holders of American depositary receipts who have not been paid. The
depositary will not invest the reaisand will not be liable for interest on
those amounts. Furthermore, any reaisso held will be subject to devaluation
risk. If you exchange American depositary shares for the underlying shares, as a
result of Brazilian regulations you risk losing the ability to remit foreign
currency abroad and Brazilian tax advantages. The Brazilian custodian for the shares underlying our American depositary
shares will obtain an electronic registration from the Central Bank of Brazil
to entitle it to remit U.S. dollars abroad for payments of dividends and other
distributions relating to the shares underlying our American depositary shares
or upon the disposition of the underlying shares. If you decide to exchange
your American depositary shares for the underlying shares, you will be entitled
to continue to rely, for five business days from the date of exchange, on the
custodians electronic registration. Thereafter, you may not be able to obtain
and remit U.S. dollars abroad upon the disposition of, or distributions
relating to, the underlying shares unless you obtain your own electronic
registration by registering your investment in the underlying shares under
Resolution No. 2,689 of the National Monetary Council, which entitles foreign
investors to buy and sell securities on the São Paulo stock exchange, or
BOVESPA. For more information regarding these exchange controls, see Item 10.
Additional InformationExchange Controls and Other Limitations Affecting
Security Holders. If you attempt to obtain your own electronic registration,
you may incur expenses or suffer delays in the application process, which could
delay your ability to receive dividends or distributions relating to the
underlying shares or the return of your capital in a timely manner. We cannot
assure you that the custodians electronic registration or any certificate of
foreign capital registration obtained by you will not be affected by future
legislative changes, or that additional restrictions applicable to you, the
disposition of the underlying shares or the repatriation of the proceeds from
disposition will not be imposed in the future. Because we are not obligated to file a registration statement with respect to
preemptive rights relating to our shares, you may be unable to exercise those
preemptive rights. Holders of American depositary receipts that are residents of the United
States may not be able to exercise preemptive rights, or exercise other types
of rights, with respect to the underlying shares. Your ability to exercise
preemptive rights is not assured unless a registration statement is effective
with respect to those rights or an exemption from the registration requirements
of the Securities Act is available. We are not obligated to file a
registration statement relating to preemptive rights with respect to the
underlying shares or to undertake steps that may be needed to make exemptions
from registration available, and we cannot assure you that we will file any
registration statement or take such steps. If a registration statement is not
filed and an exemption from registration does not exist, JPMorgan Chase Bank,
as depositary, will attempt to sell the preemptive rights, and you will be
entitled to receive the proceeds of the sale. However, the preemptive rights
will expire if the depositary cannot sell them. For a more complete
description of preemptive rights with respect to the underlying shares, see
Item 10. Additional InformationCommon Shares and Preferred SharesPreemptive
Rights. Holders of our American depositary shares may encounter difficulties in the
exercise of voting rights. Holders of our common and preferred class A shares are entitled to vote on
shareholder matters. You may encounter difficulties in the exercise of some of
your rights as a shareholder if you hold our American depositary shares rather
than the underlying shares. For example, if we fail to provide the depositary
with voting materials on a timely basis, you may not be able to vote by giving
instructions to the depositary on how to vote for you. Our corporate affairs are governed by our bylaws and the Brazilian
Corporate Law, which differ from the legal principles that would apply if we
were incorporated in a jurisdiction in the United States or elsewhere outside
Brazil. Under the Brazilian Corporate Law, holders of our common and preferred
class A shares may have fewer and less well-defined rights to protect their
interests relative to actions taken by our board of directors or the holders of
common shares than under the laws of some jurisdictions outside Brazil. Although Brazilian law imposes restrictions on insider trading and price
manipulation, the Brazilian securities markets are not as highly regulated and
supervised as the U.S. securities markets or markets in certain other
jurisdictions. In addition, rules and policies against self-dealing and
regarding the preservation of minority shareholder interests may be less well
developed and enforced in Brazil than in the United States, which could
potentially disadvantage you as a holder of the underlying shares and American
depositary shares. For example, when compared to Delaware general corporation
law, Brazilian corporate law and practice has less detailed and
well-established rules and judicial precedents relating to the review of
management decisions against duty of care and duty of loyalty standards in the
context of corporate restructurings, transactions with related parties, and
sale-of-business 17




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transactions. In addition, shareholders in Brazilian
companies ordinarily do not have standing to bring a class action. In addition, as a foreign private issuer, we are not required to follow
many of the corporate governance rules that apply to U.S. domestic issuers with
securities listed on the New York Stock Exchange. For more information
concerning our corporate governance policies, see Item 6. Directors, Senior
Management and Employees. 18




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Item 4. Information on the Company 
 BUSINESS OVERVIEW 
 General We are the worlds largest producer and exporter of iron ore and pellets,
the largest diversified mining company in the Americas by market capitalization
and one of the largest companies in Latin America. We hold exploration claims
that cover 9.8 million hectares (24.1 million acres) in Brazil, and 395.8
thousand hectares (977.9 thousand acres) outside Brazil in Gabon, Chile and
Peru. We operate large logistics systems including railroads and ports that
are integrated with our mining operations. Directly and through affiliates and
joint ventures, we have major investments in the aluminum-related, energy and
steel businesses. We are investing heavily in copper exploration, and our
first copper mine began operations in June 2004. Our main lines of business are:  
    
    Ferrous minerals (69.4% of 2003 consolidated gross operating
revenues).We operate two fully integrated world-class systems in
Brazil for producing and distributing iron ore (the Northern System and
the Southern System), consisting of mines, railroads and port and
terminal facilities, and a third system consisting of mines and port
facilities. At December 31, 2003, we had a total of 4,926 million tons
of proven and probable iron ore reserves in our two fully integrated
systems in Brazil, with an average grade of 53.57% iron in our Southern
System and 66.56% in our Northern System. We also operate ten
pellet-producing facilities, six of which are joint ventures with
international partners, and have a 50% stake in a joint venture that
owns and operates two pelletizing plants. We are one of the worlds
largest producers of manganese ore and ferroalloys.
    
    Non-ferrous minerals (3.8% of 2003 consolidated gross operating
revenues).We are Brazils largest producer of kaolin and potash. Our
non-ferrous minerals business also includes our exploration efforts
related to copper and gold. We are in the process of completing our
Sossego copper mining project in Carajás, where we began production of
copper concentrate (with gold as a by-product) in 2004.
    
    Logistics (10.9% of 2003 consolidated gross operating revenues).
We are a leading provider of logistics services in Brazil, with
operations in the railroad, coastal shipping and port operations
industries. Each of the iron ore complexes of our Northern and
Southern Systems incorporates an integrated railroad network linked to
automated port and terminal facilities, and is designed to provide iron
ore, freight and passenger rail transportation, bulk terminal storage
and ship loading services to us and third parties. In 2003, our
railroads transported approximately 68% of the total freight tonnage
transported by Brazilian railroads, or approximately 201 million tons
of cargo, of which 149 million tons were our iron ore and pellets.
    
    Aluminum-related operations (15.4% of 2003 consolidated gross
operating revenues).Through subsidiaries and joint ventures, we
conduct major operations in the production of aluminum-related
products. They include:  
    
    Bauxite mining, which we conduct through our 40.0% interest
in Mineração Rio do Norte S.A., or MRN, which holds substantial
bauxite reserves with a low strip ratio and high recovery rate.
MRN, one of the largest bauxite producers in the world, has a
nominal production capacity of 16.3 million tons per year and
produced 14.4 million tons of bauxite in 2003. We also own
substantial bauxite mining rights in the Paragominas region, in the
state of Pará.
    
    Alumina refining, which we conduct via our alumina refining
subsidiary, Alunorte-Alumina do Norte do Brasil S.A., or Alunorte,
which currently has a nominal production capacity of 2.4 million
tons of alumina per year. In July 2003, Alunorte began work on a
capacity expansion designed to increase its annual capacity to 4.2
million tons per year. We are also exploring a potential joint
venture with the Aluminum Corporation of China Limited (Chalco) to
construct a new alumina refinery in the state of Pará, Brazil.
    
    Aluminum metal smelting, which we conduct through two
aluminum smelting joint ventures, Albras  Alumínio Brasileiro S.A.,
or Albras, which produces aluminum ingots and in which we have a
51.0% interest, and Valesul Alumínio S.A., or Valesul, which
produces aluminum ingots, slabs, bars, billets 19




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and alloys and in which we have a 54.5% interest. These joint
ventures currently have a combined production capacity of
approximately 530,000 tons of aluminum per year.  
    
    Other investments.In addition to our core mining activities, we
currently have investments in four steel companies, and are in the
process of conducting a feasibility study to determine whether to
implement a joint venture with Baosteel Shanghai Group Corporation
(Baosteel) to construct and operate a steel slab plant in São Luis,
state of Maranhão. We also hold stakes in nine hydroelectric power
generation projects with a total projected capacity of 3,364 MW (of
which our share is 1,333.5 MW), three of which have already begun
operations, and the remainder of which are scheduled to start
operations within the next five years. Negotiations are currently
underway to return the concession for the Santa Isabel hydroelectric
project to the Brazilian government. Through our mineral prospecting and development activities in Brazil, we
have acquired extensive experience in exploration techniques and processes
specifically designed for use in tropical areas of the world, and maintain an
active mineral exploration program in Brazil and overseas. In 2003, our
mineral exploration efforts were focused on copper, gold, nickel, manganese
ore, kaolin, bauxite and platinum group metals. We spent US$ 82 million on
research and development in 2003, including mineral exploration expenses of US$
69 million (of this amount, US$ 56.6 million, or 82%, consisted of expenditures
for mineral exploration in Brazil). International mineral exploration included
activities in Chile, Gabon and Peru. 
 Incorporation of CVRD and Vale Overseas Vale Overseas Vale Overseas is a finance company wholly owned by CVRD. It was
registered and incorporated as a Cayman Islands exempted company with limited
liability on April 3, 2001 (registration number 113637). Vale Overseas is
incorporated for an indefinite period of time. Its registered office is at
Walker House, P.O. Box 908 GT, Mary Street, Georgetown, Grand Cayman, Cayman
Islands. Vale Overseas business is to issue debt securities to finance CVRDs
activities. It has no other operations or employees. Vale Overseas has issued
three series of debt securities, including its US$ 300 million 8.625% Notes due
2007, which were issued in March 2002, its US$ 300 million 9.0% Notes due 2013,
which were issued in August 2003 and its US$ 500 million 8.25% Notes due 2034,
which were issued in January 2004. We used the proceeds of these securities
for general corporate purposes. CVRD CVRDs legal and commercial name is Companhia Vale do Rio Doce. CVRD is a
stock corporation, or sociedade por ações, duly organized on January 11, 1943,
and existing under the laws of the Federative Republic of Brazil. CVRD was privatized in three stages between 1997 and 2002, beginning with
the sale by the Brazilian government of a controlling stake in CVRD to Valepar
in 1997. The last stage of the privatization took place in 2002, when the
Brazilian government sold a remaining minority stake through a global equity
offering. It is organized for an unlimited period of time. CVRDs principal
executive offices are located at Avenida Graça Aranha, No. 26, 20030-900 Rio de
Janeiro, RJ, Brazil, and our telephone number is 55-21-3814-4540. 20




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Acquisitions, Asset Sales and Significant Changes in 2003 and 2004 Mining Caemi.In September 2003, we purchased Mitsui & Co. (Mitsui)s remaining
stake in Caemi Mineração e Metalurgia S.A. (Caemi) for US$ 426.4 million.
Together with the 50% stake in Caemis voting shares acquired in 2001, this
acquisition gives us 60.2% of Caemis total capital, with 100% of Caemis
common shares and 40% its preferred shares. The acquisition of Caemi
strengthens our position as a leading producer in the iron ore market by giving
us majority control of Minerações Brasileiras Reunidas S.A. (MBR), the second
largest producer and exporter of iron ore in Brazil and also gives us a
majority stake in Cadam S.A., Brazils largest producer and exporter of kaolin.
MBR also owns 32.93% of MRS Logística S.A. (MRS Logística), a railway company. Rio Doce Manganese Norway.In February 2003, we acquired for US$ 17.6
million 100% of Elkem Rana AS, a Norwegian ferroalloy producer, which we
subsequently renamed Rio Doce Manganese Norway AS (RDMN). RDMN has a plant
located in an industrial park in Mo I Rana, Norway, where ferrochrome was
produced until June 2002. In 2003, we invested US$ 16.7 million to convert the
plant to allow the production of ferro manganese alloys, including by revamping
one of its electrical furnaces and the plants environmental protection and
safety procedures. The plant started operations with one furnace in June 2003
and brought its second furnace online in November 2003. The ferroalloy plant,
which consumes manganese ore fines from our Azul mine in Carajás, has a
production capacity of 110,000 tons per year and produces ferro silicon
manganese and high carbon ferro manganese alloys. The acquisition of RDMN
expands our ferroalloy business in continental Europe, where our wholly owned
subsidiary Rio Doce Manganese Europe has operated a manganese ferroalloy plant
since 1992. Restructuring of MSG  Minas da Serra Geral S.A.In July 2003, we and JFE
Steel Corporation (JFES) signed an agreement to restructure the shareholding
composition of Minas da Serra Geral S.A. (MSG), a joint venture created in 1982
to develop the Capanema iron ore mine, which was discontinued in 2003. The
restructuring involved the purchase by JFES of a 1% equity stake in MSG
previously owned by us and a 24.5% equity stake previously owned by a Japanese
group of companies. Following the restructuring, each of CVRD and JFES now
owns 50% of MSGs equity. CVRD and JFES will continue the MSG joint venture,
whose purpose will now be to provide equipment for use in the development of
our wholly-owned Fábrica Nova iron ore mine, located in the central region of
the Iron Ore Quadrangle, in the state of Minas Gerais, 25 km east of Capanema.
Fábrica Nova is expected to start operations by 2005, producing 10 million tons
of iron ore per year, and is expected to reach full-scale production of 15
million tons by 2007. We currently estimate capital expenditures for the
development of Fábrica Nova at US$ 85 million. Rio Doce Manganês.On October 15, 2003, our subsidiary SIBRA 
Eletrosiderúrgica Brasileira S.A. (SIBRA) was renamed Rio Doce Manganês S.A.
(RDM). In February 2004, all of the operational assets of our subsidiaries
Sociedade Mineira de Mineração, S.A., Companhia Paulista de Ferro Ligas (CPFL),
Minérios Metalúrgicos do Nordeste S.A., and Mineração Urandi S.A., were
consolidated into RDM. Simplification of corporate structure.In August 2003, our wholly-owned
subsidiaries Ferteco Mineração S.A. (Ferteco) and Celmar S.A.  Indústria de
Celulose e Papel (Celmar) were merged into CVRD. The merger of Ferteco, which
provides us with direct control over Fertecos stake in MRS Logística, should
allow us to achieve synergies between the two companies via cost reduction and
greater operational flexibility in iron ore production and logistics. Celmars
30,000 hectares of renewable eucalyptus forest have been contributed to our
Ferro Gusa Carajás (Ferro Gusa) pig iron joint venture, as described below. In December 2003, the following wholly-owned subsidiaries were merged and
consolidated into CVRD: Rio Doce Geologia e Mineração S.A.  Docegeo (Docegeo),
Mineração Serra do Sossego S.A. (Sossego), Vale do Rio Doce Alumínio S.A. 
Aluvale (Aluvale) and its subsidiary, Mineração Vera Cruz S.A. (MVC). CVRD
assumed all of these subsidiaries assets and obligations. The consolidations
were implemented to simplify our organizational structure. Logistics Coastal shipping.In May 2003, we signed a stock purchase agreement with
Mitsui, a major Japanese participant in the global logistics market. Under the
agreement, our wholly-owned subsidiary Navegação Vale do Rio Doce
S.A.-Docenave, or Docenave, will own 79% of the total shares of a new company,
DCNDB Overseas S.A., or DCNDB, established to develop the intermodal coastal
shipping business. Mitsui will own the remaining
21% of the shares of DCNDB. All approvals have been obtained, except the
license to operate long haul services, 21




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which is expected during the first half
of 2004. We expect the association with Mitsui to allow Docenave to offer
service between the ports of Salvador and Itajai, a line which is currently not
serviced by any other major carriers, as well as service between other ports in
Argentina. We believe this joint venture will help increase Docenaves share
in the coastal shipping market and enable it to attract additional domestic and
international customers. Restructuring of certain logistics holdings.In April 2003, we, Companhia
Siderúrgica Nacional (CSN), and others signed an agreement for the purchase and
sale of shares in logistics companies. The agreement involved three principal
transactions:  
    
    our acquisition of CSNs stake in Ferrovia Centro-Atlântica S.A.
(FCA), the largest railroad in Latin America;
    
    the sale to CSN of our indirect stake in Sepetiba Tecon S.A.
(STSA), a company that operates a terminal at the Port of Sepetiba in
the state of Rio de Janeiro; and
    
    the transfer to CSN and Taquari Participações S.A. of our stake in
Companhia Ferroviária do Nordeste  CFN (CFN), a railroad company with
no significant synergies with other CVRD assets. In the second half of 2003, ANTT authorized these transactions, and we,
CSN and the other parties concluded the transactions contemplated in the April
agreement. We expect the consummation of these transactions to allow us to
focus on and promote new investments in railroad infrastructure and equipment
and increase the supply and quality of general cargo transportation services to
our clients. After receiving authorization from ANTT, a capital increase of FCA was
carried out. CVRD fully subscribed to the capital increase, for a total of R$
1,003 million, of which R$ 789.3 million corresponded to the conversion of
advance payments for future capital increases already made, and the remaining
R$ 204.9 million were paid in four cash installments. Upon completion of the
capital increase, CVRD became the controlling shareholder of FCA. Aluminum-Related Operations Alunorte capacity expansions.In April 2003, Alunorte inaugurated its
third production line, which has a capacity of 825,000 tons of alumina per
year. With this third line, Alunorte increased its production capacity to 2.4
million tons of alumina per year. Alunortes total investment in this project
amounted to approximately US$ 300 million. In July 2003, Alunorte began work on a new capacity expansion for its
alumina refinery in Barcarena, in the state of Pará. This brownfield project
involves the construction of stages 4 and 5 of the plant, and is expected to
increase its annual capacity from 2.4 million to 4.2 million tons of alumina
per year. Alunortes total investment in this project is expected to be
approximately US$ 583 million. ABC Refinery Project. In May 2004, we signed a framework agreement with
Chalco that sets forth a general outline of some of the principal terms for a
joint investment in an alumina refinery in Brazil (ABC refinery). Under the
agreement, we and Chalco have agreed to develop a joint study for the
construction of a greenfield refinery in the state of Pará, Brazil near the
existing facilities of Alunorte. The alumina refinery is expected to have an
initial capacity of 1.8 million tpy, and to reach a final capacity of 7.2
million tpy by gradual expansions. The refinery project would form part of a
series of related transactions involving mining, transportation, shipping and
port development in Brazil. The framework agreement contemplates that bauxite
for the project would be supplied from our Paragominas bauxite mines. The
initial phase of the refinery project is preliminarily estimated to have a
capital expenditure cost of approximately US$ 1 billion. The first stage of
the refinery is expected to be completed and operational in 2007. The project
remains subject to further discussion and to the negotiation of final
documentation and a number of other conditions, including receipt of board and
governmental approvals. Steel Companhia Siderúrgica Tubarão.In April 2003, we completed the
acquisition of shares of Companhia Siderúrgica de Tubarão (CST) from Acesita
S.A. (Acesita) that are not subject to the CST controlling shareholders
agreement. We acquired 4.42% of the common shares and 5.64% of the preferred
shares of CST, representing 5.17% of CSTs total capital, for US$ 59.7 million.
Following this transaction, we now own 24.93% of CSTs
common shares and 29.96% of CSTs preferred shares, totaling 28.02% of
CSTs capital. Subject to the renewal of the controlling shareholders
agreement in 2005, we expect to acquire, jointly with other parties, the
remaining shares 22




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of CST held by Acesita. We expect that the cost of acquiring
the stake in CST will be US$ 22.66 per block of thousand shares (equivalent to
US$ 33 million as of March 27, 2003) plus 4.25% a year, less distributed
dividends. We have also entered into agreements with Arcelor to guarantee the
liquidity of our position, under which we have the right to decrease our
participation in CST between 2007 and 2009 to 20% of the CST shares owned by
the controlling group. Between 2009 and 2015, we have the option to sell our
remaining stake in CST to Arcelor. The prices of both divestments will be
determined based on a valuation performed by two investment banks. A CST expansion project, involving the construction of a third blast
furnace, a third continuous casting and a new coke plant, is scheduled to come
onstream in 2006. The project will not require capital injections and/or
financial guarantees from its shareholders. Ferro Gusa pig iron joint venture.In April 2003, we signed an investment
agreement with Nucor Corporation, a North American steelmaker, in order to form
a joint venture in Brazil, Ferro Gusa, in which approximately 78% and 22% of
the voting shares will be held by CVRD and Nucor Corporation (or one of its
affiliates), respectively. The main purpose of Ferro Gusa is the production
and sale of pig iron. In September 2003, we contributed to Ferro Gusa the
forest assets once held by Celmar, a wholly-owned subsidiary of CVRD which was
merged into CVRD in August 2003. The cultivated forest assets, now owned by
Ferro Gusa, will be used as an energy source for its pig iron production. On
May 3, 2004 Nucor Brasil Participações Ltda. (Nucor) an affiliate of Nucor
Corporation, subscribed to a capital increase of Ferro Gusa for US$ 5 million.
As a result, CVRD currently has 88% and Nucor currently has 12% of the voting
shares of Ferro Gusa. Nucor is expected to invest an additional US$ 5 million
to increase its participation in the capital of Ferro Gusa to approximately
22%, as contemplated in the investment agreement. Steel slab plant feasibility study.In February 2004 we agreed with
Baosteel, a major Chinese steelmaker, to commence a study to assess the
feasibility of implementing a joint venture to build and operate an integrated
steel plant in São Luis, in the state of Maranhão, Brazil. An Engineering
Service Agreement has been signed authorizing the basic engineering and formal
feasibility study for the project. If the project is implemented, it would be
the largest investment in the Brazilian steel industry in many years. As
currently planned, the plant is expected to produce approximately 3.7 million
tons of steel slabs per year, with a possible future capacity expansion to 7.5
million tons per year. If the project is implemented, we expect it to further
increase demand for our iron ore products. We and Baosteel are currently
negotiating with Arcelor regarding its possible participation in the project.
The capital expenditures required for the development of the plant have not yet
been determined. Coal Mozambique coal mine pre-feasibility study.In June 2003, we, the
Industrial Development Corporation of South Africa, and Iscor, a major South
African steel producer, signed a non-binding Memorandum of Understanding to
undertake a feasibility study for the development of the Moatize coal deposit
in Mozambique. The group expects to spend US$ 3 million in updating the
pre-feasibility study which was first undertaken in the 1980s by CVRD and
others. It is anticipated that the project will involve the development of the
mine to produce coking and steam coal for export and domestic consumption in
Mozambique, the rebuilding of the Sena railway line and the development of a
port near Beira for coal export. If the pre-feasibility study is positive, the
group intends to carry out a formal feasibility study and to implement the
project. The project is subject to the Mozambican governments concession of
rights for mining, railroad and port operations and to multi-lateral and
government agencies support for the related infrastructure investments. The
size of the mine and capital expenditures required for its development have not
yet been determined. Yongcheng Coal Project. In May 2004, we entered into an agreement with
Shanghai Baosteel Group Corporation (Baosteel), the largest steelmaker in
China, and with Yongcheng Coal & Electricity Group (Yongcheng), one of the
largest coal producers in China. The agreement contemplates the establishment
of a joint venture for anthracite and coal production in China. The agreement
contemplates that we will have guaranteed off-take rights to a portion of the
production of the mines, which we intend to consume at our pelletizing plants
and to sell to clients in the Brazilian market. The project remains subject to
further discussion and to the negotiation of final documentation, as well as to
other conditions including receipt of board and governmental approvals. Yankuang Coke and Coal Projects. In May 2004, we entered into an
agreement with the Yankuang Group (Yankuang), one of the largest coal producers
in China, to explore the possibility of participating in a joint venture for
the purpose of developing, owning and operating a plant in Jining City,
Shandong Province, China that would
produce 2,000,000 tons of coke and 200,000 tons of methanol per year. As
currently planned, the plant would begin operations in 2006 and approximately
25% of the plants production would be exported mainly to Brazil. We are also
exploring with Yankuang the possibility of participating in a joint venture to
develop new coal mines in the city 23




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of Zhaolou, Shandong province, China. The
planned production capacity of the first mine to be developed would be three
million tons per year and, if the project proceeds, the mine is expected to
start operations in 2007. Each of the coke plant and coal mine projects
remains subject to further discussion, negotiation of final documentation and a
number of other conditions, including receipt of board and governmental
approvals. Dispositions and Asset Sales In line with our focus on mining and logistics, we have continued to pare
down our holdings of non-strategic assets. We summarize below our key
dispositions and asset sales since the beginning of 2003. Sale of Docenave vessels.In the transportation industry, we continued in
2003 the divestiture of our dry-bulk shipping business begun in 2001, by
continuing to sell the fleet of vessels owned by Docenave. In June 2003, we
sold two additional ships of Docenave to Magna Marine, Inc. for US$ 36 million.
As a result of the sale, Docenave now remains with three ships which we intend
to sell in the near future. Sale of Fazenda Brasileiro gold mine.In August 2003, we sold our one
remaining gold mine, Fazenda Brasileiro, which was near full exhaustion, to
Yamana Resources Inc., a Canadian mining company, for US$ 20.9 million. With
the sale of Fazenda Brasileiro, our gold production has been discontinued, and
we do not expect to begin producing gold again except in connection with the
start-up of the copper projects we are currently developing in Carajás, where
we expect to produce gold as a by-product of the copper mining process. We
continue to invest in mineral exploration aiming at the discovery of new gold
reserves. Sale of our stake in Fosfértil.In October 2003, we sold our interest in
Fertilizantes Fosfatados S.A. (Fosfértil) shares to Bunge Fertilizantes S.A.
for US$ 84 million. The sale involved 10.96% of Fosfértils voting capital,
11.19% of its preferred capital and 11.12% of its total capital. This
transaction is consistent with CVRDs focus in mining and logistics and with
its strategy of selling portfolio investments. Santa Isabel hydroelectric power project.Negotiations are currently
underway with ANEEL to return the concession for the Santa Isabel hydroelectric
project due to difficulties related to environmental issues. 
 Business Strategy Our goal is to strengthen our competitiveness among the worlds leading
mining companies by focusing on diversified growth in mining (mainly based on
the exploitation of organic growth opportunities) and developing our logistics
business. We are pursuing disciplined capital management, looking to maximize
return on invested capital and total return to shareholders. Although we are
emphasizing organic growth in our core businesses, we will continue to pursue
selective acquisitions in order to create value for our shareholders. Over the past several years, we have developed a more efficient governance
structure and a robust long-term strategic planning process. Now we are
building on these changes with ambitious long-range plans in each of our
principal business areas. We are planning substantial capital expenditures for
organic growth through 2010. The following paragraphs highlight specific major
strategies. Maintaining Our Leadership Position in the Seaborne Iron Ore Market In 2003, we consolidated our leadership in the seaborne iron ore trade
market, achieving an estimated 32.9% of the total 537 million tons traded in
the year. We are committed to maintaining our position in the world iron ore
market by strengthening relationships with clients, focusing our product line
to capture industry trends, increasing our production capacity in line with
demand growth and controlling costs. We believe that our strong relationships
with major customers (reinforced through long term contracts), tailored product
line and high quality products will enable us to achieve this goal. Growing Our Logistics Business We believe that the quality of our railway assets and our many years of
experience as a railroad and port operator, together with the lack of efficient
transportation for general cargo that Brazil faces, position us to establish
ourselves as a leading Brazilian logistics company serving both domestic and
export markets. In 2003, the Brazilian
regulatory authorities authorized us to increase our stake in FCA, the
largest Brazilian railroad, becoming the owner of 99.99% of its capital. This
railroad is a component of our Southern Logistics System, comprising the
Estrada de Ferro Vitória a Minas (EFVM) railroad and the complex of Vitória
ports (Tubarão, Praia Mole, TPD  Terminal de 24




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Produtos Diversos and Terminal de
Vila Velha). We are focusing on the maximization of asset utilization by means
of increasing railroad traffic and port handling, improving levels of service
offered and developing new logistics solutions for our clients. Developing Our Copper Resources We believe that our copper projects, which are all situated in the Carajás
region, can be among the most competitive in the world in terms of investment
cost per ton of ore. Our copper mines will benefit from our transportation
facilities serving the Northern System. Sossego, our first copper project,
began commercial production in June 2004, and will have an average annual
capacity of 140,000 tons of copper in concentrate. We have a Mineral Risk
Contract with BNDES providing for the joint development of certain unexplored
mineral resources in approximately two million identified hectares of land in
the Carajás region, as well as proportional participation in any financial
benefits earned from the development of those resources. In April 2004, the
Mineral Risk Contract was renewed for an additional period of five years. Increasing Our Aluminum-Related Activities We plan to develop and increase production capacity in our
aluminum-related operations, focusing on the upstream of the production chain,
developing low cost bauxite and alumina projects. Our bauxite joint venture,
MRN and our alumina subsidiary, Alunorte, each increased their production
capacity in 2003. We are currently building a new capacity expansion at
Alunorte and expect to begin developing a new bauxite mine, Paragominas, which
is wholly owned by CVRD. The expansion of Alunorte is expected to be completed
by 2006. We are also studying the possibility of a joint venture with Chalco
to build a new alumina plant in the state of Pará that would further increase
our alumina production. We may pursue acquisitions and/or partnerships in the
production of primary aluminum to guarantee demand for our alumina. Globalization of Multi- Commodity Exploration Efforts We are engaged in an active mineral exploration program, with efforts in
several countries around the globe, including Brazil, Peru, Chile, Mongolia,
Gabon, Angola and China. We are mainly seeking new copper, gold, manganese
ore, nickel, kaolin, bauxite and platinum group metals deposits. Mineral
exploration is an important part of our organic growth strategy. Developing Power Generation Projects Energy management and efficient supply has become a priority for us,
driven both by structural changes in the industry and regulatory uncertainties,
which could increase the risk of rising electricity prices and energy
shortages, such as Brazil experienced in the second half of 2001. We have
invested in nine consortia to develop hydroelectric power generation projects
and we plan to use the electricity from these projects for our internal needs.
As a large consumer of electricity, we expect that investing in power projects
will help protect us against volatility in the price and supply of energy. 25




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##### 



LINES OF BUSINESS Our principal lines of business consist of mining and logistics. For
internal management purposes, we group our aluminum-related operations together
with our other significant equity participations in other companies. 
 Mining Ferrous Minerals Our ferrous minerals business segment includes iron ore mining, pellet
production, manganese ore mining and ferroalloy production. The table below sets forth our ferrous minerals gross revenues by
geographic market and by category for the periods indicated as reflected in our
consolidated financial statements. For the Year ended December 31,2001
    
    2002
    
    2003(1)(in millions of US$)Gross revenues classified by geographic destinationExport sales:America, except United States
    
    US$
    238
    
    
    US$
    392
    
    
    US$
    526United States
    
    
    247
    
    
    
    340
    
    
    
    337Europe
    
    
    1,469
    
    
    
    1,799
    
    
    
    2,214Middle East/Africa/Oceania
    
    
    216
    
    
    
    239
    
    
    
    292Japan
    
    
    525
    
    
    
    488
    
    
    
    569China(2)
    
    
    
    
    
    
    574
    
    
    
    897Asia, other than Japan and China (2)
    
    
    863
    
    
    
    368
    
    
    
    422Subtotal
    
    
    3,558
    
    
    
    4,200
    
    
    
    5,257Domestic sales
    
    
    1,083
    
    
    
    996
    
    
    
    1,142Subtotal
    
    
    4,641
    
    
    
    5,196
    
    
    
    6,399Eliminations(3)
    
    
    (1,782
    )
    
    
    (2,093
    )
    
    
    (2,550
    )Total
    
    US$
    2,859
    
    
    US$
    3,103
    
    
    US$
    3,849Gross revenues classified by categoryIron ore
    
    
    2,003
    
    
    
    2,147
    
    
    
    2,662Pellets
    
    
    597
    
    
    
    673
    
    
    
    838Manganese ore and ferroalloys
    
    
    259
    
    
    
    283
    
    
    
    349Total
    
    US$
    2,859
    
    
    US$
    3,103
    
    
    US$
    3,849
   (1)
    
    The operations of Caemi are reflected in the above table as of
September 2003, the date on which we acquired and began consolidating
its operations.(2)
    
    In 2001, China was classified within Asia.(3)
    
    Eliminations of transactions between consolidated figures. Iron Ore We conduct our iron ore business primarily at the parent company level and
through our subsidiaries Urucum Mineração S.A., or Urucum and Caemi. System Structure The table below sets forth information regarding our proven and probable
iron ore reserves and projected exhaustion dates as of December 31, 2003. The
estimates of mineral reserves have been audited and verified by Golder, experts
in geology, mining and ore reserve determination. The projected exhaustion
dates are estimated based on our estimates of future production levels. Given the recent nature of our acquisition of Caemi, we have not yet
completed the process of establishing proven and probable reserves for Caemi
under the applicable SEC requirements. 26




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##### 



Proven and ProbableBegan
    
    Projected/Actual
    
    Production For the Year Ended
    
    Reserves atMine(1)
    
    Operations
    
    Exhaustion Date
    
    December 31,
    
    December 31, 2003Ore2001
    
    2002
    
    2003
    
    Tonnage
    
    Grade(in millions(in millions of tons)
    
    of tons)
    
    (% Fe)Southern SystemItabira Complex:Cauê(2)
    
    
    1942
    
    
    
    2004
    
    
    
    19.7
    
    
    
    20.7
    
    
    
    22.3
    
    
    
    
    
    
    
    Conceição(3)
    
    
    1957
    
    
    
    2022
    
    
    
    19.2
    
    
    
    20.0
    
    
    
    20.8
    
    
    
    449.6
    
    
    
    54.7Minas do Meio(4)
    
    
    1976
    
    
    
    2022
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    621.1
    
    
    
    53.5Minas Centrais ComplexÁgua Limpa / Cururu(5)
    
    
    2000
    
    
    
    2014
    
    
    
    2.5
    
    
    
    3.2
    
    
    
    4.0
    
    
    
    77.7
    
    
    
    45.2Gongo Soco (6)
    
    
    2000
    
    
    
    2017
    
    
    
    6.7
    
    
    
    6.8
    
    
    
    3.2
    
    
    
    118.4
    
    
    
    59.4Brucutu(7)
    
    
    1994
    
    
    
    2030
    
    
    
    
    
    
    
    0.1
    
    
    
    1.6
    
    
    
    772.4
    
    
    
    52.1Baú(8)
    
    
    1978
    
    
    
    2020
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36.7
    
    
    
    55.5Maquiné(9)
    
    
    2003
    
    
    
    2030
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    148.7
    
    
    
    59.2Córrego do Meio (10)
    
    
    2000
    
    
    
    2005
    
    
    
    1.2
    
    
    
    1.2
    
    
    
    1.2
    
    
    
    
    
    
    
    Mariana ComplexAlegria(11)
    
    
    2000
    
    
    
    2024
    
    
    
    9.7
    
    
    
    9.9
    
    
    
    9.9
    
    
    
    223.0
    
    
    
    53.5Fábrica Nova(11)
    
    
    2000
    
    
    
    2025
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    440.5
    
    
    
    54.3Morro da Mina(11)
    
    
    2000
    
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.3
    
    
    
    65.1Fazendão(12)
    
    
    1976
    
    
    
    2028
    
    
    
    1.0
    
    
    
    0.8
    
    
    
    0.3
    
    
    
    357.3
    
    
    
    50.1Timbopeba(13)
    
    
    1984
    
    
    
    2008
    
    
    
    5.5
    
    
    
    5.2
    
    
    
    5.8
    
    
    
    101.8
    
    
    
    54.4Capanema/Ouro Fino(14)
    
    
    1982
    
    
    
    2003
    
    
    
    3.9
    
    
    
    4.0
    
    
    
    6.4
    
    
    
    
    
    
    
    Minas do Oeste ComplexCórrego do Feijão(15).
    
    
    2003
    
    
    
    2008
    
    
    
    5.8
    
    
    
    6.3
    
    
    
    7.2
    
    
    
    27.0
    
    
    
    65.7João Pereira(16)
    
    
    2003
    
    
    
    2009
    
    
    
    5.6
    
    
    
    5.2
    
    
    
    9.9
    
    
    
    58.1
    
    
    
    54.9Área 10, Segredo,
Ponto 2 and 3(16)
    
    
    2003
    
    
    
    2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.6
    
    
    
    61.1Total Southern System
    
    
    
    
    
    
    
    
    
    
    80.8
    
    
    
    83.4
    
    
    
    92.6
    
    
    
    3,445.2
    
    
    
    53.6Urucum(17)
    
    
    1993
    
    
    
    
    
    
    
    0.6
    
    
    
    0.8
    
    
    
    0.8
    
    
    
    
    
    
    
    Northern System(18)N4W
    
    
    1994
    
    
    
    2020
    
    
    
    14.9
    
    
    
    12.8
    
    
    
    13.2
    
    
    
    654.7
    
    
    
    66.5N4E
    
    
    1984
    
    
    
    2015
    
    
    
    26.1
    
    
    
    17.8
    
    
    
    21.4
    
    
    
    427.4
    
    
    
    66.9N5W
    
    
    1998
    
    
    
    2030
    
    
    
    1.9
    
    
    
    6.3
    
    
    
    6.1
    
    
    
    296.6
    
    
    
    66.1N5E
    
    
    1998
    
    
    
    2007
    
    
    
    9.5
    
    
    
    17.0
    
    
    
    17.9
    
    
    
    79.4
    
    
    
    67.5N5E-N
    
    
    2003
    
    
    
    2020
    
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    22.9
    
    
    
    65.5Total Northern System
    
    
    
    
    
    
    
    
    
    
    52.4
    
    
    
    53.9
    
    
    
    58.9
    
    
    
    1,481.0
    
    
    
    66.6Caemi System(19)Pico
    
    
    1942
    
    
    
    
    
    
    
    11.6
    
    
    
    11.7
    
    
    
    12.6
    
    
    
    
    
    
    
    Tamanduá
    
    
    1996
    
    
    
    
    
    
    
    11.2
    
    
    
    14.9
    
    
    
    20.4
    
    
    
    
    
    
    
    Jangada
    
    
    2001
    
    
    
    
    
    
    
    2.8
    
    
    
    2.5
    
    
    
    3.0
    
    
    
    
    
    
    
    Mutuca
    
    
    1962
    
    
    
    2001
    
    
    
    2.2
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    
    
    
    
    Águas Claras
    
    
    1973
    
    
    
    2002
    
    
    
    2.6
    
    
    
    1.5
    
    
    
    0.0
    
    
    
    
    
    
    
    Total Caemi System
    
    
    
    
    
    
    
    
    
    
    30.4
    
    
    
    30.6
    
    
    
    36.0
    
    
    
    
    
    
    
    Total CVRD
    
    
    
    
    
    
    
    
    
    
    164.2
    
    
    
    168.7
    
    
    
    188.3
    
    
    
    
    
    
    
    
   (1)
    
    CVRDs equity interest in mines is 100% unless otherwise noted.(2)
    
    Average product recovery after beneficiation was 74%. Reserves
were not reported for 2003 due to the mines depleted state.(3)
    
    Average product recovery after beneficiation is 78%.(4)
    
    Average product recovery after beneficiation is 72%. The run of
mine is sent to Cauê Concentration Plant and Conceição Concentration
Plant. The production is declared in Cauê and Conceição.(5)
    
    CVRD ownership is 60%. Average product recovery after
beneficiation is 51%.(6)
    
    Average product recovery after beneficiation is 84%.(7)
    
    Average product recovery is 100% (direct shipping).(8)
    
    Average product recovery is 84%.(9)
    
    Average product recovery is 84%.(10)
    
    Average product recovery is 100% (direct shipping). Reserves were
not reported for 2003 due to the mines depleted state.(11)
    
    Average product recovery after beneficiation is 73%.(12)
    
    Average product recovery is 100% (direct shipping). It produces
lump ore only.(13)
    
    Average product recovery after beneficiation is 77%.(14)
    
    CVRDs ownership interest is 51%. Average product recovery after
beneficiation is 84%. Reserves were not reported for 2003 due to the
mines depleted state.(15)
    
    Average product recovery after beneficiation is 80%.(16)
    
    Average product recovery is 70%. The run of mine is sent to
Fábrica Concentration Plant.(17)
    
    There are no proven and probable iron ore reserves at Urucum.(18)
    
    Average product recovery after beneficiation is 92%.(19)
    
    Proven and probable reserves have not yet been established for
Caemi. 27




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##### 



Integrated Systems The following map shows the location of our current principal operations. (MAP) 28




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##### 



Our iron ore mining and related operations are concentrated in three
systems in Brazil, the Southern System, the Northern System and the Caemi
System. The Southern System is located in the states of Minas Gerais and
Espírito Santo, and the Northern System is located in the states of Pará and
Maranhão. Caemis iron ore mining area is concentrated in the Iron Ore
Quadrangle region in the state of Minas Gerais. Each our Northern and Southern
Systems includes iron ore reserves and other mineral deposits, mines, ore
processing facilities and integrated railroad and terminal transportation
facilities. Our railroads connect the Northern System mines to the Ponta da
Madeira Maritime Terminal Complex and the Southern System mines to the Tubarão
Maritime Terminal Complex. The operation of these separate systems, each with
transportation capability, enhances reliability and consistency of service to
our customers. The Caemi System does not include a wholly owned railroad.
Instead, we contract freight services from MRS Logística, a railway company in
which we have a minority interest, to transport products from mines in the
Caemi System to the Guaiba Maritime Terminal Complex, in the state of Rio de
Janeiro. Southern System (MAP) The Southern System is an integrated system consisting of iron ore mines,
the Vitória a Minas railroad, and the Tubarão Maritime Terminal Complex
(located in Vitória, in the state of Espírito Santo). The iron ore mines of
the Southern System are located in a region called the Iron Ore Quadrangle in
the state of Minas Gerais, in the southeast of Brazil. The Southern System is
accessible by road or by spur tracks of the Vitória a Minas railroad. The iron
ore from our Southern System mines is also transported through MRS Logísticas
railroad to our Port of Sepetiba, in the state of Rio de Janeiro.
Transportation of the iron ore concentrate, lump and natural pellet ore
produced in the Southern System is discussed below in Item 4. Information on
the CompanyLine of BusinessLogistics. Iron ore in the Southern System is mined by open pit methods. These ore
reserves have high ratios of itabirite ore relative to hematite ore. Itabirite
is a quartz-hematite rock with an average iron content ranging from 35% to 65%,
requiring concentration to achieve shipping grade, which is above a 64% average
iron content. Hematite is a high grade ore with an average iron content around
66%. Mines in the Southern System generally process their run-of-mine by means
of standard crushing, classification and concentration steps, producing sinter
feed, lump ore and pellet feed. 29




---



##### 



Northern System (MAP) The Northern System is an integrated mine, railroad and port system,
including open pit mines and an ore processing complex. The Northern System is
located in the Carajás region, in the states of Pará and Maranhão in the north
of Brazil (in the Amazon River basin), on public lands for which we hold mining
concessions. The Northern Systems reserves are among the largest iron ore
deposits in the world. These reserves are divided into two main ranges (north
and south), situated approximately 35 kilometers apart. Iron ore mining
activities in the Northern System are currently being conducted in the northern
range, which is divided into six main mining bodies (N4E, N4WC, N4WN, N5W, N5E
and N5EN). The N4E deposit is the largest operational pit in the Northern Region.
Industrial scale mining operations began at this mine in 1985. We selected the
N4E mine as the first iron body to be developed in the Northern System because
development of the N4E would facilitate access to the N4W and N5 deposits,
which could share the N4E beneficiation complex and train-loading terminal. We
began mining operations at N4W in 1994, opening two pits (N4WC and N4WN). We
completed the construction of two in-pit crushing systems located at N4E and
N4WN mines in late December 1998. The N4E and N4W mines use conventional open
pit benching, with drilling and blasting to open a free face followed by shovel
loading. During 1998, we also started operations in the N5 mines (N5W and
N5E). Operations in the N5EN mine commenced in 2003. Because of the high iron content (66.6% on average) in the Northern
System, we do not have to operate a concentration plant at Carajás. The
beneficiation process consists simply of sizing operations, including
screening, hydrocycloning, crushing and filtration. This allows us to produce
marketable iron ore in the Northern System at a lower cost than in the Southern
System. Output from the beneficiation process consists of sinter feed, pellet
feed, special fines for direct reduction processes and lump ore, which is
sampled regularly before storage at the Carajás stockyard by automatic sampling
systems that conform to ISO 9002 standards. After the beneficiation process,
our Carajás railroad transports Northern System iron ore to the Ponta da
Madeira Maritime Terminal Complex located at São Luís in the state of Maranhão. Our complex in Carajás is accessible by road, air and rail. It obtains
electrical power at market rates from regional utilities. To support our
Carajás operations and to reduce turnover of mining personnel, we have housing
and other facilities in a nearby township. 30




---



##### 



Caemi System (MAP) Caemi operates its iron ore activities through its subsidiary MBR. MBR
operates in the Iron Ore Quadrangle in the state of Minas Gerais and exports
through its own maritime terminal on Guaiba Island, in Sepetiba Bay, state of
Rio de Janeiro. MBR presently operates three mines: Tamanduá, Pico and Jangada. Iron ore
is mined by the open pit method in each of the mines. Lump ore, sinter feed
fines and pellet feed fines are produced from iron ore extracted from each mine
after beneficiation. The Pico Complex (which includes the mine and the surrounding area which
supports the mine) has a beneficiation plant that contains concentration
columns. Concentration columns are used to isolate pellet feed fines from
silica, resulting in an improved product grade. The Tamanduá Complex has a
beneficiation plant at Vargem Grande. MBR transports its iron ore to the
Guaiba Island Maritime Terminal at market rates via the MRS Logística railway,
in which we currently have a minority interest. The Jangada Complex has a
beneficiation plant near the mine and its ore is transported through MRS
Logística railway to the Guaiba Island Maritime Terminal. 31




---



##### 



Pellets The table below sets forth information regarding our share ownership and
joint venture partners as of April 30, 2004 and total pellet production by us
and our joint ventures for the periods indicated. Our Direct or
    
    
    
    Total Pellet Production(1)(2)Indirect Share of
    
    
    
    for the Year Ended
    
    NominalSystem
    
    Capital
    
    Partners
    
    December 31,
    
    CapacityVoting
    
    Total
    
    
    
    2001
    
    2002
    
    2003%
    
    
    
    
    
    
    
    (in millions of tons)CVRD(3)
    
    Northern/Southern
    
    
    n.a.
    
    
    
    n.a.
    
    
    n.a.
    
    
    8.6
    
    
    
    10.3
    
    
    
    13.0
    
    
    
    15.2GIIC
    
    Bahrain
    
    
    50.0
    
    
    
    50.0
    
    
    GIC
    
    
    2.7
    
    
    
    3.1
    
    
    
    3.7
    
    
    
    4.0Hispanobrás
    
    Southern
    
    
    51.0
    
    
    
    50.9
    
    
    Aceralia
    
    
    3.7
    
    
    
    3.7
    
    
    
    3.6
    
    
    
    3.8Itabrasco
    
    Southern
    
    
    51.0
    
    
    
    50.0
    
    
    Ilva
    
    
    3.3
    
    
    
    3.3
    
    
    
    3.3
    
    
    
    3.3Kobrasco
    
    Southern
    
    
    50.0
    
    
    
    50.0
    
    
    Posco
    
    
    4.2
    
    
    
    4.1
    
    
    
    4.4
    
    
    
    4.3Nibrasco
    
    Southern
    
    
    51.1
    
    
    
    51.0
    
    
    Nippon Steel
    
    
    7.1
    
    
    
    7.1
    
    
    
    7.7
    
    
    
    8.4SumitomoJFE SteelKobe SteelNisshin SteelSOJITZ Corp.Samarco
    
    Ponta do Ubú
    
    
    50.0
    
    
    
    50.0
    
    
    BHP Billiton
    
    
    9.9
    
    
    
    11.6
    
    
    
    13.3
    
    
    
    14.0Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39.5
    
    
    
    43.2
    
    
    
    49.0
    
    
    
    53.0
   (1)
    
    Total production by joint venture entity.(2)
    
    Production figures are for the full year beginning the year of
acquisition by CVRD of an equity interest in the entity even if acquired
during the year.(3)
    
    Production and capacity figures include CVRD I and II in Tubarão, the
São Luiz pelletizing plant and the former operations of Ferteco, the Fábrica
pelletizing plant. Ferteco operated as a separate subsidiary of CVRD until
August 2003. Our pellet activities increase our market for fine and ultrafine iron ore
products. We sell pellet feed to our pellet joint ventures at market-based
prices. Historically, we have supplied all of the iron ore requirements of our
joint ventures located in the Southern System. Besides BF pellets, some of the
pellets we and our joint ventures produce are DR pellets, which are used in
steel mills that use electric arc furnace rather than blast furnace technology. The table below sets forth information regarding iron ore shipments to our
pellet joint ventures for the periods indicated. For the Year EndedDecember 31,2001
    
    2002
    
    2003(in millions of tons)GIIC
    
    
    1.7
    
    
    
    2.6
    
    
    
    2.7Hispanobrás
    
    
    3.9
    
    
    
    3.7
    
    
    
    3.8Itabrasco
    
    
    3.6
    
    
    
    3.6
    
    
    
    3.5Kobrasco
    
    
    4.5
    
    
    
    4.4
    
    
    
    4.7Nibrasco
    
    
    7.8
    
    
    
    7.3
    
    
    
    7.1Samarco
    
    
    1.9
    
    
    
    2.0
    
    
    
    2.0Total
    
    
    23.4
    
    
    
    23.6
    
    
    
    23.9
 Customers, Sales and Marketing (Iron Ore and Pellets) We use all of our iron ore and pellets (including our share of joint
venture pellet production) to supply the steelmaking industry. Prevailing and
expected levels of demand for steel products affect demand for our iron ore and
pellets. Demand for steel products is influenced by many factors, such as
expected rates of economic growth. 32




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##### 



Historically, we have exported more than two-thirds of our iron ore
shipments. We export iron ore and pellets primarily to Asia and Europe, with
customers in China, Japan, South Korea, France and Germany accounting for
approximately 44.8% of our total iron ore and pellets export shipments in 2003.
Our 10 largest customers collectively purchased 70.6 million tons of iron ore
and pellets from us, representing 38% of our 2003 iron ore and pellet shipments
and 41% of our total iron ore and pellets revenues. No individual customer
accounted for more than 11% of our sales of iron ore and pellets for any of the
three years ended December 31, 2003. We strongly emphasize customer service in order to improve our
competitiveness. We work with our customers to understand their principal
objectives and then tailor our iron ore to meet specific customer needs. To
provide a tailored product, we take advantage of our large number of iron ore
mines in order to produce multiple iron ore products possessing different
grades of iron, silica and alumina, and varying physical properties, including
grain size. We believe that we offer our customers more variety than our
competitors. This variety helps us offset disadvantages in relation to
competitors who may be more conveniently located geographically. In addition
to offering technical assistance to our customers, CVRD operates sales support
offices in Tokyo, Brussels, New York and Shanghai. These offices allow us to
stay in close contact with our customers, monitor their requirements and our
contract performance, and ensure that our customers receive deliveries on
schedule. Our central sales office in Rio de Janeiro coordinates the
activities of these offices. Caemis sales support offices are located in
Connecticut (USA), Den Haag (The Netherlands), Hong Kong and Shanghai. Distribution (Iron Ore and Pellets) Our ownership and operation of transportation systems designed for the
efficient transportation of iron ore products complement our iron ore mining
business in the Northern and Southern Systems. We operate an integrated
railroad and terminal network in each of our Northern and Southern Systems.
These networks transport our iron ore products from interior mining locations
to the maritime terminal and domestic customers. A more detailed description
of the networks is provided in the section below entitled Logistics. We do not own or operate an integrated transportation system for our Caemi
System. Instead we enter into freight contracts with MRS Logística, a railway
company in which we own a minority interest, to transport our iron ore products
at market rates from MBRs mines to its maritime terminal on Guaiba Island and
to its domestic customers. Competition (Iron Ore and Pellets) In general, the international iron ore market is highly competitive.
Several large producers operate in this market. The principal factors
affecting competition are price, quality, range of products offered,
reliability and transportation costs. In 2003, the European market and the
Asian market (primarily China, Japan and South Korea) were the primary markets
for our iron ore. Our biggest competitors in the Asian market are located in Australia and
include subsidiaries and affiliates of BHP Billiton PLC and Rio Tinto Ltd.
Although the transportation costs of delivering iron ore from Australia to
Asian customers are generally lower than ours as a result of Australias
geographical proximity, we believe we are able to remain competitive in the
Asian market for two principal reasons. First, steel producers generally seek
to obtain the types (or blends) of iron ore which can produce the intended
final product in the most economic and efficient manner. Our iron ore has low
impurity levels, which generally lead to lower processing costs. For example,
the alumina content of our iron ore is very low compared to Australian ore.
Our ore also has high iron grade, which improves productivity in blast
furnaces, which is important during periods of high demand. Second, steel
mills often develop sales relationships based on a reliable supply of a
specific mix of iron ore. We have a customer-oriented marketing policy of
meeting our clients needs to the extent possible, including placing
specialized personnel in direct contact with our clients to determine the blend
that best suits each particular client. We sell most of our products FOB from
our ports, which means that the invoice price includes delivery at our expense
to our ports and no further. In general, in the Northern and Southern Systems
our ownership of the process of producing and transporting iron ore to our
ports makes it easier for us to ensure that our products get to our ports on
schedule and at competitive costs. 33




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##### 



We are competitive in the European market for the reasons we described
above, as well as the proximity of the Ponta da Madeira port facilities to
European customers. Our principal competitors in Europe are:  
    
    Rio Tinto PLC (UK), Rio Tinto Ltd (Australia) subsidiaries and affiliates,  
    
    BHP Billiton (Australia) and affiliates,  
    
    Kumba Resources (South Africa),  
    
    Luossavaara Kiirunavaara AB  LKAB (Sweden), and  
    
    Sociétè Nationale Industrielle et Minière  SNIM (Mauritania). The Brazilian iron ore market is highly competitive with a wide range of
smaller producers. Although pricing is relevant, quality and reliability are
important competitive factors as well. We believe that our integrated
transportation systems, high-quality ore and technical services make us a
strong competitor in domestic sales. Prevailing export market prices, with
adjustments negotiated to compensate for lower transport costs to domestic
customers, influence iron ore sales in the domestic market. Manganese Ore and Ferroalloys We conduct our manganese ore and ferroalloy business primarily through the
following subsidiaries and joint ventures, as of April 30, 2004: Our Direct or IndirectShare of CapitalVoting
    
    Total
    
    Partners(%)Nova Era Silicon S.A. (NES)
    
    
    49.0
    %
    
    
    49.0
    %
    
    MitsubishiJFE SteelRio Doce Manganèse Europe (RDME)
    
    
    100
    
    
    
    100Rio Doce Manganese Norway AS (RDMN)
    
    
    100
    
    
    
    100Rio Doce Manganês S.A. (RDM)
    
    
    100
    
    
    
    100Urucum Mineração S.A. (Urucum)
    
    
    100
    
    
    
    100
 In 2003, we were the largest manganese ore producer in the Americas and
one of the largest players in the global seaborne market, with total shipments
of approximately 885 thousand tons of manganese ore and 502 thousand tons of
ferroalloys. We had US$ 349 million in revenues in 2003 from manganese ore and
ferroalloy sales. We produce manganese ore products from the Azul mine in the Carajás region
in the state of Pará and from the Urucum mine in the Pantanal region in the
state of Mato Grosso do Sul. We operate on-site beneficiation plants at both
the Azul and Urucum mines. Both mines are accessible by road and obtain
electrical power at market rates from regional electric utilities. We also
operate five minor mines, Morro da Mina, Coribe, Barnabé, Cobra and São
Desidério, in the states of Minas Gerais and Bahia. Our manganese ore mines produce three types of manganese ore products:  
    
    metallurgical ore used primarily for the production of ferroalloys;  
    
    natural manganese dioxide suitable for the manufacture of electrolytic batteries; and  
    
    chemical ore used in several industries for the production of
fertilizer, pesticides and animal food, and used as a pigment in the
ceramics industry. The production of ferroalloys consumes significant amounts of electricity.
For information on the risks associated with potential energy shortages, see
Item 3. Key InformationRisk Factors. 34




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##### 



The table below sets forth information regarding our manganese ore mines
and recent manganese ore production for the periods indicated. The estimates
of mineral reserves of Urucum and Azul have been audited and verified by
Golder. We own 100% of all mines. For our small mines in Minas Gerais and
Bahia, geological surveys are under way in order to assess reserves and
resources. ProductionBegan
    
    Projected
    
    For the Year EndedOperations
    
    Exhaustion Date
    
    December 31,
    
    Proven and Probable ReservesOre2001
    
    2002
    
    2003
    
    Type
    
    Tonnage (1)
    
    Grade(2)Azul
    
    
    1986
    
    
    
    2012
    
    
    
    1.4
    
    
    
    1.8
    
    
    
    1.5
    
    
    Open Pit
    
    
    17.2
    
    
    
    46.4Urucum(3)
    
    
    1976
    
    
    
    2018
    
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.4
    
    
    Underground
    
    
    6.9
    
    
    
    46.9Morro da Mina
    
    
    1902
    
    
    
    n.a.
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    Open Pit
    
    
    n.a.
    
    
    
    n.a.Coribe, Barnabé,
Cobra and São
Desidério
    
    
    1972
    
    
    
    n.a.
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.2
    
    
    Open Pit
    
    
    n.a.
    
    
    
    n.a.Total
    
    
    
    
    
    
    
    
    
    
    1.9
    
    
    
    2.3
    
    
    
    2.2
    
    
    
    
    
    
    
    n.a.
    
    
    
    n.a.
   (1)
    
    Reported as recoverable wet product tons, in millions of tons.(2)
    
    Reported as wet recoverable product grade.(3)
    
    Underground mine with reserves based on vertical channel samples at a
nominal 25 meter spacing and extensions to these for approximately 360
meters (3 mining panels). We currently operate eight mills that produce ferroalloys  Santa Rita,
Barbacena, Ouro Preto, São João del Rey (all located in Minas Gerais state),
Simões Filho (in the state of Bahia), Corumbá (in the state of Mato Grosso do
Sul), Rio Doce Manganese Europe (in Dunkerque, France) and RDMN (in Mo I Rana,
Norway). The table below sets forth information regarding our ferroalloy
production in 2003: Production
    
    Production inCapacity
    
    2003(In thousands of
    
    (In thousandstons per year)
    
    of tons)Rio Doce Manganese Europe (RDME)
    
    
    130
    
    
    
    128Rio Doce Manganese Norway (RDMN)(1)
    
    
    110
    
    
    
    21Rio Doce Manganês S.A. (RDM)
    
    
    310
    
    
    
    313Urucum Mineração S.A.
    
    
    20
    
    
    
    18Nova Era Silicon S.A. (NES)
    
    
    45
    
    
    
    38Total
    
    
    615
    
    
    
    511
   (1)
    
    RDMNs furnaces started up in July and November 2003 after conversion
from chrome production to manganese ferroalloy production. Competition (Manganese Ore and Ferroalloys) The markets for manganese ore and ferroalloys are highly competitive.
Competition in the manganese ore market takes place in two sectors. High-grade
(40% Mn or more) manganese ore competes on a seaborne basis, while low grade
ore competes on a regional basis. For some ferroalloys high-grade ore is
mandatory, while for some others high and low grade ores are complementary.
Besides manganese ore content, cost and physical-chemical features play an
important role in competition (e.g.moisture, impurities). The main suppliers
of high-grade (HG) ores are South Africa, Gabon and Australia. The main
producers of low-grade (LG) ores are Ukraine, China, Ghana, Kazakhstan, India
and Mexico. CVRD is the second largest worldwide supplier of manganese ores,
with HG ores in Carajás and Urucum mines, and LG ores in the smaller mines in
Minas Gerais and Bahia states. The ferroalloy market is characterized by a large number of market
participants who compete primarily on the basis of price. The principal
competitive factors in this market are costs of manganese ore, electricity,
logistics and carbon. We compete both with standalone producers and integrated
producers that also mine their own ore. Our competitors are located
principally in manganese ore or steel producing countries. 35




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##### 



Non-Ferrous Minerals Our non-ferrous minerals business segment includes the production of
non-ferrous minerals, such as kaolin and potash. We also include our former
gold production and our current copper, gold and nickel exploration efforts in
the non-ferrous category. The table below sets forth information regarding our
non-ferrous gross revenues and sales by geographic market for the periods
indicated. For the Year Ended December 31,2001
    
    2002
    
    2003(in millions of US$)Gross revenues classified by geographic destinationExport sales:United States
    
    US$
    139
    
    
    US$
    35
    
    
    US$
    8Europe
    
    
    33
    
    
    
    100
    
    
    
    76China (1)
    
    
    
    
    
    
    4
    
    
    
    7Japan
    
    
    
    
    
    
    3
    
    
    
    13Asia, other than Japan and China
    
    
    1
    
    
    
    1
    
    
    
    1Subtotal
    
    
    173
    
    
    
    147
    
    
    
    105Domestic sales
    
    
    78
    
    
    
    96
    
    
    
    106Total
    
    US$
    251
    
    
    US$
    239
    
    
    US$
    211Gross revenues classified by categoryGold
    
    US$
    139
    
    
    US$
    103
    
    
    US$
    21Potash
    
    
    71
    
    
    
    91
    
    
    
    94Kaolin
    
    
    41
    
    
    
    45
    
    
    
    96Total
    
    US$
    251
    
    
    US$
    239
    
    
    US$
    211
   (1)
    
    2001 data not available. Kaolin Kaolin is a fine white aluminum silicate clay used in the paper, ceramic
and pharmaceutical industries as a coating agent and filler. We conduct our
kaolin business through our controlling stake in Pará Pigmentos S.A. (PPSA),
which began operations in August 1996, and our controlling stake in Cadam,
which we obtained when we acquired control of Caemi in September 2003. Our
total and voting interests in PPSA are 82.04% and 85.57%, respectively. Our
partners in PPSA are Mitsubishi Corporation and International Finance
Corporation. Our partners in Cadam are Banco do Brasil S.A. and BNDES. PPSA
has proven and probable reserves of 10.3 million tons as presented in the table
below. Due to the recent nature of our acquisition of Caemi, we have not
established the proven and probable reserves of Cadam. PPSA sold approximately 423,000 tons of kaolin in 2003. Cadam sold
approximately 686,000 tons of kaolin in 2003, of which 231,000 tons were sold
since CVRD acquired control of Cadam in September 2003. PPSAs Rio Capim mine and beneficiation plant are located in Ipixuna, in
the state of Pará. These operations are linked to the dry and port facilities
in Barcarena, also in the state of Pará, via a 180km pipeline. The
beneficiated kaolin is pumped through the pipeline, which helps preserve the
environment, guarantee the product quality and meet delivery schedules. PPSA produces three products: Century HC, Century S and Paraprint, which
are sold mainly in the European and Asian markets. Cadam is located on the border of the states of Pará and Amapá, in the
Amazon area in Northern Brazil. Due to the quality and logistics of its
products, it has gained a solid competitive global position in its market
segment. Cadams reserves are principally concentrated in the Felipe Mine, in
Mazagão, state of Amapá. The beneficiation plant and private port are situated
on the west bank of the Jari River, in Munguba, state of Pará. Cadam extracts
kaolin from its open-pit mine. The kaolin is mixed with water and chemicals to
create a liquid, which is pumped to a degritting station where natural
impurities are removed. Cadams production process is unique: after extracting the raw ore and
removing sand, the product is dispersed in water and transported by gravity
through a 6 km ore pipeline to the beneficiation plant on the opposite side of
the Jari River. After desanding, centrifuging, removing iron by magnetic
separation and chemical bleaching, the resulting material is filtered,
evaporated and dried to produce lump or spray-dried kaolin, which is then
shipped from Cadams private port, situated near the beneficiation plant on the
west bank of the Jari River. 36




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##### 



Coating kaolin is loaded onto ships at Cadams port in Munguba. Some of
the lump production is also processed into slurry form by Cadams subsidiary
located in Antwerp, Belgium. In Holland, an advanced Technical Assistance
Center is constantly researching the use of kaolin, offering technical and
commercial support to European and Asian customers. Projected
    
    ProductionBegan
    
    Exhaustion
    
    For the Year EndedOperations
    
    Date
    
    December 31,
    
    Proven and Probable Reserves(in tons per year)
    
    
    
    
    
    
    
    
    
    Grade2001
    
    2002
    
    2003
    
    Type
    
    Ore Tonnage
    
    Brightness
    
    Grit
    
    PSDFelipe
    
    
    1976
    
    
    
    
    
    
    
    767.2
    
    
    
    710.7
    
    
    
    711.2
    
    
    Open Pit
    
    
    
    
    
    
    n.a.
    
    
    
    n.a.
    
    
    
    n.a.Rio Capim (1)
    
    
    1996
    
    
    
    2008
    
    
    
    363.0
    
    
    
    330.0
    
    
    
    423.0
    
    
    Open Pit
    
    
    10.3
    
    
    
    85.0
    %
    
    
    26.8
    
    
    
    61.9Total
    
    
    
    
    
    
    
    
    
    
    1,130.2
    
    
    
    1,040.7
    
    
    
    1,134.2
    
    
    
    
    
    
    
    
   (1)
    
    Recovery is 37%. Potash Potash is an important raw material used in the production of fertilizers.
We lease a potash mine (Taquari  Vassouras mine) in Rosario do Catete, in the
state of Sergipe, from Petrobras  Petróleo Brasileiro S.A. (Petrobras), the
Brazilian oil company. The lease was signed in 1991 for a period of 25 years,
and is renewable for another 25 years. The mine is the only potash mine in
Brazil and has a current nominal capacity of 600,000 tons per year. Taquari 
Vassouras is an underground mine with a depth that varies from 430 to 640
meters. In 2003, we produced 658,000 tons of potash with total shipments of
675,000 tons, which included shipments of our 2002 inventories, and we had
gross revenues of US$ 94 million. All sales from Taquari  Vassouras mine are
destined for the domestic market. We have budgeted US$ 67 million in capital expenditures to expand the mine
capacity to 850,000 tons per year by 2005. Our proven and probable reserves
should be sufficient to ensure the estimated production for the next 7 years. Projected
    
    ProductionBegan
    
    Exhaustion
    
    For the Year EndedOperations
    
    Date
    
    December 31,
    
    Proven and Probable Reserves(in thousands of tons per year)Ore2001
    
    2002
    
    2003
    
    Type
    
    Tonnage
    
    GradeTaquari  Vassouras(1)
    
    
    1992
    (2)
    
    
    2010
    
    
    
    595
    
    
    
    627
    
    
    
    658
    
    
    Underground
    
    
    19.2
    
    
    
    31.0Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.2
    
    
    
    31.0
   (1)
    
    CVRD leases the Taquari  Vassouras mine. Drill spacing is on nominal
200 meter intersections from vertical and subhorizontal drilling. Tons are
expressed as ROM dry metric tons. Recovery is 90%.(2)
    
    The mine began operations in 1986. Gold In August 2003, we sold the assets of our one remaining gold mine, Fazenda
Brasileiro, which was near full exhaustion, to Yamana Resources Inc., a
Canadian mining company, for US$ 20.9 million. As a result of the sale, our
gold operations have been interrupted. We have discontinued our gold
operations except as a by-product of the copper projects we are currently
developing in Carajás. We expect these projects to produce gold as a
by-product of their copper mining operations. We also continue to invest in
mineral exploration aiming at the discovery of gold reserves. From January 2003 to August 2003, we produced 51.3 thousand troy ounces of
refined gold in Fazenda Brasileiro mine, and from January 2003 to December
2003, we produced 2.3 thousand troy ounces as a by-product of iron ore in
Itabira mine. We were responsible for approximately 3% of all gold produced on
an industrial scale in Brazil in 2003. Gold sales generated US$ 21 million of
revenues in 2003. The table below sets forth information regarding our gold
mines and recent gold production for the periods indicated. The projected
exhaustion date is 37




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##### 



based on 2003 production levels. The average total cash cost of
production (US$  per troy ounce) was US$ 146 in 2001, US$ 141 in 2002 and US$
307 in 2003. Began
    
    
    
    
    
    ProductionOperations
    
    Exhaustion Date
    
    For the Year Ended December 31,2001
    
    2002
    
    2003(thousands of troy ounces)Almas
    
    
    1985
    
    
    
    2001
    
    
    
    0.6
    
    
    
    
    
    
    
    Caeté
    
    
    1996
    
    
    
    2001
    
    
    
    0.4
    
    
    
    
    
    
    
    Fazenda Brasileiro
    
    
    1984
    
    
    
    (1
    )
    
    
    165.2
    
    
    
    153.2
    
    
    
    51.3
    (2)Igarapé Bahia
    
    
    1991
    
    
    
    2002
    
    
    
    328.3
    
    
    
    148.2
    
    
    
    Itabira (3)
    
    
    1984
    
    
    
    n.a.
    
    
    
    18.8
    
    
    
    13.1
    
    
    
    2.3Total
    
    
    
    
    
    
    
    
    
    
    513.3
    
    
    
    314.5
    
    
    
    53.6
    (1)
   (1)
    
    Fazenda Brasileiro was sold in August 2003.(2)
    
    Includes production prior to the sale of Fazenda Brasileiro.(3)
    
    Gold in Itabira mine is produced together with iron ore. These are
small gold bodies and they depend on the iron ore works. Copper Sossego Sossego is our first copper project and began commercial production of
copper concentrate in June 2004. The Sossego copper project is located in the
Carajás Mineral District, in the Southeastern portion of the state of Pará, in
northern Brazil. We conduct our Sossego operation primarily at the parent
company level and we are investing an estimated US$ 413 million to develop it. The Sossego copper project has two main ore bodies (Sossego and
Sequeirinho). The copper ore is mined by open pit method and the run-of-mine
is processed by means of standard primary crushing and conveying, SAG and ball
milling, copper concentrate flotation, tailings disposal, concentrate
thickening, filtration and load out. Projected annual operating capacity is 15
million tons of run-of-mine, to produce an average of 140,000 tons of copper in
concentrate. The concentrate will be trucked to the Parauapebas storage
terminal and then transported via our existing Carajás railroad to the Ponta da
Madeira maritime terminal in São Luís, Maranhão state, situated about 890 km
from Carajás. The following table shows Sossegos proven and probable
reserves. ProjectedBegan Operations
    
    Exhaustion Date
    
    Proven and Probable ReservesType
    
    Ore Tonnage
    
    GradeSossego Complex (1)
    
    
    2004
    
    
    
    2020
    
    
    Open pit
    
    
    244.7
    
    
    
    0.97
   (1)
    
    Recovery for Sossego complex copper reserves is 88% of metal in
concentrate. Drill spacing is on nominal 80 meter centres. We have constructed an 85-kilometer road to link Sossego to the Carajás
air and rail facilities and a power line to allow us to get electrical power at
market rates. We have an energy supply contract with Eletronorte, which will
sell to us energy from Tucuruí Hydroelectric Power Plant, located on the
Tocantins River. 38




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##### 



Copper exploration projects The table below sets forth information, at April 30, 2004, regarding our
joint ventures and the status and potential productivity of our principal
copper (Cu) prospects, all but one of which features a gold (Au) by-product. Our Direct orIndirect Share of
    
    
    
    
    
    Total ExpectedCapital (Voting and
    
    
    
    Total Expected
    
    Capital
    
    AnticipatedTotal) (1)
    
    Status
    
    Mineral Deposits
    
    Expenditures
    
    Start-up Date(%)
    
    
    
    (Millions of tons)
    
    (In millions of US$)118
    
    
    50.0
    
    
    Feasibilityconcluded
    
    64 at 0.80% Cu
    
    185
    
    
    2006Salobo
    
    
    100.0
    
    
    Feasibility inprogress
    
    784 at 0.96% Cu and0.6 g/t Au
    
    n.a.
    
    
    n.a.Cristalino
    
    
    50.0
    
    
    Pre-feasibility inprogress
    
    250 at 0.79% Cu and0.15 g/t Au
    
    n.a.
    
    
    n.a.Alemão
    
    
    67.0
    
    
    Pre-feasibility inprogress
    
    200 at 1.60% Cu and0.90 g/t Au
    
    n.a.
    
    
    n.a.
   (1)
    
    Where the project is not wholly-owned, our partner in the project is
BNDES. In addition, we and BNDES are prospecting the Carajás region for new
copper exploration projects. See Item 4. Information on the CompanyLines of BusinessMiningMineral
Risk Contract. Exploration As part of our mineral prospecting and development activities in Brazil,
we have acquired extensive experience in exploration techniques and processes
specifically designed for use in tropical areas of the world. Our current
mineral exploration efforts are mainly in Brazil, Peru, Chile, Mongolia, Gabon
and China and focus primarily on copper, gold, nickel, manganese ore, kaolin,
bauxite and platinum group metals. Exploration costs are recorded as expenses
until viability of mining activities is established (see Note 3(d) to our
financial statements). Expenditures in 2003 for research and development were
US$ 82 million, including our mineral exploration program, which amounted to
US$ 69 million. The budget for 2004 is US$ 78 million. Since 1998, we have focused our exploration efforts in Brazil on areas
where geological knowledge was more advanced, focusing primarily on gold and
copper, and let lapse those claims we did not consider economically attractive.
As a result, our undeveloped acreage claims decreased from approximately 31.2
million hectares as of December 31, 1997, to 9.8 million hectares as of
December 31, 2003. Mineral Risk Contract We and BNDES entered into a Mineral Risk Contract in March 1997, relating
to prospecting authorizations for mining regions where drilling and exploration
are still in their early stages. The Mineral Risk Contract provides for the
joint development of certain unexplored mineral deposits in approximately two
million identified hectares of land in the Carajás region, which is part of the
Northern System, as well as proportional participation in any financial
benefits earned from the development of such resources. Iron ore and manganese
ore deposits already identified and subject to development were specifically
excluded from the Mineral Risk Contract. Pursuant to the Mineral Risk Contract, we and BNDES each agreed to provide
US$ 205 million, which represents half of the US$ 410 million in expenditures
estimated as necessary to complete geological exploration and mineral resource
development projects in the region over a period of five years, which was
extended for an additional period of two years. We will oversee these projects
and BNDES will advance us half of our costs on a quarterly basis. Under the
Mineral Risk Contract, as of December 31, 2003, the remaining contributions
towards exploration and development activities totaled US$ 87 million. In the
event that either of us wishes to conduct 39




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##### 



further exploration and development after having spent such US$ 205
million, the contract provides that each party may either choose to match the
other partys contributions, or may choose to have its financial interest
proportionally diluted. If a partys participation in the project is diluted
to an amount lower than 40% of the amount invested in connection with
exploration and development projects, then the Mineral Risk Contract provides
that the diluted party will lose all the rights and benefits provided for in
the Mineral Risk Contract and any amounts previously contributed to the
project. Under the Mineral Risk Contract, BNDES has agreed to compensate us for our
contribution of existing development and ownership rights in the Carajás region
through a finders fee production royalty on mineral resources that are
discovered and placed into production. This finders fee is equal to 3.5% of
the revenues derived from the sale of gold, silver and platinum group metals
and 1.5% of the revenues derived from the sale of other minerals, including
copper, except for gold and other minerals discovered at Serra Leste, for which
the finders fee is equal to 6.5% of revenues. In April 2004, the Mineral Risk Contract was renewed for an additional
period of five years or until the total value of US$ 410 million is spent
(including disbursements already made, which amount to US$ 332.8 million)
whichever occurs first. 
 Logistics We operate our logistics business, which is comprised of the
transportation of third-party products and passengers, through the following
subsidiaries and joint ventures as of April 30, 2004: Principal
    
    Our Direct or IndirectActivity
    
    Share of Capital
    
    PartnersVoting
    
    Total(%)Cia. Portuária Baía de Sepetiba (CPBS)
    
    Ports and Terminals
    
    
    100.00
    %
    
    
    100.00
    %DCNDB Overseas S.A. (DCNDB)
    
    Shipping
    
    
    100.00
    
    
    
    100.00
    
    
    Mitsui (1)Navegação Vale do Rio Doce S.A- Docenave (Docenave)
    
    Shipping
    
    
    100.00
    
    
    
    100.00Ferrovia Centro-Atlântica S.A. (FCA)
    
    Railroad
    
    
    99.99
    
    
    
    99.99
    
    
    EmployeesOthersTerminal de Vila Velha S.A. (TVV)
    
    Ports and Terminals
    
    
    99.89
    
    
    
    99.89
    
    
    EmployeesMRS Logística S.A. (MRS)(includes CVRD and MBR stakes)
    
    Railroad
    
    
    34.14
    
    
    
    38.76
    
    
    CSNUsiminasGerdauEmployeesOthersFerroban-Ferrovias Bandeirantes S.A. (Ferroban)
    
    Railroad
    
    
    0.00
    
    
    
    3.75
    
    
    Nova FerrobanOthers
   Item 4 Information on the
Company Acquisitions, Asset Sales and Significant Changes in 2003 and
2004LogisticsCoastal Shipping
 40




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##### 



The table below sets forth information regarding our third-party logistics
gross revenues and sales by geographic market for the periods indicated. For the Year Ended December 31,2001
    
    2002
    
    2003(in millions of US$)Revenues classified by geographic destination:Export sales:America, except United States
    
    US$
    65
    
    
    US$
    25
    
    
    US$
    38United States
    
    
    21
    
    
    
    3
    
    
    
    Europe
    
    
    44
    
    
    
    9
    
    
    
    30Middle East
    
    
    4
    
    
    
    
    
    
    
    4Japan
    
    
    10
    
    
    
    1
    
    
    
    Asia, other than Japan
    
    
    3
    
    
    
    3
    
    
    
    3Subtotal
    
    
    147
    
    
    
    41
    
    
    
    75Domestic sales
    
    
    344
    
    
    
    374
    
    
    
    472Subtotal
    
    
    491
    
    
    
    415
    
    
    
    547Eliminations(1)
    
    
    117
    
    
    
    43
    
    
    
    57Total
    
    US$
    608
    
    
    US$
    458
    
    
    US$
    604Revenues classified by categoryRailroads
    
    
    299
    
    
    
    286
    
    
    
    373Ports
    
    
    104
    
    
    
    107
    
    
    
    144Ships
    
    
    205
    
    
    
    65
    
    
    
    87Total
    
    US$
    608
    
    
    US$
    458
    
    
    US$
    604
   (1)
    
    Eliminations of transactions between consolidated entities. Railroads Vitória a Minas railroad.The Vitória a Minas railroad, in the Southern
System, links our Southern System mines in the Iron Ore Quadrangle in the state
of Minas Gerais with the Tubarão Port complex, in Vitória, Espírito Santo
state. We operate this railroad under a 30-year renewable concession, which
expires in 2027. This railroad extends 905 kilometers to our Tubarão Maritime
Terminal Complex located near the port of Vitória in the state of Espírito
Santo. The Vitória a Minas railroad consists of two lines of track extending
for a distance of 601 kilometers to permit continuous railroad travel in
opposite directions, and single-track branches of 304 kilometers. Industrial
manufacturers are located near this area and major agricultural regions are
adjacent and accessible to the Vitória a Minas railroad. The Vitória a Minas
has a daily capacity of 300,000 tons of iron ore. In 2003, the Vitória a Minas
railroad carried a total of 116.3 million tons of iron ore and other cargo (of
which 43.2 million tons, or 37%, consisted of cargo transported for third
parties). The Vitória a Minas railroad also carried approximately 1.1 million
passengers in 2003. The principal cargo of the Vitória a Minas railroad consists of:  
    
    iron ore and pellets, carried for us and third parties,  
    
    steel, coal, pig iron, limestone and other raw material carried for
steel manufacturers located along the railroad,  
    
    agricultural products, such as grains soybean and soybean meal, and  
    
    other general cargo such as building materials, pulp and fuel and chemical products. We charge market rates for third-party freight, including pellets
originating from joint ventures and other enterprises in which we do not own
100% of the equity interest. Market rates vary based upon the distance
traveled, the kind of product and the weight of the freight in question. Carajás railroad.We operate the Carajás railroad under a 30-year
renewable concession, which expires in 2027. This railroad, located in the
Northern System, starts at our Carajás iron ore mine in the state of Pará, and
extends 892 kilometers to our Ponta da Madeira Maritime Terminal Complex
facilities located near the Port of São Luís in the state of Maranhão. The
Carajás railroad consists of one line of track, with spur tracks and turnouts
to permit the passage of trains in opposite directions. The Carajás railroad
has a daily capacity of 130,000 tons of iron ore. In 2003, the Carajás
railroad carried a total of 62.9 million tons of iron ore and other cargo (of
which 7.7 41




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##### 



million tons, or 12%, consisted of cargo transported for third parties).
The Carajás railroad also carried approximately 441,000 passengers in 2003.
The principal cargo of the Carajás railroad consists of iron ore, principally
carried for us. Ferrovia Centro-Atlântica.Our subsidiary FCA operates the central east
regional railway network of the Brazilian national railway system under a
30-year renewable concession granted in 1996. The central east network
contains approximately 7,000 kilometers of track extending into the states of
Sergipe, Bahia, Espírito Santo, Minas Gerais, Goiás, Rio de Janeiro and
Distrito Federal. It connects with our Vitória a Minas railroad near the
cities of Belo Horizonte and Vitória. FCA operates on the same track gauge as
our Vitória a Minas railroad. The section of the network of Ferroban-Ferrovias
Bandeirantes S.A. (Ferroban) between Araguari and Valefertil railstation, near
the city of Uberaba, in the state of Minas Gerais, has been operated by FCA
since 1998 and in January 2002, FCA began operating the section between
Valefertil in the state of Minas Gerais and Boa Vista in the state of São
Paulo. This connection allows FCA to reach the port of Santos, in the state of
São Paulo. In 2003, the FCA railroad transported a total of 23.8 million tons
of cargo for third parties. Other investments.We currently hold 3.75% of the total capital and none
of the voting capital of Ferroban. Ferroban operates a 4,236 kilometer
railroad linking the states of São Paulo, Minas Gerais, Paraná and Mato Grosso
do Sul. In 2003, Ferroban reported net revenues of US$ 43 million and a net
loss of US$ 43 million. We own directly and indirectly 38.76% of the total capital and 34.14% of
the voting capital in MRS Logística. MRS Logística is a 1,612-kilometer
railroad, which links the states of Rio de Janeiro, São Paulo and Minas Gerais
with a capacity to transport 85 million tons per year. MRS Logística operates
under a 30-year renewable concession granted in 1996. Under the terms of the
concession bid rules, no person may directly or indirectly own more than 20% of
the voting capital of MRS Logística, unless approved by the ANTT. We are
currently discussing the shareholding structure with ANTT and our partners in
MRS Logística in order to comply with the applicable requirements. Ports and Terminals We operate ports and terminals principally as a means to complete the
distribution of our iron ore and pellets to seaborne vessels serving the export
market. See Item 4. Information on the CompanyLines of
BusinessMiningFerrous MineralsPelletsDistribution (Iron Ore and Pellets).
We also use our ports and terminals to handle third-party cargo. In 2003, 25%
of the cargo handled by our ports and terminals represented cargo handled for
third parties. Tubarão Maritime Terminal Complex.The Tubarão Maritime Terminal Complex,
which covers an area of approximately 18 square kilometers, is located near the
Port of Vitória in the state of Espírito Santo. The iron ore maritime terminal
located in this area has two piers. Pier I can accommodate two vessels at a
time, one of up to 170,000 DWT on the southern side and one of up to 200,000
DWT on the northern side. Pier II can accommodate one vessel of up to 360,000
DWT at a time, limited at 20 meters draft plus tide. In Pier I there are two
shiploaders, which can load up to a combined total of 14,000 tons per hour. In
Pier II there are two shiploaders that work alternately and can each load up to
16,000 tons per hour. In 2003, 72 million tons of iron ore and pellets were
shipped through the terminal (of which 69 million tons were shipped for us and
3 million tons were shipped for third-parties). Praia Mole Terminal, also
located in the Tubarão Maritime Terminal Complex, is principally a coal
terminal and shipped 11.9 million tons in 2003. In 2004, we have budgeted US$
4.8 million for the expansion of the Praia Mole Terminal. We operate a grain
terminal in the Tubarão area, which shipped 4.5 million tons of grains and
fertilizers in 2003. We also operate a bulk liquid terminal that shipped 0.5
million tons in 2003. CVRD also operates the Paul Terminal, which specializes
in pig iron and is located near the Port of Vitória, in the State of Espírito
Santo. This Terminal has one pier that can accommodate one vessel of up to
75,000 DWT, which can load up to 900 tons per hour. The Paul Terminal shipped
1.9 million tons of pig iron in 2003. Ponta da Madeira Maritime Terminal Complex.The Ponta da Madeira Maritime
Terminal Complex is located near the Port of São Luís in the state of Maranhão.
The Ponta da Madeira port facilities can accommodate three vessels. Pier I
can accommodate vessels displacing up to 420,000 DWT. Pier II can accommodate
vessels of up to 155,000 DWT. The two berths have a maximum loading rate of
16,000 tons per hour at Pier I and 8,000 tons per hour at Pier II. In February
2004, the government of the state of Maranhão authorized the operation of Pier
III, which is able to accommodate vessels of up to 220,000 DWT and has a
maximum loading rate of 8,000 tons per hour. 42




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##### 



Cargo shipped through our Ponta da Madeira Maritime Terminal Complex
consists principally of iron ore for us. Other cargo includes manganese ore
for us and pig iron and soybeans for third parties. In 2003, 55.4 million
tons were shipped through the terminal for us and 2.9 million tons were
shipped through the terminal for third parties. Other investments.Since November 1994, CVRD has operated a maritime
terminal located in the state of Sergipe, Inácio Barbosa Maritime Terminal.
This terminal was built by Petrobras and transferred to Sergiportos, a state
owned company. In December 2002, Petrobras took over control of Inácio Barbosa
Maritime Terminal in exchange for the cancellation of a liability of the state
of Sergipe. CVRD and Petrobras are negotiating an agreement that will allow
CVRD to run this terminal for the next 10 years. In May 1998, we entered into a 25-year lease for the Capuaba maritime
terminal in Vitória, in the state of Espírito Santo. To run this terminal CVRD
established Terminal de Vila Velha S.A. (TVV). TVV is a port for loading and
unloading of containers, in addition to being an alternative for general cargo
(import and export operations) and automobile operations in Southeast and
Midwest Brazil. It is connected to the Vitória a Minas railroad and with easy
access to the BR101 and BR262 highways. The terminal is formed by berths 203
and 204 at the Capuaba Quay, has a 450-meter berth area and retro-area
measuring nearly 100 thousand square meters. It has a covered storage area
measuring 13,300 square meters and a yard with capacity for 3,300 containers.
TVV is equipped with two quays cranes, two portainers and four transtainers.
In 2003, TVV shipped over 114.3 thousand containers and approximately 713.5
thousand tons of general cargo. Cia. Portuária Baía de Sepetiba (CPBS) is a company created to operate the
iron ore export terminal in the Port of Sepetiba. The iron ore export terminal
has a pier that allows the boarding of ships of up to 18.1 meters and up to
230,000 DWT. In 2003, the terminal uploaded approximately 13.3 million tons of
iron ore, of which only 1,200 tons were uploaded for companies unrelated to
CVRD. Shipping We operate in three distinct shipping areas: seaborne dry-bulk services,
coastal shipping containers and tug boat services. In seaborne dry-bulk service, we carried 9.3 million tons of dry bulk,
generating a revenue of US$ 70 million in 2003. The table below sets forth
information on the volume of cargo that our seaborne dry bulk shipping service
carried for the periods indicated. For the Year Ended December 31,2001
    
    2002
    
    2003(thousands of tons)Iron ore:CVRD
    
    
    7,179
    
    
    
    4,287
    
    
    
    4,386Third party
    
    
    7,748
    
    
    
    1,888
    
    
    
    1,860Coal
    
    
    3,824
    
    
    
    437
    
    
    
    256Other
    
    
    7,036
    
    
    
    1,294
    
    
    
    2,819Total
    
    
    25,787
    
    
    
    7,906
    
    
    
    9,321
 We continued in 2003 the divestiture of our seaborne dry-bulk shipping
business, which we began in 2001, by selling our fleet of vessels. Since 2001,
we have sold 14 ships. In the first half of 2003, we owned a fleet of five
vessels. The fleet, however, was reduced to three capesize vessels after the
sale of two panamax vessels for US$ 36 million. We intend to sell these three
remaining ships in the near future. In addition to the remaining fleet, we
also charter six vessels on a monthly basis. The container business is operated by five vessels, chartered on a bare
boat basis from Frota Oceânica S/A, and generated revenues of US$ 42 million
with 65,860 twenty equivalent units (teus) transported in 2003. The container
business services ports of Brazil and Argentina, from the city of Fortaleza to
Buenos Aires. We also operate a fleet of eight tug boats in the ports of Vitória in the
state of Espírito Santo, Trombetas in the state of Pará, São Luís in the state
of Maranhão and Aracaju in the state of Sergipe. In addition to this fleet, we
also have four chartered tug boats, two operating in Trombetas, one in Aracaju
and the other one in Vitória. The services in Vitória and Trombetas generated
a revenue of US$ 20 million performing 4,892 operations (maneuvers) in 2003. 43




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##### 



In São Luiz and Aracaju we operate through a tug boat consortium with 50%
participation in each operation (maneuver). Competition in the logistics industry.Our railroads compete with road
transport, including trucks, with the main factors being cost and shipping
time. We also have many international competitors in the coastal shipping
industry. 
 Aluminum-Related Operations The table below sets forth information regarding our consolidated bauxite,
alumina and aluminum revenues and sales by geographic market for the periods
indicated. These figures do not include the revenues of our unconsolidated
joint ventures. For the Year Ended December 31,(in millions of US$)2001
    
    2002
    
    2003Revenues classified by geographic destinationExport sales:America, except United States
    
    US$9
    
    
    US$27
    
    
    US$156Europe
    
    
    173
    
    
    
    318
    
    
    
    378Japan
    
    
    12
    
    
    
    11
    
    
    
    96United States
    
    
    73
    
    
    
    10
    
    
    
    32Asia, other than Japan
    
    
    16
    
    
    
    21
    
    
    
    96Subtotal
    
    
    283
    
    
    
    387
    
    
    
    758Domestic sales
    
    
    1
    
    
    
    75
    
    
    
    165Subtotal
    
    
    284
    
    
    
    462
    
    
    
    923Eliminations(1)
    
    
    
    
    
    
    
    
    
    
    (71
    )Total
    
    US$284
    
    
    US$462
    
    
    US$852Revenues classified by categoryBauxite
    
    
    21
    
    
    
    23
    
    
    
    37Alumina
    
    
    32
    
    
    
    159
    
    
    
    495Aluminum
    
    
    231
    
    
    
    280
    
    
    
    320Total
    
    US$284
    
    
    US$462
    
    
    US$852
   (1)
    
    Eliminations of transactions between consolidated entities. We operate our aluminum-related businesses through the following
subsidiaries and joint ventures, as of April 30, 2004: Our Direct or IndirectShare of CapitalBusiness
    
    (Voting, Total)
    
    PartnersVoting
    
    Total(%)Albras-Alumínio Brasileiro S.A. (Albras)
    
    Aluminum
    
    
    51.00
    %
    
    
    51.00
    %
    
    Nippon AmazonAlunorte-Alumina do Norte do Brasil S.A.(Alunorte)
    
    Alumina
    
    
    61.29
    
    
    
    57.03
    
    
    Companhia Brasileira
deAlumínio  CBAJAICMitsuiMitsubishiNippon AmazonNorsk HydroMineração Rio do Norte S.A. (MRN)
    
    Bauxite
    
    
    40.00
    
    
    
    40.00
    
    
    AbalcoAlcoaAlcanBHP
Billiton MetaisCompanhiaBrasileira deAlumínio Norsk HydroValesul Aluminio S.A. (Valesul)
    
    Aluminum
    
    
    54.50
    
    
    
    54.50
    
    
    BHP Billiton Metais
 44




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##### 



These subsidiaries and joint ventures engage in:  
    
    mining bauxite,
    
    refining bauxite into alumina, and
    
    using alumina to produce primary aluminum and aluminum alloys. In 2003, net revenues from aluminum-related products totaled US$ 843
million. Bauxite MRN.MRN, the largest bauxite producer in Latin America and one of the
largest in the world, produces bauxite for sale to us and our joint venture
partners. Excess production may be sold to third parties. MRN operates three
open-pit bauxite mines, which produce high quality bauxite. In addition, MRN
controls substantial additional high quality bauxite resources that it believes
can be produced economically in the future. MRN had net revenues of US$ 254
million and net income of US$ 81 million in 2003. MRNs mines are located in
the northern region of the state of Pará. The table below sets forth information regarding MRNs bauxite reserves as
of December 31, 2003. The estimates of mineral reserves have been audited and
verified by Golder. We are in the process of confirming the amount of proven
and probable reserves at the Paragominas mine. Projected
    
    Proven and Probable Reserves(1)Exhaustion Date
    
    Type
    
    Ore Tonnage
    
    Grade(2)(millions of tons)
    
    (% Al203)Mineração Rio do Norte S.A.Almeidas
    
    
    2009
    
    
    Open pit
    
    
    26.6
    
    
    
    51.2Aviso
    
    
    2015
    
    
    Open pit
    
    
    71.0
    
    
    
    50.8Saraca V
    
    
    2018
    
    
    Open pit
    
    
    14.5
    
    
    
    48.2
   (1)
    
    Reported as recoverable product. CVRDs ownership of MRNs bauxite
reserves is 40%.(2)
    
    Expressed as Al203. Operations at MRNs mines commenced in 1979. For 2001, 2002 and 2003,
production equaled 10.7, 9.9 and 14.4 million tons, respectively. MRN operates ore beneficiation facilities at its mines, which are
connected by rail to a loading terminal and port facilities on the Trombetas
River. The Trombetas River is a tributary of the Amazon River and MRNs port
facilities can handle vessels of up to 50,000 DWT. MRN owns and operates the
rail and the port facilities serving its mines. The MRN bauxite mines are
accessible by road from the port area and obtain electricity from their own
thermoelectric power station. MRN completed the expansion of its capacity from
11.0 million tons to 16.3 million tons in 2003. Our MRN bauxite joint venture produces bauxite for sale on a take-or-pay
basis to us and our joint venture partners at a price that is determined by a
formula linked to the prevailing world prices of aluminum. Our Alunorte
alumina subsidiary, which we began consolidating in July 2002, purchases all of
its bauxite requirements from MRN. Our annual purchase commitment for 2003 was
approximately US$ 53 million. Paragominas project.In July 2002, we acquired 64% of the total capital
of MVC, which gave us 100% of MVCs total capital. MVC was subsequently merged
into CVRD. Through the acquisition of MVCs assets, we hold active mining
rights in the Paragominas region in the state of Pará. A new wholly-owned
bauxite mine located in Paragominas, is expected to begin operations in 2006 to
supply Alunortes new expansion with 4.5 million tons per year of wet 12%
moisture bauxite. However, because of delay in the issuance of required
environmental licenses by the state government, we are not certain that the
bauxite mine will be able to commence operations before the end of 2006. The
bauxite quality will be similar to MRNs, and the project will use the strip
mining method of extraction, and have a beneficiation plant including milling
and a 230-kilometer long slurry pipeline. We expect that total capital
expenditures on this project will be approximately US$ 280 million. 45




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##### 



Alumina Alunorte began operations in July 1995 and produces alumina by refining
bauxite that MRN supplies. The Alunorte plant recently concluded an expansion
of capacity and now has a production capacity of 2.4 million tons of alumina
per year. In 2003, Alunorte produced 2.323 million tons. Alunorte sells the
major portion of its production to Albras, Valesul and third-party aluminum
companies for the production of aluminum. The Alunorte plant is located near
Belém, in the state of Pará, next to Albrass aluminum production facilities.
This allows Alunorte and its principal customer, Albras, to share
infrastructure and other resources. Alunorte had net revenues of US$ 405
million and net income of US$ 127 million in 2003. Each Alunorte joint venture partner must purchase on a take-or-pay basis
all alumina produced by Alunorte in proportion to its respective interest. The
joint ventures each pay the same price, which is determined by a formula based
on prevailing world market prices of aluminum. Alunorte capacity expansions.In April 2003, Alunorte inaugurated its
third production line, which has a capacity of 825,000 tons per year. With
this third line, Alunorte increased its production capacity to 2.4 million tons
of alumina per year. In July 2003, Alunorte began work on a new capacity expansion for its
alumina refinery. This brownfield project, estimated to start up by 2006,
involves the construction of stages 4 and 5 of the plant, and is expected to
increase its annual capacity from 2.4 million to 4.2 million tons of alumina
per year. Alunortes total investment in this project is expected to be
approximately US$ 583 million. ABC Refinery Project. In May 2004, we signed a framework agreement with
Chalco that sets forth a general outline of some of the principal terms for a
joint investment in an alumina refinery in Brazil (ABC refinery). Under the
agreement, we and Chalco have agreed to develop a joint study for the
construction of a greenfield refinery in the state of Pará, Brazil near the
existing facilities of Alunorte. The alumina refinery is expected to have an
initial capacity of 1.8 million tpy, and to reach a final capacity of 7.2
million tpy by gradual expansions. The refinery project would form part of a
series of related transactions involving mining, transportation, shipping and
port development in Brazil. The framework agreement contemplates that bauxite
for the project would be supplied from our Paragominas bauxite mines. The
initial phase of the refinery project is preliminarily estimated to have a
capital expenditure cost of approximately US$ 1 billion. The first stage of
the refinery is expected to be completed and operational in 2007. The project
remains subject to further discussion and to the negotiation of final
documentation and a number of other conditions, including receipt of board and
governmental approvals. Aluminum Albras and Valesul each produce aluminum using alumina which Alunorte
supplies. Alunorte has supplied all of Albrass alumina requirements and 54.5%
of Valesuls alumina requirements since October 1995. Albras produces aluminum
ingots and Valesul produces aluminum ingots, slabs, bars, billets and alloys.
Aluminum is produced from alumina by means of a continuous electro-chemical
process which requires substantial amounts of electricity. Albras. The Albras plant is one of the largest aluminum plants in Latin
America, with a capacity of approximately 430,000 tons per year. Albras
started its operations in 1985 at a plant located near Belém in the state of
Pará. Albras had net revenues of US$ 592 million and net income of US$ 198
million in 2003. The Albras joint venture partners must purchase on a take-or-pay basis all
aluminum produced by Albras in proportion to their ownership interests which
represents an annual commitment from us of US$ 302 million. See Note 18(d) to
our consolidated financial statements. We generally market our share of
Albrass output in international export markets to third-party aluminum
processing companies. The table below sets forth information regarding Albrass recent aluminum
production and our recent purchases from Albras. 46




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##### 



For the Year Ended December 31,2001
    
    2002
    
    2003(thousands of tons)Albras production
    
    
    333.0
    
    
    
    407.7
    
    
    
    432.1Our purchases from Albras
    
    
    167.0
    
    
    
    208.8
    
    
    
    204.9
 The production of aluminum requires a continuous flow of substantial
amounts of electricity. Albras purchases electrical power from Eletronorte, a
state-owned electric power utility. Eletronorte generates electricity at the
Tucuruí Hydroelectric Power Plant located on the Tocantins River. This plant
is the sole source of electrical power in the region in the quantities required
for Albrass operations. Albras consumes approximately one-quarter of the
non-peak period output of the Eletronorte plant. In May 2004, Albras successfully executed an auction to purchase
electricity for a 20-year period. This agreement will become effective
beginning June 2004. The basic purchase price is R$ 53.00 per megawatt hour
(MWh), indexed to the general market price index, IGP-M, as calculated by
Fundação Getúlio Vargas. In addition to the basic price, there will be a price
increase once the price of primary aluminum exceeds US$ 1,450.00 per ton, as
registered at the London Metal Exchange (LME). According to the terms
established in the auction, Albras will pre-purchase electricity in the amount
of R$ 1,200 million. See Item 4. Information on the CompanyRegulatory
MattersEnergy. Valesul.Valesul started its operations in 1982 and operates a plant
located in the state of Rio de Janeiro. Valesul produces primary aluminum and
aluminum alloys in the form of ingots, slabs, bars and billets. Valesuls
aluminum is sold primarily in the domestic Brazilian market on a spot basis.
Valesul had net revenues of US$ 157 million and net income of US$ 18 million in
2003. Valesul sells directly to its own clients. The table below sets forth information regarding Valesuls recent primary
aluminum production and third-party scrap recycled by Valesul. For the Year Ended December 31,2001
    
    2002
    
    2003(thousands of tons)Valesul production
    
    
    80.1
    
    
    
    92.9
    
    
    
    94.0Third-party scrap recycled
    
    
    20.1
    
    
    
    19.6
    
    
    
    16.7
 Valesul currently obtains a portion of its electrical energy requirements
from four wholly-owned small hydroelectric power plants located in the state of
Minas Gerais, a portion from the Machadinho hydroelectric power plant in which
Valesul has a share of 7%, and the remainder from a third-party power company
at market rates. Valesul is able to supply 38% of its own energy requirements. Competition in Bauxite, Alumina and Aluminum The global aluminum market is highly competitive. The largest producers
are Alcoa, Rusal, Alcan, Norsk Hydro, BHP Billiton and Chalco. The alumina and
bauxite markets are also competitive, but are much smaller, because many of the
major aluminum-producing companies have integrated bauxite, alumina and
aluminum operations. Bauxite.Most of global bauxite production is not traded, as it is
dedicated to integrated alumina refineries. Competition in the bauxite export
market is based primarily on two key factors: quality of bauxite and
reliability of supply. We believe that MRN remains competitive in this market
because of the high quality of Brazilian bauxite, and our aluminum production
system, which ensures internal use of our bauxite production. We use
substantially all of our portion of MRNs bauxite production to supply Alunorte
with alumina. 47




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Alumina.Competition in the alumina market is based primarily on quality,
price and reliability of supply. We believe that Alunorte is competitive in
the alumina market because of the high quality of its alumina, its advantages
in scale and technology, its efficient port facilities, and the ongoing
commitment of its owners to purchase a substantial portion of its annual
production. We use a substantial portion of our share of Alunortes alumina
production to supply Albras and Valesul, and sell the remainder on the world
market. In 2003, the main markets for the portion of our alumina not sold to
Albras and Valesul were Norway and Canada. Aluminum.As aluminum is a commodity, competition in the aluminum market
is based primarily on the economics of transportation and the costs of
production. We believe that Albras is competitive in the aluminum market
because of its relatively efficient and accessible port facilities, and its
generally prevailing lower costs of production. We generally market our share
of Albras production to third-party aluminum processing companies in Asia and
Europe. 
 Steel Investments We have investments in the following joint ventures in the steel business,
as of April 30, 2004: Our Direct or IndirectShare of Capital
    
    
    
    2003 Net
    
    Principal(Voting-Total)
    
    Partners
    
    Revenues
    
    ProductsVoting
    
    Total
    
    
    
    (in millions of US$)(%)CSI (California, USA)
    
    
    50.0
    %
    
    
    50.0
    %
    
    JFE Steel
    
    US$
    764
    
    
    Hot-rolled steel;
cold-rolled steel;
galvanized steel;
steel tubesCST (Brazil)
    
    
    24.9
    
    
    
    28.0
    (2)
    
    Acesita
Arcelor
JFE Steel
Others
    
    
    1,284
    (1)
    
    Steel slabs;
hot-rolled steelSiderar (Argentina)
    
    
    5.0
    
    
    
    4.9
    
    
    Techint Group
Employees
Usiminas
Others
    
    
    904
    (1)
    
    Steel slabs;
hot-rolled steel;
cold-rolled steel;
galvanized steel;
tin platesUsiminas (Brazil)
    
    
    23.0
    
    
    
    11.5
    
    
    Nippon Usiminas
Previ
Caixa dos 
    Empregados
    da Usiminas
Others
    
    
    2,819
    (1)
    
    Hot-rolled steel;
cold-rolled steel;
heavy steel plates;
electro galvanized
steel
   (1)
    
    Represents amounts translated from local financial statements and
converted into U.S. dollars (where applicable) at prevailing.(2)
    
    We are party to a shareholders agreement which permits us to
participate in a control group. The market value of our investments in CST, Usiminas and Siderar, all of
which have publicly traded equity, was US$ 476 million, US$ 219 million and US$
89 million, respectively, at December 31, 2003. The aggregate net book value
of these investments was US$ 206 million at December 31, 2003. The aggregate
net book value of our total investments in steel producing companies (including
CSI, a privately held company) was US$ 309 million at December 31, 2003. We
earned US$ 60 million in dividends from these investments in 2003. In line with our strategy to consolidate and focus on mining and
logistics, in March 2001 we unwound our cross-holding relationships with CSN.
As part of the unwinding transaction, CSN granted us the following rights of
first refusal relating to CSNs Casa de Pedra iron ore mine, each of which
lasts for a period of 30 years:  
    
    the right to purchase at market prices any iron ore produced by the
mine beyond CSNs internal requirements,  
    
    the right to purchase or lease the mine should CSN decide to sell
or lease it, and 48




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
    
    the right to become a joint venture partner should CSN decide to
form a pelletizing joint venture with a third-party with iron ore
produced by the mine. In return, we have granted CSN a right of first refusal to participate
with us in the construction of any new steel producing facilities undertaken
prior to March 2006 relating to slabs, coils and rolled products over which
projects we will have direct or indirect control. This unwinding transaction, as a whole, is subject to post-notification
review by the Brazilian antitrust authorities (CADE). CVRD and Nucor Corporation signed an agreement to construct and operate an
environmentally friendly pig iron project in Northern Brazil in April 2003.
The project will utilize two conventional mini-blast furnaces to produce about
380,000 metric tons of pig iron per year in its initial phase, using CVRD iron
ore from our Carajás mines in Northern Brazil. The charcoal source will be
exclusively from eucalyptus trees grown in a cultivated forest of 82,000 acres
with the total project encompassing approximately 200,000 acres. CVRD and
Nucor Corporation will form a joint venture company to operate the facility.
It is anticipated that Nucor Corporation will purchase all of the production of
the plant. Approximately 78% and 22% of the voting shares will be held by CVRD and
Nucor (or one of its affiliates), respectively, see Item 4. Information on the
CompanyAcquisitions, Asset Sales and Significant Changes in 2003 and
2004Steel. Cultivated forest assets, previously owned by Celmar and now
directly owned by CVRD, will be used as an energy source for Ferro Gusas pig
iron production. 
 Energy Investments In 2003, we consumed 15.8 TWh of electricity. Energy management and
efficient supply have become priorities for us, driven by the uncertainties
associated with the sectors privatization and changes in the regulatory
framework, which increased the risk of rising electricity prices and energy
shortages, such as the one Brazil experienced in the second half of 2001. We
perceived favorable investment opportunities in the Brazilian electricity
sector and took advantage of them by investing in nine hydroelectric power
generation projects set forth in the table below. We plan to use the
electricity produced by these projects for our internal needs. We could
experience construction delays in certain generation projects due to
environmental and regulatory issues, which could consequently, lead to higher
costs. Analysis of each projects feasibility and investments will depend on
the new laws and regulations applicable to the electricity sector, which are
currently under review by the federal government, and their impact on
electricity prices and supply. As a large consumer of electricity, we expect
that investing in power projects will help to reduce costs and protect us
against price and energy supply volatility. 49




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##### 

\

The following table sets forth information regarding our power
generation projects as of April 30, 2004: OurOwnership
    
    
    
    Begins
    
    ProjectedLocation
    
    Interest
    
    Partners
    
    Operations
    
    Capacity
    
    Our InvestmentAs ofDecember
    
    Projected(%)
    
    
    
    
    
    (in MW)
    
    31, 2003
    
    Total(in millions of US$)Aimorés
    
    Rio Doce basin, in
the state of Minas
Gerais.
    
    
    51.00
    %
    
    Cemig
    
    July 2005(1)
    
    

    330MW
    
    
    US$
    91
    
    
    US$
    127.1Candonga
    
    Rio Doce basin, in
the state of Minas
Gerais.
    
    
    50.00
    
    
    Alcan
    
    August 2004(1)(2)
    
    
    140
    
    
    
    44
    
    
    
    45.3Capim Branco I
    
    Araguari river, in
the state of Minas
Gerais.
    
    
    48.42
    
    
    Cemig-Capim
  Branco
Paineiras
CMM
    
    February 2006(1)
    
    
    240
    
    
    
    12
    
    
    
    82.4Capim Branco II
    
    Araguari river, in
the state of Minas
Gerais.
    
    
    48.42
    
    
    Cemig-Capim
  Branco
Paineiras
CMM
Camargo  Corrêa
  Cimentos  S.A.
    
    December 2006(1)
    
    
    210
    
    
    
    4
    
    
    
    79.8Estreito
    
    Tocantins river, on
the border of the
states of Maranhão
and Tocantins.
    
    
    30.00
    
    
    Tractebel
Alcoa
BHP Billiton
Camargo
  Energia S.A.
    
    October 2008(1)
    
    
    1,087
    
    
    
    1
    
    
    
    197.9Foz do Chapecó
    
    Uruguai river, on
the border of the
states of Santa
Catarina and Rio
Grande do Sul.
    
    
    40.00
    
    
    CPFLG
CEEE
    
    July 2008(1)
    
    
    855
    
    
    
    2
    
    
    
    202.4Funil
    
    Rio Grande, on the
border of the
states of São Paulo
and Minas Gerais.
    
    
    51.00
    
    
    Cemig
    
    December 2002
    
    
    180
    
    
    
    57
    
    
    
    Igarapava
    
    Rio Grande, on the
border of the
states of São Paulo
and Minas Gerais.
    
    
    38.15
    
    
    CMM
CSN
Cemig
MMV
    
    January 1999
    
    
    210
    
    
    
    52
    
    
    
    Porto Estrela
    
    Santo Antonio
river, in the state
of Minas Gerais.
    
    
    33.33
    
    
    Cemig
Coteminas
    
    September 2001
    
    
    112
    
    
    
    19
    
    
    
    Total (3)
    
    
    
    
    
    
    
    
    
    
    
    
    3,364MW
    
    
    US$
    282.1
    
    
    US$
    734.9
   (1) Projected date for commencement of the first unit of the project. (2) Commencement date listed assumes the lifting of a judicial injunction
prohibiting the filling of the reservoir and is subject to potential delay
depending on the outcome of pending litigation. (3) We also hold 43.85% of a consortium that has the concession right to
build the Santa Isabel hydroelectric power plant at the Araguaia river,
which would have a projected capacity of 1,087 MW. In view of difficulties
in obtaining the necessary environmental license to begin its construction,
we are currently negotiating with ANEEL to return this concession. 50




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Our partners in our energy investments include:  
    
    Companhia Energética de Minas Gerais, known as Cemig, a state-government controlled company.
    
    Cemig Capim Branco Energia S.A., known as Cemig-Capim Branco, an affiliate of Cemig.
    
    Comercial e Agrícola Paineiras Ltda., known as Paineiras, which is
an affiliate of Suzano Participações S.A.
    
    BHP Billiton Metais S.A., a wholly-owned subsidiary of BHP Billiton.
    
    Companhia Mineira de Metais, known as CMM, which is an affiliate of Votorantim Participações S.A.
    
    Alcoa Alumínio S.A., known as Alcoa, which is an affiliate of Alcoa Inc.
    
    Mineração Morro Velho Ltda., known as MMV, which is an affiliate of
Anglo American Brasil Ltda., which in turn is affiliated with Anglo
American Plc.
    
    Companhia de Tecidos do Norte de Minas, known as Coteminas, which
is an affiliate of Coteminas International Ltd.
    
    Tractebel Egi South America Ltda., known as Tractebel, which is a
subsidiary of Tractebel S.A., a SUEZ group energy division.
    
    Alcan, Inc.
    
    CPFL Geração de Energia S.A., known as CPFLs-G, a subsidiary of
CPFL Energia, a controlled company of VBC Participações.
    
    Companhia Estadual de Energia Elétrica, known as CEEE, is a
state-owned power company. Our total projected investment in these hydroelectric projects is
estimated at US$ 735 million. We cannot assure you that the aggregate cost
will not escalate or that the projects will be completed on schedule. In addition to the above, some of our affiliates generate part of their own
energy. 
 REGULATORY MATTERS 
 Mining Under the Brazilian Constitution, all mineral resources in Brazil belong
to the Brazilian government. The Brazilian Constitution requires that mining
companies incorporate in accordance with Brazilian law. The Brazilian Constitution and Mining Code impose on mining companies
various regulatory restrictions relating to, among other things:  
    
    the manner in which mineral deposits are exploited,
    
    the health and safety of workers,
    
    the protection and restoration of the environment,
    
    the prevention of pollution, and
    
    the promotion of local communities where mines are located. Mining companies in Brazil can only prospect and mine for mineral
resources pursuant to prospecting authorizations or mining concessions granted
by the National Mineral Production Department, Departamento Nacional de
Produção Mineral, or DNPM, an agency of the Ministry of Mines and Energy of the
Brazilian 51




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government. DNPM grants prospecting authorizations to a requesting party
for an initial period of three years. These authorizations are renewable at
DNPMs discretion for another period of one to three years, provided that the
requesting party is able to show that the renewal is necessary for proper
conclusion of prospecting activities. On-site prospecting activities must
start within 60 days of official publication of the issuance of a prospecting
authorization. Upon completion of prospecting activities and geological
exploration at the site, the grantee must submit a final report to DNPM. If
the geological exploration reveals the existence of a mineral deposit that is
economically exploitable, the grantee will have one year (which DNPM may
extend) from approval of the report by DNPM to apply for a mining concession or
to transfer its right to apply for a mining concession to a third-party. When
a mining concession is granted, the holder of the concession must begin on-site
mining activities within six months. DNPM grants mining concessions for an
indeterminate period of time lasting until the exhaustion of the mineral
deposit. Extracted minerals that are specified in the concession belong to the
holder of the concession. With the prior approval of DNPM, the holder of a
mining concession can transfer it to a third-party that is qualified to own
concessions. In some cases, mining concessions are challenged by third
parties. Pursuant to Article 20 of the Brazilian Constitution of 1988, as
implemented by Law No. 8001/1990, the Brazilian government charges us a
royalty, known as Financial Compensation for Exploiting Mineral Resources
(CFEM), on the revenues from the sale of minerals we extract, net of taxes,
insurance costs and costs of transportation. The annual rates paid on our
products are:  
    
    iron ore and potash fertilizer, 2%;
    
    bauxite and manganese ore, 3%;
    
    kaolin, 2%;
    
    copper, 2%; and
    
    gold, 1%. It also imposes other financial obligations. For example, mining
companies must compensate landowners for the damages and loss of income caused
by the use and occupation of the land (either for exploitation or exploration)
and must also share with the landowners the results of the exploration based on
50% of the CFEM. Mining companies must also compensate the government for
damages caused to public lands. A substantial majority of our mines and mining
concessions are on lands owned by us or on public lands for which we hold
mining concessions. 
 Railroads The Brazilian government, acting through the Ministry of Transportation
and the ANTT, regulates and supervises the policies for the railroad
transportation sector. The Federal Government may grant private companies
concessions for the construction, operation or commercial exploration of
railroads. Railroad concession contracts granted by the Federal Government
impose certain shareholder ownership limitations. For FCA and MRS Logística
the concession contracts provide that each shareholder can only own up to 20%
of the voting capital of the concessionaire, unless otherwise permitted by
ANTT. We are in compliance with the requirements imposed by the concession
contracts for our railroad operations. We received an authorization for our
ownership of FCA, see Item 4. Information on the CompanyBusiness
OverviewAcquisitions, Asset Sales and Significant Changes in 2003 and
2004Logistics. As part of our acquisition of Caemi in September 2003, we
acquired MBRs stake in MRS Logística, which increased our share in MRS
Logística to 34.1% of the voting capital and 38.8% of the total capital. We
are currently discussing the shareholding structure with ANTT and our partners
in MRS Logística in order to comply with the applicable requirements, see Item
4. Information on the CompanyLines of BusinessLogistics. The ownership
limitation does not apply in the cases of EFVM and Estrada de Ferro Carajás
(EFC). The ANTT also sets different tariff limits for railroad services for each
of the concessionaires and each of the different products transported. So long
as these limits are respected, the actual prices charged can be negotiated
directly with the users of such services. 
 Energy The power industry in Brazil is regulated by the Brazilian government,
acting through the Ministry of Mines and Energy and ANEEL. The role of ANEEL
is to implement and enforce policies and regulations designated by the Ministry
of Mines and Energy and aimed at organizing and regulating the electricity
sector and power 52




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companies. ANEEL should ensure consumers an efficient and economical
energy supply through regulation enforcement and the monitoring of prices and
the operational efficiency of power companies. Under the law governing the electricity sector, concessions grant
exclusive rights to generate and transmit or to distribute electricity in a
particular area for a period of time that should be sufficient for the
concessionaire to recover its investment. The concessions for power generation
are granted for 35 years and may be renewed at the federal governments
discretion for an additional 20 years. Concessionaires are required to supply
electricity for public services, on a continuing basis, in sufficient quantity
and within approved standards of quality. Given the hydrologic and integrated nature of the Brazilian electricity
generation matrix, ANEEL has implemented regulations that created the Energy
Reallocation Mechanism, known as MRE, a mechanism for sharing hydrological
risk, and consequently reducing generation volatility among all generators. In
order to implement the MRE, ANEEL designates a level of energy production,
known as Assured Energy, for each generator, every five years. Assured Energy
is calculated in accordance with a statistical model based on average rainfalls
in the relevant region, water flows of rivers and water levels in each plants
reservoir over a multi-year time frame. Each generator is allowed to enter
into contracts to sell up to 100% of its Assured Energy. To the extent a
generator has signed contracts for the sale of its Assured Energy, and as long
as MRE members as a whole are able to meet MRE Assured Energy levels, it
receives payments based on these contractual terms, regardless of its level of
actual generation. If all MRE members meet their contracted energy and there
is a surplus of energy remaining, the net regional surplus generation is
allocated among generators in different regions and this energy surplus may be
sold in the wholesale market. All contracts for wholesale energy purchases and sales are currently
recorded in the wholesale energy market, or MAE. The MAE is a non-profit
private entity subject to the authorization, regulation and supervision of
ANEEL, and is responsible for operating the wholesale energy market and for
ensuring that energy transactions in the short-term market are settled and
cleared in an efficient manner. The MAE is primarily designed to effect the
settlement of differences between the amount of energy contracted under
bilateral contracts of the several market agents (generators, distributors,
traders and large consumers), and the amount of energy actually consumed and
produced. The settlement is done in accordance with the MAE spot prices, which
are expressed in R$/MWh and are calculated for each settlement period for each
sub-market. Approximately 22% of the settlement balance the MAE has indicated
is due to CVRD is under judicial dispute by other market agents. In March 2004, the Brazilian government approved a new law, Law No.
10848/2004, for the electricity sector. Although the full regulations under
the law have not yet been enacted, we believe that this new law will create an
even tighter regulated sector, especially in the generation segment. The new
law transfers jurisdiction of some regulatory areas from ANEEL to the Ministry
of Mines and Energy. Under this new law, all consumers of electricity,
including large consumers, such as CVRD, must contract the totality of their
energy needs through contracts and penalties may apply for errors above 5% of
consumed energy. This new law creates two parallel markets for energy: a
regulated market, in which a consumidor cativo, or regulated consumer, will
enter into contracts subject to regulated prices, and an unregulated market, in
which a consumidor livre,or free consumer, will enter contracts with
independent power producers at prevailing market prices. Consumers may migrate
from one market to another. However, consumers must wait until the termination
of their long-term contracts and, under pending regulations, may have to notify
the Ministry of Mines and Energy that they intend to switch markets one, two,
three or even five years in advance, depending on the circumstances. The new law also creates an energy trading commission  CCEE (Câmara de
Comercialização de Energia Elétrica), also called pool, which will be
responsible for settling all energy transactions between distributors and
generators. The CCEE will eventually replace the MAE as the wholesale energy
market, but we do not expect significant changes in the settlement procedures
regarding short-term transactions. Self-generators of energy, such as CVRD,
may be required to provide a certain percentage of their generated energy from
new concessions acquired after 2004 to the pool. The exact percentage, in
addition to any tax on the amount of energy used by self-generators, has not
yet been determined. Other factors which have not yet been determined and are
the subject of pending regulation include the price that ANEEL will charge
self-generators for the use of transmission lines, and the way in which energy
projects will be auctioned. Because the pending regulation for the sector is still under review by the
Ministry of Mines and Energy, we cannot be certain of all the material impacts
that this new law could have on our energy business. Changes in the regulatory
environment could negatively affect our energy investments. 53




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Environmental Matters Federal, state and municipal legislation contain provisions for the
control and protection of the environment in Brazil. These laws govern the use
of natural resources, the reclamation and restoration of mined areas, the
control of atmospheric emissions, the treatment of industrial effluents, as
well as the use, handling and final disposal of hazardous materials, and the
control of water resources under the National Hydrological Resources Policy,
which establishes hydrologic use rights and the fees applicable to that use.
It is possible that environmental regulations will become stricter in the
future. Any strengthening of these laws may lead to greater costs for
environmental compliance. In order to conduct our mining, energy generation and industrial
activities, we must prepare environmental impact assessments and submit them to
authorities who oversee the granting of environmental permits. We seek to
comply with all legal requirements and to achieve good relationships with
interested parties, especially communities located near our operations. Our
environmental management system is designed to provide a systematic approach to
environmental issues. Under Brazilian Federal Law No. 9,605, non-compliance with environmental
laws and regulations can result in criminal penalties, such as imprisonment and
other restrictions for individuals (including directors, officers and managers
of companies), and fines and the mandatory rendering of public services by
companies. Administrative penalties range from warnings and fines to the
suspension of corporate activities, and may also include the loss or reduction
of incentives, or the cancellation or interruption of credit facilities granted
by governmental institutions. Issuance of Environmental Licenses.We must obtain environmental licenses
in order to build, develop, expand and operate facilities that use natural
resources or may pollute the environment. We seek to obtain the legally
required licenses for each of our facilities and activities. In some cases,
this process requires a significant amount of time for the preparation of
comprehensive environmental reports and their evaluation, as well as for the
establishment of appropriate programs for environmental education of
communities residing in areas affected by the proposed projects. We have
entered into agreements with the appropriate environmental authorities with
respect to facilities where environmental non-compliance has been detected in
order to make these facilities compliant. Environmental Compensation.Environmental Law No. 9985/2000 requires us
to pay environmental compensation to state and federal authorities, in order
to create and maintain protected sites, in the amount of at least 0.5% of the
total investment of each venture with a material environmental impact. There
are a number of uncertainties regarding the scope and application of this law,
including what rate will be applied by the federal or state governments
environmental agencies, how such a rate will be applied and under what basis an
investment will be valued. Legal Reserve.Under the Brazilian Forest Code, as amended, the
exploration of economic activities in the Amazon basin can only reach 20% of a
projects land. We have a number of projects in the Amazon basin, such as
Carajás and Cadam. We are currently below the exploitation threshold in all of
these projects. However, some of our mines may approach this threshold as we
expand our operations. There are a number of uncertainties regarding the scope
and application of the Brazilian Forest Code, as amended, in particular where a
company has pre-existing operations, as is the case with our current mining
operations. Prevention and Environmental Control Measures.Our environmental policies
also aim to prevent, control and reduce the environmental impact caused by our
business operations. To that end, we have made significant environment-related
investments in our facilities and in employee training programs (approximately
US$ 29.2 million in 2003). We are also investing to develop environmental
projects directed at the communities located near our facilities (approximately
US$ 6.5 million in 2003). Water Use.We are intensive water users in eleven states with
hydrological resources that vary from very high water availability in the
Amazon to the scarcity in the northeast of Brazil. The Hydrological Resources
Management System that is being implemented throughout CVRD includes evaluation
of the availability of water in the areas where we operate and rationalization
and control of water use. We continually monitor new water legislation and
regulations and take particular interest in requirements adopted under the
National Policy of Hydrological Resources, established by Law No. 9433/97,
which defines the conditions for obtaining water use grants and for effluents
disposal. Water use taxation has been discussed since 2002. However, no
decision has yet been taken in any region where CVRD operates. 54




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ISO Certifications. Our environmental management system is based on
International Organization for Standardization (ISO) standard 14001. We have
obtained 16 certificates covering iron ore and manganese ore and ferroalloys
production, pelletizing plants, alumina refinery, port operations and our
research center. Environmental Control Systems.As a mining company, air emissions control
is one of our main objectives, including in our pelletizing plants. Control
equipment and systems at our facilities are complemented by monitoring systems
and control software. With respect to improvements in water quality, we strive to treat and
control the pollutants disposed into the sea and local rivers or other water
sources and also use extensive water recycling in our operations. Through a comprehensive waste management system under implementation, we
aim to achieve greater control of the generation and disposal of our waste, to
develop opportunities to reuse and recycle, and to reduce waste. In 2003, our mine decommissioning manual was developed, which described a
complete set of directives, including technical practices and procedures to be
followed during mine closures. The manual outlines procedures for the
rehabilitation and monitoring of degraded areas, the main steps and sequence to
be followed during closure, and any liabilities that may result after mine
closure. The manual also provides standardized basic criteria and procedures,
based on the directives of the CVM and the SEC (FAS 143), for cost evaluation,
the establishment of current budgets, future decommissioning and reclamation
(see Note 4 to our consolidated financial statements). Our environmental program also includes reforestation projects which are
intended to protect the soil against erosion processes, or to create buffers
between our activities and communities in the surrounding areas. In 2003, we spent US$ 3.5 million on these activities. We also
participate in the maintenance and preservation of Brazilian forests, including
the National Carajás Forest in the Amazon, and we own and preserve the Vale do
Rio Doce Natural Reserve, one of the remaining areas of the Atlantic Forest in
the state of Espírito Santo. In the last twenty years we have provided support
to the indigenous communities in the areas of education, health, infrastructure
development and technical assistance with the aim of enhancing life quality and
self-sustainability of these communities. Expenditures on these programs
amounted to US$ 5.8 million in 2003. 
 PATENTS AND TRADEMARKS We hold, or have applied for, a significant number of patents with legal
intellectual property agencies in 25 countries and in Brazils Instituto
Nacional de Propriedade Industrial(INPI), the governmental agency responsible
for granting patents and registering trademarks. Most of our patents relate to
proprietary rights over iron ore dressing. One of our most successful patents
relates to lower grade iron ore concentration, generally known as itabirite,
which is widely used by other iron ore mining companies the world over. We are
currently conducting technological research to investigate commercial
exploration of our hard itabirites. We also hold registration certificates of
our marks, including both trademark (logotype) and brand names, filed with INPI
and 32 other countries. These registrations are systematically renewed every
ten years in Brazil and abroad in accordance with each countrys current
legislation. 
 INSURANCE We carry insurance covering various types of risks, such as property,
plant, equipment, liability, vehicles, liability of maritime terminals and
transportation, as well as a group life insurance policy for our employees. We
believe that our policies are in such amounts and cover such risks as are
usually carried by companies in our industry. In 2002, we established SRV
Insurance Company Limited, a captive reinsurance subsidiary incorporated in
the Cayman Islands to enable us to obtain insurance and reinsurance at more
competitive rates by assuming a portion of the risk under our property and
business interruption insurance policy. 55




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CAPITAL EXPENDITURES During the year 2003, CVRD made capital expenditures and other investments
of US$ 1,991 million. Growth capital expenditures consisted of US$ 913 million on projects and
US$ 82 million dedicated to research and development, including mineral
exploration of US$ 69 million. The main investment projects were as follows:  
    
    US$ 61.0 million spent on increasing annual production capacity at
the Carajás iron ore mine by 14 million tons. The capacity expansion
at Carajás to 70 million tons per year was completed almost 12 months
ahead of the original schedule.
    
    US$ 27.7 million was spent on development of the Fábrica Nova and
Brucutu mines, located in the Southern System, whose first phases will
enter into operation in 2005 and 2006, respectively, adding a total of
22 million tons a year of iron ore to our production capacity.
    
    US$ 9.9 million was spent on the construction of Pier III at Ponta
da Madeira, which entered into operation at the end of 2003. The pier
is being used for the shipment of iron ore and pellets, supporting the
expansion to production capacity at Carajás.
    
    US$ 95 million on the expansion of Alunorte, with US$ 66 million on
module 3, which was completed in April 2003 and US$ 29 million to build
modules 4 and 5, scheduled to start up in 2006.
    
    US$ 329 million on the Sossego copper mine project, with commercial
production at full capacity scheduled for June 2004.
    
    US$ 28.4 million was spent on the capacity expansion project at the
Taquari-Vassouras potash mine, which will increase capacity from the
current 600,000 tons a year, to 850,000 tons. This is scheduled for
completion by 2005.
    
    US$ 156 million was spent on the purchase of 1,860 wagons and 44
locomotives for the transport of iron ore, and 57 locomotives and 1,126
wagons for the transport of general cargo: 101 locomotives and 2,986
wagons in all. Of this total, 77 locomotives and 2,022 wagons have
already been delivered by the manufacturers and incorporated into our
railroad fleet.
    
    US$ 17.5 million was spent on the construction of the Candonga
hydroelectric power plant, which is nearing the completion stage and
scheduled to begin operations in 2004.
    
    US$ 19.6 million was spent on the construction of the Aimorés
hydroelectric power plant, scheduled to enter into service in 2005. In addition to these projects, US$ 82 million was invested in research and
development, including mineral exploration of US$ 69 million, of which our
share was US$ 50 million, and US$ 19 million was invested by BNDES, in
accordance with the Mineral Risk Contract, signed in 1997. Of this total:  
    
    63% was spent on prospecting in the Carajás mineral province, where
we are principally searching for copper, nickel, gold, platinum metals
group and manganese ore;
    
    19% of this total was invested in other areas of Brazil,
particularly in prospecting for kaolin and bauxite in the east of state
of Pará; prospecting for copper in the states of Ceará and Paraíba; and
prospecting for nickel in the states of Piauí, Goiás and São Paulo; and
    
    18% was spent on prospecting for mineral deposits outside Brazil,
the Company having established mineral prospecting offices in Peru and
Chile, where the search is for copper and gold, and in Gabon, where the
search is for manganese ore. 56




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Our 2003 acquisitions consisted of:  
    
    purchasing full control of Elkem Rana, now RDMN, a producer of
ferromanganese alloys, for US$ 17.6 million;
    
    purchasing shares of CST for US$ 57.8 million, which increased our
stake in this steel company from 22.85% to 28.02%; and
    
    purchasing 50% of the common shares and 40% of the preferred shares
of Caemi, for US$ 426.4 million. The table below sets forth our historical capital expenditures by business
area for the periods indicated. Our capital expenditures have historically
been more intensive in the second half of the year. See Item 5. OverviewKey
Factors Affecting Revenues and Results of OperationsDivestitures and Asset
Sales, for a description of our divestitures. For the Year Ended December 31,2001
    
    2002
    
    2003(in millions of US$)Ferrous Minerals
    
    
    US$454
    
    
    
    US$435
    
    
    
    US$698Non-ferrous Minerals
    
    
    40
    
    
    
    132
    
    
    
    332Logistics
    
    
    25
    
    
    
    33
    
    
    
    274Energy
    
    
    52
    
    
    
    72
    
    
    
    40Aluminum
    
    
    
    
    
    
    63
    
    
    
    79Corporate center
    
    
    24
    
    
    
    31
    
    
    
    120Total capital expenditures
    
    
    595
    
    
    
    766
    
    
    
    1,543Acquisitions and other investments
    
    
    854
    
    
    
    46
    
    
    
    448Total
    
    
    US$1,449
    
    
    
    US$812
    
    
    
    US$1,991
 We have budgeted US$ 1,815 million for capital expenditures in 2004. Of
this total, 66.2%, or US$ 1,202 million, will be capital expenditures on items
for promoting growth (growth capital expenditures) and the remaining US$
613.3 million will be capital expenditures on items for maintaining existing
operations (stay-in-business capital expenditures). The budgeted investment projects for 2004 are as follows:  
    
    US$ 76.4 million has been budgeted for continued projects in
connection with the capacity expansion of the Carajás iron ore mines to
70 million tons per year in 2004. An additional US$ 28.8 million will
be spent on a further expansion of the iron ore output at Carajás to 85
million tons per year. This includes mine, mill and port expansion.
Startup is expected in 2006.
    
    US$ 37.3 million has been budgeted for completion of phase I of the
Brucutu iron ore mine. The first phase is scheduled for startup in
2006, when the mine will have a capacity of 12 million tons per year.
Phase II, already planned, will add a further 12 million ton per year
capacity beginning in 2008.
    
    US$ 31.1 million has been budgeted for the Fábrica Nova iron ore
mine, which is expected to reach nominal production capacity of 10
million tons per year in 2005 and 15 million tons per year in 2007.
    
    US$ 3.0 million has been budgeted for a 14 million tons per year
expansion of the Fazendão iron ore mine. Startup is expected in 2006.
    
    US$ 13.2 million has been budgeted for an expansion of Itabira iron
ore mines production from 43 to 46 million tons per year. Startup is
planned for 2006.
    
    US$ 25.9 million has been budgeted for the increase of Tubarão
Maritime Terminals port capacity via the acquisition of new equipment
and construction of silos and stockyards. Completion of the project is
scheduled for 2005.
    
    US$ 44.8 million has been budgeted for the 118 copper project. The
project, with its expected production of 45,000 tons per year of copper
cathode, is scheduled to come on stream in December 2005. 57




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
    
    US$ 21.2 million has been budgeted for the expansion of the
Taquari-Vassouras potash mine to a capacity of 850,000 tons per year.
    
    US$ 83.2 million has been budgeted for the Paragominas I project.
    
    US$ 183.3 million has been budgeted for stages 4 and 5 of Alunorte
to expand the plants capacity by 1.8 million tons per year.
Construction began in third quarter 2003 and completion is expected in
2006.
    
    US$ 182.0 million has been budgeted for the purchase 18 locomotives
and 2,011 wagons to be used for the transport of iron ore and general
cargo in the Vitória a Minas and Carajás railroads.
    
    US$ 130.6 million has been budgeted for the purchase of 70
locomotives (mostly secondhand for refurbishment) and 1,167 wagons, to
be used for the transportation of general cargo by FCA.
    
    US$19.0 million has been budgeted for the Aimorés hydroelectric plant.
    
    US$3.5 million has been budgeted for the Candonga hydroelectric project.
    
    US$33.6 million has been budgeted for the Capim Branco Hydroelectric plants. In addition to these projects, CVRD has budgeted US$ 78 million for
mineral exploration, of which our share is US$ 64 million and US$ 14 million is
to be invested by BNDES, in accordance with the Mineral Risk Contract. The US$
14 million BNDES contribution is not included in the US$ 1,815 million capital
expenditures budget. Of the total budgeted capital expenditures for mineral
exploration, 41.6% is expected to be spent in the Carajás mineral province and
35.5% in other areas of Brazil. The remaining 22.9% is budgeted for
exploration in Peru, Chile, Gabon, Mozambique, Mongolia and China and other
countries where CVRD is evaluating exploration opportunities. 58




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Item 5. Operating and Financial Review and Prospects 
 Overview Our 2003 net income of US$ 1,548 million was the highest in our history,
and represented a 127.6% increase over the US$ 680 million we recorded in 2002.
This performance was driven by higher operating income, foreign exchange and
monetary gains and the improved performance of our affiliates and joint
ventures. Our operating income rose by 15.0%, driven by a 29.8% increase in
net revenues, partially offset by a 37.6% increase in our operating costs and
expenses. Highlights from 2003 include:  
    
    A 29.8% increase in net operating revenues compared to 2003,
driven primarily by:  
    
    A 24.1% increase in revenues from iron ore and pellets,
reflecting high demand levels that continued to exceed our
production capacity, as well as higher prices. The increase in
our iron ore and pellets revenues also reflects four months of
the results of Caemi following our acquisition of control in
September 2003;
    
    An 84.4% increase in aluminum-related revenues, driven
primarily by higher alumina revenues, which were fueled by a
capacity expansion at Alunorte, higher alumina prices, and the
impact of consolidating a full year of Alunortes results in
2003, compared to only 6 months in 2002; and
    
    A 31.9% increase in logistics services revenues, due to
a 10.7% increase in volumes transported by our Vitória a Minas
and Carajás railroads and to our September 2003 consolidation of
FCA.  
    
    A 37.6 % increase in operating costs and expenses, driven
mainly by a 38.2% increase in cost of goods sold. The higher cost
of goods sold resulted from higher volumes, an increase in fuel and
oil expenses, and the impact of consolidating Caemi and FCA, both of
which have higher costs than the rest of our iron ore and logistics
operations.
    
    Foreign exchange and monetary gains of US$ 242 million in
2003, compared to foreign exchange and monetary losses of US$ 580
million in 2002.
    
    A turnaround in the performance of our joint ventures and
affiliates, which contributed US$ 306 million to net income in 2003,
after reducing our net income by US$ 87 million in 2002. 
 Key Factors Affecting Revenue and Results of Operations Demand Demand for iron ore and pellets In recent years, we have experienced a significant increase in demand from
China, and in 2003 we began to see a recovery in demand in Europe and Japan.
Demand for our iron ore products is a function of worldwide demand for steel,
which is, in turn, heavily influenced by worldwide economic activity.
Worldwide demand for steel has been growing since the first quarter of 2002. A
slowdown in global economic activity will generally affect demand for our iron
ore products, although we expect there will typically be a lag effect, such as
we have been observing in recent years. Demand for iron ore and pellets exceeded our production capacity
throughout 2003, and we expect that demand will continue to exceed our
production capacity in 2004. We plan to invest US$ 215.7 million in 2004 to
increase the production capacity of our mines and to expand the capacity of our
ports in order to better meet rising customer demand. To the extent demand
exceeds our production capacity, we expect to purchase and resell iron ore and
pellets from third parties to attempt to meet any shortfall. In 2003, we
purchased 9.2 million tons of iron ore and pellets from third parties. We
expect our purchases from third parties to increase in 2004. 59




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Demand for aluminum-related products Demand for aluminum-related products is driven primarily by world economic
conditions. In recent years, China has been the primary driver of demand in
the aluminum sector. World demand for bauxite, alumina and aluminum currently
exceeds supply, and we expect this trend to continue throughout 2004. Demand for third-party transportation services Demand for our third party transportation services in Brazil is primarily
driven by repressed demand for efficient logistics services since most of the
cargo is transported using trucks. The market is currently much more supply
driven than demand driven and we believe our ability to increase our revenues
is mainly dependent on our ability to increase our wagon and locomotive fleets. Production Capacity Capacity expansions are a key factor influencing our revenues. In 2003,
we completed capacity expansions at Alunorte and MRN. The principal capacity
expansions we expect to complete in 2004 include:  
    
    Expansion of Carajás annual production capacity to 70 million tons
per year from the current 56 million tons per year. This capacity
expansion will help partially offset the closure of our Capanema mine,
which produced 6.4 million tons of iron ore in 2003 prior to ceasing
operations in December 2003.
    
    Launch of copper concentrate production at our Sossego mine,
scheduled for mid-2004.
    
    Purchase of 88 locomotives and 3,178 wagons in 2004 to expand the
general cargo and iron ore transportation capacity of our railroads. See Item 4. Information on the CompanyCapital Expendituresfor more
details concerning our 2004 capital expenditures budget. Prices Ores and metals Iron ore.Our iron ore export sales are made pursuant to long-term supply
contracts, which provide for annual price adjustments. Cyclical changes in the
world demand for steel products affect sales prices and volumes in the world
iron ore market. Different factors, such as the iron content of specific ore
deposits, the various beneficiation and purifying processes required to produce
the desired final product, particle size, moisture content, and the type and
concentration of contaminants (such as phosphorus, alumina and manganese ore)
in the ore, influence prices for iron ore. Fines, lump ore and pellets
typically command different prices. We generally conduct annual price
negotiations beginning in November of each year and ending early in the
following year. Separate prices are established for the Asian and European
iron ore markets. In the Asian market, the renegotiated prices are effective
from April of the current year until March of the following year. In the
European market, the renegotiated prices are generally effective for the
calendar year. Because of the wide variety of iron ore and pellet quality and
physical characteristics, iron ore and pellets are not considered commodities.
This factor combined with the structure of the market has prevented the
development of an iron ore futures market. We do not hedge our exposure to
iron ore price volatility. Reference Prices for Europe in US$ cents/metric ton Fe unitYear
    
    Carajás fines
    
    Standard sinter feed
    
    Blast furnace pellets2001
    
    
    30.03
    
    
    
    28.92
    
    
    
    50.102002
    
    
    29.31
    
    
    
    28.62
    
    
    
    47.362003
    
    
    31.95
    
    
    
    31.04
    
    
    
    52.002004
    
    
    37.00
    
    
    
    36.45
    
    
    
    61.88
 Our reference prices per Fe unit for Carajás iron ore fines increased
across-the-board in 2003 by 9% from 2002 levels, after declining by 2.4% in
2002 from 2001 levels. We experienced similar trends in the market for
pellets, where reference prices increased by 9.8% in 2003, after declining by
5.5% in 2002. We have reached agreements with major steelmakers under which
our iron ore prices for 2004 will increase by an average of 18% and our pellet
prices will increase by an average of 19%. Aluminum-related operations.We operate our aluminum operations through a
combination of subsidiaries and unconsolidated joint ventures. We consolidate
the revenues of (i) Alunorte, which refines and sells alumina, 60




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and (ii) our wholly-owned trading subsidiary Itabira Rio Doce Company
Ltd., which we refer to as Itaco, which resells bauxite, alumina and aluminum.
Our remaining bauxite, alumina and aluminum operations are reflected in the
line item Equity in results of affiliates and joint ventures and change in
provision for losses on equity investments in our consolidated income
statement. Through Itaco, we sell our aluminum in an active world market where prices
are determined by reference to prices prevailing on terminal markets, such as
the London Metals Exchange and the Commodity Exchange, Inc., or COMEX, at the
time of delivery. The following table sets forth the three-month average
market prices for aluminum on the London Metals Exchange for the periods
indicated. Aluminum($ per ton)1Q01
    
    
    1,561.472Q01
    
    
    1,511.593Q01
    
    
    1,405.964Q01
    
    
    1,334.661Q02
    
    
    1,394.482Q02
    
    
    1,377.173Q02
    
    
    1,330.354Q02
    
    
    1,356.921Q03
    
    
    1,392.042Q03
    
    
    1,379.553Q03
    
    
    1,419.944Q03
    
    
    1,519.801Q04
    
    
    1,667.37Source: Bloomberg.
 Albras and Alunorte seek to manage the risks associated with changes in
aluminum prices by hedging. For more information about aluminum-related
hedging, see Item 11. Quantitative and Qualitative Disclosures About Market
Risk. During the first quarter of 2004, average market prices for aluminum on
the London Metals Exchange rose by 9.7% compared to the previous quarter.
Alumina prices remained at high levels during the first quarter of 2004, and we
believe that the current structural imbalance between supply and demand in the
alumina market will continue to have a positive impact on alumina prices in the
near term. Our unconsolidated joint venture MRN sells a substantial proportion of its
bauxite to our consolidated subsidiary Alunorte, which in turn sells a
substantial portion of its alumina production to our unconsolidated joint
ventures Albras and Valesul. The basic arrangements under which these sales
are made are as follows:  
    
    Our MRN bauxite joint venture produces bauxite for sale on a
take-or-pay basis to us and our joint venture partners at a price
that is determined by a formula based on prevailing world prices of
aluminum. Our Alunorte alumina subsidiary, which we began
consolidating on June 30, 2002, purchases all of its bauxite
requirements from MRN. Our annual purchase commitment for 2003 was
approximately US$ 53 million.
    
    Each Alunorte partner must purchase on a take-or-pay basis
all alumina produced by Alunorte in proportion to its respective
interest. Each partner pays the same price, which is determined by
a formula linked to the prevailing world prices of aluminum. On
June 30, 2002, we increased our stake in and acquired control of
Alunorte and began consolidating it in our financial statements. As
a result, since that date, payments we make to Alunorte under our
take-or-pay commitment are eliminated in preparing our consolidated
financial statements. In 2003, we sold 35.5% of our share of
Alunortes production to Albras, 2.2% to Valesul, and the remainder
to the market.
    
    Each Albras aluminum joint venture partner must purchase on a
take-or-pay basis all aluminum produced by Albras in proportion to
its ownership interest. In our case, our take-or-pay commitment is
51% (representing our proportional ownership interest) of the joint
ventures annual aluminum production. Although our annual purchase
commitment to Albras can be substantial, approximately US$ 302
million in 2003, prevailing world market prices for aluminum
(subject to discount in accordance with the terms of our joint
venture agreements) determine the aluminum prices at which we
purchase from Albras. We resell the primary aluminum we receive
from Albras through our trading subsidiary Itaco and earn a margin
on the sale. We do not have a take-or-pay commitment to Valesul,
which sells aluminum products directly to its customers. Manganese ore and ferroalloys.Manganese ore and ferroalloy prices are
strongly influenced by trends in the steel market. Manganese ore prices are
generally negotiated on an annual basis using a benchmark established in 61




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the Japanese market based on the reference price for the related
ferroalloys. Ferroalloy prices are negotiated in open bids, quarterly
contracts (particularly in Europe) or on a spot basis. They are influenced by
a number of factors and are more volatile than prices for manganese ore. Among
the principal factors are the price of manganese ore, the inventories held by
producers or traders, occasional interruptions in production and anti-dumping
tariffs in the principal markets (U.S., Europe, Japan and South Korea).
Average manganese ore prices remained relatively stable, rising from US$ 54 per
ton in 2002 to US$ 55 per ton in 2003. Average ferroalloy prices increased
from US$ 464 per ton in 2002 to US$ 548 per ton in 2003, reflecting the general
increase in the price of raw materials for steel. Ferroalloys are not a
standardized product since we sell several kinds of alloys with various prices. Potash and kaolin.Potash prices were higher in 2003 than in 2002,
primarily reflecting a greater demand for fertilizers. Kaolin prices increased
from US$ 136 per ton in 2002 to US$ 147 per ton in 2003 primarily reflecting
high levels of demand. Logistics We earn our logistics revenues primarily from fees charged to customers
for the transportation of cargo via our railroads, ports and ships. Most of
these revenues are earned by our railways, and nearly all of our logistics
revenues are denominated in reais.Prices in the Brazilian railroad market
are subject to maximum levels set by the Brazilian regulatory authorities but
in practice have historically fallen well below the maximum levels permitted by
law, primarily reflecting railroads need to remain competitive with the
trucking industry. Currency Fluctuations Most of our sales are dollar-denominated, while most of our costs (other
than debt expenses) are denominated in Brazilian currency. As a result, when
the realis relatively strong against the dollar, this tends to have a negative
effect on our reported financial results from operations, and vice versa. On
the other hand, because most of our debt (and debt at the joint venture and
affiliate level) is dollar-denominated, a decline in the value of the real
causes us to record foreign-exchange losses. Exchange rate effects had a significant positive effect on our net income
in 2003. The average R$/US$ exchange rate was R$ 2.9286 in 2002 and R$ 3.0722
in 2003, representing a 4.9% nominal depreciation of the realrelative to the
U.S. dollar. This decline in the average value of the realrelative to the
U.S. dollar had a positive effect on our revenues, most of which are
denominated in U.S. dollars, and helped reduce our costs, most of which are
denominated in reais. At the same time, although the average value of the realrelative to the
U.S. dollar was lower in 2003 than in 2002, the realappreciated by 22.3%
relative to the U.S. dollar in 2003, from R$ 3.5333 to US$ 1.00 at December 31,
2002 to R$ 2.8892 to US$ 1.00 at December 31, 2003. As a result of this
appreciation relative to the U.S. dollar, we recorded substantial foreign
exchange gains on our U.S. dollar-denominated debt in 2003. In contrast, in
2002, the realdepreciated against the dollar, causing us to record substantial
foreign exchange losses. Acquisitions We completed several significant acquisitions in 2002 and 2003.  
    
    In June 2002, we increased our stake in and acquired control of
Alunorte and began consolidating it in our financial statements. We
previously had accounted for Alunorte under the equity method.
    
    In February 2003, we acquired for US$ 17.6 million 100% of Elkem
Rana AS, a Norwegian ferrochrome producer, which we subsequently
renamed RDMN. We invested US$ 16.7 million to convert RDMNs plant to
allow production of ferro manganese alloys. The plant started
operations with one furnace in June 2003 and brought its second furnace
online in November 2003.
    
    In April 2003, we completed our acquisition from Acesita of shares
of CST that are not subject to the CST controlling shareholders
agreement. We acquired 4.42% of the common shares and 5.64% of the
preferred shares of CST, representing 5.17% of CSTs total capital, for
US$ 59.7 million. Following this transaction, we now own 24.93% of
CSTs common shares and 29.96% of CSTs preferred shares, totaling
28.02% of CSTs capital.
    
    In September 2003, we completed the acquisition of Mitsuis
interest in Caemi, and now own 100% of Caemis common shares and 40% of
its preferred shares, totaling 60.2% of Caemis share capital. We 62




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began consolidating Caemi as from that date. Caemis subsidiary MBR
contributed US$ 233 million to our net revenues from iron ore for 2003
and US$ 179 million to our total operating expenses for iron ore. Our
acquisition of Caemi also gives us a controlling interest in Cadam, a
kaolin producer. Cadam contributed US$ 29 million to our net revenues
from kaolin for 2003 and US$ 32 million to our total operating expenses
for kaolin.Our acquisition of Caemi has increased our iron ore revenues, but had a
negative impact on our operating margins. The lower margins at Caemi
result primarily from the fact that unlike our Northern and Southern
systems, which include their own railroads, MBR uses the services of a
third-party railway operatorMRS Logísticato transport iron ore from its
mines to its ports.
    
    In September 2003, we began consolidating FCA. FCA contributed US$
53 million to our net revenues from logistics services in 2003 and US$
86 million to our total operating expenses. FCA has lower operating
margins than our other railways, principally due to higher concession
costs and older infrastructure. Divestitures and Asset Sales We completed the following principal divestitures and asset sales in 2002
and 2003.  
    
    In 2002, we sold the forestry assets of Florestas Rio Doce in
connection with our exit from the pulp and paper business, and sold
ships in connection with a change of strategy in our dry-bulk shipping
business.
    
    In August 2003, we sold our last remaining gold mine, Fazenda
Brasileiro, to Yamana Resources Inc., for US$ 21 million.
    
    In November 2003, we sold our interest in Sepetiba Tecon S.A. to
CSN and our interest in Companhia CFN to CSN and Taquari Participações
S.A. These sales were made in connection with the purchase of FCA
described above.
    
    In October 2003, we sold our interest in Fosfértil to Bunge
Fertilizantes S.A. for US$ 84 million. Effects of Certain Equity Method Affiliates and Investments Carried at Cost The financial condition and results of operations of our joint ventures,
affiliated companies and investments can have a significant effect on our
results of operations and financial condition. See Note 13 to our consolidated
financial statements for information on these effects. Rising Unit Extraction Costs Several of our mines have operated for long periods and may experience
rising extraction costs per unit as more expensive processes become necessary
to extract remaining ore in these mines. Increases in extraction costs at each
of these mines have not materially affected our results of operations as such
increases were offset by productivity gains and by the favorable foreign
exchange effects on these costs. Electricity Costs The average price per megawatt hour (MWh) paid by Albras for the years
ended December 31, 2003, 2002 and 2001 was US$ 15.07, US$ 12.86 and US$ 11.27.
In May 2004, Albras successfully executed an auction to purchase electricity
for a 20-year period. This contract will become effective beginning June 2004.
The basic purchase price is R$ 53.00 MWh, indexed to the general market price
index, IGP-M, as calculated by Fundação Getúlio Vargas. In addition to the
basic price, the electricity seller will have the right to participate in
earnings from our sale of primary aluminum when the price exceeds US$ 1,450.00
per ton, as registered at the London Metal Exchange (LME). Domestic Inflation Rates in Brazil As measured by the IGP-M Index, the Brazilian inflation rate was
approximately 10.4% in 2001, 25.3% in 2002 and 8.7% in 2003. Most of our costs
are incurred in Brazil in reais,while most of our revenues are earned 63




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outside of Brazil in U.S. dollars.Inflation generally has a negative
impact on our operating margins only in periods where it exceeds the rate of
devaluation of the realagainst the U.S. dollar. Operating expenses Our principal operating expenses consist of cost of goods sold and
selling, general and administrative expenses.  
    
    Cost of goods sold.Our cost of goods sold consists
principally of costs for raw materials, bauxite and aluminum
purchased under take-or-pay arrangements from MRN and Albras, iron
ore and pellets purchased from third parties, logistics services
purchased from third parties, labor costs, fuel costs, energy costs,
and depreciation and exhaustion. Our cost of goods sold increased
as a percentage of net operating revenues in 2003, driven
principally by higher fuel costs and an increase in logistics costs
due to our acquisition of Caemi.
    
    Selling, general and administrative expenses.Our selling,
general and administrative expenses consist principally of the
expenses of marketing our products and costs of our corporate
headquarters. Brazilian Taxes We are subject to a number of Brazilian taxes. The principal taxes we pay
are:  
    
    Value-Added Tax and Revenue Taxes. Our gross revenues
consist of total revenues from sales, net of discounts, returns and
allowances, together with amounts we collect in respect of
value-added tax. Net operating revenues represent revenues less
value-added tax, which we collect on behalf of, and must remit to,
state taxing authorities. We also collect other revenue taxes for
social programs that are recorded under the line items value-added
tax and other financial expenses in our financial statements.
Export sales are currently exempt from both the value-added tax and
the social taxes.
    
    Income Tax and Social Contribution on Profits.We pay income
taxes, which include a tax called the social contribution on
profits. The social contribution on profits tax rate is currently
9% and income tax rate is 25% representing a statutory composite
rate of 34%. Brazilian tax legislation changes, which are frequent, can have a
significant impact on our results of operations. For example, in 2001, changes
in Brazilian tax legislation were introduced, including a requirement that
earnings from foreign subsidiaries be included in the determination of income
taxes payable in Brazil. Based on the advice of legal counsel, we believe that
the possibility that we will have to pay certain taxes potentially covered by
this legislation is remote and accordingly have not recorded provisions for
such taxes in our financial statements. 
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES We believe that the following are our critical accounting policies. We
consider an accounting policy to be critical if it is important to our
financial condition and results of operations and requires significant
judgments and estimates on the part of our management. For a summary of all of
our significant accounting policies, see Note 3 to our consolidated financial
statements. 
 Translation Adjustments Our reporting currency is the U.S. dollar, but our functional currency for
the majority of our operations is the real. In accordance with Statement of
Financial Accounting Standards (SFAS) 52  Foreign Currency Translation, we
translate statement of income items to reflect the approximate results that
would have occurred if each transaction had been translated using the exchange
rate in effect on the date that the transaction was recognized. Because the
separate translation of every transaction is impractical, an appropriate
weighted-average exchange rate for the period is used. In most cases, we
translate our statement of income accounts and those of subsidiaries that use
the realas their functional currency into U.S. dollars at weighted-average
monthly rates for the relevant reporting period. In the case of material
exceptional items, we translate the amounts into U.S. dollars using the
exchange rate on the date of the transaction. Additionally, during periods of
high exchange rate volatility, we use estimated daily rates to translate our
foreign exchange and monetary losses or gains, financial income and financial
expenses. The determination of the appropriate weighted-average exchange rate
requires significant management judgment and estimates. From January 1 to
December 31, 2003, the realappreciated by approximately 22.3% against the U.S.
dollar and generated a credit for the year recorded directly in the cumulative
translation adjustment account of US$ 736 million. 64




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Mineral Reserves and Life of Mines We regularly evaluate and update our estimates of proven and probable
mineral reserves. Our proven and probable mineral reserves are determined
using generally accepted estimation techniques and are audited by Golder
Associates, an expert in geology, mining and iron ore reserves. Calculating
our reserves requires us to make assumptions about future conditions that are
highly uncertain, including future ore prices, foreign currency exchange rates,
inflation rates, mining technology, availability of permits and production
costs. Changes in some or all of these assumptions could have a significant
impact on our recorded proven and probable reserves. One of the ways we use our ore reserve estimates is to determine the mine
closure dates used in recording the fair value liability for our asset
retirement obligations and the periods over which we amortize our mining
assets. Any change in our estimates of total expected future mine or asset
lives could have a significant impact on the depreciation, depletion and
amortization charges recorded in our consolidated financial statements under
cost of goods sold. Changes in the estimated lives of our mines could also
significantly impact our estimates of environmental and site reclamation costs,
which are described in greater detail below. 
 Environmental and Site Reclamation Costs Expenditures relating to ongoing compliance with environmental regulations
are charged against earnings or capitalized as appropriate. These ongoing
programs are designed to minimize the environmental impact of our activities. Until December 31, 2002, we provided only for environmental liabilities
relating to site restoration at mines already closed or which were expected to
close in the next two years. The estimation of environmental costs was based
on projections limited to the next two years and was not discounted to present
value. Effective January 1, 2003, we adopted SFAS 143  Accounting for Asset
Retirement Obligations. SFAS 143 requires that we recognize a liability for
the fair value of our estimated asset retirement obligations in the period in
which they are incurred, if a reasonable estimate can be made. We consider the
accounting estimates related to reclamation and closure costs to be critical
accounting estimates because:  
    
    we will not incur most of these costs for a number of years,
requiring us to make estimates over a long period;
    
    reclamation and closure laws and regulations could change in
the future or circumstances affecting our operations could change,
either of which could result in significant changes to our current
plans;
    
    calculating the fair value of our asset retirement
obligations in accordance with SFAS 143 requires us to assign
probabilities to projected cash flows, to make long-term assumptions
about inflation rates, to determine our credit-adjusted risk-free
interest rates and to determine market risk premiums that are
appropriate for our operations; and
    
    given the significance of these factors in the determination
of our estimated environmental and site reclamation costs, changes
in any or all of these estimates could have a material impact on net
income. In particular, given the long periods over which many of
these charges are discounted to present value, changes in our
assumptions about credit-adjusted risk-free interest rates could
have a significant impact on the size of our provision. At January
1, 2003, we estimated the fair value of our aggregate total asset
retirement obligations to be approximately US$ 41 million,
representing an increase of US$ 26 million over the amount recorded
under the prior accounting policy. 65




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Impairment of Long-Lived Assets and Goodwill We evaluate our investments and long-lived assets, which primarily include
identifiable property, plant and equipment, for impairment whenever events or
changes in circumstances indicate that the balance sheet carrying value of the
asset may not be recoverable. If the asset is determined to be impaired, we
record an impairment loss, and write down the asset, based upon the amount by
which the carrying amount of the asset exceeds the higher of net realizable
value and value in use. We generally determine value in use by discounting
expected future cash flows using a risk-adjusted pre-tax discount rate that we
believe is appropriate to the risks inherent in the asset. In order to
estimate future cash flows, we must make various assumptions about matters that
are highly uncertain, including future production and sales, product prices
(which we estimate based on current and historical prices, price trends and
related factors), recoverable reserves, operating costs, environmental and site
reclamation costs and planned capital costs. Arriving at assumptions and
estimates concerning these matters is a complex and often subjective process.
These assumptions and estimates can be affected by a variety of matters,
including external factors such as industry and economic trends, and internal
factors such as changes in our business strategy and our internal forecasts.
Although we believe the assumptions and estimates we have made in the past have
been reasonable and appropriate, different assumptions and estimates could
materially impact our reported financial results. More conservative
assumptions of the anticipated future benefits from these businesses would
result in greater impairment charges, which would decrease net income and
result in lower asset values on our balance sheet. Conversely, less
conservative assumptions would result in smaller impairment charges, higher net
income and higher asset values. In assessing potential impairment of our equity investments, we evaluate
the carrying value of our listed equity investments relative to publicly
available quoted market prices. If the quoted market price is below carrying
value, and we consider the decline to be other than temporary, we write down
our equity investments to quoted market value. For investments for which
quoted market prices are not readily available, we evaluate the investments for
impairment whenever the performance of the underlying entity indicates that
impairment may exist. In such cases, the fair value of the investments is
estimated principally based on discounted estimated cash flows using
assumptions similar to those described above. In relation to goodwill, each year on September 30, we use a two-step
process to test for the recoverability of goodwill for each of our reporting
units. Step one requires a comparison of the fair value of the reporting unit
to the book value of its net assets. The fair value of the net assets is based
on discounted cash flows using assumptions similar to those used in the process
described above. Step two requires an estimate of the fair value of the
individual assets and liabilities within the reporting unit. In the year ended
December 31, 2003, after conducting impairment tests, we concluded that no
write-down was necessary. 
 Derivatives and Hedging Activity As of January 1, 2001, we adopted SFAS 133  Accounting for Derivative
Financial Instruments and Hedging Activities, as amended by SFAS 137, SFAS 138
and SFAS 149. Those standards require that we recognize all derivative
financial instruments as either assets or liabilities on our balance sheet and
measure such instruments at fair value. Changes in the fair value of
derivatives are recorded in each period in current earnings or in other
comprehensive income (outside net income), in the latter case depending on
whether a transaction is designated as an effective hedge. In 2003, we did not
designate any derivative financial instruments as hedges and the fair value
adjustments to our derivatives were thus recorded in current net income. Had
we designated our hedging instruments as permitted under SFAS 133, there would
have been corresponding fair value adjustments, for certain of our hedging
instruments, to the related hedged items in the case of fair value hedges or
directly to stockholders equity in the case of cash flow hedges. During the
year ended December 31, 2003, we recorded a charge of US$ 43 million in
relation to fair value adjustments on derivative instruments. 
 Income Taxes In accordance with SFAS 109  Accounting for Income Taxes, we recognize
deferred tax effects of tax loss carryforwards and temporary differences in our
consolidated financial statements. We record a valuation allowance when we
believe that it is more likely than not that tax assets will not be fully
recoverable in the future. When we prepare our consolidated financial statements, we estimate our
income taxes based on regulations in the various jurisdictions where we conduct
business. This requires us to estimate our actual current tax exposure and to
assess temporary differences that result from differing treatment of certain
items for tax and accounting purposes. These differences result in deferred
tax assets and liabilities, which we show on our consolidated balance sheet.
We must then assess the likelihood that our deferred tax assets will be
recovered from future taxable income. 66




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To the extent we believe that recovery
is not likely, we establish a valuation allowance. When we establish a
valuation allowance or increase this allowance in an accounting period, we
record a tax expense in our statement of income. When we reduce the valuation
allowance, as occurred in 2003, we record a tax benefit in our statement of
income. Determining our provision for income taxes, our deferred tax assets and
liabilities and any valuation allowance to be recorded against our net deferred
tax assets requires significant management judgment and estimates and
assumptions about matters that are highly uncertain. For each income tax
asset, we evaluate the likelihood of whether some portion or all of the asset
will not be realized. The valuation allowance made in relation to accumulated
income tax losses depends on our assessment of the probability of generation of
future taxable profits within the legal entity in which the related deferred
tax asset is recorded based on our production and sales plans, selling prices,
operating costs, environmental costs, group restructuring plans for
subsidiaries and site reclamation costs and planned capital costs. 
 Contingencies We disclose material contingent liabilities unless the possibility of any
loss arising is considered remote, and material contingent assets where the
inflow of economic benefits is probable. We discuss our material contingencies
in Note 18 to our financial statements. We account for contingencies in accordance with SFAS 5  Accounting for
Contingencies, which requires that we record an estimated loss from a loss
contingency when information available prior to issuance of our financial
statements indicates that it is probable that a future event will confirm that
an asset has been impaired or a liability has been incurred at the date of the
financial statements, and the amount of the loss can be reasonably estimated.
In particular, given the uncertain nature of Brazilian tax legislation, the
assessment of potential tax liabilities requires significant management
judgment. By their nature contingencies will only be resolved when one or more
future events occur or fail to occur  and typically those events will occur a
number of years in the future. Assessing such liabilities, particularly in the
uncertain Brazilian legal environment, inherently involves the exercise of
significant management judgment and estimates of the outcome of future events. The provision for contingencies at December 31, 2003, totaling US$ 635
million, consists of provisions of US$ 177 million, US$ 167 million, US$ 285
million and US$ 6 million for labor, civil, tax and other claims, respectively. 
 Employee Post-retirement Benefits We sponsor a defined-benefit pension plan covering substantially all of
our employees. We account for these benefits in accordance with SFAS No. 87
Employers Accounting for Pensions. The determination of the amount of our obligations for pension benefits
depends on certain actuarial assumptions. These assumptions are described in
Note 17 to our consolidated financial statements and include, among others, the
expected long-term rate of return on plan assets and increases in salaries. In
accordance with U.S. GAAP, actual results that differ from our assumptions are
accumulated and amortized over future periods and generally affect our
recognized expenses and recorded obligations in such future periods. 67




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RESULTS OF OPERATIONS 2003 Compared to 2002 
 Revenues Our gross operating revenues increased from US$ 4,282 million in 2002 to
US$ 5,545 million in 2003. Our net operating revenues increased 29.8% from US$
4,123 million in 2002 to US$ 5,350 million in 2003. The following table
summarizes our gross revenues by product and our net operating revenues for the
periods indicated: Year ended December 31,2003
    
    2002
    
    % Change(in millions of US$)Iron ore and pelletsIron ore
    
    US$
    2,662
    
    
    US$
    2,147
    
    
    
    24.0
    %Pellets
    
    
    838
    
    
    
    673
    
    
    
    24.5Subtotal
    
    
    3,500
    
    
    
    2,820
    
    
    
    24.1Gold
    
    
    21
    
    
    
    103
    
    
    
    (79.6
    )Manganese ore and ferroalloys
    
    
    349
    
    
    
    283
    
    
    
    23.3Potash
    
    
    94
    
    
    
    91
    
    
    
    3.3Kaolin
    
    
    96
    
    
    
    45
    
    
    
    113.3Revenues from logistic services
    
    
    604
    
    
    
    458
    
    
    
    31.9Aluminum-related products
    
    
    852
    
    
    
    462
    
    
    
    84.4Other products and services
    
    
    29
    
    
    
    20
    
    
    
    45.0Gross revenues
    
    
    5,545
    
    
    
    4,282
    
    
    
    29.5Value added tax
    
    
    (195
    )
    
    
    (159
    )
    
    
    22.6Net operating revenues
    
    US$
    5,350
    
    
    US$
    4,123
    
    
    
    29.8
 Iron ore and pellets The global seaborne iron ore market is currently experiencing the highest
demand pressure it has faced in the past two decades. Reflecting these global
market conditions, in 2003, customer demand for iron ore and pellets exceeded
CVRDs production capacity, continuing the trend experienced in the second half
of 2002. Our gross revenues for 2003 were also positively affected by price
increases. We reached agreements with major steelmakers in May and June 2003
(retroactive to January 2003 for sales to Europe and April 2003 for sales to
Asia), respectively, under which our reference prices for iron ore and pellets
increased by an average of 9% and 9.8% respectively. Reflecting these positive
volume and pricing trends, our gross revenues from iron ore and pellets
increased 24.1%, from US$ 2,820 million in 2002 to US$ 3,500 million in 2003. Iron ore.Gross revenues from iron ore increased by 24.0% from US$ 2,147
million in 2002 to US$ 2,662 million in 2003, driven primarily by a 13.3%
increase in shipments of iron ore from 143.6 million tons in 2002 to 162.7
million tons in 2003. The volume growth includes by continued growth in
shipments to China, which increased by 7.7 million tons compared to 2002.
Shipments for 2003 also include four months worth of shipments, accounting for
13.9 million tons of iron ore, by Caemi, which we began consolidating in
September 2003. Actual average selling prices for iron ore were 9.4% higher in
2003 than in 2002, primarily reflecting price increases agreed with major
steelmakers in May 2003. Pellets.Gross revenues from pellets increased by 24.5%, from US$ 673
million in 2002 to US$ 838 million in 2003. The increase was primarily driven
by a 14.6% increase in volume shipped, from 20.6 million tons in 2002 to 23.6
million tons in 2003. The average selling price for pellets increased by 8.4%
in 2003 compared to the same period in 2002, reflecting the impact of the price
increases agreed with major steelmakers in June 2003. Gold Gross revenues from sales of gold decreased 79.6%, from US$ 103 million in
2002 to US$ 21 million in 2003, reflecting the closure of our Igarapé Bahia
mine in 2002 and lower yields from our Fazenda Brasileiro mine prior to its
sale in August 2003. These developments led to an 81.4% decrease in volume
sold. The volume declines were partially offset by a 14.6% increase in average
selling prices in 2003, reflecting higher world gold prices due primarily to
the devaluation of the U.S. dollar relative to other currencies and the war in
Iraq. On August 15, 2003, we sold Fazenda Brasileiro to Yamana Resources for US$
21 million. Since completion of the sale, our gold operations have been
discontinued. 68




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Manganese ore and ferroalloys Gross revenues from sales of manganese ore and ferroalloys increased by
23.3%, from US$ 283 million in 2002 to US$ 349 million in 2003. This increase
resulted from:  
    
    A 36.1% increase in sales of manganese ore, from US$ 36
million in 2002 to US$ 49 million in 2003. The sales increase was
driven primarily by higher sales volume, which rose by 33.1%, mainly
reflecting higher shipments of manganese ore sinter feed from our
Carajás mine to China. Revenues were also positively affected by
higher average selling prices, which increased by 2.3% compared to
the same period in 2002.  
    
    A 21.5% increase in gross revenues from ferroalloys, from US$
247 million in 2002 to US$ 300 million in 2003. The increase was
driven by strong demand for our principal ferroalloy products from
the steel industry, which experienced an 18.0% increase in average
selling prices and a 5.5% increase in volume. This increase was
also impacted by the acquisition of RDMN. The plant started
operations with one furnace in June 2003 and brought its second
furnace online in November 2003. Potash Gross revenues from sales of potash increased by 3.3%, from US$ 91 million
in 2002 to US$ 94 million in 2003. The increase was driven by a 12.0% increase
in average selling prices, reflecting strong demand. The higher average
selling prices were partially offset by lower sales volume, which decreased
7.8% in 2003 due to inventory drawdowns. Shipments were higher in 2002 because
we sold inventories on hand in addition to volumes produced in that period.
Demand for potash in 2003 exceeded production capacity, and we expect this
trend to continue in 2004. Kaolin Gross revenues from sales of kaolin increased by 113.3%, from US$ 45
million in 2002 to US$ 96 million in 2003. Of the total US$ 51 million
increase in kaolin revenues, US$ 31 million resulted from the consolidation of
Cadam, the kaolin subsidiary of Caemi, beginning September 2003. Total volume
shipped increased by 98.2%, reflecting the Cadam acquisition as well as
increased marketing efforts by our PPSA subsidiary, and average selling prices
rose by 7.7%. Logistic services Gross revenues from logistic services increased by 31.9% from US$ 458
million in 2002 to US$ 604 million in 2003. The improved performance in
logistics revenues reflects in large part our efforts to exploit opportunities
provided by agricultural production, especially grains, and by increased
shipments due to higher Brazilian steel production in 2003. Our gross revenues
were also positively affected by the consolidation of FCA beginning September
2003. In particular, the increase in gross revenues from logistic services
reflects:  
    
    A 30.4% increase in revenues from railroad transportation,
from US$ 286 million in 2002 to US$ 373 million in 2003. Of the US$
87 million increase, US$ 61 million resulted from our consolidation
of FCA beginning September 2003. The increase in revenues reflects
an 11.2% increase in volume transported and 17.3% increase in
average selling prices.
    
    A 34.6% increase in gross revenues from port operations, from
US$ 107 million in 2002 to US$ 144 million in 2003. The increase in
port operations gross revenues was driven by a 29.8% increase in
average selling prices and a 1.8% increase in volume.
    
    A 33.8% increase in gross revenues from shipping, from US$ 65
million in 2002 to US$ 87 million in 2003. Aluminum-related products Gross revenues from aluminum products increased 84.4%, from US$ 462
million in 2002 to US$ 852 million in 2003. This increase resulted from:  
    
    A US$ 336 million increase in gross revenues from sales of
alumina, from US$ 159 million in 2002 to US$ 495 million in 2003.
The increased alumina gross revenues primarily reflect the
completion of a capacity expansion at Alunorte that went on-line in
April 2003, increasing Alunortes capacity from 1.6 million tons per
year to 2.4 million tons per year. Average selling prices for
alumina were 16.1% higher in 2003, reflecting the increase in
worldwide demand for alumina. The inclusion of a full year 69




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of Alunortes results in 2003, compared with only 6 months in 2002,
also positively affected gross revenues in 2003.
    
    A 14.3% increase in gross revenues from sales of aluminum,
from US$ 280 million in 2002 to US$ 320 million in 2003. The
increase in gross revenues from aluminum resulted from increased
worldwide demand for aluminum, which led to a 7.1% increase in
volume sold, and a 3.1% increase in average selling prices.
    
    A 60.9% increase in gross revenues from sales of bauxite,
from US$ 23 million in 2002 to US$ 37 million in 2003. The increase
in gross revenues from bauxite resulted from a 30.8% increase in
volume sold and a 22.9% increase in average selling prices. The
expansion of MRNs capacity from 11 million tons per year to 16
million tons per year completed in 2003 was the primary driver
behind the volume increase. The price increase reflected a general
rise in worldwide bauxite prices. Other products and services Gross revenues from other products and services increased 45.0%, from US$
20 million in 2002 to US$ 29 million in 2003, primarily reflecting the sale by
RDMN of excess energy to third parties in the Norwegian market during the
conversion of its plant, which more than offset the decline in revenues due to
the sale of our forestry assets, which was completed in 2002. 
 Operating costs and expenses The following table summarizes our operating costs and expenses for the
periods indicated. Year ended December 31,2003
    
    2002
    
    % change(in millions of US$)Cost of ores and metals
    
    US$
    2,066
    
    
    US$
    1,579
    
    
    
    30.8
    %Cost of logistic services
    
    
    370
    
    
    
    252
    
    
    
    46.8Cost of aluminum-related products
    
    
    678
    
    
    
    412
    
    
    
    64.6Others
    
    
    14
    
    
    
    20
    
    
    
    (30.0
    )Cost of goods sold
    
    
    3,128
    
    
    
    2,263
    
    
    
    38.2Selling, general and administrative expenses
    
    
    265
    
    
    
    224
    
    
    
    18.3Research and development
    
    
    82
    
    
    
    50
    
    
    
    64.0Employee profit sharing plan
    
    
    32
    
    
    
    38
    
    
    
    (15.8
    )Other costs and expense
    
    
    199
    
    
    
    119
    
    
    
    67.2Total operating costs and expenses
    
    US$
    3,706
    
    
    US$
    2,694
    
    
    
    37.6
 Cost of goods sold General.Total cost of goods sold increased 38.2%, from US$ 2,263 million
in 2002 to US$ 3,128 million in 2003. CVRDs costs, as expressed in U.S.
dollars, were positively affected by the depreciation of the realagainst the
U.S. dollar because the majority of CVRDs costs and expenses are denominated
in reais. The average R$/US$ exchange was R$ 2.9286 during 2002 and R$ 3.0722
during 2003, representing a nominal depreciation of 4.9%. At the same time,
inflation as measured by the IGP-M, reached 8.7% in 2003, contributing to
increases in our costs. The major factors behind the increase in cost of goods sold during 2003
were:  
    
    Material costs increased by US$ 283 million in 2003 due to
the significant increase in our total production, combined with a
43% increase in the price of fuel. Fuel and gas expenses accounted
for 46.1% of our total materials cost in 2003, compared with 40.5%
in 2002.
    
    Cost of outsourced services increased by US$ 248 million in
2003. The principal component of this line was an increase in costs
for outsourced logistics services resulting from our consolidation
of Caemi beginning in September 2003. Unlike our Northern and
Southern systems, where we use our own railroads, Caemi uses a
third-party logistics providerMRS Logísticato transport its iron
ore to the port. Caemi accounted for US$ 94 million in outsourced
logistics costs in 2003. In 2003, our western mines in the Southern
System also transported a portion of their output via MRS Logística,
for a total freight cost of US$ 39 million in 2003 compared with US$
28 million in 2002.
    
    Expenditures on purchases of products other than iron ore and
pellets increased from US$ 422 million 70




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in 2002 to US$ 604 million in 2003. The 40.3% increase in alumina
production meant proportional growth in purchases of bauxite from MRN,
accounting for US$ 115 million in expenses. Similarly an increase in
sales volume and prices of primary aluminum translated into an
increase of about US$ 39 million in our take-or-pay commitment to
Albras.
    
    We incurred US$ 46 million in demurrage expenses in 2003 due
to congestion in our ports resulting from excess demand for iron ore
and the resulting pressure on our logistics system. Cost of ores and metals.Cost of ores and metals sold increased by 30.8%
to US$ 2,066 million in 2003 from US$ 1,579 million in 2002, primarily due to
increased production volumes required by the 13.5% increase in sales of iron
ore and pellets. A portion of the increase in the cost of ores and metals sold
also reflects the higher costs associated with purchases of iron ore from third
parties to meet excess demand. The cost of ores and metals during 2003 also
includes US$ 147 million in costs generated by Caemi after its consolidation
beginning in September 2003. Cost of logistic services.Cost of logistic services increased by 46.8%,
from US$ 252 million in 2002 to US$ 370 million in 2003. Of the US$ 118
million increase, US$ 71 million relates to costs generated by FCA after its
consolidation beginning in September 2003. The remaining increase in costs
resulted primarily from an increase in the number of ships chartered by
Docenave. Cost of aluminum-related products.Cost of aluminum-related products
increased by 64.6%, from US$ 412 million in 2002 to US$ 678 million in 2003.
The increase is primarily due to the increase in Alunortes production capacity
and the consolidation of Alunorte beginning in June 2002, which increased our
consolidated costs by US$ 205 million during 2003 compared with 2002. Cost of other products and services.Cost of other products and services
declined 30.0%, from US$ 20 million in 2002 to US$ 14 million in 2003,
primarily due to the end of pulp purchases following our exit from the pulp and
paper business. Selling, general and administrative expenses Selling, general and administrative expenses increased 18.3%, from US$ 224
million in 2002 to US$ 265 million in 2003. We experienced higher
real-denominated expenses in 2003 related to increased sales volumes. As
expressed in U.S. dollars, these expenses were partially offset by the
depreciation of the realagainst the U.S. dollar. Other costs and expenses Other costs and expenses increased from US$ 119 million in 2002 to US$ 199
million in 2003. The US$ 80 million increase was primarily attributable to a
US$ 31 million increase in provisions for ICMS taxes, a US$ 12 million
write-off of assets at the São Luis pelletizing plant and US$ 8 million of
contingencies. In 2002, we recorded US$ 49 million of income due to the sale
of certain forestry assets of our subsidiary Florestas Rio Doce S.A. 71




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Operating Income by Segment The following table provides information concerning our operating income
by segment and as a percentage of revenues for the periods indicated. Year ended December 31,2003
    
    2002Operating income
    
    % of net operating
    
    Operating income
    
    % of net operating(loss)
    
    revenues
    
    (loss)
    
    revenues(in millions of US$)
    
    
    
    
    
    (in millions of US$)Ferrous mineralsIron ore
    
    US$
    1,164
    
    
    
    45
    %
    
    US$
    1,082
    
    
    
    52
    %Pellets
    
    
    169
    
    
    
    22
    
    
    
    101
    
    
    
    15Manganese ore
    
    
    7
    
    
    
    n.a.
    
    
    
    5
    
    
    
    16Ferroalloys
    
    
    34
    
    
    
    28
    
    
    
    59
    
    
    
    25Non-ferrous mineralsGold
    
    
    17
    
    
    
    81
    
    
    
    (33
    )
    
    
    n.a.Potash
    
    
    35
    
    
    
    43
    
    
    
    32
    
    
    
    41Kaolin
    
    
    4
    
    
    
    4
    
    
    
    15
    
    
    
    34Aluminum-relatedAlumina
    
    
    109
    
    
    
    24
    
    
    
    32
    
    
    
    21Aluminum
    
    
    25
    
    
    
    8
    
    
    
    26
    
    
    
    9Bauxite
    
    
    3
    
    
    
    8
    
    
    
    1
    
    
    
    4LogisticsRailroads
    
    
    111
    
    
    
    33
    
    
    
    128
    
    
    
    49Ports
    
    
    46
    
    
    
    35
    
    
    
    22
    
    
    
    23Ships
    
    
    (38
    )
    
    
    n.a.
    
    
    
    (20
    )
    
    
    n.a.Others
    
    
    (42
    )
    
    
    n.a.
    
    
    
    (21
    )
    
    
    n.a.Total
    
    US$
    1,644
    
    
    
    30.7
    
    
    US$
    1,429
    
    
    
    34.7
 Our operating income as a percentage of net operating revenues declined
from 34.7% in 2002 to 30.7% in 2003. The decline was driven primarily by:  
    
    a decline in the operating profitability of our iron ore business
due mainly to the consolidation of Caemi in September 2003. As
described above, Caemi uses a third-party railroad to transport its
iron ore from the mine to the port, resulting in higher costs for
outsourced services; and
    
    a decline in the operating profitability of our railroad business
due principally to the consolidation of FCA in September 2003. FCA is
less profitable than our other railroads, primarily as a result of a
more expensive concession contract. Our margins in our kaolin business dropped sharply in 2003, driven both by
a significant increase in operating costs at PPSA in 2003 and by the recording
of impairment charges in 2003 relating to value-added taxes at both Cadam and
PPSA. 72




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##### 



Non-operating income (Expenses) The following table details our non-operating income (expenses) for the
periods indicated. Year ended December 31,2003
    
    2002(millions of US$)Financial income
    
    US$
    102
    
    
    US$
    127Financial expenses
    
    
    (351
    )
    
    
    (375
    )Foreign exchange and monetary gains (losses) net
    
    
    242
    
    
    
    (580
    )Gain on sale of investments
    
    
    17
    
    
    
    Non-operating income (expenses)
    
    US$
    10
    
    
    US$
    (828
    )
 Net non-operating income in 2003 amounted to US$ 10 million, compared to
net non-operating expenses of US$ 828 million in 2002. This change primarily
reflects:  
    
    The effect of exchange rate movements on our net U.S.-dollar
denominated liabilities (mainly short and long-term debt, less cash and
cash equivalents), which generated a net foreign exchange gain of US$
222 million in 2003, compared to a loss of US$ 515 million in 2002.
    
    A decrease in financial income from US$ 127 million in 2002 to US$
102 million in 2003 due to lower cash balances and reductions in
interest rates.
    
    A decrease in financial expenses from US$ 375 million in 2002 to
US$ 351 million in 2003, principally due to the recognition, in 2002,
of US$ 60 million relative to losses on interest rate derivatives
against only US$ 3 million in 2003 and lower interest rates.
    
    A net gain of US$ 17 million, reflecting a gain of US$ 61 million
on the sale of Fosfértil in October 2003, less a loss of US$ 44 million
on the sale of CFN in November 2003. 
 Income Taxes In 2003, we recorded a net tax expense of US$ 297 million, compared to a
net tax benefit of US$ 149 million in 2002. The difference resulted primarily
from:  
    
    An increase in tax expense at nominal statutory rates from US$ 204
million in 2002 to US$ 562 million in 2003 due to higher pre-tax
income.
    
    Accrual of a US$ 59 million expense in respect of exempt foreign
income in 2003, compared to a tax benefit of US$ 196 million in 2002.
This change resulted primarily from the effects of the foreign exchange
variations on the foreign assets that are exempt for tax purposes.
    
    Accrual of a US$ 56 million expense related to the difference on
tax basis of equity investees in 2003, compared to a tax benefit of US$
20 million in 2002. This resulted mainly from effect of the deductible
amortization of goodwill for local tax purposes.
    
    An increase in tax incentives from US$ 4 million in 2002 to US$ 60
million in 2003 due to the iron ore and alumina incentives on the
higher income tax basis in 2003. The above factors were partially offset by the tax benefit of
tax-deductible dividends that we pay in the form of interest on shareholders
equity, which amounted to US$ 271 million in 2003, as compared to US$ 99
million in 2002. 73




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##### 



Affiliates and Joint Ventures Our equity in the results of affiliates and joint ventures and provisions
for losses on equity investments resulted in a gain of US$ 306 million in 2003,
compared to a loss of US$ 87 million in 2002. The following table summarizes
the composition of our equity in results of affiliates and joint ventures and
provisions for losses on equity investments for the periods indicated. Year ended December 31,2003
    
    2002(in millions of US$)Equity in results of affiliates and joint ventures and
provision for losses on equity investmentsFerrous
    
    US$
    133
    
    
    US$
    (66
    )Logistics
    
    
    (52
    )
    
    
    (88
    )Aluminum and Bauxite
    
    
    147
    
    
    
    39Steel
    
    
    81
    
    
    
    23Others
    
    
    (3
    )
    
    
    5Total equity in results of affiliates and joint ventures and
provisions for losses
    
    US$
    306
    
    
    US$
    (87
    )
 Iron ore and pellets.Our equity in the results of iron ore and pellet
affiliates and joint ventures and provisions for losses on equity investments
amounted to a gain of US$ 133 million in 2003, compared to a loss of US$ 66
million in 2002. The higher gain in 2003 resulted primarily from improved
results at Samarco and Kobrasco and improved results at Caemi prior to its
consolidation in September 2003. The loss in 2002 also reflected a write-down
in the value of our investment in Caemi to its fair value, which resulted in
recognition of a loss of US$ 86 million. The improvements at each of these
affiliates were due to strong demand in the market for iron ore and pellets. Logistics.In 2003, our equity in the results of logistics affiliates and
joint ventures and provisions for losses on equity investments amounted to a
net loss of US$ 52 million, compared with a net loss of US$ 88 million in 2002.
The lower net loss in 2003 was driven primarily by improved results at MRS
Logística, which partially offset the recording of higher provisions for losses
related to FCA in 2003 than in 2002. We recorded higher provisions for losses
related to FCA in 2003 due to asset impairment provisions. Aluminum-related.Our equity in the results of our aluminum-related
affiliates and joint ventures and provisions for losses on equity investments
improved from a net gain of US$ 39 million in 2002, compared to a net gain of
US$ 147 million in 2003. The improvement was driven by improved results at
Albras, which more than offset a decline in the net gains we recorded on our
investments in Valesul and MRN compared to 2002. The result in 2002 included a
net loss of US$ 23 million related to Alunorte prior to its consolidation
beginning in June 2002. In 2003, our aluminum-related affiliates recorded exchange gains due to
the effects of the appreciation of the realat December 31, 2003, compared to
December 31, 2002, on their foreign currency denominated debt. In addition to
exchange rate effects, the operating results of Albras, Valesul and MRN in 2003
were influenced by the following factors:  
    
    Albras.In 2003, Albras generated net income of US$ 198
million on net sales of US$ 592 million, compared to a net loss of
US$ 22 million in 2002 on net sales of US$ 529 million. Our portion
of net income of Albras was US$ 104 million in 2003, compared with a
reversal of a provision for losses of US$ 10 million in 2002. The
11.9% increase in net sales at Albras resulted primarily from a 6.9%
increase in sales volume due to increased worldwide demand for
aluminum and process improvements that helped expand production
capacity. This increase in sales volume was reinforced by a 4.4%
increase in the average sales price of aluminum from US$ 1,306.38
per ton in 2002 to US$ 1,363.68 per ton in 2003. The impact of the
appreciation of the realon Albras foreign currency denominated
debt was the main driver for the increase in earnings during the
period.
    
    Valesul.In 2003, Valesul generated net income of US$ 18
million on net sales of US$ 157 million, compared to net income of
US$ 25 million in 2002 on net sales of US$ 139 million. CVRDs
portion of the net income of Valesul was US$ 10 million in 2003,
compared to US$ 14 million in 2002. The decline in net income at
Valesul was driven primarily by an increase in electricity costs,
which more than offset the improvement in net sales. 74




---



##### 




    
    MRN.In 2003, MRN generated net income of US$ 81 million on
net sales of US$ 254 million, compared to net income of US$ 94
million in 2002 on net sales of US$ 173 million. Our portion of the
net income of MRN was US$ 33 million in 2003 and US$ 38 million in
2002. The revenue increase was driven by a 42.2% increase in sales
volume, due principally to a capacity expansion completed in March
2003, and a 1.5% increase in average selling prices for bauxite. Net
income was lower in 2003 due to higher financial expenses related to
the financing of the capacity expansion, and the inclusion in MRNs
2002 results of a gain on the sale by MRN of its shares of Alunorte. Steel.In 2003, we recorded a net gain of US$ 81 million in respect of
our equity in the results of steel affiliates and joint ventures, compared to a
net gain of US$ 23 million in 2002. The increase reflects improved performance
at Usiminas and CST, which more than offset lower returns at CSI. The improved
performance at CST primarily reflects a 23.4% increase in average selling
prices, reflecting higher slab prices and the start up of sales of hot rolled
coils (HRC), a higher value product. The improved performance at Usiminas
primarily reflects the positive impact of exchange rate variations on Usiminas
U.S. dollar-denominated debt. CSIs net income declined in 2003 primarily due
to a sharp increase in the cost of steel slabs, an important raw material for
its operations, which reduced CSIs gross margins. 
 2002 Compared to 2001 
 Revenues The following table summarizes our gross revenues by product and our net
operating revenues for the periods indicated: For the Year Ended December 31,2002
    
    2001
    
    % change(in millions of US$)Iron ore and pelletsIron ore
    
    US$
    2,147
    
    
    US$
    2,003
    
    
    
    7.2
    %Pellets
    
    
    673
    
    
    
    597
    
    
    
    12.7Subtotal
    
    
    2,820
    
    
    
    2,600
    
    
    
    8.5Gold
    
    
    103
    
    
    
    139
    
    
    
    (25.9
    )Manganese ore and Ferroalloys
    
    
    283
    
    
    
    259
    
    
    
    9.3Potash
    
    
    91
    
    
    
    71
    
    
    
    28.2Others
    
    
    45
    
    
    
    41
    
    
    
    9.8Revenues from logistic services
    
    
    458
    
    
    
    608
    
    
    
    (24.7
    )Aluminum-related products
    
    
    462
    
    
    
    284
    
    
    
    62.7Other products and services
    
    
    20
    
    
    
    75
    
    
    
    (73.3
    )Gross Revenues
    
    
    4,282
    
    
    
    4,077
    
    
    
    5.0Value Added Tax
    
    
    (159
    )
    
    
    (142
    )
    
    
    12.0Net Operating Revenues
    
    US$
    4,123
    
    
    US$
    3,935
    
    
    
    4.8
 Net operating revenues increased 4.8% to US$ 4,123 million in 2002 from
US$ 3,935 million in 2001. This increase reflected higher gross revenues from
our iron ore and pellets, aluminum-related products and other mining products,
which were partially offset by decreases in gross revenues from logistics, gold
and other products and services. 75




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##### 



Iron ore and pellets Gross revenues from iron ore and pellets increased 8.5% to US$ 2,820
million in 2002 from US$ 2,600 million in 2001, reflecting a 10.4% increase in
volume sold, partially offset by lower average selling prices. Sales of iron ore attained record levels in 2002, amounting to 143.6
million tons in 2002, compared to 130.8 million tons in 2001, an increase of
9.8%. The expansion seen in sales of pellets was greater in percentage terms
than sales growth for iron ore, reflecting the strong demand for steel and the
use of pellets to increase the productivity of blast furnaces in making steel,
particularly in China. Pellet sales rose from 17.9 million tons in 2001 to
20.6 million tons in 2002, a 14.8% increase. The increase in volume of iron
ore and pellets in 2002 was driven primarily by strong demand from China, where
increased demand for consumer durables, coupled with substantial investment in
infrastructure and housing, resulted in sharply higher steel consumption,
leading Chinese steelmakers to dramatically increase their purchases of iron
ore and pellets. Demand in our other principal markets was stable. Actual average selling prices for iron and pellets declined by 1.7%,
reflecting an across-the-board reduction in reference prices following the 2002
price negotiations with steel manufacturers, and a decrease of 0.2% due to an
increase in the proportion of pellets in the product mix, which accentuated the
effect of reductions in pellet prices. Gold Revenues from gold sales decreased 25.9% to US$ 103 million in 2002 from
US$ 139 million in 2001, reflecting a 34.8% decrease in volume sold, which was
partially offset by an 8.9% increase in average selling prices. The 34.8%
decrease in volume from 508,472 troy ounces in 2001 to 331,479 troy ounces in
2002 was primarily due to the closure of our Igarapé Bahia gold mine in 2002
and reduced production at Fazenda Brasileiro, which is nearing the end of its
productive life and has encountered lower gold yields. We have since agreed to
sell Fazenda Brasileiro as described above. The 8.9% increase in average
selling prices reflects the increase in world gold prices during 2002 as a
result of increased political uncertainty, lower equity prices, weakness in the
U.S. dollar and other factors which made gold an attractive alternative
investment. Manganese ore and ferroalloys Gross revenues from sales of manganese ore and ferroalloys increased by
9.3%, from US$ 259 million in 2001 to US$ 283 million in 2002, driven by higher
sales of ferroalloys, which more than offset a decline in sales of manganese
ore. Gross revenues from ferroalloys increased by US$ 45 million, or 22%,
driven by a 107% increase in volume resulting from strong demand for steel and
from the end of the energy rationing in Brazil, which was partially offset by a
decline in prices due to the shift in product mix. Gross revenues from sales
of manganese ore declined by US$ 21 million, or 37%, primarily as a result of a
27% decline in volume. The decline in manganese ore volumes resulted primarily
from the delay of a major shipment in December 2002. Average selling prices
for manganese ore fell by 15% in 2002, driven by lower overall demand for
manganese ore from the steel industry at the time the annual prices were
established. Potash Gross revenues from sales of potash increased by 28.2%, from US$ 71
million in 2001 to US$ 91 million in 2002, primarily due to a 45% increase in
volume, which more than offset a 16.7% decline in average selling prices. The
significant increase in volume resulted from strong demand from the domestic
fertilizer sector. The decline in average selling prices primarily reflects a
reduction in prices to match our international competitors. Others Gross revenues from sales of kaolin increased by 9.8%, from US$ 41 million
in 2001 to US$ 45 million in 2002, mainly due to an increase in sales volume as
well as higher average selling prices. Logistic services Gross revenues from logistic services decreased by 24.7% to US$ 458
million in 2002 from US$ 608 million in 2001. This reduction is principally
due to a decrease of US$ 140 million in our world-wide logistics revenues due
principally to our divestitures in the dry-bulk shipping business in the second
half of 2001. It also reflects the impact of a decrease relating to revenues
from services provided to Ferteco and Samitri in 2001 prior to our acquisition
of these companies. In addition, gross logistics revenues were adversely
affected by the devaluation of the real, which largely offset increases in
volumes in the domestic market. General cargo shipped by our railroads
increased by 14.0%, from 12,900 million net ton kilometers in 2001 to 14,700
million net ton kilometers in 2002. The increase in volume reflects strong
increases in the transport of grains and soybeans, increases in steel
shipments, and increases in the inter-modal transport of containers, which
exploits the connections between highway transportation, rail, ports and
coastal shipping. Our ports handled 26.3 million tons of general cargo in
2002, compared with 21.7 million tons in the previous year. 76




---



##### 



Aluminum-related products Revenues from aluminum products (bauxite, alumina, aluminum) increased
62.7% to US$ 462 million in 2002 from US$ 284 million in 2001. Of the total
increase of US$ 178 million, US$ 124 million was due to the consolidation of
Alunorte beginning June 30, 2002, when we acquired control of this previously
affiliated company. The remaining US$ 54 million resulted from:  
    
    resales by us of increased aluminum purchased from our
affiliate Albras, under take-or-pay arrangements, reflecting Albras
increase in production capacity beginning at the start of 2002 and
the end of energy rationing; and
    
    US$ 21 million in resales of alumina purchased from third
parties to meet excess customer demand at Alunorte. Other products and services Revenues from other products and services decreased 73.3% to US$ 20
million in 2002 from US$ 75 million in 2001, reflecting our exit from the pulp
and paper business, which began in 2001 with the sale of Bahia Sul and Cenibra,
and was completed in 2002 upon the sale of approximately 47,700 hectares of
Eucalyptus forest owned by our subsidiary Florestas Rio Doce S.A. 
 Operating costs and expenses The following table summarizes our operating costs and expenses for the
periods indicated. For the Year Ended December 31,2002
    
    2001(in millions of US$)Cost of ores and metals sold
    
    US$
    1,579
    
    
    US$
    1,550Cost of logistic services
    
    
    252
    
    
    
    378Cost of aluminum-related products
    
    
    412
    
    
    
    269Others
    
    
    20
    
    
    
    75Cost of goods sold
    
    
    2,263
    
    
    
    2,272Selling, general and administrative expenses
    
    
    224
    
    
    
    241Research and development, employee profit sharing and other costs and expenses
    
    
    207
    
    
    
    460Total operating costs and expenses
    
    US$
    2,694
    
    
    US$
    2,973
 Cost of goods sold Total cost of goods sold decreased 0.4% to US$ 2,263 million in 2002 from
US$ 2,272 million in 2001. Our costs, as expressed in U.S. dollars, were
favorably affected by the significant devaluation of the realagainst the U.S.
dollar during the period (from R$ 2.3204 to US$ 1.00 at December 31, 2001 to R$
3.5333 to US$ 1.00 at December 31, 2002, or a devaluation of 34.3%), because
the majority of these costs and expenses are denominated in reais.The average
rate of exchange was R$ 2.9286 to US$ 1.00 during 2002 and R$ 2.2464 to US$
1.00 during 2001, representing a devaluation of 23.3%. The average rate of
devaluation is lower than year-on-year devaluation because the exchange rate
movements were concentrated in the second half of 2002. Cost of ores and metal sold increased 1.8% to US$ 1,579 million in 2002
from US$ 1,550 million in 2001, primarily due to increased production volumes
required by the 10.3% increase in sales of iron ore and pellets, offset by an
near-equivalent decrease attributed to the effects of devaluation of the real
on our domestic costs (approximately 52% of our total costs is denominated in
reais) net of wage and price increases linked to local inflation. The amount
in 2002 also includes US$ 22 million in gold derivatives losses. A portion of
the increase in cost of ores and metal sold also reflects higher costs
associated with purchases of iron ore from third parties to meet excess demand. Cost of logistic services decreased 33.3% to US$ 252 million in 2002 from
US$ 378 million in 2001, whereas our corresponding revenue decreased only
24.7%. The decrease in costs at a rate greater than the decrease in revenue is
due to the effects of the devaluation of the realon our domestic costs as
described above. Cost of aluminum-related products increased 53.2% to US$ 412 million in
2002 from US$ 269 million in 2001. The increase is partly due to the
consolidation of Alunorte beginning on June 30, 2002, which contributed 77




---



##### 



US$ 91 million to consolidated costs. The remaining US$ 52 million cost increase
relates to the take-or-pay arrangements and third party sales described above.
The effects of exchange rate movements on the cost of
aluminum-related products were insignificant, since the related costs are
primarily determined by international market prices. Cost of other products and services decreased 73.3% to US$ 20 million in
2002 from US$ 75 million in 2001, reflecting principally the decreases in
volumes of pulp purchases as a result of our divestitures in this line of
business. Selling, general and administrative expenses Selling, general and administrative expenses decreased 7.1% to US$ 224
million in 2002 from US$ 241 million in 2001, due principally to the favorable
effects of exchange rate movements, partly offset by the effects of increased
selling expenses due to increased volumes. As a percentage of net operating
revenues, selling, general and administrative expenses declined from 6.1% in
2001 to 5.4% in 2002. Research and development, employee profit sharing and other operating
costs and expenses Research and development, employee profit sharing and other costs and
expenses decreased 55.0% to US$ 207 million in 2002 from US$ 460 million in
2001. This decrease resulted primarily from a US$ 260 million reduction in
other operating costs and expenses, which more than offset a US$ 7 million
increase in research and development expenses. The US$ 260 million reduction in other operating costs and expenses
primarily reflects three asset impairment provisions that occurred in 2001:  
    
    plant and equipment impairment provisions of US$ 67 million
and US$ 34 million due to impairment of certain shipping assets;
    
    amortization of goodwill of US$ 34 million; and
    
    a write-off of value added taxes of US$ 54 million on
products purchased based on our agreement with a state government. The reduction also reflects:  
    
    a US$ 26 million reduction in contingency provisions, to US$
53 million in 2002 from US$ 79 million in 2001; and
    
    a gain in 2002 of US$ 49 million on the sale of certain
forestry assets of our subsidiary Florestas Rio Doce S.A. Together, these two factors more than offset a US$ 40 million provision in
2002 related to the acceleration of the expected closing date for our Fazenda
Brasileiro gold mine, from 2009 to 2005. 
 Non-Operating Income (Expenses) For the Year Ended December 31,2002
    
    2001(in millions of US$)Financial income
    
    US$
    127
    
    
    US$
    135Financial expenses
    
    
    (375
    )
    
    
    (335
    )Foreign exchange and monetary losses, net
    
    
    (580
    )
    
    
    (426
    )Gain on sale of investments
    
    
    
    
    
    
    784Non-operating income (expenses)
    
    US$
    (828
    )
    
    US$
    158
 Net non-operating expenses in 2002 were US$ 828 million, compared to net
non-operating income of US$ 158 million in 2001. The principal reasons for
this change were:  
    
    the negative effect of exchange rate movements on our net
U.S.-dollar denominated liabilities (mainly short and long-term debt
less cash and cash equivalents). Our net foreign exchange losses
amounted to US$ 515 million in 2002, compared to US$ 410 million in
2001; and
    
    gains of US$ 784 million in 2001 upon divestitures of our
interests in Bahia Sul, CSN and Cenibra. 78




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##### 



In addition, our financial income decreased to US$ 127 million in 2002 from US$
135 million in 2001, due primarily to lower international interest rates
following the terrorist attacks in the United States in September 2001. Our
financial expenses increased to US$ 375 million in 2002 from US$ 335 million in
2001 mainly due to our consolidation of Alunorte, which increased our financial
expenses by US$ 14 million in the second half of 2002, and to US$ 60 million in
losses we incurred on interest rate derivatives. In 2002, we included the cost of contractual increases in supplementary
benefits related to early retirement programs (US$ 35 million in 2002) in
financial expenses. Until 2001, this cost had been recorded under other
operating expenses. In 2001, this cost was US$ 33 million. 
 Income Taxes In 2002, we recorded a tax benefit of US$ 149 million, as compared to a
tax benefit of US$ 218 million in 2001. Our tax expense at statutory rates
would have been US$ 204 million in 2002 and US$ 381 million in 2001. The
difference is principally due to the tax benefit of tax-deductible dividends
that we pay in the form of interest on shareholders equity, which amounted to
US$ 99 million in 2002, as compared to US$ 260 million in 2001, and US$ 196
million due to tax-exempt foreign income in 2002, as compared to US$ 226
million in 2001. 
 Affiliates and Joint Ventures Our equity in the results of affiliates and joint ventures and provisions
for losses on equity investments in aggregate totaled a loss of US$ 87 million
in 2002, compared to a loss of US$ 53 million in 2001. Iron ore and pellets.Our equity in the results of iron ore and pellet
affiliates and joint ventures amounted to a loss of US$ 55 million in 2002,
compared to a loss of US$ 7 million in 2001. The loss in 2002 included a
charge of US$ 86 million for a goodwill write-down relating to our investment
in Caemi, which more than offset improved results at several of our other
pellet joint ventures, including Samarco, where earnings were helped by volumes
that increased by 29% and the elimination of goodwill amortization expenses in
2002. The writedown of our investment at Caemi reflects the decline in the
listed market price of Caemis preferred shares. We also recorded a provision
for losses at Kobrasco in the amount of US$ 14 million. Aluminum and bauxite.Our equity in the results of aluminum and bauxite
affiliates and joint ventures declined from US$ 37 million in 2001 to US$ 29
million in 2002, and we recorded a US$ 10 million release of a provision
related to our investment in Albras. Our portion of Alunortes losses up until
the time we acquired control in June 2002 was US$ 23 million, compared to
losses of US$ 6 million for the whole of 2001. The increased losses at
Alunorte primarily reflect the effects of the devaluation of the realon
Alunortes U.S.-dollar denominated debt. Like Alunorte, in 2002, our affiliates in the aluminum sector recorded
increased losses due to the effects of the depreciation of the realon their
foreign currency denominated debt. In addition to exchange rate effects, the
operating results of Albras and MRN in 2002 compared to 2001 were influenced by
the following factors:  
    
    Albras.In 2002, Albras generated net income of US$ 20
million on net sales of US$ 529 million. This compares to net
income of US$ 8 million in 2001 on net sales of US$ 472 million.
Our portion of net income of Albras was US$ 10 million in 2002,
compared with US$ 4 million in 2001. The increase in sales at
Albras primarily reflects a 22.3% increase in sales volume resulting
from a capacity expansion completed at the beginning of 2002. This
increase in volume was partially offset by an 8.6% decline in the
average sales price of aluminum from US$ 1,428 per ton in 2001 to
US$ 1,306 per ton in 2002.
    
    MRN.In 2002, MRN generated net income of US$ 94 million on
net sales of US$ 173 million. This compares to net income of US$ 81
million in 2001 on net sales of US$ 211 million. Our portion of the
net income of MRN was US$ 38 million in 2002, compared with US$ 32
million in 2001. MRNs revenues declined in 2002 due to an 8.1%
reduction in the average sales price of bauxite to US$ 18.95 per ton
in 2002 from US$ 20.63 per ton in 2001, and a 9.3% decline in sales
volume to 9.9 million tons in 2002 from 10.9 million tons in 2001
due to lower demand in the first half of the year and interference
from the expansion work in the second half of the year. However,
since most of MRNs costs are incurred in reais, the reduction in
costs as expressed in U.S. dollars more than offset the reduction in
revenue, resulting in an increase in net income. 79




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Steel.Our equity in the results of steel affiliates and joint ventures
increased from US$ 5 million in 2001 to US$ 23 million in 2002, reflecting
higher net income at CST and CSI, which more than offset a loss at Usiminas.
The improved performance at CSI primarily reflects lower energy costs in 2002
in California. The improved performance in CST primarily reflects higher
average sales prices partially offset by a decline in volumes of slabs sold.
The loss at Usiminas primarily reflects the effects of the devaluation of the
realon Usiminas U.S. dollar-denominated debt. Paper and pulp.Reflecting our sale of Cenibra and Bahia Sul in 2001, we
recorded no equity in results of paper and pulp affiliates and joint ventures
in 2002. These companies had contributed in aggregate US$ 20 million to our
equity results up to the date of sale. Other affiliates and joint ventures.Our equity in the results of other
affiliates and joint ventures amounted to a loss of US$ 25 million in 2002,
compared to a loss of US$ 95 million in 2001. We recorded a provision for
losses related to FCA of US$ 42 million in 2002, after recording a loss of US$
95 million in 2001 (which had included a US$ 74 million write-off of goodwill).
In addition, our affiliate MRS Logística generated significant losses in 2002,
of which our portion was US$ 20 million; in addition to this amount, we
recorded a provision for losses of US$ 7 million related to MRS Logística. We
and the other shareholders of these companies continue to explore various
alternatives to restructure their businesses. Upon adoption of SFAS 142  Goodwill and other intangible assets,
beginning January 1, 2002, we ceased amortizing goodwill. In 2001, we recorded
goodwill amortization of US$ 45 million relating to us and our consolidated
subsidiaries and US$ 47 million related to equity investees. 80




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Liquidity and Capital Resources 
 Overview Our principal uses of funds are for capital expenditures, dividend
payments and repayment of debt. We have historically met these requirements by
using cash generated from operating activities and through short-term and
long-term debt. We believe these sources of funds, together with our cash and
cash equivalents on hand, will continue to be adequate to meet our currently
anticipated capital requirements. In addition, from time to time, we review acquisition and investment
opportunities and will, if a suitable opportunity arises, make selected
acquisitions and investments to implement our business strategy. We generally
make investments either directly or through subsidiaries, joint ventures or
affiliated companies, and fund these investments through internally generated
funds, the issuance of debt or a combination of these methods. In 2004, our major cash needs include announced expected capital
expenditures of US$ 1,815 million, an announced minimum cash dividend of US$
550 million, and repayment or refinancing of US$ 1,257 million in long-term
debt that matures in 2004. We expect to meet our cash needs for 2004 primarily
through a combination of operating cash flow, cash and cash equivalents on hand
and new long-term debt. 
 Sources of Funds Our principal sources of liquidity are cash and cash equivalents on hand
and cash flows from operating activities. At December 31, 2003, we had cash
and cash equivalents of US$ 585 million. Our operating activities generated
positive net cash flows of US$ 1,757 million in 2003. In addition to the above sources of liquidity, we believe we are
well-positioned to raise additional capital in the debt markets. We are among
the most highly rated Brazilian corporate borrowers, which we believe enhances
our ability to access the debt markets. Our most recent bond offering, in
January 2004, was rated Ba2 by Moodys, three notches above the Brazilian
sovereign debt rating. CVRD uses committed credit line instruments with the aim of improving the
efficiency of its cash management and alleviating debt refinancing risks during
moments of instability in financial markets. To this end, US$ 500 million in
global committed credit line facilities have been established with the main
commercial banks, US$ 400 million of which can be used over a period of up to
one year after the date of disbursement, with a repayment period of up to one
year, and US$ 100 million, which can be used for a period of up to 24 months,
with a repayment period of 36 months after the contract is signed. These
credit lines will be made available to CVRD although we do not intend to use
them unless liquidity becomes excessively tight. We have completed two major financings since the end of 2003.  
    
    In December 2003, we filed a US$ 2,000 million shelf
registration statement with the U.S. Securities and Exchange
Commission. We completed our first offering under the shelf
registration statement in January 2004, issuing US$ 500 million in
30-year guaranteed notes through Vale Overseas Limited, leaving us
with remaining capacity under our shelf registration statement of
US$ 1,500 million. The January 2004 bond offering raised net
proceeds of US$ 490.4 million.
    
    In March 2004, we entered into a syndicated loan, which will
be disbursed in installments by a bank syndicate, in the amount of
US$ 300 million. The term of the loan is seven years, with an
average life of 4.25 years. The cost is the 6-month LIBOR plus 0.7%
per annum. This transaction has 97.5% of political risk insurance
and 95% of commercial risk insurance provided by the Japanese agency
Nippon Export and Investment Insurance (NEXI). The facility is
unsecured and there is no link to imports or export receivables. In
April we drew US$ 200 million under this facility and the remaining
US$ 100 million may be disbursed at any time prior to March 2005. 
 Uses of Funds Capital expenditures In 2003, we used US$ 1,991 million in investing activities, of which US$
1,543 million constituted capital expenditures. We have budgeted a total of
US$ 1,815 million for capital expenditures in 2004. This amount 81




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includes expenditures on projects as well as expenditures for maintenance and
exploration. See Item 4. Information on the Company  Capital Expenditures. Dividends We paid aggregate dividends of US$ 675 million in 2003. For 2004, CVRD
has announced a minimum dividend of US$ 550 million. 
 Debt At December 31, 2003, our aggregate outstanding debt was US$ 4,028
million, consisting of short-term debt of US$ 1,257 million (including US$
1,009 million in current portion of long-term debt and US$ 119 million in loans
from related parties), and long-term debt of US$ 2,771 million (including US$ 4
million in loans from related parties). We describe the average interest rates
and security interests granted on our long-term debt in Note 15 to our audited
financial statements. Our short-term debt consists primarily of U.S. dollar-denominated trade
financing, mainly in the form of export prepayments and export sales advances
with foreign and Brazilian financial institutions. Our major categories of long-term indebtedness (including the current
portion of long-term debt) are as follows:  
    
    U.S. dollar-denominated foreign loans and financing (US$
1,621 million at December 31, 2003).These loans primarily include
export financing lines, import finance from export credit agencies,
loans from commercial banks and multilateral organizations. The
loans generally bear floating rate interest at spreads over LIBOR.
In April 2004, we drew US$ 200 million under a syndicated loan
facility.
    
    U.S. dollar-denominated fixed rate notes (US$ 900 million at
December 31, 2003).We have issued several series of fixed rate
bonds both at the CVRD parent company level and through our finance
subsidiary Vale Overseas Limited with a CVRD guarantee. The US$ 900
million outstanding at December 31, 2003 includes US$ 300 million of
9.0% guaranteed notes due 2013 issued by Vale Overseas in August
2003, US$ 300 million of 8.625% enhanced guaranteed notes due 2007
issued by Vale Overseas in March 2002 and US$ 300 million of 10.0%
notes due April 2004 issued by CVRD in April 1996. In January 2004,
Vale Overseas Limited issued US$ 500 million in 8.25% Guaranteed
Notes due 2034.
    
    U.S. dollar-denominated export securitizations (US$ 525
million outstanding at December 31, 2003).We have a US$ 550
million securitization program based on existing and future
receivables generated by our subsidiary CVRD Overseas Ltd that
relates to exports of iron ore and pellets to six of our customers
in Europe, Asia and the United States. The securitization
transaction is divided into three fixed rate tranches and one
floating rate tranche.
    
    Perpetual notes (US$ 65 million at December 31, 2003).We
have issued perpetual notes that are exchangeable for 48,000 million
preferred shares of MRN. Interest is payable on the notes in an
amount equal to dividends paid on the underlying preferred shares
relating to periods beginning with the 2000 fiscal year.
    
    Local debt (US$ 551 million at December 31, 2003).We have a
series of Brazilian loans, principally from BNDES, most of which are
indexed to U.S. dollars, and the remainder of which are linked to
baskets of currencies or floating rates in Brazil. Some of our long-term debt instruments contain financial covenants. Our
principal covenants require us to maintain certain ratios, such as debt to
equity, net debt to EBITDA and interest coverage. We were in full compliance
with our financial covenants as of December 31, 2003, and we believe that our
existing covenants will not significantly restrict our ability to borrow
additional funds as needed to meet our capital requirements. We believe we
will be able to operate within the terms of our financial covenants for the
foreseeable future. None of these covenants directly restricts our ability to
pay dividends on equity securities at the parent company level. For additional information about our debt, please see Notes 14 and 15 to
our audited financial statements. 82




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Shareholder debentures At the time of the first stage of our privatization in 1997, we issued
debentures to our shareholders. The terms of the debentures were established
to ensure that our pre-privatization shareholders, including the Brazilian
government, would participate alongside us in potential future financial
benefits that we derive from exploiting
certain mineral resources that were not taken into account in determining
the minimum purchase price of our shares in the privatization. In accordance
with the debentures deed, holders have the right to receive semi-annual
payments equal to an agreed percentage of our net revenues (revenues less value
added tax, transport fee and insurance expenses related to the trading of the
products) from certain identified mineral resources that we owned at the time
of the privatization, to the extent that we exceed defined thresholds of sales
volume relating to certain mineral resources, and from the sale of mineral
rights that we owned at that time. Our obligation to make payments to the
holders will cease when the relevant mineral resources are exhausted. We made
no payments under the shareholder debentures in 2003. The first payment, of R$
0.012 per debenture, was made on March 31, 2004. See Note 18(f) to our
consolidated financial statements for a description of the terms of the
debentures. 
 Contractual Obligations The following table summarizes our long-term debt, short-term debt,
operating lease obligations, purchase obligations and Alunorte take or pay
obligations at December 31, 2003. This table excludes other obligations that
we may have, including pension obligations (discussed in Note 17 to our
consolidated financial statements). Payments Due by PeriodLess than 1Total
    
    year
    
    2005-2006
    
    2007-2008
    
    Thereafter(in millions of US$)Long-term debt (a)(b)
    
    US$
    3,776
    
    
    US$
    1,009
    
    
    US$
    1,044
    
    
    
    US$752
    
    
    
    US$971Short-term debt (c)
    
    
    
    
    
    
    248Operating lease obligations
    
    
    841
    
    
    
    37
    
    
    
    74
    
    
    
    74
    
    
    
    656Purchase obligations
    
    
    1,217
    
    
    
    619
    
    
    
    262
    
    
    
    316
    
    
    
    20Take-or-pay obligation (MRN)(d)
    
    
    855
    
    
    
    53
    
    
    
    107
    
    
    
    107
    
    
    
    588Take-or-pay obligation (Albras)(e)
    
    
    1,510
    (f)
    
    
    302
    
    
    
    604
    
    
    
    604
    
    
    
    (e)(f)Total
    
    US$
    8,447
    (f)
    
    US$
    2,268
    
    
    US$
    2,091
    
    
    
    US$1,853
    
    
    
    US$2,235
    (f)
   (a)
    
    We are parties to a US$ 100 million Export Prepayment
Agreement that has a final maturity of July 2006 under which the
lender has the right to demand payment of the entire amount
outstanding in July 2004, subject to certain notice provisions(b)
    
    Includes US$ 4 million of long-term debt to related parties.(c)
    
    Includes US$ 119 million of short-term debt to related parties.(d)
    
    We are committed under a take-or-pay agreement to purchase
bauxite from MRN at a price that is determined by a formula based on
prevailing world prices of aluminum.(e)
    
    We are committed under a take-or-pay agreement to take annual
delivery of approximately 207,060 metric tons per year of aluminum
from Albras at market prices. This estimate is based on 51% of
ALBRAS expected production and, at a market price of $1,458.16 per
metric ton, at December 31, 2003, represents an annual commitment of
$302. Because our take-or-pay agreement does not have a specified
duration; we are unable to determine the amounts due after 2008.(f)
    
    Total does not include take-or-pay commitments to Albras for
periods after 2008. 
 Off-balance sheet arrangements At December 31, 2003, we had extended guarantees for borrowings obtained
by affiliates and joint ventures in the amount of US$ 283 million, of which US$
10 million are secured by mineral rights and US$ 273 million consist solely of
unsecured guarantees. Our guarantees primarily consist of guarantees in
connection with Albras capacity expansion (US$ 271 million). We do not charge
commissions for extending these guarantees, except in the case of Albras and
Samarco. See Note 18 to our consolidated financial statements for more
information concerning these guarantees. 
 Recent Accounting Pronouncements In December 2003, the FASB issued FIN 46R  Consolidation of Variable
Interest Entities, (revised December 2003). The primary objectives of FIN 46R
are to provide guidance on the identification of entities for which control is
achieved through means other than through voting rights (variable interest
entities or VIEs) and how to determine when and which business enterprise
should consolidate the VIE (the primary beneficiary). This new model for
consolidation applies to an entity in which either (1) the equity investors (if
any) do not have a controlling financial interest or (2) the equity investment
at risk is insufficient to finance that entitys activities without receiving
additional subordinated financial support from other parties. In addition, FIN
46R requires that both the primary beneficiary and all other enterprises with a
significant variable interest in a VIE make additional 83




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disclosures regarding the nature, purpose, size and activities of the VIE and the enterprises
maximum exposure to loss as a result of its involvement with the VIE. The implementation date of FIN 46R is the first period ending after
December 15, 2003 for Special Purpose Entities (SPEs) and as from January 1,
2004 for previously existing variable interest entities that are not SPEs. FIN
46R may be applied prospectively with a cumulative adjustment as of the
date on which it is first applied or by restating previously issued financing
statements for one or more years with a cumulative-effect adjustment as of the
beginning of the first year restated. It is possible that we will consolidate
or disclose information in relation to certain joint ventures and equity
investments. With respect to SPEs, the adoption of FIN 46R did not result in
consolidation of any additional entities at December 31, 2003. We are evaluating the impact of implementing FIN 46R as from January 1,
2004 with respect to consolidating variable interest entities that are not
SPEs. It is reasonably possible that Albras, an aluminum producer with total
assets of US$ 649 at December 31, 2003 will be consolidated in 2004. In May 2003, FASB issued SFAS No. 150  Accounting For Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). The FASB
decided to make this statement effective shortly after issuance for contracts
created or modified after it is issued and for existing contracts at the
beginning of the first interim period beginning after June 15, 2003. We do not
expect SFAS 150 to have a material impact on our financial statements. 84




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Item 6. Directors, Senior Management and Employees 
 BOARD OF DIRECTORS Overview Our Conselho de Administração,or board of directors, sets general
guidelines and policies for our business and monitors the implementation of
those guidelines and policies by our executive officers. The board of
directors holds regularly scheduled meetings on a monthly basis and holds
additional meetings when called by its chairman, vice-chairman or any two
directors. Decisions of the board of directors require a quorum of a majority
of the directors and are taken by majority vote. Under the Brazilian Corporate Law, the board of directors must have at
least three members. Each director and his or her respective alternate are
elected at a general shareholders meeting and are subject to removal at any
time. Our bylaws state that the board of directors must consist of eleven
members and eleven alternates. Our current employees have the right to appoint
one director and an alternate. Under the Brazilian Corporate Law, members of
the board of directors must be shareholders of CVRD. Members of the board of
directors are elected for two-year terms and can be re-elected. Each alternate
director serves on behalf of a specific board member. In the absence of the
director for whom an alternate director is acting, that alternate director may
attend and vote at meetings of the board of directors. Nine of our current directors and nine of our current alternate directors
were appointed to their positions directly by Valepar, our principal
shareholder, pursuant to Valepars shareholders agreement and the provisions
of the Brazilian Corporate Law. For a description of the procedures under
which our directors are appointed, see Item 10. Additional Information 
Memorandum and Articles of Incorporation  Common Shares and Preferred Shares
 General.For a description of Valepars shareholders agreement, see Item
7. Major Shareholders and Related Party Transactions  Major Shareholders 
Principal Shareholder. Directors of CVRD The table below lists the current members of the board of directors. All
of our directors were elected or re-elected, as the case may be, in 2003, and
their terms will expire in 2005. YearFirstElected
    
    Position
    
    AgeSérgio Ricardo Silva Rosa (1)
    
    
    2003
    
    
    Chairman
    
    
    45Erik Persson (1)
    
    
    2001
    
    
    Director
    
    
    50Ricardo Carvalho Giambroni (1)
    
    
    2001
    
    
    Director
    
    
    47Arlindo Magno de Oliveira (1)
    
    
    2003
    
    
    Director
    
    
    52Jaques Wagner (4)
    
    
    2003
    
    
    Director
    
    
    53Renato da Cruz Gomes (1)
    
    
    2001
    
    
    Director
    
    
    51Mário da Silveira Teixeira Júnior (1)
    
    
    2003
    
    
    Vice-Chairman
    
    
    58Katsuto Momii (4)
    
    
    2003
    
    
    Director
    
    
    61Oscar Augusto de Camargo Filho(4)
    
    
    2003
    
    
    Director
    
    
    66Claudio Bernardo Guimarães de Moraes (3)
    
    
    2003
    
    
    Director
    
    
    42Francisco Valadares Póvoa (2)
    
    
    1997
    
    
    Director
    
    
    55
   (1)
    
    Appointed by Valepar and approved at the annual
shareholders meeting.(2)
    
    Appointed by our employees and approved at the annual shareholders
meeting.(3)
    
    Informally nominated by BNDESPAR and approved at the annual
shareholders meeting.(4)
    
    Appointed by Valepar and approved at the general shareholders meeting
held on December 30, 2003. 85




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The table below lists the alternate members of the board of directors. YearFirstElected
    
    Position
    
    AgeIvan Luiz Modesto Schara (1)
    
    
    2003
    
    
    Director
    
    
    37Gerardo Xavier Santiago (1)
    
    
    2003
    
    
    Director
    
    
    44Octávio Mauro Muniz Freire Alves (1)
    
    
    2001
    
    
    Director
    
    
    43Jorge Luiz Pacheco (1)
    
    
    2003
    
    
    Director
    
    
    49Antonio Carlos Dias Pastori (1)
    
    
    2003
    
    
    Director
    
    
    52Rômulo de Mello Dias (1)
    
    
    2003
    
    
    Director
    
    
    42João Moisés de Oliveira (4)
    
    
    2003
    
    
    Director
    
    
    59Isao Yasozumi (4)
    
    
    2003
    
    
    Director
    
    
    51Wanderlei Viçoso Fagundes (4)
    
    
    2003
    
    
    Director
    
    
    57Ana Marta Horta Veloso (3)
    
    
    2003
    
    
    Director
    
    
    35Otto de Souza Marques Júnior (2)
    
    
    1997
    
    
    Director
    
    
    57
   (1)
    
    Appointed by Valepar and approved at the annual shareholders meeting.(2)
    
    Appointed by our employees and approved at the annual shareholders
meeting.(3)
    
    Informally nominated by BNDESPAR and approved at the annual
shareholders meeting.(4)
    
    Appointed by Valepar and approved at the general shareholders meeting
held on December 30, 2003. We have summarized below the business experience, areas of expertise, and
principal outside business interests of our current directors: Sérgio Ricardo Silva Rosa. Mr. Rosa joined our board of directors
in April 2003 and was designated as Chairman in May 2003. Mr. Rosa is
currently the chief executive officer of PREVI  Caixa de Previdência dos
Funcionários do Banco do Brasil, or Previ, where he has been an executive
officer since 2000. He is also a director of Valepar S.A., or Valepar,
and an executive officer of Litel Participações S.A., or Litel. Mr. Rosa
has been a director of Brasil Telecom Participações since December 2000,
and of Sauípe S.A. since May 2001. Prior to joining Previ, Mr. Rosa
served as President of the Confederação Nacional dos Bancários from June
1994 to May 2000. From January 1995 to December 1996, Mr. Rosa was an
alderman of the municipality of São Paulo. Erik Persson. Mr. Persson joined our board of directors in April
2001. Mr. Persson has been a planning officer at Previ since June 2000,
and has worked at Previ since 1977. Mr. Persson has also served as a
director of Valepar and Litel since April 2001, and has held a position
as director of SEEB and FEEB, both in Rio Grande do Sul, since 1990. Ricardo Carvalho Giambroni. Mr. Giambroni joined our board of
directors in April 2001. From December 2001 to May 2003, he was member
of our Finance Committee, and since May 2003 he has been a member of the
Governance and Ethics Committee. In March 2003, he was nominated CEO of
Litela Participações S.A., or Litela; in April 2001 he was nominated
director and, in April 2003, executive officer of Valepar. Mr. Giambroni
is a manager of the equity division at Previ. From June 1999 to December
2002, he has been an executive officer of Litel. From June 1997 to April
2001, he was a director of Paranapanema Group and, from April 2001 to
December 2002, of Valepar. Arlindo Magno de Oliveira. Mr. Magno joined our board of directors
in April 2003. Since 1996, he has served in a variety of positions at
Previ, including among others: member of the fiscal council, customer
service manager, officer for deliberations and executive officer for
planning. From April to October 2002, Mr. Magno was the executive
officer in charge of finance and management at CEDAE  Companhia Estadual
de Água e Esgoto. He has also acted as a director of several companies,
including Companhia de Eletricidade do Estado da Bahia  COELBA,
Companhia Energética do Rio Grande do Norte  COSERN, CPFL Energia S.A.,
CPFL Geração de Energia S.A. and ENERCAN  Campos Novos Energia S.A. Jaques Wagner. Mr. Wagner joined our board of directors in December
2003. As of January 23, 2004, Mr. Wagner serves as Minister of the
Council on Economic Developments Special Administrative Office. From
1999 to 2002, he was a member of the Parliament and served as the
Minister of Labor from 2003 to 2004. Renato da Cruz Gomes. Mr. Gomes joined our board of directors in
April 2001. Mr. Gomes has been an executive officer of Bradespar S.A.
since 2000. He is also a director of Bradesplan S.A. and Eletron S.A.
From 1976 through 2000, Mr. Gomes held a variety of positions within
BNDES and participated on the boards of directors of many companies,
namely Elebra Eletrônica, Globo Cabo, 86




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Aracruz, Iochpe, Bahia Sul and
Latasa. He was also a member of the advisory board of Factor Sinergia -
Fundo de Investimento de Valores Mobiliários em Ações and the
investment committee of Bradesco Templeton Value and Liquidity Fund. Mr.
Gomes has been an executive officer of Valepar since April 2001. Mário da Silveira Teixeira Júnior. Mr. Teixeira has been a board
member of CVRD since May 2003. On July 1, 1971, Mr. Teixeira joined
Bradesco S.A. Corretora de Títulos e Valores Mobiliários, where he served
as an executive officer from March 1983 to January 1984, when he was
elected chief department officer at Banco Bradesco S.A. In 1992 he
became chief managing officer, in 1998 vice-president and from March 1999
until July 2001 he was a member of the board of directors. From July
2001 to March 2002, Mr. Teixeira was CEO of Bradespar and, in March 2002,
he returned to the board of directors of Banco Bradesco S.A. Mr.
Teixeira has been vice-president of the board of directors of Companhia
Paulista de Força e Luz  CPFL since August 2, 2001, a position that he
also held from November 1997 to April 2000. Since August 30, 2001, he
has also been vice-president of the board of directors of CPFL Energia
S.A., a position that he also held in from March to April 2000. He was a
member of the board of directors of Globo Cabo S.A. from 1998 to 2000;
Latasa from 1992 to 2000; São Paulo Alpargatas S.A. from 1996 to 1999;
and Serra da Mesa Energia S.A. and VBC Energia S.A. from 1997 to 2000. Katsuto Momii. Mr. Momii joined our board of directors in September
2003. Mr. Momii was an executive director and senior executive managing
officer until March 31, 2004, and is currently executive vice president
of Mitsui & Co., Ltd. since April 1, 2004, having joined such company in
April 1965. Oscar Augusto de Camargo Filho. Mr. Camargo Filho joined our board
of directors in September 2003. He is currently a partner of CWA
Consultoria Empresarial. From 1999 to 2003, Mr. Camargo Filho served as
Chairman of the board of directors of MRS Logística, and as a member of
the board of directors of such company from 2002 to 2004. From 1973 to
2003, he held various positions with Caemi, including CEO and member of
its board of directors. Claudio Bernardo Guimarães de Moraes. Mr. Moraes joined our board
of directors in April 2003. From 1984 until the present, he has served
in a variety of positions at BNDES, being currently the superintendent of
the area responsible for the analysis of operations. From April 2002 to
April 2003, Mr. Moraes was a member of our fiscal council. Francisco Valadares Póvoa.Mr. Póvoa joined our board of directors
in May 1997. He is also a director of Valepar and CSI and a member of
Valias board of trustees. He is also the CEO of Investvale. Until
March 2001, he was also a director of CSN and was previously an alternate
director of CSN. Mr. Póvoa joined us as a mining engineer in 1972 and
has held a variety of positions at CVRD. Directors of Vale Overseas Vale Overseas directors are as follows: Position
    
    AgeFabio de Oliveira Barbosa
    
    Director
    
    
    43Fernando Ramos Nóbrega
    
    Director
    
    
    45Bernardeth Vieira de Souza
    
    Director
    
    
    52
 Mr. Barbosa also serves as Vale Overseas principal executive officer and
Mr. Nóbrega also serves as Vale Overseas principal financial and accounting
officer. Mr. Barbosas experience is summarized below under #Executive
Officers. Fernando Ramos Nóbrega.Mr. Nóbrega serves as the General Manager -
Finance of CVRD. He has been a board member at Itabrasco, Nibrasco,
Hispanobras and Kobrasco since 1998. During the year 2000, Mr. Nóbrega was the
Financial and Administrative Director of FCA. Prior to that he held a variety
of positions at CVRD and Rio Doce America, Inc., New York. Mr. Nóbrega
obtained an engineering degree from Universidade Federal do Rio de Janeiro
(UFRJ) and an Executive MBA in Management from New York University in 1997. Bernardeth Vieira de Souza.Mrs. Vieira de Souza is the General Manager -
Treasury for CVRD. Mrs. Vieira de Souza obtained an Accounting and Business
Administration degree from Universidade do Estado do Rio de 87




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Janeiro (UERJ) and a Masters in Management and Administration of Cash Flow from Fundação Getúlio
Vargas(FGV-RJ). The business address of the Vale Overseas directors is Avenida Graça
Aranha, 26, 17th floor, 20030-900 Rio de Janeiro, RJ, Brazil. 
 EXECUTIVE OFFICERS Overview The executive officers are our legal representatives and are responsible
for day-to-day operations and the implementation of the general policies and
guidelines set forth by the board of directors. Our bylaws provide for a
minimum of six and a maximum of nine executive officers. The board of
directors appoints executive officers for two-year terms and may remove them at
any time. According to the Brazilian Corporate Law, executive officers must be
Brazilian residents. The executive officers hold regularly scheduled meetings
on a bi-weekly basis and hold additional meetings when called by any executive
officer. Executive Officers The table below lists our current executive officers. The term of each of
our executive officers expires in 2005. Year ofAppointment
    
    Position
    
    AgeRoger Agnelli
    
    
    2002
    
    
    Chief Executive Officer
    
    
    45Armando de Oliveira Santos Neto
    
    
    2002
    
    
    Executive Officer (Ferrous Minerals)
    
    
    54José Carlos Martins
    
    
    2004
    
    
    Executive Officer (Holdings and Business Development)
    
    
    54Antonio Miguel Marques
    
    
    2002
    
    
    Executive Officer (Non-Ferrous Minerals)
    
    
    47Guilherme Rodolfo Laager
    
    
    2002
    
    
    Executive Officer (Logistics)
    
    
    47Fabio de Oliveira Barbosa
    
    
    2002
    
    
    Executive Officer (Finance and Investor Relations)
    
    
    43Gabriel Stoliar
    
    
    2002
    
    
    Executive Officer (Planning and Control)
    
    
    50Carla Grasso
    
    
    2002
    
    
    Executive Officer (Human Resources and Corporate Services)
    
    
    42
 We have summarized below the experience, areas of expertise, and principal
outside business interests of our current executive officers. Roger Agnelli.Mr. Agnelli was elected President and CEO of
Companhia Vale do Rio Doce in July 2001. He developed his professional
career at the Bradesco financial group from 1981 to 2001, where he
reached the position of executive director of Banco Bradesco in 1998,
remaining in that office until the year 2000; he also was President and
CEO of Bradespar S.A., from March, 2000 to July, 2001. Due to his
activities in the areas of investments, mergers and acquisitions, and
asset management, he has also been a member of the board of directors of
several major companies in Brazil, such as Companhia Paulista de Força e
Luz, Companhia Siderúrgica Nacional, Latas de Alumínio S.A.  LATASA, VBC
Energia S.A., Brasmotor S.A., Mahle Metal Leve S.A., Rio Grande Energia
S.A. and Serra da Mesa Energia S.A. Mr. Agnelli has also been a director
of UGB Participações S.A. and Vice-President of ANBID  Brazils National
Association of Investment Banks. Mr. Agnelli was the Chairman of the
board of directors of Companhia Vale do Rio Doce, from May 2000 until
July 2001 and is presently a member of the board of directors of Asea
Brown Boveri. Mr. Agnelli is a full member of the Economic and Social
Development Council (CDES), an advisory council to the President of
Brazil. He is also President of the Chinese-Brazilian Business Council,
and has recently accepted the invitation to become a member of the
International Investments Council, to advise the President of the South
African Republic, Dr. Thabo Mbeki. Mr. Agnelli has a degree in economics
from the Fundação Armando Álvares Penteado, in São Paulo. Armando de Oliveira Santos Neto.Mr. Santos was appointed as an
executive officer of our ferrous minerals division in October 2001.
Currently, Mr. Santos is also a director of Caemi, Samarco and RDM. Mr.
Santos has held many different positions in CVRD since 1970 when he began
as a trainee at the railway division. His experience in iron ore sales
and marketing includes positions at Rio Doce America, Inc. in New York,
Rio Doce Asia in Tokyo, and Rio Doce International S.A. in Brussels. From
1997 to 2000, Mr. Santos was the commercial executive officer for the
iron ore division. Before becoming executive officer of the ferrous
minerals division, he was president of Rio Doce America, Inc. Mr. Santos
has a degree in civil engineering from the Universidade Federal do
Espírito Santo (UFES). 88




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José Carlos Martins.Mr. Martins was appointed as an executive
officer of our holdings and business development areas in April 2004. He
has over 30 years of experience in the metals industry. He was an
officer and president of Aços Villares from 1986 to 1996 and chief
managing officer of the steel area at CSN, from 1997 to 1999. In 1999,
Mr. Martins became President of Latasa, one of the largest aluminum can
producers in Latin America. Upon the purchase of Latasa by Rexam, a
United Kingdom company, in 2003, he became president and CEO of Rexams South
American beverage can division, Rexam Beverage Can South America. Mr.
Martins has a degree in Economics from Pontifícia Universidade Católica
de São Paulo. Antonio Miguel Marques.Mr. Marques was appointed as an executive
officer of our non-ferrous minerals division in April 2004. Currently,
Mr. Marques is director of Caemi, CST, MRN, Alunorte, Albras, Valesul and
Usiminas, and CEO of Vale do Rio Doce Energia S.A. Prior to that, Mr.
Marques has held various positions at Caraíba Metais S.A. Indústria e
Comércio, DuPont do Brasil S.A., Billiton Metais S.A., Paranapanema Group
and Votarantim Group. Mr. Marques has a degree in mining engineering
from the Universidade Federal de Ouro Preto. He received his
post-graduate degree in Mineral Treatment at the Universidade Federal de
Minas Gerais (UFMG) and obtained an MBA from COPPEAD, at the Universidade
Federal do Rio de Janeiro (UFRJ). Guilherme Rodolfo Laager.Mr. Laager was appointed as an executive
officer of our logistics division in September 2001. Mr. Laager served
as logistics, procurement and technology information director for
Companhia de Bebidas das Américas  AMBEV from 1989 until August 2000.
From 1982 until 1988, Mr. Laager worked for Andersen Consulting and, from
1979 until 1981, for IESA, International de Engenharia S.A. Mr. Laager
has a degree in civil engineering from the Universidade Federal do Rio de
Janeiro (UFRJ) and obtained an MBA in business administration from
COPPEAD, also at UFRJ. Fabio de Oliveira Barbosa. Mr. Barbosa was appointed as our chief
financial officer in May 2002. He is also an officer of Docepar S.A. and
Chairman of the board of directors of Caemi. Prior to that, Mr. Barbosa
served as a member of our board of directors from April 2000 to March
2002. Previously, he served as chairman of the board of directors of
BANESPA  Banco do Estado de São Paulo S.A., and also served as a board
member of the following companies: Banco do Brasil S.A., Caixa Econômica
Federal, CST and TELESP  Telecomunicações de São Paulo. Prior to
joining us, Mr. Barbosa has served as secretary of the National Treasury
at the Ministry of Finance since July 1999, after serving as assistant
secretary in the previous four years. From 1992 to 1995, he served as
adviser to the Executive Board of the World Bank, in Washington D.C.
From 1990 to 1992, he was Deputy and Head of the Fiscal Policy Unit at
the Ministry of Economy and Finance. From 1988 to 1990, he was economic
advisor and head of the Economic Analysis Unit, both at the Ministry of
Planning. Prior to that time, Mr. Barbosa held a variety of positions at
the Ministry of Industry and Commerce, the Paraná State Development
Institute, the Ministry of Labor and the Institute for Applied Economic
Research. Gabriel Stoliar. Since October 2001, Mr. Stoliar has served as the
chief planning and control officer of CVRD. In September 1997, he was
originally appointed as an executive officer of the Corporate Center. He
is also director of Usiminas, Caemi, CST and PPSA. In 1994, he was
appointed director of BNDESPAR. In 1991, Mr. Stoliar assumed the
position of superintendent of the operational division responsible for
the areas of mining, metallurgy, chemicals, petrochemicals, pulp and
paper of BNDESPAR. He was appointed by BNDESPAR in 1988 as manager of
operations in the area of capital, electronic and consumer goods. In
1982, he was promoted to manager of BNDES for the project area of
FINSOCIAL. In 1978, he was hired by BNDES as an analyst in the area of
pulp, paper and petrochemicals. Mr. Stoliar began his career as a
business organization consultant at the Institute of Economic and
Management Development of the Federation of Industries of Rio de Janeiro.
Mr. Stoliar obtained an engineering degree from Universidade Federal do
Rio de Janeiro (UFRJ), a post graduate degree in production engineering
and an MBA from PDG/EXE-SDE in Rio de Janeiro. Carla Grasso.Ms. Grasso was appointed as an executive officer of
the human resources and corporate services area in October 2001. From
December 1997 to October 2001, Ms. Grasso served as the personnel,
management and IT officer to CVRDs Corporate Centre. Before joining
CVRD, she acted as secretary of the Brazilian supplementary social
security office, from January 1994 to November 1997; as advisor to the
Ministry of Social Security, from December 1992 to December 1993; as
deputy coordinator of fiscal policy at the Ministry of Finance, from
October to December 1992; as finance advisor and coordinator of the
Macroeconomics and Social areas of the Brazilian Presidency office, from
March 1990 to October 1992; as advisor to the Ministry of Planning, from
November 1988 to March 1990; and as advisor to the Presidency of Cebrae -
Centro Brasileiro de Apoio à Pequena e Média Empresa, from 89




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January to November 1988. In 1997, she was appointed as an executive officer of
Fundação Vale do Rio Doce de Habitação e Desenvolvimento Social. Ms.
Grasso has both a degree in Economics and a master in Economics from
Universidade de Brasilia (UnB). 
 FISCAL COUNCIL Under the Brazilian Corporate Law, we may appoint a conselho fiscal, a
fiscal council, as a corporate body independent of our management and external
auditors. The primary responsibility of the fiscal council is to review
managements activities and the financial statements, and report its findings
to the shareholders. We have established a permanent fiscal council, which may
have from three to five members. On April 28, 2004, the shareholders appointed
or re-appointed the current members and their respective alternates. Holders
of preferred class A shares, including the golden share, may elect one member
of the fiscal council and the respective alternate. Non-controlling holders of
common shares comprising at least 10% of the common shares outstanding may also
elect one member of the fiscal council and the respective alternate. The terms
of the members of the fiscal council expire at the next annual shareholders
meeting following their election. The table below lists the current members of the fiscal council. First Year ofAppointmentWilson Risolia Rodrigues (1)
    
    
    2003Marcelo Amaral Moraes (2)
    
    
    2004Oswaldo Mário Pêgo de Amorim (2)
    
    
    2004Pedro Carlos de Mello (2)
    
    
    2002
   (1)
    
    Appointed by the preferred shareholders.(2)
    
    Appointed by Valepar. The table below lists the alternate members of the fiscal council. First Year ofAppointmentMarcelo Bragagnolo Bonini (1)
    
    
    2003Milton Lourenço Cabral (2)
    
    
    2004Inácio Clemente da Silva (2)
    
    
    2004Luís Henrique Rosati Rocha (2)
    
    
    2004
   (1)
    
    Appointed by the preferred shareholders.(2)
    
    Appointed by Valepar. 90




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ADVISORY COMMITTEES Our bylaws establish five technical and advisory committees to the board
of directors, as follows: Executive Development, Strategic, Finance, Audit,
and Governance and Ethics. Some committee members are not members of the board
of directors.  
    
    The Executive Development Committeeis responsible for reporting on
general human resources policies; recommending compensation levels for
our executive officers; and establishing guidelines for evaluating the
performance of our executive officers. The members of the executive
development committee are: Francisco Valadares Póvoa, João Moisés de
Oliveira, Arlindo Magno de Oliveira, Olga Loffredi and Oscar Augusto de
Camargo Filho.
    
    The Strategic Committeeis responsible for reviewing and making
recommendations to the board of directors concerning the strategic
guidelines and strategic plan submitted annually to the board by our
executive officers; the companys annual and multi-annual investment
budgets; investment and/or divestiture opportunities submitted by
executive officers; and mergers and acquisitions. The members of the
strategic committee are: Roger Agnelli, Gabriel Stoliar, Samir Zraick,
José Roberto Mendonça de Barros and Cezar Manoel de Medeiros.
    
    The Finance Committeeis responsible for reviewing and making
recommendations to the board of directors concerning: the financial
policies and the internal financial control systems of the company;
compatibility between the level of distributions to shareholders and
the parameters established in the annual budget; and consistency with
the general policy on dividends and the capital structure of the
company. The members of the finance committee are: Roger Agnelli,
Fabio de Oliveira Barbosa, Rômulo de Mello Dias, Luiz Carlos Siqueira
Aguiar and Wanderlei Viçoso Fagundes.
    
    The Audit Committeeis responsible for recommending the appointment
of the independent auditors and the employee responsible for internal
auditing of the company to the board of directors; reporting on the
policies and the companys annual auditing plan submitted by the
employee responsible for internal auditing, and on its execution;
tracking the results of the companys internal auditing, and
identifying, prioritizing, and submitting actions to be accompanied by
the executive officers; and analyzing the annual report, as well as the
financial statements of the company and making recommendations to the
board of directors. The members of the audit committee are: Marcos
Fábio Coutinho, Antonio José de Figueiredo Ferreira, Ricardo Wiering de
Barros and Paulo Roberto Ferreira de Medeiros. None of the members of
our audit committee is a member of the board of directors.
Accordingly, the entire board of directors is serving as the audit
committee for purposes of our obligations under the Sarbanes-Oxley Act
of 2002.
    
    The Governance and Ethics Committeeis responsible for evaluating
our corporate governance practices and the workings of the board of
directors, and recommending improvements to the code of ethics and our
system of management in order to avoid conflicts of interests between
the company and its shareholders or administrators; issuing reports on
policies relating to corporate responsibility, such as the environment,
health, safety and social responsibility of the company submitted by
the executive officers; and issuing reports on potential conflicts of
interest between the company and its shareholders or administrators.
The members of the governance and ethics committee are: Renato da Cruz
Gomes, Ricardo Carvalho Giambroni and Ricardo Simonsen. 91




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COMPENSATION OF DIRECTORS, EXECUTIVE OFFICERS,
FISCAL COUNCIL MEMBERS AND ADVISORY COMMITTEES General Under our bylaws, our shareholders are responsible for establishing the
aggregate compensation we pay to the members of our board of directors and our
executive officers. Our shareholders determine this annual aggregate
compensation at the general shareholders meeting each year. In order to
establish aggregate director and officer compensation, our shareholders usually
take into account various factors which range from age, experience and skills
of our directors and officers to the recent performance of our operations.
Once aggregate compensation is established, the members of our board of
directors are then responsible for distributing such aggregate compensation
individually in compliance with our bylaws. The executive development
committee of our board of directors makes recommendations to the board
concerning the annual aggregate compensation. For the year ended December 31, 2003, we paid approximately R$ 20 million
in aggregate (including fixed and variable remuneration and benefits in kind
granted) to the members of our board of directors and to the executive officers
for services in all capacities. For the year ended December 31, 2003, none of
our board members and executive officers had any financial or other interests
in transactions involving us which was not in the ordinary course of business. The total number of common shares owned by our directors and executive
officers as of April 30, 2004, was 10,650. The total number of preferred class
A shares owned by our directors and executive officers as of April 30, 2004,
was 15,208. None of our directors or executive officers beneficially owns one
percent or more of any class of our shares. Incentive Compensation In addition to fixed compensation, our executive officers are also
eligible for bonuses and long-term incentive payments of preferred stock. Each
executive officer may receive a bonus based on his or her individual
performance and our performance during the fiscal year. The board of directors
determines and the shareholders meeting approves the total annual amount of
compensation. Long-term incentive payments of preferred stock are then based
on a portion of the bonus received. The long-term incentive vests over a
three-year period and is paid only after the end of three years of service.
After the stock is paid in respect of a long term incentive payment, it remains
subject to a further holding period during which it may not be sold, but the
executive officer will be entitled to dividends paid during the holding period. Fiscal Council During 2003, the monthly amount we paid to the members of the fiscal
council was R$ 4,700 to each member, excluding benefits. We paid an aggregate
of US$ 66,000 to members of the fiscal council in 2003. In addition, the
members of the fiscal council are reimbursed for travel expenses related to the
performance of their functions. Advisory Committees We paid an aggregate of R$ 518,000 to members of CVRDs advisory
committees in 2003. In addition, the members of CVRDs advisory committees are
reimbursed for travel expenses related to the performance of their functions. 92




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EMPLOYEES General The table below sets forth the number of our employees by category as of
the dates indicated. At December 31,2001
    
    2002
    
    2003Ferrous Minerals
    
    
    9,638
    
    
    
    10,622
    
    
    
    13,107Logistics
    
    
    8,528
    
    
    
    7,613
    
    
    
    8,820Non-Ferrous Minerals
    
    
    1,342
    
    
    
    1,104
    
    
    
    1,332Aluminum, Steel and Business Development
    
    
    697
    
    
    
    733
    
    
    
    810Administrative
    
    
    5,929
    
    
    
    7,503
    
    
    
    5,563Total
    
    
    26,134
    
    
    
    27,575
    
    
    
    29,632
 Wages and Benefits Wages and benefits for CVRD and its subsidiaries are generally established
on a company-by-company basis. CVRD establishes its annual wage and benefits
programs in July of each year following negotiations with its unions. In July
2003, CVRD reached an agreement with the unions for a 17% salary increase and
maintenance of current benefits. The provisions of CVRDs collective
bargaining agreements with its unions also apply to CVRDs non-union employees.
CVRD has never suffered any material economic loss as a result of labor
strikes or stoppages. Pension Plans Employees of CVRD and most of its subsidiaries are eligible to participate
in pension plans managed by Valia. Sponsored by CVRD, Valia is a closed,
nonprofit, complementary social security plan with financial and administrative
autonomy. Substantially all of the participants in plans sponsored by Valia
are participants in a new plan Valia implemented in May 2000. The new plan is
primarily a defined contribution plan with a defined benefit feature relating
to service prior to May 2000. Valia also sponsors the old plan which is a
defined benefit plan, with benefits based on years of service, salary and
social security benefits. This plan covers retired participants and their
beneficiaries, as well as a relatively small number of employees that declined
to transfer from the old plan to the new plan when it was established in May
2000. Employees of Caemi and its subsidiaries and employees of Alunorte
participate in different pension plans. Caemi and MBR contribute to an open
supplementary pension plan that is principally a defined-contribution,
maintained by Bradesco Vida e Previdência S.A. This plan had its origin in the
social security and pension plan maintained by Fundação Caemi de Previdência
Social and sponsored by Caemi and MBR. The benefits granted by Caemi and MBR
include pensions for old age, retirement, disability and death as well as
annual bonuses. Benefits related to health care and group life insurance
provided by Caemi and its subsidiaries to the employees come to an end when the
beneficiary leaves the company, whether retired or not. On December 1, 2001,
Cadam joined a defined contribution supplementary pension plan managed by
Bradesco Vida e Previdência S.A. Alunortes employees are covered by a pension
plan managed by Bradesco Previdência Privada. Other Benefits All CVRD employees and their dependants are entitled to supplementary
medical assistance, which offers coverage for outpatient and in-hospital
treatment, dental care and prescription drug costs. Beneficiaries have free
choice of care providers, with part of expenses being reimbursed. Other
important fringe benefits offered to employees are an annual amount for school
materials, group life insurance, funeral assistance and reimbursement of
nursery school costs for employees children up to the age of three years. 93




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Equity Ownership CVRDs employees previously had an equity stake in our business through
Investvale, an association of our current and retired employees. During 2002,
Investvale contributed all of its shares in CVRD in exchange for an interest in
Valepar S.A., our principal shareholder. On November 14, 2003, Investvale sold
its stake in Valepar to BNDESPAR and now has no remaining direct or indirect
stake in CVRD. CVRDs bylaws authorize us to establish stock option plans, but to date we
have not done so. 94




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Item 7. Major Shareholders and Related Party Transactions 
 MAJOR SHAREHOLDERS Overview The table below sets forth certain information regarding beneficial
ownership of our common and preferred class A shares as of April 30, 2004, by
each person we know to be the beneficial owner of more than 5% of any class of
our outstanding capital stock, and by all directors and executive officers as a
group. Shares Owned
    
    Percent of ClassCommon SharesValepar S.A(1)
    
    
    130,715,711
    
    
    
    52.3
    %Litel Participações S.A.(2)
    
    
    130,715,711
    
    
    
    52.3Previ (3)
    
    
    130,715,711
    
    
    
    52.3BNDESPAR(4)
    
    
    17,667,640
    
    
    
    7.2Directors and executive officers as a group
    
    
    10,547
    
    
    
    *Preferred Class A Shares(5)Directors and executive officers as a group
    
    
    402
    
    
    
    *Golden ShareBrazilian government
    
    
    1
    
    
    
    100.0
   (1)
    
    See the table below for more information on Valepars shareholders.(2)
    
    Represents shares owned by Valepar, which may be viewed as
beneficially owned by Litel Participações S.A. under the rules of the
Securities and Exchange Commission. In general, a person who has or
shares voting power or investment power with respect to securities is
treated as a beneficial owner of those securities. It does not
necessarily imply that the named person has the economic or other
benefits of ownership.(3)
    
    Represents shares owned by Valepar, which may be viewed as
beneficially owned by Previ through its equity interest in Litel
Participações S.A and Litela Participações S.A.(4)
    
    Excludes common shares owned directly by Valepar, in which BNDESPAR
has an ownership interest.(5)
    
    The Brazilian government (National Treasury) owns 5,075,341
preferred class A shares representing 3.7% of the outstanding preferred
class A shares, and BNDESPAR owns 1,401,978 preferred class A shares
representing 1% of the outstanding preferred class A shares.(*)
    
    Represents less than 1% of the outstanding shares of the class. The tables below set forth information as of April 30, 2004 regarding
share ownership of the common shares of Valepar S.A. and Litel Participações
S.A. Percent of CommonCommon Shares Owned
    
    Shares OwnedValepar S.A.Litel Participações S.A(1)
    
    
    52,663,766
    
    
    
    49.0
    %Eletron S.A.
    
    
    31,453
    
    
    
    0.03Babié Participações S.A.(2)
    
    
    21,843,547
    
    
    
    20.3Bradespar S.A. (3)
    
    
    666,642
    
    
    
    0.6Bradesplan Participações S.A.(2)
    
    
    289,308
    
    
    
    0.3Mitsui & Co. Ltda.(2)
    
    
    19,607,357
    
    
    
    18.2BNDESPAR
    
    
    12,375,000
    
    
    
    11.5Total
    
    
    107,477,073
    
    
    
    100.00
   (1)
    
    Litel owns 16,594,824 preferred Class B shares of Valepar, which
represents 71.41% of the preferred shares. Litela, an affiliate of
Litel owns 6,643,814 preferred Class B shares of Valepar, which
represents 28.59% of the preferred shares.(2)
    
    Babié and Bradesplan are affiliated companies of Bradespar S.A.(3)
    
    Bradespar is controlled by a control group consisting of Cidade de
Deus  Cia Comercial Participações, Fundação Bradesco, NCF
Participações S.A. and Nova Cidade de Deus Participações S.A. 95




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##### 



Litel Participações S.A.BB Carteira Ativa 0(1)
    
    
    202,753,508
    
    
    
    73.59
    %BB Carteira Ativa II(1)
    
    
    53,388,022
    
    
    
    19.38
    %BB Renda Fixa IV(1)
    
    
    19,371,990
    
    
    
    7.03
    %Others
    
    
    822Directors and Executive Officers as a group
    
    
    7Total
    
    
    275,514,349
    
    
    
    100.00
    %
   (1)
    
    Each of BB Carteira Ativa 0, BB Carteira Ativa II and BB Renda Fixa
IV is a Brazilian investment fund. BB Carteira Ativa 0 is 100% owned
by Previ. BB Carteira Ativa II is 59.36% owned by Funcef, 35.8% owned
by Petros and 4.84% owned by Fundação Cesp. BB Renda Fixa IV is 100%
owned by Previ. Each of Previ, Petros, Funcef and Fundação Cesp is a
Brazilian pension fund. In September 2003, Bradespar sold 15% of the outstanding common shares of
Valepar to Mitsui. In November 2003, Investvale sold shares amounting to 18.2%
of the outstanding common shares of Valepar to BNDESPAR. In 1997, we were privatized by the Brazilian government, which transferred
voting control to Valepar. As part of the privatization process, the National
Treasury and BNDES, the government-owned development bank, together retained
32% of our common shares and 4% of our preferred class A shares. On March 20,
2002, as the final step of the privatization process, the Brazilian government
and BNDES each sold 39,393,919 shares, in the form of common shares or American
depositary shares, which together represented 32.1% of our outstanding common
shares. Currently, BNDESPAR, a wholly-owned subsidiary of BNDES, owns common
shares representing approximately 7.2% of our outstanding common shares and
1.0% of our outstanding preferred class A shares. The Brazilian government now
owns approximately 3.7% of our outstanding preferred class A shares (not
counting shares held by BNDESPAR), and a golden share in us, which gives it
veto powers over certain actions that we could propose to take. For a detailed
description of the veto powers granted to the Brazilian government by virtue of
its ownership of the golden share, see Item 10. Additional Information 
Common and Preferred Shares  General. Principal Shareholder Our principal shareholder is Valepar. The shareholders of Valepar have
entered into a shareholders agreement, ending in 2017. This agreement:  
    
    grants rights of first refusal on any transfer of Valepar shares
and preemptive rights on any new issue of Valepar shares;
    
    prohibits the direct acquisition of CVRD shares by Valepars
shareholders unless authorized by the other shareholders;
    
    prohibits encumbrances on Valepar shares (other than in connection
with financing our acquisition);
    
    requires each party generally to retain control of its special
purpose company holding its interest in shares of Valepar, unless the
rights of first refusal mentioned above are observed;
    
    allocates Valepars and our board seats;
    
    provides for the maintenance by CVRD of a dividend policy requiring
CVRD to distribute a specific percentage of CVRDs net profit for each
fiscal year;
    
    provides for the maintenance by CVRD of a capital structure that
does not exceed specified debt to equity thresholds;
    
    requires the Valepar shareholders to vote their indirectly held
CVRD shares and to cause their representatives on CVRDs board of
directors to vote only in accordance with decisions made at Valepar
pre-meetings held prior to meetings of CVRDs board of directors or
shareholders; and
    
    establishes super-majority voting requirements for certain
significant actions relating to Valepar or to us. 96




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Pursuant to the shareholders agreement, holders of at least 75% of the
Valepar shares must agree to any of the following matters:  
    
    any amendment of CVRDs bylaws;
    
    any increase of CVRDs capital stock by share subscription,
creation of a new class of shares, change in the characteristics of the
existing shares or any capital reduction of CVRD;
    
    any issuance of any debentures of CVRD, whether convertible into shares of CVRD, participation certificates upon compensation, call
options or any other security of CVRD;
    
    any determination of issuance price for any new shares of capital
stock or other security of CVRD;
    
    any amalgamation, spin-off or merger to which CVRD is a party, as
well as any change to CVRDs corporate form;
    
    any dissolution, receivership, bankruptcy or any other voluntary
act for financial reorganization or any suspension thereof;
    
    the election and replacement of CVRDs board of directors,
including the chairman of the board, and any officer of CVRD;
    
    the disposal or acquisition of equity participation in any other
company by CVRD, as well as the acquisition of any shares of capital
stock of CVRD by Valepar, or of Valepar by CVRD, to be held in the
acquirers treasury;
    
    the participation by CVRD in a group of companies or in a
consortium of any kind;
    
    the execution of distribution, investment, sales exportation,
technology transfer, trademark license, patent exploration, license to
use and lease agreements, to which CVRD will be a party;
    
    the approval and amendment of CVRDs business plan;
    
    the determination of the compensation of the directors of CVRD, as well as the duties of the board;
    
    any profit sharing among the administrators of CVRD;
    
    the determination of the compensation of CVRDs officers;
    
    any change in the corporate purpose of CVRD;
    
    the distribution or non-distribution of any dividends on any shares
of capital stock of CVRD other than as provided in CVRDs bylaws and
any payment of interest on the net equity of CVRD;
    
    the appointment and replacement of CVRDs independent auditor;
    
    the creation of any in rem guarantee, granting of guarantees
including rendering of sureties by CVRD with respect to obligations of
any third party, including any related companies or subsidiaries;
    
    the passing of any resolution on any matter which, pursuant to
applicable law, entitle a shareholder to cease being a shareholder upon
return of its shares to CVRD;
    
    the appointment and replacement by the board of directors of any
representative of CVRD in subsidiaries, companies related to CVRD or
other companies in which CVRD is entitled to appoint administrators;
and
    
    any change in the debt to equity threshold, as defined in the
shareholders agreement. 97




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In addition, the shareholders agreement provides that any issuance of
participation certificates by CVRD or any disposition of CVRDs shares held by
Valepar requires the unanimous consent of all of Valepars shareholders. American Depositary Shares As of April 30, 2004, American depositary shares represented 26.8% of our
outstanding common shares and 47.4% of our outstanding preferred class A
shares. 
 RELATED PARTY TRANSACTIONS At December 31, 2003, we had extended guarantees for borrowings obtained
by affiliates and joint ventures in the amount of US$ 283 million, of which US$
242 million is denominated in U.S. dollars and the remaining US$ 41 million in
Brazilian currency. See Note 18(a) to our consolidated financial statements. We have commercial relationships in the ordinary course of our business
with a number of companies that are affiliated with Previ and Bradespar S.A.,
which may be deemed to beneficially own the shares owned by Valepar, our
principal shareholder. The most significant of these is our relationship with
CST, in which both we and Previ hold an interest. In 2003, CST accounted for
approximately 2.5% of our total sales, 3.3% of our iron ore and pellet sales
and 5.2% of our manganese ore and ferroalloys sales. All of our sales to CST
are made on arms length terms. We also have commercial relationships in the ordinary course of our
business with Mitsui. For information regarding investments in affiliated companies and joint
ventures and for information regarding transactions with major related parties,
see Notes 13 and 20 to our consolidated financial statements. 
 Item 8. Financial Information 
 LEGAL PROCEEDINGS We and our subsidiaries are defendants in numerous legal actions in the
normal course of business, including civil, administrative, tax, social
security and labor proceedings. We have set aside or deposited in court
amounts to cover estimated contingency losses due to adverse legal judgments.
Based on the advice of legal counsel, we believe that the provision made
against contingent losses is sufficient to cover probable losses in connection
with such actions. We are currently involved in 14 proceedings before CADE, which is the
primary Brazilian antitrust regulator. Most of these proceedings involve
post-transaction review of acquisition or joint venture transactions, which is
required for nearly all of our acquisitions and joint ventures. The remaining
are administrative proceedings alleging that we have engaged in illegal
anticompetitive conduct in connection with our logistics and aluminum-related
businesses. We intend to defend these claims vigorously. If CADE were to
determine that undue concentration exists in any of our industries, it could
impose measures to safeguard competition, which could include requirements that
we divest operations or respect price restrictions. If CADE were to find that
we have engaged in anticompetitive conduct, it could order us to cease the
conduct and / or to pay fines. The Caemi acquisition was approved by the
European Commission subject to certain conditions, including the sale of the
Quebec Cartier Mining Company (QCM). We are still in the process of disposing
of the stake in QCM. Numerous lawsuits challenging the legality of our privatization are
pending, including a number of class action lawsuits. The lower courts issued
favorable decisions in these lawsuits that are being appealed by the plaintiff.
We do not believe that, individually or in the aggregate, these actions will
adversely affect the course of the privatization process or otherwise have a
material adverse effect on us. We are a defendant in a public civil action seeking to annul the
concession agreement through which we and certain other defendants operate the
Praia Mole port terminal. The case, which was first filed in 1998, is still in
its pre-trial stages and we believe that the claim is without merit. We are currently a defendant in two separate actions brought by the
municipality of Itabira, in the state of Minas Gerais. It alleges that our
Itabira iron ore mining operations have caused environmental and social
damages. In one of the actions, filed in August 1996, the municipality of
Itabira alleges that our Itabira iron ore mining operations have caused
environmental and social damages and claims damages with respect to the
degradation of the site of one of our mines, as well as the immediate
restoration of the affected ecological complex and the performance of 98




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compensatory environmental programs in the region. The damages sought, as
adjusted from the date of the claim, amount to approximately US$ 775 million.
We believe that this amount is significantly higher than the amount we would
actually be responsible for in the event that we were found liable. We have
requested the annulment of this action as it represents no actual controversy.
In fact, on June 5, 2000, the local environmental authorities granted an
operating license to our Itabira iron ore mining operations. This license sets
forth conditions regarding the environmental restoration of the degraded site
and the performance of compensatory environmental programs. We intend to
continue to comply with these conditions. In the other action, the
municipality of Itabira is claiming the right to be reimbursed for expenses it
has incurred in connection with public services rendered as a consequence of
our mining activities. The damages sought, as adjusted from the date of the
claim, amount to approximately US$ 765 million. We believe that this action is
without merit. We are vigorously defending both pending actions. We are engaged in litigation with respect to certain aspects of recent tax
regulation that requires earnings from foreign subsidiaries to be included in
the determination of income taxes payable in Brazil. We obtained an injunction
in February 2003, suspending our obligation to pay amounts in dispute. Based
on the advice of legal counsel, we believe that the likelihood that we will
have to pay certain such taxes is remote and, accordingly, we have not recorded
provisions for these taxes in our financial statements. In accordance with ANEEL Resolution No. 591, dated as of November 2003,
Light began charging several additional fees to Valesul that are included in
the tariff for the use of the distribution system. Valesul paid the
transmission fees to Light in connection with the months of November and
December 2003. The payment for the transmission of energy related to January
2004 was made through a judicial deposit. In February 2004, Valesul
obtained an injunction order relieving it from paying such fees and making
the judicial deposits. This injunction was lifted in May 2004. Final
resolution of the matter is still pending. 
 DIVIDENDS AND INTEREST ON SHAREHOLDERS EQUITY Under the Brazilian Corporate Law, shareholders are generally entitled to
receive an annual mandatory dividend set forth in the companys bylaws, which
may not be lower than 25% of adjusted net income for the relevant year,
calculated in accordance with the Brazilian Corporate Law. For a discussion on
dividend distribution provisions in our bylaws, see Item 10. Additional
Information. Under our dividend policy, our management proposes to our board of
directors, no later than January 31 of each year, a minimum value per share,
expressed in U.S. dollars, that will be distributed in that year to our
shareholders. Dividends and/or interest on shareholders equity are determined
in U.S. dollars, considering our expected cash generation and needs in the year
of distribution. The proposal establishes two equal semi-annual installments
to be paid in the months of April and October of each year. It is submitted to
the board of directors in the meetings scheduled for the months of April and
October. Once approved, dividends and/or interest on shareholders equity are
paid in Brazilian reais, and converted at prevailing exchange rates on the last
business day before the board meetings in April and October of each year.
Management can also propose to the board of directors, depending on our
performance, a further payment to shareholders of an additional amount per
share over and above the minimum payout value initially established. The
payment of any additional dividend occurs on the same dates fixed for the
payment of the second installment of the minimum dividend, in October. For
2004, our management proposed to the Board of Directors a minimum dividend of
US$ 550 million. Our normal practice is to pay the same dividend or interest
on shareholders equity on both common and preferred class A shares. In addition, since our privatization in 1997, and following a
recommendation from Valepar, our principal shareholder, we have distributed a
minimum dividend equal to at least 50% of the amount of net income for
distribution with respect to each fiscal year. We may make distributions either in the form of dividends or in the form
of interest on shareholders equity. Dividends with respect to the American
depositary shares, and to non-resident holders of common shares of preferred
class A shares, will not be subject to Brazilian withholding tax, except for
dividends declared based on profits generated prior to December 31, 1995.
These dividends will be subject to Brazilian withholding tax at varying rates.
Distributions of interest on shareholders equity to shareholders, including
holders of American depositary receipts, are currently subject to Brazilian
withholding tax of 15%. By law, we are required to hold an annual shareholders meeting by April
30 of each year at which an annual dividend may be declared. Additionally, our
board of directors may declare interim dividends. Under the Brazilian
Corporate Law, dividends are generally required to be paid to the holder of
record on a dividend declaration date within 60 days following the date the
dividend was declared, unless a shareholders resolution sets forth another
date 99




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##### 



of payment, which, in either case, must occur prior to the end of the
fiscal year in which the dividend was declared. A shareholder has a three-year
period from the dividend payment date to claim dividends (or payments of
interest on shareholders equity) in respect of its shares, after which we will
have no liability for such payments. Since 1997, all cash distributions we
have made have been in the form of interest on shareholders equity. See Item
10. Additional Information  Common Shares and Preferred Shares  Payments
on Shareholders Equity. We make cash distributions on the common shares and preferred class A
shares underlying the American depositary shares in Brazilian currency to the
custodian on behalf of the depositary. The custodian then converts such
proceeds into U.S. dollars and causes such U.S. dollars to be delivered to the
depositary for distribution to holders of American depositary receipts. For
more information on Brazilian tax policies regarding dividend distributions,
see Item 10. Additional Information  Taxation  Brazilian Tax
Considerations. The table below sets forth the cash distributions we paid to holders of
common shares and preferred class A shares for the periods indicated. We have
calculated U.S. dollar conversions using the commercial market rate in effect
on the date of payment. We stated amounts gross of any applicable withholding
tax. Reais per Share at
    
    U.S. Dollars per ShareYear
    
    Payment Date
    
    Payment Date
    
    at Payment Date1999
    
    January 15
    
    
    0.65
    
    
    
    0.44March 31
    
    
    0.50
    
    
    
    0.29August 20
    
    
    1.11
    
    
    
    0.572000
    
    March 1
    
    
    1.17
    
    
    
    0.662001
    
    February 20
    
    
    3.33
    
    
    
    1.66December 10
    
    
    2.305
    
    
    
    0.982002
    
    April 30
    
    
    2.305
    
    
    
    0.98December 10
    
    
    2.68
    
    
    
    0.712003
    
    April 30
    
    
    1.62
    
    
    
    0.56October 31
    
    
    3.42
    
    
    
    1.202004
    
    April 30
    
    
    2.06
    
    
    
    0.70
 100




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##### 



Item 9. The Offer and Listing 
 SHARE PRICE HISTORY The table below sets forth trading information for our preferred and
common American depositary shares, as reported by the New York Stock Exchange
(and for periods prior to June 2000, reported by the National Quotations
Bureau, Inc.), and our preferred class A shares and our common shares, as
reported by the BOVESPA, for the periods indicated. U.S. Dollars per Preferred
    
    U.S. Dollars per CommonReais per Common
    
    Reais per Preferred
    
    Class A American
    
    American DepositaryShare
    
    Class A Share
    
    Depositary Share
    
    ShareHigh
    
    Low
    
    High
    
    Low
    
    High
    
    Low
    
    High
    
    Low1999
    
    R$
    42.00
    
    
    R$
    9.80
    
    
    R$
    50.00
    
    
    R$
    13.80
    
    
    US$
    26.50
    
    
    US$
    10.87
    
    
    US$
    
    
    
    US$
    2000
    
    
    52.40
    
    
    
    33.00
    
    
    
    59.00
    
    
    
    38.82
    
    
    
    33.13
    
    
    
    19.75
    
    
    
    
    
    
    
    2001
    
    
    55.00
    
    
    
    42.70
    
    
    
    58.70
    
    
    
    44.00
    
    
    
    26.98
    
    
    
    18.65
    
    
    
    
    
    
    
    2002
    
    
    109.00
    
    
    
    50.00
    
    
    
    102.20
    
    
    
    50.90
    
    
    
    29.51
    
    
    
    20.51
    
    
    
    30.00
    
    
    
    21.752003
    
    
    170.80
    
    
    
    80.90
    
    
    
    148.00
    
    
    
    77.45
    
    
    
    51.90
    
    
    
    24.30
    
    
    
    59.59
    
    
    
    25.711Q02
    
    
    65.70
    
    
    
    50.00
    
    
    
    64.20
    
    
    
    50.90
    
    
    
    27.49
    
    
    
    21.52
    
    
    
    27.39
    
    
    
    26.152Q02
    
    
    78.10
    
    
    
    61.50
    
    
    
    75.90
    
    
    
    59.80
    
    
    
    29.51
    
    
    
    23.50
    
    
    
    30.00
    
    
    
    25.683Q02
    
    
    89.50
    
    
    
    71.50
    
    
    
    84.20
    
    
    
    65.50
    
    
    
    25.35
    
    
    
    20.51
    
    
    
    27.55
    
    
    
    22.754Q02
    
    
    109.00
    
    
    
    84.30
    
    
    
    102.20
    
    
    
    79.98
    
    
    
    27.79
    
    
    
    21.04
    
    
    
    28.91
    
    
    
    21.751Q03
    
    
    104.00
    
    
    
    91.00
    
    
    
    100.00
    
    
    
    87.50
    
    
    
    27.87
    
    
    
    24.30
    
    
    
    29.50
    
    
    
    25.712Q03
    
    
    91.99
    
    
    
    80.90
    
    
    
    88.78
    
    
    
    77.45
    
    
    
    28.70
    
    
    
    25.66
    
    
    
    30.80
    
    
    
    26.853Q03
    
    
    119.00
    
    
    
    85.00
    
    
    
    108.60
    
    
    
    79.10
    
    
    
    37.49
    
    
    
    28.02
    
    
    
    41.60
    
    
    
    29.924Q03
    
    
    170.80
    
    
    
    121.50
    
    
    
    148.00
    
    
    
    108.79
    
    
    
    51.90
    
    
    
    37.35
    
    
    
    59.59
    
    
    
    42.001Q04
    
    
    180.00
    
    
    
    145.10
    
    
    
    159.00
    
    
    
    124.40
    
    
    
    55.50
    
    
    
    42.45
    
    
    
    62.87
    
    
    
    49.96December 2003
    
    
    170.80
    
    
    
    134.01
    
    
    
    148.00
    
    
    
    118.49
    
    
    
    51.90
    
    
    
    40.70
    
    
    
    59.59
    
    
    
    46.00January 2004
    
    
    180.00
    
    
    
    156.00
    
    
    
    159.00
    
    
    
    138.69
    
    
    
    55.50
    
    
    
    47.10
    
    
    
    62.87
    
    
    
    53.67February 2004
    
    
    177.50
    
    
    
    158.30
    
    
    
    152.80
    
    
    
    138.68
    
    
    
    52.40
    
    
    
    47.10
    
    
    
    61.00
    
    
    
    54.46March 2004
    
    
    174.90
    
    
    
    145.10
    
    
    
    151.25
    
    
    
    124.40
    
    
    
    52.35
    
    
    
    42.45
    
    
    
    60.43
    
    
    
    49.96April 2004
    
    
    163.93
    
    
    
    130.31
    
    
    
    142.75
    
    
    
    114.00
    
    
    
    49.77
    
    
    
    39.09
    
    
    
    57.09
    
    
    
    45.30May 2004
    
    
    161.00
    
    
    
    130.00
    
    
    
    136.90
    
    
    
    113.00
    
    
    
    43.89
    
    
    
    36.30
    
    
    
    51.51
    
    
    
    42.25June 2004(1)
    
    
    160.51
    
    
    
    150.24
    
    
    
    136.80
    
    
    
    129.50
    
    
    
    44.30
    
    
    
    40.95
    
    
    
    51.81
    
    
    
    47.65
 (1)through June 8,
2004 
 TRADING MARKETS Our publicly traded share capital consists of common shares and preferred
class A shares, each without par value. Our common shares and our preferred
class A shares are publicly traded in Brazil on BOVESPA, under the ticker
symbols VALE3 and VALE5, respectively. Our common shares and preferred class A
shares also trade on the LATIBEX, under the ticker symbols XVALO and XVALP,
respectively. The LATIBEX is an electronic market created in 1999 by the
Madrid stock exchange in order to enable trading of Latin American equity
securities in euro denomination. On December 12, 2003, we agreed to comply with heightened corporate
governance and disclosure requirements established by the BOVESPA in order to
qualify as a company admitted to BOVESPAs Level 1 of Corporate Governance
Requirements. To become a Level 1 company, an issuer must agree to:  
    
    ensure that shares of the issuer representing 25% of its total capital are effectively available for trading;  
    
    adopt offering procedures that favor widespread ownership of shares
whenever making a public offering;  
    
    comply with minimum quarterly disclosure standards;  
    
    follow stricter disclosure policies with respect to transactions
made by controlling shareholders, directors and officers involving
securities issued by the issuer;  
    
    disclose any existing shareholders agreements and stock option plans; and  
    
    make a schedule of corporate events available to the shareholders. 101




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Our common American depositary shares, each representing one common share,
have been traded on the New York Stock Exchange since March 2002, under the
ticker symbol RIO. Our preferred American depositary shares, each representing
one preferred class A share, have been traded on the New York Stock Exchange
since June 2000, under the ticker symbol RIOPR. Since 1994, the preferred
class A American depositary shares traded in the over-the-counter market.
JPMorgan Chase Bank serves as the depositary for both the common and the
preferred American depositary shares. At April 30, 2004, there were
131,379,259 American depositary shares outstanding, representing 47.4% of our
preferred class A shares, 26.8% of our common shares or 34.2% of our total
share capital. 102




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Item 10. Additional Information 
 MEMORANDUM AND ARTICLES OF ASSOCIATION Company Objects and Purposes Our corporate purpose is defined by our bylaws to include:  
    
    the exploitation of mineral deposits in Brazil and abroad by means
of extraction, processing, industrialization, transportation, shipment
and commerce of mineral assets;  
    
    the building and operation of railways and the exploitation of own
or third party rail traffic;  
    
    the building and operation of own or third party maritime
terminals, and the exploitation of nautical activities for the
provision of support within the harbor;  
    
    the provision of logistics services integrated with cargo
transport, comprising generation, storage, transshipment, distribution
and delivery within the context of a multimodal transport system;  
    
    the production, processing, transport, industrialization and
commerce of all and any source and form of energy, also involving
activities of production, generation, transmission, distribution and
commerce of its products, derivatives and subproducts;  
    
    the carrying-on, in Brazil or abroad, of other activities that may
be of direct or indirect consequence for the achievement of its
corporate purpose, including research, industrialization, purchase and
sale, importation and exportation, the exploitation, industrialization
and commerce of forest resources and the provision of services of any
kind whatsoever; and  
    
    constituting or participating in any fashion in other companies,
consortia or associations directly or indirectly related to its
business purpose. Directors Powers Under the Brazilian Corporate Law, if a director or an executive officer
has a conflict of interest with the company in connection with any proposed
transaction, the director or executive officer may not vote in any decision of
the board of directors or of the board of executive officers regarding such
transaction and must disclose the nature and extent of the conflicting interest
for transcription in the minutes of the meeting. In any case, a director or an
executive officer may not transact any business with the company, including any
borrowings, except on reasonable or fair terms and conditions that are
identical to the terms and conditions prevailing in the market or offered by
third parties. Under our bylaws, shareholders set the aggregate compensation
payable to directors and executive officers. The board of directors allocates
the compensation among its members and the executive officers. See Item 6.
Directors, Management and EmployeesCompensation.Our bylaws do not establish
any mandatory retirement age limits. 
 COMMON SHARES AND PREFERRED SHARES Set forth below is certain information concerning our authorized and
issued share capital and a brief summary of certain significant provisions of
our bylaws and the Brazilian Corporate Law. This description does not purport
to be complete and is qualified by reference to our bylaws (an English
translation of which has been filed with the SEC) and to the Brazilian
Corporate Law. General Our bylaws authorize the issuance of up to 300 million common shares and
up to 600 million preferred class A shares, in each case based solely on the
approval of the board of directors without any additional shareholder approval. Each common share entitles the holder thereof to one vote at meetings of
our shareholders. Holders of common shares are not entitled to any preference
relating to our dividends or other distributions. 103




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Holders of preferred class A shares and the golden share are generally
entitled to the same voting rights as holders of common shares, except with
respect to the election of members of the board of directors, and are entitled
to a minimum annual non-cumulative preferential dividend of (i) at least 3% of
the book value per share, calculated in accordance with the financial
statements, which serve as reference for the payment of dividends, or (ii) 6%
of their pro rata share of our paid-in capital, whichever is higher.
Non-controlling shareholders holding common shares representing at least 15% of
our voting capital, and preferred class A shares representing at least 10% of
our total share capital, have the right to appoint each one member and an
alternate to our board of directors. If no group of common or preferred class
A shareholders meets the thresholds described above, shareholders holding
preferred or common shares representing at least 10% of our total share capital
are entitled to combine their holdings to appoint one member and an alternate
to our board of directors. Holders of preferred class A shares and the golden
share may elect one member of the permanent fiscal council and the respective
alternate. Non-controlling holders of common shares comprising at least 10% of
the common shares outstanding may also elect one member of the fiscal council
and an alternate. The Brazilian government holds one golden share in us. The golden share
is a preferred share that entitles its holder to the same rights (including
with respect to voting and dividend preference) as holders of preferred class A
shares. In addition, the holder of the golden share is entitled to veto any
proposed action relating to the following matters:  (1)
    
    a change in our name;(2)
    
    a change in the location of our head office;(3)
    
    a change in our corporate purpose as regards the mining activities;(4)
    
    any liquidation of our company;(5)
    
    any disposal or winding up of activities of any one or more of the
following stages of our iron ore mining integrated systems:  (a)
    
    mineral deposits, ore deposits, mines;(b)
    
    railways; or(c)
    
    ports and maritime terminals;  (6)
    
    any change in the bylaws relating to the rights accorded to the
classes of capital stock issued by us; and(7)
    
    any change in the bylaws relating to the rights accorded the golden
share. Calculation of Distributable Amount At each annual shareholders meeting, the board of directors is required
to recommend, based on the executive officers proposal, how to allocate our
earnings for the preceding fiscal year. For purposes of the Brazilian
Corporate Law, a companys net income after income taxes and social
contribution taxes for such fiscal year, net of any accumulated losses from
prior fiscal years and amounts allocated to employees and managements
participation in earnings represents its net profits for such fiscal year.
In accordance with the Brazilian Corporate Law, an amount equal to our net
profits, as further reduced by amounts allocated to the legal reserve, to the
contingency reserve or to the unrealized income reserve established by us in
compliance with applicable law (discussed below) and increased by reversals of
reserves constituted in prior years, will be available for distribution to
shareholders in any particular year. Such amount, the adjusted net profits, is
herein referred to as the distributable amount. We may also establish
discretionary reserves, reserves for investment projects and fiscal investment
reserves, as discussed below. Legal reserve.Under the Brazilian Corporate Law, we are required to
maintain a legal reserve to which we must allocate 5% of our net profits for
each fiscal year until the amount of the reserve equals 20% of our paid-in
capital. Net losses, if any, may be charged against the legal reserve. Discretionary reserves. Under the Brazilian Corporate Law, a company may
also provide for discretionary allocations of net profits to the extent set
forth in its bylaws. Our bylaws provide for one discretionary depletion
reserve which may be taken into account in allocating net profits for any
fiscal year. We currently maintain a tax incentive depletion reserve
established in respect of certain mining operations. Appropriations to the tax
incentive 104




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depletion reserve are deductible for tax purposes. The discretionary
depletion reserve has not been used since 1996, when the related tax incentive
expired. For more details, see Note 13 to our consolidated financial
statements. There are no limits on the size or amount of proceeds that may be
retained in the discretionary depletion reserve. However, the sum of the legal
reserve, the depletion reserve and the reserve for investment projects may not
exceed the amount of our paid-in capital. Contingency reserve.Under the Brazilian Corporate Law, a portion of our
net profits may also be discretionally allocated to a contingency reserve
for an anticipated loss that is deemed probable in future years. Any amount so
allocated in a prior year must be either reversed in the fiscal year in which
the loss was anticipated if such loss does not in fact occur or charged off in
the event that the anticipated loss occurs. We have never allocated an amount
to the contingency reserve. Reserve for investment projects.Under the Brazilian Corporate Law, we
may allocate a portion of our net profits for discretionary appropriations
for plant expansion and other capital investment projects, the amount of which
is based on a capital budget previously presented by management and approved by
shareholders. Under Law No. 10,313, capital budgets with a duration longer
than one year must be reviewed at each annual shareholders meeting. After
completion of the relevant capital projects, we may retain the appropriation
until shareholders vote to transfer all or a portion of the reserve to capital
or retained earnings. Unrealized income reserve.As of March 1, 2002, under Law No. 10,313,
which amended the Brazilian Corporate Law, the amount by which the mandatory
dividend exceeds the realized portion of net profits for any particular year
may be allocated to the unrealized income reserve. The realized portion of
net profits is the amount by which net profits exceed the sum of (i) our net
positive results, if any, from the equity method of accounting for earnings and
losses of our subsidiaries and certain affiliates, and (ii) the profits, gains
or return obtained on transactions completed after the end of the following
fiscal year. Tax incentive investment reserve. Under the Brazilian tax laws, a portion
of net profits may also be allocated to a general tax incentive investment
reserve in amounts corresponding to reductions in our income tax generated by
credits for particular government-approved investments. The Brazilian Corporate Law provides that all discretionary allocations of
net profits, including discretionary reserves, the contingency reserve, the
unrealized income reserve and the reserve for investment projects, are subject
to approval by the shareholders voting at the annual meeting and can be
transferred to capital or used for the payment of dividends in subsequent
years. The fiscal incentive investment reserve and legal reserve are also
subject to approval by the shareholders voting at the annual meeting and may be
transferred to capital but are not available for the payment of dividends in
subsequent years. Our calculation of net profits and allocations to reserves for any
fiscal year are determined on the basis of financial statements prepared in
accordance with the Brazilian Corporate Law. Our consolidated financial
statements have been prepared in accordance with U.S. GAAP and, although our
allocations to reserves and dividends will be reflected in these financial
statements, investors will not be able to calculate such allocations or
required dividend amounts from our consolidated financial statements. Mandatory Dividend Our bylaws prescribe that we must distribute to our shareholders in the
form of dividends or interest on shareholders equity an annual amount equal to
not less than 25% of the distributable amount, referred to as the mandatory
dividend, unless the board of directors advises our shareholders at our general
shareholders meeting that payment of the mandatory dividend for the preceding
year is inadvisable in light of our financial condition. The fiscal council
must review any such determination and report it to the shareholders. In
addition to the mandatory dividend, our board of directors may recommend to the
shareholders payment of dividends from other funds legally available therefore.
Any payment of interim dividends will be netted against the amount of the
mandatory dividend for that fiscal year. The shareholders must also approve
the recommendation of the board of directors with respect to any required
distribution. The amount of the mandatory dividend is subject to the size of
the legal reserve, the contingency reserve, and the unrealized income reserve.
The amount of the mandatory dividend is not subject to the size of the
discretionary depletion reserve. See Item 10. Additional InformationCommon
Shares and Preferred SharesCalculation of Distributable Amount. To date, our
board of directors has never determined that payment of the mandatory dividend
was inadvisable. 105




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Since our privatization in 1997, and following a recommendation from
Valepar, our principal shareholder, we have distributed a dividend equal to at
least 50% of the amount of net income for distribution with respect to each
fiscal year. In November 2002, our board of directors approved a new dividend policy.
See Item 8. Financial InformationDividends and Interest on Shareholders
Equity. Dividend Preference of Preferred Shares Pursuant to our bylaws, holders of preferred class A shares and the golden
share are entitled to a minimum annual non-cumulative preferential dividend
equal to (i) at least 3% of the book value per share, calculated in accordance
with the financial statements which serve as reference for the payment of
dividends, or (ii) 6% of their pro rata share of our paid-in capital, whichever
is higher. To the extent that we declare dividends in any particular year in
amounts which exceed the preferential dividends on preferred class A shares,
and after holders of common shares have received distributions equivalent, on a
per share basis, to the preferential dividends on preferred class A shares,
holders of common shares and preferred class A shares shall receive the same
additional dividend amount per share. Since the first step of our
privatization in 1997, we have had sufficient distributable amounts to be able
to distribute equal amounts to both common and preferred shareholders. Other Matters Relating to Preferred Class A Shares Our bylaws do not provide for the conversion of preferred class A shares
into common shares. In addition, the preferred class A shares do not have any
preference upon our liquidation and there are no redemption provisions
associated with the preferred class A shares. Payments on Shareholders Equity Pursuant to a change in Brazilian tax law effective January 1, 1996,
Brazilian companies are permitted to pay limited amounts to shareholders and
treat such payments as an expense for Brazilian income tax purposes. In
accordance with Law No. 9,249 dated December 26, 1995, our bylaws provide for
the distribution of interest on shareholders equity as an alternative form of
payment to shareholders. The interest rate applied is limited to the Brazilian
long-term interest rate, or TJLP, for the applicable period. The deduction of
the amount of interest paid cannot exceed the greater of (1) 50% of net income
(after the deduction of the provision of social contribution on net profits and
before the deduction of the provision of the corporate income tax) before
taking into account any such distribution for the period in respect of which
the payment is made or (2) 50% of the sum of retained earnings and profit
reserves. Any payment of interest on shareholders equity to shareholders is
subject to Brazilian withholding income tax at the rate of 15%, except for a
beneficiary located in a tax haven jurisdiction (i.e.a country that does not
impose income tax or that imposes it at a maximum rate lower than 20%), in
which case the rate is 25%. Under our bylaws, the amount paid to shareholders
as interest on shareholders equity (net of any withholding tax) may be
included as part of any mandatory and minimum dividend. Under the Brazilian
Corporate Law, we are obligated to distribute to shareholders an amount
sufficient to ensure that the net amount received, after payment by us of
applicable Brazilian withholding taxes in respect of the distribution of
interest on shareholders equity, is at least equal to the mandatory dividend. Voting Rights Each common share entitles the holder thereof to one vote at meetings of
our shareholders. Holders of preferred class A shares are entitled to the same
voting rights as holders of common shares except that they may not vote on the
election of members of the board of directors, except in the event of dividend
arrearages, as described below. One of the members of the permanent fiscal
council and his or her alternate are elected by majority vote of the holders of
preferred class A shares. Holders of preferred class A shares and common
shares may, in certain circumstances, combine their respective holdings to
elect members of our board of directors. The golden share entitles the holder thereof to the same voting rights as
holders of preferred class A shares. The golden share also confers certain
other significant voting rights in respect of particular actions, as described
under Item 10. Additional InformationCommon Shares and Preferred
SharesGeneral. The Brazilian Corporate Law provides that non-voting or restricted-voting
shares, such as the preferred class A shares, acquire unrestricted voting
rights beginning when a company has failed for three consecutive fiscal years
(or for any shorter period set forth in a companys constituent documents) to
pay any fixed or minimum dividend to 106




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which such shares are entitled and continuing until payment thereof is
made. Our bylaws do not set forth any such shorter period. Any change in the preferences or advantages of our preferred class A
shares, or the creation of a class of shares having priority over the preferred
class A shares, would require the approval of holders of a majority of the
outstanding preferred class A shares, voting as a class at a special meeting. Shareholders Meetings A general shareholders meeting convenes each year to decide all matters
relating to our corporate purposes and to pass such resolutions as they deem
necessary for our protection and well-being. Pursuant to the Brazilian Corporate Law, shareholders voting at a general
shareholders meeting have the power, among other powers, to:  
    
    amend the bylaws;  
    
    elect or dismiss members of the board of directors and members of the fiscal council at any time;  
    
    receive annual reports by management and accept or reject
managements financial statements and recommendations including the
allocation of net profits and the distributable amount for payment of
the mandatory dividend and allocation to the various reserve accounts;  
    
    authorize the issuance of debentures;  
    
    suspend the rights of a shareholder in default of obligations established by law or by the bylaws;  
    
    accept or reject the valuation of assets contributed by a
shareholder in consideration for issuance of capital stock;  
    
    pass resolutions to reorganize our legal form, to merge,
consolidate or split us, to dissolve and liquidate us, to elect and
dismiss our liquidators and to examine their accounts; and  
    
    authorize management to file for bankruptcy or to request a
concordata, a procedure involving protection from creditors similar in
nature to reorganization under the U.S. Bankruptcy Code. All shareholders meetings, including the annual shareholders meeting, are
convened by publishing, no fewer than fifteen days prior to the scheduled
meeting date and no fewer than three times, a notice in the Diário Oficial do
Estado do Rio de Janeiroand in a newspaper with general circulation in the
city where we have our registered office, which is Rio de Janeiro. Our
shareholders have previously designated Jornal do Commerciofor this purpose.
Also, as our shares are traded on BOVESPA, we must publish a notice in a São
Paulo based newspaper. Such notice must contain the agenda for the meeting
and, in the case of an amendment to our bylaws, an indication of the subject
matter. In addition, under our bylaws, the holder of the golden share is
entitled to a minimum of 15 days prior formal notice to its legal
representative of any general shareholders meeting to consider any proposed
action subject to the veto rights accorded to the golden share. See Item 10.
Additional InformationCommon Shares and Preferred SharesGeneral. A shareholders meeting may be held if shareholders representing at least
one-quarter of the voting capital are present. If no such quorum is present,
notice must again be given in the same manner as described above except for the
eight-days prior notice, and a meeting may then be convened without any
specific quorum requirement, subject to the minimum quorum and voting
requirements for certain matters, as discussed below. A shareholder without a
right to vote may attend a general shareholders meeting and take part in the
discussion of matters submitted for consideration. Except as otherwise provided by law, resolutions of a shareholders
meeting are passed by a simple majority vote, abstentions not being taken into
account. Under the Brazilian Corporate Law, the approval of shareholders
representing at least one-half of the issued and outstanding voting shares is
required for the types of action described below, as well as, in the case of
clause (a) and clause (b), a majority of issued and outstanding shares of the
affected class: 107




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(a) creating a new class of preferred shares or disproportionately
increasing an existing class of preferred shares relative to the other classes
of shares, other than to the extent permitted by the bylaws; (b) changing a priority, preference, right, privilege or condition of
redemption or amortization of any class of preferred shares or creating any
class of non-voting preferred shares that has a priority, preference, right,
condition or redemption or amortization superior to an existing class of
shares, such as the preferred shares; (c) reducing the mandatory dividend; (d) changing the corporate purposes; (e) merging us with another company or consolidating or splitting us; (f) dissolving or liquidating us; (g) participating in a centralized group of companies as defined under the
Brazilian Corporate Law; and (h) canceling any ongoing liquidation of us. Whenever the shares of any class of capital stock are entitled to vote,
each share is entitled to one vote. Annual shareholders meetings must be held
by April 30 of each year. Shareholders meetings are called, convened and
presided over by the Chairman or by the Vice-Chairman of our board of
directors. A shareholder may be represented at a general shareholders meeting
by an attorney-in-fact appointed not more than one year before the meeting, who
must be a shareholder, a company officer or a lawyer. For a public company,
such as us, the attorney-in-fact may also be a financial institution. Redemption Rights Our common shares and preferred class A shares are not redeemable, except
that a dissenting shareholder is entitled under the Brazilian Corporate Law to
obtain redemption upon a decision made at a shareholders meeting by
shareholders representing at least 50% of the voting shares:  (1)
    
    to create a new class of preferred shares or to disproportionately
increase an existing class of preferred shares relative to the other
classes of shares (unless such actions are provided for or authorized
by the bylaws);(2)
    
    to modify a preference, privilege or condition of redemption or
amortization conferred on one or more classes of preferred shares, or
to create a new class with greater privileges than the existing classes
of preferred shares;(3)
    
    to reduce the mandatory distribution of dividends;(4)
    
    to change our corporate purposes;(5)
    
    to merge us with another company or consolidate us;(6)
    
    to transfer all of our shares to another company in order to make
us a wholly-owned subsidiary of such company, an incorporação de ações;(7)
    
    to approve the acquisition of control of another company at a price
which exceeds certain limits set forth in the Brazilian Corporate Law;(8)
    
    to approve our participation in a centralized group of companies as
defined under the Brazilian Corporate Law; or(9)
    
    in the event that the entity resulting from (a) a merger, (b) an
incorporação de açõesas described in clause (6) above or (c) a
spin-off that we conduct fails to become a listed company within 120
days of the general shareholders meeting at which such decision was
taken. Only holders of shares adversely affected by the changes mentioned in
items (1) and (2) above may require us to redeem their shares. The right of
redemption mentioned in items (5), (6) and (8) above may only be exercised if
our shares do not satisfy certain tests of liquidity at the time of the
shareholder resolution. The right of redemption lapses 30 days after
publication of the minutes of the relevant general shareholders meeting,
unless, in the case of items (1) and (2) above, the resolution is subject to
confirmation by the preferred shareholders (which must be made 108




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at a special meeting to be held within one year), in which case the 30-day
term is counted from the publication of the minutes of the special meeting. We would be entitled to reconsider any action giving rise to redemption
rights within 10 days following the expiration of such rights if the redemption
of shares of dissenting shareholders would jeopardize our financial stability.
Law No. 9,457 dated May 5, 1997, which amended the Brazilian Corporate Law,
contains provisions which, among other provisions, restrict redemption rights
in certain cases and allow companies to redeem their shares at their economic
value, subject to certain requirements. Our bylaws currently do not provide
that our capital stock will be redeemable at its economic value and,
consequently, any redemption pursuant to the Brazilian Corporate Law would be
made at no less than the book value per share, determined on the basis of the
last balance sheet approved by the shareholders; providedthat if the general
shareholders meeting giving rise to redemption rights occurred more than 60
days after the date of the last approved balance sheet, a shareholder would be
entitled to demand that his or her shares be valued on the basis of a new
balance sheet dated within 60 days of such general shareholders meeting. Preemptive Rights Each of our shareholders has a general preemptive right to subscribe for
shares in any capital increase, in proportion to his or her shareholding. A
minimum period of 30 days following the publication of notice of a capital
increase is allowed for the exercise of the right and the right is negotiable.
Under our bylaws, our board of directors may decide not to extend preemptive
rights to our shareholders or, under Law No. 10,303, to reduce the 30-day
period for the exercise of preemptive rights, in each case with respect to any
issuance of shares, debentures convertible into shares and warrants in the
context of a public offering, subject to the limit on the number of shares that
may be issued with the approval of the board without any additional shareholder
approval. In the event of a capital increase that would maintain or increase
the proportion of capital represented by preferred class A shares, holders of
preferred American depositary receipts will have preemptive rights to subscribe
only to newly issued preferred class A shares. In the event of a capital
increase that would reduce the proportion of capital represented by preferred
class A shares, shareholders will have preemptive rights to subscribe for
preferred class A shares, in proportion to their shareholdings, and for common
shares only to the extent necessary to prevent dilution of their overall
interest in us. In the event of a capital increase that would maintain or
increase the proportion of capital represented by common shares, shareholders
will have preemptive rights to subscribe only to newly issued common shares.
In the event of a capital increase that would reduce the proportion of capital
represented by common shares, holders of common shares will have preemptive
rights to subscribe for preferred class A shares only to the extent necessary
to prevent dilution of their overall interest in us. Tag-along rights According to the Brazilian Corporate Law, in the event of a sale of
control of the Company, the acquirer is obliged to offer to holders of voting
shares the right to sell their shares for a price equal to at least 80% of the
price paid for the voting shares representing control. Form and Transfer Our preferred class A shares and common shares are in book-entry form
registered in the name of each shareholder or its nominee. The transfer of
such shares is made under the Brazilian Corporate Law which provides that a
transfer of shares is effected by our transfer agent, Banco Bradesco S.A., upon
presentation of valid share transfer instructions to us by a transferor or its
representative. When preferred shares or common shares are acquired or sold on
a Brazilian stock exchange, the transfer is effected on the records of our
transfer agent by a representative of a brokerage firm or the stock exchanges
clearing system. Transfers of shares by a foreign investor are made in the
same way and are executed by the investors local agent, who is also
responsible for updating the information relating to the foreign investment
furnished to the Central Bank of Brazil. BOVESPA operates a central clearing system through Companhia Brasileira de
Liquidação e Custódia, or CBLC. A holder of our shares may participate in this
system and all shares elected to be put into the system will be deposited in
custody with CBLC (through a Brazilian institution that is duly authorized to
operate by the Central Bank of Brazil and maintains a clearing account with
CBLC). The fact that such shares are subject to custody with the relevant
stock exchange will be reflected in our registry of shareholders. Each
participating shareholder will, in turn, be registered in the register of our
beneficial shareholders that is maintained by CBLC and will be treated in the
same way as registered shareholders. 109




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MATERIAL CONTRACTS For information concerning our material contracts, see Item 4.
Information on the Companyand Item 5. Operating and Financial Review and
Prospects. 
 EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITY HOLDERS There are no restrictions on ownership of our capital stock by individuals
or legal entities domiciled outside Brazil. However, the right to convert
dividend payments and proceeds from the sale of preferred class A shares or
common shares into foreign currency and to remit such amounts outside Brazil is
subject to restrictions under foreign investment legislation which generally
requires, among other things, that the relevant investment be registered with
the Central Bank of Brazil. These restrictions on the remittance of foreign
capital abroad could hinder or prevent the custodian for the preferred class A
shares or common shares represented by American depositary shares, or holders
who have exchanged American depositary shares for preferred class A shares or
common shares, from converting dividends, distributions or the proceeds from
any sale of preferred class A shares or common shares, as the case may be, into
U.S. dollars and remitting such U.S. dollars abroad. Delays in, or refusal to
grant any required government approval for conversions of Brazilian currency
payments and remittances abroad of amounts owed to holders of American
depositary shares could adversely affect holders of American depositary
receipts. Under Resolution No. 2,689, foreign investors may invest in almost all
financial assets and engage in almost all transactions available in the
Brazilian financial and capital markets, provided that certain requirements are
fulfilled. In accordance with Resolution No. 2,689, the definition of foreign
investor includes individuals, legal entities, mutual funds and other
collective investment entities, domiciled or headquartered abroad. Under Resolution No. 2,689, a foreign investor must:  
    
    appoint at least one representative in Brazil, with powers to perform actions relating to its investment,  
    
    complete the appropriate foreign investor registration form,  
    
    register as a foreign investor with the CVM, and  
    
    register its foreign investment with the Central Bank of Brazil. Securities and other financial assets held by foreign investors pursuant
to Resolution No. 2,689 must be registered or maintained in deposit accounts or
under the custody of an entity duly licensed by the Central Bank of Brazil or
the CVM. In addition, securities trading is restricted to transactions carried
out on stock exchanges or through organized over-the-counter markets licensed
by the CVM, except for subscription, bonification, conversion of debentures
into shares, securities indexes, purchase and sale of investment funds quotas
and, if permitted by the CVM, going private transactions, canceling or
suspension of trading. Moreover, the offshore transfer or assignment of the
securities or other financial assets held by foreign investors pursuant to
Resolution No. 2,689 are prohibited, except for transfers resulting from a
corporate reorganization, or occurring upon the death of an investor by
operation of law or will. Resolution No. 1,927 of the National Monetary Council, which is the
restated and amended Annex V to Resolution No. 1,289, which we call the Annex V
Regulations, provides for the issuance of depositary receipts in foreign
markets in respect of shares of Brazilian issuers. It provides that the
proceeds from the sale of American depositary shares by holders of American
depositary receipts outside Brazil are free of Brazilian foreign investment
controls and holders of American depositary shares who are not resident in a
tax haven jurisdiction (i.e.a country or location that does not impose taxes
on income or where the maximum income tax rate is lower than 20%, or where the
legislation imposes restrictions on disclosure of the shareholding composition
or the ownership of the investment) will be entitled to favorable tax
treatment. An electronic registration has been issued by the custodian in the name of
JPMorgan Chase Bank, the depositary, with respect to the American depositary
shares. Pursuant to this electronic registration, the custodian and the
depositary are able to convert dividends and other distributions with respect
to the preferred class A shares or common shares represented by American
depositary shares into foreign currency and to remit the proceeds outside Brazil. If a holder exchanges American depositary shares for
preferred class A shares or common shares, 110




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the holder may continue to rely on
the custodians electronic registration for only five business days after the
exchange. After that, the holder must seek to obtain its own electronic
registration with the Central Bank of Brazil under Law No. 4,131 or Resolution
No. 2,689. Thereafter, unless the holder has registered its investment with
the Central Bank of Brazil, such holder may not convert into foreign currency
and remit outside Brazil the proceeds from the disposition of, or distributions
with respect to, such preferred class A shares or common shares. A holder that
obtains an electronic registration generally will be subject to less favorable
Brazilian tax treatment than a holder of American depositary shares. See Item
10. Additional InformationTaxationBrazilian Tax Considerations. There are two principal foreign exchange markets in Brazil (which have
operated under identical operational limits and had identical rates since
February 1999):  
    
    the commercial rate exchange market, and  
    
    the floating rate exchange market. Most trade and financial foreign-exchange transactions, including
transactions relating to the purchase or sale of shares or the payment of
dividends or interest with respect to shares, are carried out on the commercial
market. Only a Brazilian bank authorized to buy and sell currency in the
commercial market may effect purchases of foreign currencies in that market.
In both markets, rates are freely negotiated, but may be strongly influenced by
Central Bank of Brazil intervention. See Item 3. Key InformationExchange
Rates. Under Brazilian law, whenever there is a serious imbalance in Brazils
balance of payments or reasons to foresee a serious imbalance, the Brazilian
government may impose temporary restrictions on the remittance to foreign
investors of the proceeds of their investments in Brazil, and on the conversion
of Brazilian currency into foreign currencies. Such restrictions may hinder or
prevent the custodian or holders who have exchanged American depositary shares
for underlying preferred class A shares or common shares from converting
distributions or the proceeds from any sale of such shares, as the case may be,
into U.S. dollars and remitting such U.S. dollars abroad. 
 TAXATION The following summary contains a description of the principal Brazilian
and U.S. federal income tax consequences of the ownership and disposition of
preferred class A shares, common shares or American depositary shares. You
should know that it does not purport to be a comprehensive description of all
the tax considerations that may be relevant to a holder of preferred class A
shares, common shares or American depositary shares. Holders of preferred class A shares, common shares, or American depositary
shares should consult their own tax advisors to discuss the tax consequences of
the purchase, ownership and disposition of preferred class A shares, common
shares or American depositary shares, including, in particular, the effect of
any state, local or other national tax laws. Although there is at present no income tax treaty between Brazil and the
United States, the tax authorities of the two countries have had discussions
that may result in such a treaty. We cannot predict whether or when such a
treaty will enter into force or how it will affect the U.S. holders, as defined
below, of preferred class A shares, common shares, or American depositary
shares. Brazilian Tax Considerations The following discussion summarizes the principal Brazilian tax
consequences of the acquisition, ownership and disposition of American
depositary shares by a holder not deemed to be domiciled in Brazil for purposes
of Brazilian taxation and, by a holder of preferred class A shares or common
shares, who has registered his/her investment in preferred class A shares or
common shares with the Central Bank of Brazil as a U.S. dollar investment (in
each case, a non-Brazilian holder). It is based on the tax laws of Brazil and
regulations thereunder in effect on the date hereof, which are subject to
change (possibly with retroactive effect). This discussion does not
specifically address all of the Brazilian tax considerations applicable to any
particular non-Brazilian holder. Therefore, each non-Brazilian holder should
consult his or her own tax advisor concerning the Brazilian tax consequences of
an investment in preferred class A shares, common shares, or American
depositary shares. Taxation of dividends.Dividends, including dividends paid in kind, paid
by us from profits of periods beginning on or after January 1, 1996 (1) to the
depositary in respect of the preferred class A shares or common shares underlying the American depositary shares or (2) to a non-Brazilian
holder in respect of preferred class A 111




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shares or common shares will generally
not be subject to Brazilian withholding income tax. Dividends paid from
profits generated before January 1, 1996 may be subject to Brazilian
withholding income tax at varying rates depending on the year the profits were
generated, except in the case of stock dividends, which are not subject to
withholding income tax in Brazil unless we redeem the stock within five years
from such distribution or the non-Brazilian holder sells the stock in Brazil
within this five-year period. Distributions of interest on shareholders equity. Since January 1, 1996,
Brazilian corporations may attribute interest on shareholders equity as an
alternative form of making dividend distributions, which they may pay in cash.
They base the calculation on shareholders equity as stated in the statutory
accounting records. The interest rate applied may not exceed the TJLP as
determined by the Central Bank of Brazil from time to time (9.75% per annum for
the three-month period starting April 2004). Also, the amount paid may not be
higher, for tax purposes, than the greater of (1) 50% of net income (after the
deduction of the provision of social contribution on net profits but before
taking into account such payment of interest and the provision of corporate
income tax) for the relevant period or (2) 50% of the sum of retained earnings
and profit reserves as of the beginning of the year in respect of which the
payment is made. The amount of interest attributed to shareholders is deductible for
corporate income tax and social contribution on net profit purposes.
Therefore, the benefit to us, as opposed to making a dividend payment, is a
reduction in our corporate taxes charge equivalent to 34% of such amount.
Subject to certain limitations, income tax is withheld from the shareholders on
interest payments at the rate of 15%, except if the beneficiary is exempt from
tax in Brazil, which payments are free of Brazilian tax, and except if the
beneficiary is located in a tax haven jurisdiction, in which case the
applicable rate is 25%. Taxation of gains.For purposes of Brazilian taxation, two types of
non-Brazilian holders should be considered: (1) non-Brazilian holders that are
not resident or domiciled in tax haven jurisdictions, which are registered
before the Central Bank of Brazil and the CVM to invest in Brazil in accordance
with Resolution No. 2,689 or are holders of American depositary shares; and (2)
other non-Brazilian holders, which include any and all non-residents in Brazil
who invest in the country through any other means and all type of investors
that are located in a tax haven jurisdiction. The investors identified in item
(1) are subject to a favorable tax treatment, as described below. According to the Law No. 10,833, dated December 29, 2003, gains earned
abroad derived from the disposition of assets located in Brazil by
non-residents to other non-residents may become subject to taxation in Brazil.
Although we believe that the ADSs do not fall within the definition of assets
located in Brazil for the purposes of this rule, considering the general and
unclear scope of the rule and the lack of judicial court rulings in respect
thereto, we are unable to predict whether such understanding will ultimately
prevail in the courts of Brazil. The deposit of preferred class A shares or common shares in exchange for
American depositary shares is not subject to Brazilian income tax if the
preferred class A shares or common shares are registered under Resolution No.
2,689 and the respective holder is not located in a tax haven jurisdiction. If
the preferred class A shares or common shares are not registered, or if they
are registered but the respective holder is located in a tax haven
jurisdiction, the deposit of preferred class A shares or common shares in
exchange for American depositary shares may be subject to Brazilian capital
gains tax at the rate of 15%, or 25% in the case of a resident of a tax haven
jurisdiction. The withdrawal of preferred class A shares or common shares in
exchange for American depositary shares is not subject to Brazilian income tax.
On receipt of the underlying preferred class A shares or common shares, a
non-Brazilian holder, registered under Resolution No. 2,689 may register the
U.S. dollar value of such shares with the Central Bank of Brazil as described
below under Registered Capital. If such non-Brazilian holder does not qualify
under Resolution No. 2,689, it will be subject to the less favorable tax
treatment described above in respect of exchanges of preferred class A shares
or common shares. Non-Brazilian holders are subject to income tax imposed at a rate of 15%,
or 25% in the case of a resident of a tax haven jurisdiction, on gains realized
on sales or dispositions of preferred class A shares or common shares other
than on the Brazilian stock, future and commodities exchange, in which case the
income tax is imposed at a rate of 20%. With reference to proceeds of a
redemption or of a liquidating distribution with respect to the preferred class
A shares or common shares, the difference between the amount received and the
amount of foreign currency registered with the Central Bank of Brazil,
translated into reaisat the commercial market rate on the date of the
redemption or liquidation distribution, will be also subject to income tax at a
rate of 15%, once such transactions are treated as a sale or disposition
carried out outside of the Brazilian stock, future and commodities exchange. Gains realized arising from transactions on a Brazilian stock, future and
commodities exchange, by an investor under Resolution No. 2,689 and not located
in a tax haven jurisdiction are exempt from income tax. The preferential 112




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##### 



treatment under Resolution No. 2,689 is no longer applicable if the
non-Brazilian holder of class A shares or common shares is resident in a tax
haven jurisdiction. As a consequence, gains realized on transactions performed
by such holder on the Brazilian stock, futures and commodities exchange are
subject to income tax at a rate of 20%. Non-Brazilian holders are subject to income tax imposed at a rate of 20%
on gains realized on sales or dispositions of preferred class A shares or
common shares that occur on a Brazilian stock, future and commodities exchange
unless such sale or disposition is made by a non-Brazilian holder who is not
resident in a tax haven jurisdiction and (1) such sale is made within five
business days of the withdrawal of such common shares in exchange for American
depositary shares and the proceeds thereof are remitted abroad within such
five-day period, or (2) such sale is made under Resolution No. 2,689 by a
registered non-Brazilian holder who obtains registration with the Brazilian
securities commission, in which cases the non-Brazilian holder is exempt from
income tax. The gain realized as a result of a transaction on a Brazilian stock,
future and commodities exchange is the difference between the amount in
Brazilian currency realized on the sale or disposition and the acquisition
cost, without any correction for inflation, of the shares sold. The gain
realized as a result of a transaction that does not occur on a Brazilian stock,
future and commodities exchange will be calculated based on the foreign
currency amount registered with the Central Bank of Brazil. It is possible
that the current preferential treatment for holders of American depositary
receipts and non-Brazilian holders of preferred class A shares and common
shares under Resolution No. 2,689 will not continue in the future. Any exercise of preemptive rights relating to the preferred class A shares
or common shares will not be subject to Brazilian taxation. Any gain on the
transaction will be subject to Brazilian income taxation according to the same
rules applicable to the sale or disposition of preferred class A shares or
common shares. Other Brazilian taxes.There are no Brazilian inheritance, gift or
succession taxes applicable to the ownership, transfer or disposition of
preferred class A shares or common shares or American depositary shares by a
non-Brazilian holder, except for gift and inheritance taxes which are levied by
some states of Brazil on gifts made or inheritances bestowed by individuals or
entities not resident or domiciled in Brazil or in the relevant State to
individuals or entities resident or domiciled within such state in Brazil.
There are no Brazilian stamp, issue, registration, or similar taxes or duties
payable by holders of preferred class A shares or common shares or American
depositary shares. A financial transaction tax (the IOF tax) may be imposed on a variety of
foreign transactions, including the conversion of Brazilian currency into
foreign currency (e.g.,for purposes of paying dividends and interest) or
vice-versa (the IOF/Câmbio). The IOF/Câmbio is currently 0% with some
specific exceptions, but the Minister of Finance has the legal power to
increase the rate to a maximum of 25%.Any such increase will be applicable
only prospectively. IOF tax may also be levied on transactions involving bonds or securities
(the IOF/Títulos) even if the transactions are effected on the Brazilian
stock, futures or commodities exchange. The rate of the IOF/Títulos with
respect to preferred class A shares or common shares or American depositary
shares is currently 0%. The Minister of Finance, however, has the legal power
to increase the rate to a maximum of 1.5% per day. Any such increase will be
applicable only prospectively. In addition to the IOF tax, the temporary contribution on financial
transactions (the CPMF tax) will be imposed through December 2007 on all fund
transfers in connection with financial transactions in Brazil. Registered capital.The amount of an investment in preferred class A
shares or common shares held by a non-Brazilian resident holder who obtains
registration under Resolution 2,689, or by the depositary representing such
holder, is eligible for registration with the Central Bank of Brazil; such
registration (the amount so registered is referred to as Registered Capital)
allows the remittance outside Brazil of foreign currency, converted at the
commercial market rate, acquired with the proceeds of distributions on, and
amounts realized with respect to disposition of, such preferred class A shares
or common shares. The registered capital for each preferred class A share or common share
purchased in the form of an American depositary share, or purchased in Brazil,
and deposited with the depositary in exchange for an American depositary share,
will be equal to its purchase price (in U.S. dollars) to the purchaser. The registered capital for a preferred class A share or common share that
is withdrawn upon surrender of an American depositary share will be the U.S.
dollar equivalent of: 113




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##### 



(1)
    
    the average price of a preferred class A share or common share on
the Brazilian stock, future and commodities exchange on which the
greatest number of such shares was sold on the day of withdrawal, or(2)
    
    if no preferred class A shares or common shares were sold on that
day, the average price on the Brazilian stock, future and commodities
exchange on which the greatest number of preferred class A shares or
common shares were sold in the fifteen trading sessions immediately
preceding such withdrawal. The U.S. dollar value of the preferred class A shares or common shares is
determined on the basis of the average commercial market rates quoted by the
Central Bank of Brazil on such date (or, if the average price of preferred
class A shares or common shares is determined under clause (2) of the preceding
sentence, the average of such average quoted rates on the same fifteen dates
used to determine the average price of the preferred class A shares or common
shares). A non-Brazilian resident holder of preferred class A shares or common
shares may experience delays in completing such registration which may delay
remittances abroad. Such a delay may adversely affect the amount, in U.S.
dollars, received by the non-Brazilian holder. U.S. Federal Income Tax Considerations This discussion only applies to U.S. holders, as defined below, who hold
their preferred class A shares or common shares or American depositary shares
as capital assets. This discussion does not describe all of the tax
consequences that may be relevant in light of a holders particular
circumstances or to holders subject to special rules, such as:  
    
    certain financial institutions,  
    
    insurance companies,  
    
    dealers or traders in securities or foreign currencies,  
    
    persons holding preferred class A shares, common shares or American
depositary shares as part of hedge, straddle, conversion or other
integrated transaction,  
    
    holders whose functional currency is not the U.S. dollar,  
    
    partnerships or other entities classified as partnerships for U.S. federal income tax purposes,  
    
    persons subject to the alternative minimum tax, or  
    
    persons owning, actually or constructively, 10% or more of our voting shares. This discussion is based on the Internal Revenue Code of 1986, as amended
to the date hereof, administrative pronouncements, judicial decisions and
final, temporary and proposed Treasury Regulations, changes to any of which may
affect the tax consequences described herein. Holders should consult their tax
advisors with regard to the application of the United States federal income tax
laws to their particular situations as well as any tax consequences arising
under the laws of any state, local or non-U.S. taxing jurisdiction. This discussion is also based, in part, on representations of the
depositary and the assumption that each obligation in the deposit agreement and
any related agreement will be performed in accordance with its terms. As used herein, the term United States holder means a beneficial owner
of preferred class A shares, common shares, or American depositary shares that
is for U.S. federal income tax purposes:  
    
    a citizen or resident alien individual of the United States,  
    
    a corporation created or organized in or under the laws of the
United States or of any political subdivision thereof, or 114




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##### 




    
    an estate or trust the income of which is subject to United States
federal income taxation regardless of its source. The term United States holder also includes certain former citizens of the
United States. In general, for U.S. federal income tax purposes, holders of American
depositary receipts evidencing American depositary shares will be treated as
the beneficial owners of the preferred class A shares or common shares
represented by those American depositary shares. Deposits and withdrawals of
preferred class A shares or common shares by holders in exchange for American
depositary shares will not result in the realization of gain or loss for U.S.
federal income tax purposes. Taxation of dividends.Distributions paid on American depositary shares,
preferred class A shares or common shares, including distributions paid in the
form of payments of interest on capital for Brazilian tax purposes, out of our
current or accumulated earnings and profits, as determined for U.S. federal tax
purposes, before reduction for any Brazilian income tax withheld by us, will be
taxable to you as foreign source dividend income and will not be eligible for
the dividends-received deduction allowed to corporations. You will be required to include dividends paid in reaisin income in an
amount equal to their U.S. dollar value calculated by reference to an exchange
rate in effect on the date such items are received. If you hold American
depositary shares, you will be considered to receive a dividend when the
dividend is received by the depositary. Subject to certain exceptions for short-term and hedged positions, the
U.S. dollar amount of dividends received by an individual prior to January 1,
2009 with respect to the American depository shares will be subject to taxation
at a maximum rate of 15% if the dividends are qualified dividends. Dividends
paid on the American depository shares will be treated as qualified dividends
if (i) the American depository shares are readily tradable on an established
securities market in the United States and (ii) the Company was not, in the
year prior to the year in which the dividend was paid, and is not, in the year
in which the dividend is paid, a passive foreign investment company (PFIC),
foreign personal holding company (FPHC) or foreign investment company
(FIC). The American depository shares are listed on the New York Stock
Exchange and will qualify as readily tradable on an established securities
market in the United States so long as they are so listed. Based on CVRDs
audited financial statements and relevant market and shareholder data, CVRD
believes that it was not treated as a PFIC, FPHC or FIC for U.S. federal income
tax purposes with respect to its 2003 taxable year. In addition, based on
CVRDs audited financial statements and its current expectations regarding the
value and nature of its assets, the sources and nature of its income, and
relevant market and shareholder data, we do not anticipate becoming a PFIC,
FPHC or FIC for its 2004 taxable year. Based on existing guidance, it is not entirely clear whether dividends
received with respect to the preferred class A shares and common shares will be
treated as qualified dividends, because the preferred class A shares and common
shares are not themselves listed on a U.S. exchange. In addition, the U.S.
Treasury has announced its intention to promulgate rules pursuant to which
holders of American depository shares, preferred class A shares or common stock
and intermediaries through whom such securities are held will be permitted to
rely on certifications from issuers to establish that dividends are treated as
qualified dividends. Because such procedures have not yet been issued, it is
not clear whether we will be able to comply with them. Holders of American
depository shares, preferred class A shares and common shares should consult
their own tax advisers regarding the availability of the reduced dividend tax
rate in the light of their own particular circumstances. Subject to generally applicable limitations and restrictions, you will be
entitled to a credit against your United States federal income tax liability,
or a deduction in computing your U.S. federal taxable income, for Brazilian
income taxes withheld by us. You must satisfy minimum holding period
requirements to be eligible to claim a foreign tax credit for Brazilian taxes
withheld on dividends. The limitation on foreign taxes eligible for credit is
calculated separately for specific classes of income. For this purpose
dividends paid by us on our shares will generally constitute passive income
(or, for some holders, financial services income). Taxation of capital gains.Upon a sale or exchange of preferred class A
shares, common shares or American depositary shares, you will recognize a
capital gain or loss for U.S. federal income tax purposes equal to the
difference, if any, between the amount realized on the sale or exchange and
your adjusted tax basis in the preferred class A shares, common shares or
American depositary shares. Long-term capital gains recognized by an
individual United States holder are subject to taxation at a reduced rate.
This gain or loss will be long-term capital gain or loss if your holding period
in the American depositary shares exceeds one year. Any gain or loss will be
U.S. source gain or loss for U.S. foreign tax credit purposes. Consequently,
if a Brazilian withholding tax is imposed on the sale 115




---



##### 



or disposition of American depositary shares, preferred class A shares or
common shares, and you do not receive significant foreign source income from
other sources you may not be able to derive effective U.S. foreign tax credit
benefits in respect of such Brazilian withholding tax. You should consult your
own tax advisor regarding the application of the foreign tax credit rules to
your investment in, and disposition of, American depositary shares, preferred
class A shares or common shares. If a Brazilian tax is withheld on the sale or disposition of shares, the
amount realized by a U.S. holder will include the gross amount of the proceeds
of such sale or disposition before deduction of the Brazilian tax. See Item
10. Additional InformationTaxationBrazilian Tax Considerations. Information reporting and backup withholding Information returns may be filed with the Internal Revenue Service in
connection with distributions on the preferred class A shares, common shares or
American depositary shares and the proceeds from their sale or other
disposition. You may be subject to United States backup withholding tax on
these payments if you fail to provide your taxpayer identification number or
comply with certain certification procedures or otherwise establish an
exemption from backup withholding. The amount of any backup withholding from a payment to you will be allowed
as a credit against your U.S. federal income tax liability and may entitle you
to a refund, provided that the required information is furnished to the
Internal Revenue Service. 
 DOCUMENTS ON DISPLAY We are subject to the information requirements of the Securities Exchange
Act of 1934, as amended, and accordingly file reports and other information
with the SEC. Reports and other information filed by us with the SEC may be
inspected and copied at the public reference facilities maintained by the SEC
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
copies of these materials by mail from the Public Reference Section of the SEC,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. You may
also inspect CVRDs reports and other information at the offices of the New
York Stock Exchange, 11 Wall Street, New York, New York 10005, on which CVRDs
American depositary shares are listed. Our SEC filings are also available to
the public from the SECs website at http://www.sec.gov. For further
information on obtaining copies of CVRDs public filings at the New York Stock
Exchange, you should call (212) 656-5060. We also file financial statements and other periodic reports with the CVM. 
 Item 11. Quantitative and Qualitative Disclosures About Market Risk The principal market risks we face are interest rate risk, exchange rate
risk and commodity price risk. We manage some of these risks through the use
of derivative instruments. Our policy has been to settle all commodity
derivatives contracts in cash without physical delivery of product. Our risk management activities follow policies and guidelines reviewed and
approved by our board of directors. These policies and guidelines generally
prohibit speculative trading and short selling and require diversification of
transactions and counter-parties. We monitor and evaluate our overall position
daily in order to evaluate financial results and impact on our cash flow. We
also periodically review the credit limits and creditworthiness of our hedging
counter-parties. We report the results of our hedging activities to senior
management on a monthly basis. As of January 1, 2001, we have adopted SFAS 133  Accounting for
Derivative Financial Instruments and Hedging Activities, as amended by SFAS
137 and SFAS 138, and we recognize all derivatives on our balance sheet at fair
value. Accordingly we recognized an initial transition adjustment of US$ 12
million as a charge in our statement of income relative to net unrealized
losses on contracts open as of December 31, 2000. Since January 1, 2001, all
derivatives have been adjusted to fair market value at each balance sheet date
and the gain or loss included in current earnings. 116




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##### 



The asset (liability) balances at December 31, 2003 and 2002 and the
movement in fair value of derivative financial instruments is as follows: InterestratesGold
    
    (LIBOR)
    
    Currencies
    
    Alumina
    
    TotalInitial unrealized gains and (losses) at January 1,
2002
    
    
    US$7
    
    
    US$
    (36
    )
    
    US$
    (4
    )
    
    US$
    
    
    
    US$
    (33
    )Gains recognized upon consolidation of Alunorte
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Financial settlement
    
    
    (2
    )
    
    
    21
    
    
    
    3
    
    
    
    1
    
    
    
    23Unrealized gains (losses) in the period
    
    
    (22
    )
    
    
    (60
    )
    
    
    (1
    )
    
    
    
    
    
    
    (83
    )Effect of exchange rate changes
    
    
    2
    
    
    
    15
    
    
    
    1
    
    
    
    
    
    
    
    18Unrealized gains and (losses) at December 31, 2002
    
    
    US$(15
    )
    
    US$
    (60
    )
    
    US$
    (1
    )
    
    US$
    3
    
    
    US$
    (73
    )Financial settlement
    
    
    8
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    38Unrealized gains (losses) in the period
    
    
    (24
    )
    
    
    (3
    )
    
    
    6
    
    
    
    (22
    )
    
    
    (43
    )Effect of exchange rate changes
    
    
    (1
    )
    
    
    (13
    )
    
    
    
    
    
    
    1
    
    
    
    (13
    )Unrealized gains and (losses) at December 31, 2003
    
    
    US$(32
    )
    
    US$
    (46
    )
    
    US$
    5
    
    
    US$
    (18
    )
    
    US$
    (91
    )
 117




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##### 



INTEREST RATE AND EXCHANGE RATE RISK The table below sets forth our floating and fixed rate long-term debt,
categorized by local and foreign currency, and as a percentage of our total
long-term debt portfolio at the dates indicated, including loans from both
related and unrelated parties, as reflected in our consolidated financial
statements. At December 31,2002
    
    2003(in millions of US$, except percentages)Floating rate debt:Real-denominated
    
    US$
    126
    
    
    
    5.3
    %
    
    US$
    208
    
    
    
    7.5
    %Foreign currency denominated
    
    
    1,293
    
    
    
    54.8
    
    
    
    1,427
    
    
    
    51.6Fixed rate debt:Foreign currency denominated
    
    
    940
    
    
    
    39.9
    
    
    
    1,132
    
    
    
    40.9Total
    
    US$
    2,359
    
    
    
    100.0
    
    
    US$
    2,767
    
    
    
    100.0
 The table below provides information about our debt obligations as of
December 31, 2003, which are sensitive to changes in interest rates and
exchange rates. The table presents the principal cash flows and related
weighted-average interest rates of these obligations by expected maturity date.
Weighted-average variable interest rates are based on the applicable reference
rate (LIBOR or TJLP) at December 31, 2003. The debt obligations actual cash
flows are denominated in U.S. dollars or Brazilian reais,as indicated. Fair Value Cash
    
    Fair ValueFlow at
    
    AccountingDecember 31,
    
    at December2005
    
    2006
    
    2007
    
    2008
    
    to 2014
    
    Total
    
    2003
    
    31, 2003(in millions of US$)U.S. dollar-denominated:Fixed rateBonds up to 7%
    
    US$
    
    
    
    US$
    
    
    
    US$
    

    
    
    US$
    

    
    
    US$
    

    
    
    US$
    

    
    
    US$
    334
    
    
    US$
    337Bonds over 7%
    
    
    
    
    
    
    
    
    
    
    300
    
    
    
    
    
    
    
    300
    
    
    
    600
    
    
    
    325
    
    
    
    335Loans up to 7%
    
    
    13
    
    
    
    39
    
    
    
    34
    
    
    
    33
    
    
    
    153
    
    
    
    272
    
    
    
    272
    
    
    
    272Loans over 7%
    
    
    64
    
    
    
    42
    
    
    
    43
    
    
    
    38
    
    
    
    73
    
    
    
    260
    
    
    
    260
    
    
    
    26077
    
    
    
    81
    
    
    
    377
    
    
    
    71
    
    
    
    526
    
    
    
    1,132
    
    
    
    1,191
    
    
    
    1,204Floating rateLoans up to 7%
    
    
    364
    
    
    
    449
    
    
    
    156
    
    
    
    110
    
    
    
    310
    
    
    
    1,389
    
    
    
    1,328
    
    
    
    1,389Loans over 7%
    
    
    10
    
    
    
    10
    
    
    
    7
    
    
    
    6
    
    
    
    5
    
    
    
    38
    
    
    
    39
    
    
    
    38374
    
    
    
    459
    
    
    
    163
    
    
    
    116
    
    
    
    315
    
    
    
    1,427
    
    
    
    1,367
    
    
    
    1,427Subtotal
    
    
    451
    
    
    
    540
    
    
    
    540
    
    
    
    187
    
    
    
    841
    
    
    
    2,559
    
    
    
    2,558
    
    
    
    2,631Real-denominated:Floating rateLoans up to 7%
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    90
    
    
    
    94
    
    
    
    95
    
    
    
    94Loans over 7%
    
    
    26
    
    
    
    23
    
    
    
    14
    
    
    
    11
    
    
    
    40
    
    
    
    114
    
    
    
    108
    
    
    
    114Subtotal
    
    
    29
    
    
    
    24
    
    
    
    14
    
    
    
    11
    
    
    
    130
    
    
    
    208
    
    
    
    203
    
    
    
    208Total
    
    US$
    480
    
    
    US$
    564
    
    
    US$
    554
    
    
    US$
    198
    
    
    US$
    971
    
    
    US$
    2,767
    
    
    US$
    2,761
    
    
    US$
    2,839
 Interest Rate Risk We are exposed to interest rate risk in our floating-rate debt. Our
floating-rate debt consists principally of U.S. dollar borrowings related to
trade finance and loans from commercial banks and multilateral organizations.
In general, our foreign currency floating rate debt is principally subject to
changes in the London Interbank Offered Rate, or LIBOR. Our floating rate debt
denominated in reaisis principally subject to changes in the TJLP, as fixed by
the Central Bank of Brazil. We enter into interest rate derivative transactions primarily to hedge
against interest rate fluctuations on our LIBOR-based debt. We generally do
not hedge our TJLP-based debt. Our interest rate derivatives portfolio
generally consists of option trades which aim to cap our exposure to interest
rate fluctuations. A cap is the maximum rate we will be required to pay on the
notional amount of the debt. Conversely, a floor is the minimum
rate we will be required to pay on the notional amount of the debt.
Certain caps are subject to knock-out provisions which, if triggered, eliminate
the protection provided by the cap. 118




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##### 



The table below sets forth certain information with respect to our
interest rate derivatives portfolio at December 31, 2002 and 2003: At December 31, 2002
    
    At December 31, 2003Notional
    
    
    
    
    
    Unrealized
    
    Notional
    
    
    
    
    
    Unrealized
    
    FinalValue
    
    Rate Range
    
    (loss)
    
    Value
    
    Rate Range
    
    (loss)
    
    maturity(in millions of US$, except rate ranges)Floor
    
    
    500
    
    
    
    5.7-6.3
    %
    
    
    (13
    )
    
    
    500
    
    
    
    5.7-6.0
    %
    
    
    (16
    )
    
    Nov/06Swap
    
    
    475
    
    
    
    5.8-6.7
    %
    
    
    (47
    )
    
    
    454
    
    
    
    5.8-6.7
    %
    
    
    (30
    )
    
    Oct/07Total
    
    
    
    
    
    
    
    
    
    US$
    (60
    )
    
    
    
    
    
    
    
    
    
    US$
    (46
    )
 The unrealized loss in the amount of US$ 60 million and US$ 46 million
represents the amount payable if all transactions had been settled on December
31, 2002 and 2003, respectively. Exchange Rate Risk We are exposed to exchange rate risk associated with our foreign currency
denominated debt. On the other hand, a substantial proportion of our revenues
are denominated in, or automatically indexed to, the U.S. dollar, while the
majority of our costs are expressed in reais.This provides a natural hedge
against any devaluation of the Brazilian realagainst the U.S. dollar. When
devaluation occurs, the immediate negative impact on foreign currency
denominated debt is offset over time by the positive effect of devaluation on
future cash flows. In light of this framework, we generally do not use
derivative instruments to manage the currency exposure on our long-term dollar
denominated debt. However, we do monitor market fluctuations and occasionally
use derivatives to minimize the effects of the volatility of the exchange rates
in the cash flow. From time to time we enter into foreign exchange derivative swap
transactions seeking to change the characteristics of our real-denominated cash
investments to US dollar-indexed instruments. The extent of such transactions
depends on our perception of market and currency risk, but is never speculative
in nature. All such deals are marked-to-market at each balance sheet date and
the effect included in financial income or expense. During the years ended
December 31, 2003 and 2002 our use of such instruments was not significant. As mentioned above, the main exposure to exchange rate risk we have is
related to U.S. dollars. We have other exposures related to our indebtedness
that are denominated in euros and in Japanese yen, and we use derivative
instruments to protect ourselves against the risks associated with exchange
rate movements in these foreign currencies against the U.S. dollars. The table below sets forth certain information with respect to our
exchange rate derivatives portfolio at December 31, 2002 and 2003. These
derivatives are structured forwards that we have purchased, which will require
us to purchase foreign currencies as specified below: 119




---



##### 



At December 31, 2002
    
    At December 31, 2003Notional
    
    
    
    
    
    Unrealized
    
    Notional
    
    
    
    
    
    Unrealized
    
    FinalValue
    
    Price Range
    
    Loss
    
    Value
    
    Price Range
    
    Gain
    
    Maturity(in millions, except yen amounts)Yen purchased
    
    ¥
    3,543
    
    
    ¥83- 91
    
    US$
    
    
    
    ¥
    3,385
    
    
    ¥ 79-83
    
    US$
    3
    
    
    Apr/05Per US$
    
    
    
    
    
    
    
    
    
    Per US$Euro purchased
    
    
    5
    
    
    US$ 1.18-1.23
    
    
    (1
    )
    
    
    23
    
    

    US$ 1.22-1.23
    
    
    2
    
    
    Dec/11Per US$
    
    
    
    
    
    
    
    
    
    Per US$Total
    
    
    
    
    
    
    
    
    
    US$
    (1
    )
    
    
    
    
    
    
    
    
    
    US$
    5
 The unrealized losses in the amounts of US$ 1 million and unrealized gains
of US$ 5 million represent the amounts payable if all transactions had been
settled on December 31, 2002 and December 31, 2003, respectively. 
 COMMODITY PRICE RISK We are also exposed to various market risks relating to the volatility of world market prices for:  
    
    iron ore and pellets, which represented 63.1% of our 2003 consolidated revenues;
    
    manganese ore and ferroalloys, which represented 6.3% of our 2003 consolidated revenues;
    
    aluminum-related products, which represented 15.4% of our 2003 consolidated revenues;
    
    gold, which represented 0.4% of our 2003 consolidated revenues, and
which we expect to begin producing again in 2004 upon the commencement
of commercial operations of our Sossego copper mine; and
    
    copper, which we expect to begin producing in 2004. We do not enter into derivatives transactions to hedge our iron ore,
manganese ore or ferroalloys exposure. See Item 5. Operating and Financial
Review and Prospects. To manage the risk associated with fluctuations in aluminum prices, our
affiliates Albras and Alunorte engage in hedging transactions involving put and
call options, as well as forward contracts. These derivative instruments allow
Albras and Alunorte to establish minimum average profits for their future
aluminum production in excess of their expected production costs and therefore
ensure stable cash generation. However, they also have the effect of reducing
potential gains from price increases in the spot market for aluminum. The table below sets forth certain information with respect to Albrass
derivatives portfolio at December 31, 2002 and 2003. We have a 51% voting
capital interest and a 51% total capital interest in Albras. At December 31, 2002
    
    At December 31, 2003Notional
    
    
    
    
    
    Unrealized
    
    Notional
    
    
    
    
    
    Unrealized
    
    FinalValue
    
    Price Range
    
    gain (loss)
    
    Value
    
    Price Range
    
    Gain (loss)
    
    maturity(tons of
    
    
    
    
    
    (in millions
    
    (tons of
    
    (US$ per
    
    (in millionsaluminum)
    
    (US$ per ton)
    
    of US$)
    
    aluminum)
    
    ton)
    
    of US$)Puts purchased
    
    
    46,500
    
    
    US$
    1,390-1,500
    
    
    US$
    5.4
    
    
    
    148,500
    
    
    US$
    1,390-1,450
    
    
    US$
    1.9
    
    
    Jun/05Forwards sold
    
    
    39,250
    
    
    
    1,400-1,600
    
    
    
    5.9
    
    
    
    27,000
    
    
    
    1,400-1,600
    
    
    
    (5.4
    )
    
    Dec/06Calls sold
    
    
    59,500
    
    
    
    1,580-1,700
    
    
    
    
    
    
    
    160,500
    
    
    
    1,570-1,630
    
    
    
    (9.8
    )
    
    Jun/05Other instruments
    
    
    106,000
    
    
    
    
    
    
    
    (0.8
    )
    
    
    246,000
    
    
    
    1,390-1,680
    
    
    
    (6.9
    )
    
    Dec/08Total
    
    
    
    
    
    
    
    
    
    US$
    10.5
    
    
    
    
    
    
    
    
    
    
    US$
    (20.2
    )
 The table below sets forth certain information with respect to Alunortes
derivatives portfolio at December 31, 2002 and 2003. We have a 61.29% voting
capital interest and a 57.0% total capital interest in Alunorte. We
consolidate Alunortes operations in our financial statements. 120




---



##### 



At December 31, 2002
    
    At December 31, 2003Notional
    
    
    
    
    
    Unrealized
    
    Notional
    
    
    
    
    
    Unrealized
    
    FinalValue
    
    Price Range
    
    gain (loss)
    
    Value
    
    Price Range
    
    Gain (loss)
    
    Maturity(tons of
    
    
    
    
    
    (in millions
    
    (tons of
    
    
    
    
    
    (in millionsaluminum)
    
    (US$ per ton)
    
    of US$)
    
    aluminum)
    
    (US$ per ton)
    
    of US$)Puts purchased
    
    
    27,500
    
    
    US$
    1,400-1,530
    
    
    US$
    2.3
    
    
    
    101,000
    
    
    US$
    1,390-1,450
    
    
    US$
    0.7
    
    
    Jun/05Forwards sold
    
    
    12,000
    
    
    
    1,400-1,578
    
    
    
    1.7
    
    
    
    
    
    
    
    1,540-1,580
    
    
    
    
    
    
    
    Calls sold
    
    
    27,250
    
    
    
    1,710-1,732
    
    
    
    (0.3
    )
    
    
    113,000
    
    
    
    1,380-1,690
    
    
    
    (6.1
    )
    
    Jun/05Other instruments
    
    
    69,500
    
    
    
    
    
    
    
    (0.6
    )
    
    
    240,000
    
    
    
    
    
    
    
    (12.6
    )
    
    Dec/08Total
    
    
    
    
    
    
    
    
    
    US$
    3.1
    
    
    
    
    
    
    
    
    
    
    US$
    (18.0
    )
 To manage the risk associated with fluctuations in gold prices, we enter
into derivative instruments which allow us to establish a minimum profit level
for future gold production or the content of gold associated with the
production of copper. However, they may also have the effect of eliminating
potential gains on certain price increases in the spot market for gold. The table below sets forth certain information with respect to our gold
derivatives portfolio at December 31, 2002 and 2003. At December 31, 2002
    
    At December 31, 2003Unrealized
    
    
    
    
    
    
    
    
    
    Unrealized
    
    FinalQuantity
    
    Price Range
    
    gain (loss)
    
    Quantity
    
    Price Range
    
    gain (loss)
    
    Maturity(in millions of
    
    
    
    
    
    
    
    
    
    (in millions of(oz.)
    
    (US$ per oz.)
    
    US$)
    
    (oz.)
    
    (US$ per oz.)
    
    US$)Puts purchased
    
    
    428,000
    
    
    US$
    270-355
    
    
    US$
    3.1
    
    
    
    393,000
    
    
    US$
    270-385
    
    
    US$
    1.1
    
    
    Dec/08Calls sold
    
    
    595,000
    
    
    
    316407
    
    
    
    (17.8
    )
    
    
    423,000
    
    
    
    317-440
    
    
    
    (31.5
    )
    
    Dec/08Other instruments
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    (1.4
    )
    
    Nov/06Total
    
    
    
    
    
    
    
    
    
    US$
    (14.7
    )
    
    
    
    
    
    
    
    
    
    US$
    (31.8
    )
 The unrealized loss in the amount of US$ 15 million and US$ 32 million
represents the amount payable if all transactions had been settled on December
31, 2002 and 2003, respectively. CREDIT RISK Financial Institutions Risk & Exposure CVRD has a strict policy regarding the financial risk we can assume with
Financial Institutions. On a 6-month basis, our portfolio is evaluated according to very specific
criteria, including its financial strength, rated by international rating
agencies. In addition, we also consider the range of financial products the
institution is able to provide. The process is submitted to the management,
which is responsible for approving and defining the final conditions. With this procedure, we take a position of mitigating our financial risk
and ensuring the quality of our credit exposure. CVRD invests its cash holdings and engages into transactions with
derivatives only with financial institutions that have at least an A credit
rating. Commercial Credit Exposure CVRD began implementing its commercial credit policy in 2003. The policy
establishes a set of rules under which the Executive Board approves an Annual
Commercial Exposure Limit, representing the maximum commercial credit exposure
CVRD will risk. This exposure limit is applied to each business segment of
CVRD. The policy outlines a procedure for measuring, granting and controlling
commercial credit within CVRD which requires that each customer seeking
commercial credit undergo an evaluation of its financial statements, company
size, past payment performance and country risk. In 2004, we expect to extend the commercial credit policy to all of CVRDs
consolidated companies. 121




---



##### 



Item 12. Description of Securities Other than Equity Securities Not applicable. 
 PART II 
 Item 13. Defaults, Dividend Arrearages and Delinquencies None. 
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds None. 
 Item 15. Controls and Procedures CVRD has carried out an evaluation under the supervision and with the
participation of CVRDs management, including the Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of
CVRDs disclosure controls and procedures as of the end of the period covered
by this annual report. Vale Overseas carried out a similar evaluation that
relied primarily on CVRDs evaluation of its controls. There are inherent
limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives. Based upon the evaluation described above,
the Chief Executive Officer and Chief Financial Officer of CVRD and the
Director and Principal Executive Officer and Director and Principal Financial
Officer of Vale Overseas concluded that, as of the end of the period covered by
this annual report, the disclosure controls and procedures are effective to
provide reasonable assurance that information required to be disclosed in the
reports CVRD or Vale Overseas, as applicable, files and submits under the
Exchange Act is recorded, processed, summarized and reported as and when
required. There has been no change in CVRDs or Vale Overseas internal control over
financial reporting during CVRDs and Vale Overseas fiscal year ended December
31, 2003 that has materially affected or is reasonably likely to materially
affect CVRDs or Vale Overseas internal control over financial reporting. 
 Item 16A. Audit Committee Financial Expert CVRDs board of directors has determined that CVRD board members Arlindo
Magno de Oliveira, Ricardo Carvalho Giambroni, Mário da Silveira Teixeira
Júnior e Renato da Cruz Gomes are audit committee financial experts. 
 Item 16B. Code of Ethics CVRD has adopted a code of ethics that applies to all board members,
executive officers and employees, including the Chief Executive Officer and the
Chief Financial Officer and Principal Accounting Officer of CVRD. CVRDs code
of ethics is also applicable to Vale Overseas and applies to its directors. We
have posted copies of these codes of ethics on our Internet website at the
following address: http://www.cvrd.com.br. Copies of our codes of ethics may
be obtained without charge by writing to us at the address set forth on the
front cover of this Form 20-F. Neither CVRD nor Vale Overseas has granted any
implicit or explicit waivers from any provision of its code of ethics to the
officers described above since adoption of the code. 
 Item 16C. Principal Accountant Fees and Services Principal Accountant Fees PricewaterhouseCoopers Auditores Independentes billed the following fees
to us for professional services in 2002 and 2003. 122




---



##### 



Year ended December 31,2002
    
    2003(thousands of US$)Audit Fees
    
    US$
    316
    
    
    US$
    673Audit-Related Fees
    
    
    5
    
    
    
    Tax Fees
    
    
    
    
    
    
    All Other Fees
    
    
    
    
    
    
    Total Fees
    
    US$
    321
    
    
    US$
    673
 Audit Fees are the aggregate fees billed by PricewaterhouseCoopers for
the audit of our consolidated and annual financial statements, reviews of
interim financial statements and attestation services that are provided in
connection with statutory and regulatory filings or engagements. Audit-Related
Fees are fees charged by PricewaterhouseCoopers for assurance and related
services that are reasonably related to the performance of the audit or review
of our financial statements and are not reported under Audit Fees. In 2002,
this category included fees for consultations regarding the Brazilian GAAP
accounting treatment of certain investments in electrical energy consortia. Audit Committee Pre-Approval Policies and Procedures Our board of directors currently serves as our audit committee for
purposes of the Sarbanes-Oxley Act of 2002. Our board of directors requires
management to obtain the boards approval before engaging independent auditors
to provide any audit or permitted non-audit services to us or our subsidiaries.
Pursuant to this policy, our board of directors pre-approves all audit and
non-audit services provided to CVRD and its subsidiaries by their respective
independent auditors. The boards pre-approval process works as follows. Each year, each of the
independent auditors of CVRD and its subsidiaries prepares a detailed list of
services that it proposes to perform during the coming year. These proposed
services are presented first to our advisory audit committee and then to the
board of directors, which considers and approves the services.
Management is
not permitted to engage our auditors for any audit or non-audit service that is
not on the list of services approved by the board of directors without first
returning the board of directors for approval of such additional services. 
 PART III 
 Item 17. Financial Statements The Registrant has responded to Item 18in lieu of responding to this Item. 
 Item 18. Financial Statements Reference is made to pages F-1 through F-47 and B-1 through B-21. 123




---



##### 



Item 19. Exhibits ExhibitNumber1.1
    
    Bylaws of Companhia Vale do Rio Doce (English translation)1.2 (*)
    
    Memorandum & Articles of Association of Vale Overseas Limited1.3
    
    Amendment to the Memorandum & Articles of Association of
Vale Overseas Limited dated March 6, 2002.1.4
    
    Amendment to the Memorandum & Articles of Association of
Vale Overseas Limited dated July 23, 2003.1.5
    
    Amendment to the Memorandum & Articles of Association of
Vale Overseas Limited dated January 7, 20048
    
    List of Subsidiaries12.1
    
    Certification of Chief Executive Officer of CVRD pursuant to
Rules 13a-14 and 15d-14 under the Securities Exchange Act of
1934.12.2
    
    Certification of Chief Financial Officer of CVRD pursuant to
Rules 13a-14 and 15d-14 under the Securities Exchange Act of
1934.12.3
    
    Certification of Director and Principal Executive Officer of
Vale Overseas pursuant to Rules 13a-14 and 15d-14 under the
Securities Exchange Act of 1934.12.4
    
    Certification of Director and Principal Financial Officer of
Vale Overseas pursuant to Rules 13a-14 and 15d-14 under the
Securities Exchange Act of 1934.13.1
    
    Certification of Chief Executive Officer and Chief Financial
Officer of CVRD, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.13.2
    
    Certification of Principal Executive Officer and Principal
Financial Officer of Vale Overseas, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.14.1
    
    Consent of PricewaterhouseCoopers (CVRD and Vale Overseas).14.2
    
    Consent of Trevisan (Albras).14.3
    
    Consent of Deloitte Touche Tohmatsu (Albras).14.4
    
    Consent of Trevisan (Alunorte).14.5
    
    Consent of Deloitte Touche Tohmatsu (Alunorte).14.6
    
    Consent of KPMG LLP (CSI).14.7
    
    Consent of Deloitte Touche Tohmatsu (Cenibra).14.8
    
    Consent of Deloitte Touche Tohmatsu (Docenave).14.9
    
    Consent of Deloitte Touche Tohmatsu (Hispanobras).14.10
    
    Consent of Deloitte Touche Tohmatsu (Itabrasco).14.11
    
    Consent of Deloitte Touche Tohmatsu (Kobrasco).
 124




---



##### 



ExhibitNumber14.12
    
    Consent of Deloitte Touche Tohmatsu (MRN).14.13
    
    Consent of Deloitte Touche Tohmatsu (Nibrasco).14.14
    
    Consent of Deloitte Touche Tohmatsu (Valesul).14.15
    
    Consent of KPMG Auditores Independentes (Valesul).14.16
    
    Consent of Deloitte Touche Tohmatsu (RDM).14.17
    
    Consent of Deloitte Touche Tohmatsu (Urucum).14.18
    
    Consent of Golder Associates S.A.
   (*)
    
    Incorporated by reference to the annual report on Form 20-F of CVRD and
Vale Overseas Limited for the year ended December 31, 2002. 125




---



##### 



SIGNATURES The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf. COMPANHIA VALE DO RIO DOCEBy:
    
    /s/ Roger AgnelliName:
    
    Roger AgnelliTitle:
    
    Chief Executive OfficerBy:
    
    /s/ Fabio de Oliveira BarbosaName:
    
    Fabio de Oliveira BarbosaTitle:
    
    Chief Financial OfficerVALE OVERSEAS LIMITEDBy:
    
    /s/ Fabio de Oliveira BarbosaName:
    
    Fabio de Oliveira BarbosaTitle:
    
    Director and Principal Executive OfficerBy:
    
    /s/ Fernando Ramos NóbregaName:
    
    Fernando Ramos NóbregaTitle:
    
    Director and Principal Financial Officer
 Date: June 10, 2004 126




---



##### 



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageCompanhia Vale do Rio Doce Financial StatementsReport of PricewaterhouseCoopers Auditores Independentes
    
    
    F-2Consolidated Balance Sheets as of December 31, 2003 and 2002
    
    
    F-3Consolidated Statements of Income for the three years
ended December 31, 2003, 2002 and 2001
    
    
    F-5Consolidated Statements of Cash Flows for the three years
ended December 31, 2003, 2002 and 2001
    
    
    F-6Consolidated Statements of Changes in Stockholders Equity
for the three years ended December 31, 2003, 2002 and 2001
    
    
    F-7Notes to the Consolidated Financial Statements
    
    
    F-8Vale Overseas Ltd. Financial StatementsReport of PricewaterhouseCoopers Auditores Independentes
    
    
    F-41Balance sheets as of December 31, 2002 and 2003
    
    
    F-42Statement of income and changes in accumulated loss for the year ended December 31, 2002
    
    
    F-43Statement of cash flows for the years ended December 31, 2002 and 2003
    
    
    F-44Notes to the financial statements
    
    
    F-45Index to Audit Reports from Independent Accountants listed in Note 23
to the Consolidated Financial Statements of Companhia Vale do Rio Doce
    
    
    B-1
 F-1




---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Companhia Vale do Rio Doce In our opinion, based upon our audits and the reports of other auditors, the
accompanying consolidated balance sheets and the related consolidated
statements of income, of cash flows and of changes in stockholders equity,
present fairly, in all material respects, the financial position of Companhia
Vale do Rio Doce and its subsidiaries at December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Companys management; our responsibility is to
express an opinion on these financial statements based on our audits. We did
not audit the financial statements of certain affiliates, the investments in
which total US$ 376 million and US$343 million at December 31, 2003 and 2002,
respectively, and equity in earnings of US$157 million, US$60 million and US$53
million for 2003, 2002 and 2001, respectively. Also, we did not audit the
financial statements of certain majority-owned subsidiaries as at and for the
years ended December 31, 2003, 2002 and 2001, which statements reflect total
assets of US$1,352 million and US$969 million at December 31, 2003 and 2002,
respectively, and total revenues of US$839 million, US$426 million and US$407
million for 2003, 2002 and 2001, respectively. The financial statements of
these affiliates and subsidiaries were audited by other auditors whose reports
thereon have been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts for these affiliates and subsidiaries, is based
solely on the reports of the other auditors. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits and the reports of other auditors provide a reasonable basis for the
opinion expressed above. As discussed in Note 4 to the financial statements, the Company changed its
method of accounting for asset retirement obligations, as from January 1, 2003. PricewaterhouseCoopers
Auditores Independentes Rio de Janeiro, Brazil
February 20, 2004 F-2




---



##### 



Consolidated Balance SheetsExpressed in millions of United States dollars As of December 31,2003
    
    2002AssetsCurrent assetsCash and cash equivalents
    
    
    585
    
    
    
    1,091Accounts receivableRelated parties
    
    
    115
    
    
    
    121Unrelated parties
    
    
    703
    
    
    
    539Loans and advances to related parties
    
    
    56
    
    
    
    49Inventories
    
    
    505
    
    
    
    292Deferred income tax
    
    
    91
    
    
    
    211Others
    
    
    419
    
    
    
    2862,474
    
    
    
    2,589Property, plant and equipment, net
    
    
    6,484
    
    
    
    3,297Investments in affiliated companies and joint
ventures and other investments, net of provision
for losses on equity investments
    
    
    1,034
    
    
    
    732Other assetsGoodwill on acquisition of subsidiaries
    
    
    451
    
    
    
    412Loans and advancesRelated parties
    
    
    40
    
    
    
    89Unrelated parties
    
    
    68
    
    
    
    73Prepaid pension cost
    
    
    82
    
    
    
    79Deferred income tax
    
    
    234
    
    
    
    358Judicial deposits
    
    
    407
    
    
    
    239Unrealized gain on derivative instruments
    
    
    5
    
    
    
    3Others
    
    
    155
    
    
    
    841,442
    
    
    
    1,337TOTAL
    
    
    11,434
    
    
    
    7,955
 F-3




---



##### 



Consolidated Balance SheetsExpressed in millions of United States dollars
(Except number of shares) (Continued) As of December 31,2003
    
    2002Liabilities and stockholders equityCurrent liabilitiesSuppliers
    
    
    482
    
    
    
    365Payroll and related charges
    
    
    78
    
    
    
    76Interest attributed to stockholders
    
    
    118
    
    
    
    3Current portion of long-term debt  unrelated parties
    
    
    1,009
    
    
    
    717Short-term debt
    
    
    129
    
    
    
    184Loans from related parties
    
    
    119
    
    
    
    64Others
    
    
    318
    
    
    
    992,253
    
    
    
    1,508Long-term liabilitiesEmployees post-retirement benefits
    
    
    198
    
    
    
    141Long-term debt  unrelated parties
    
    
    2,767
    
    
    
    2,359Loans from related parties
    
    
    4
    
    
    
    7Provisions for contingencies (Note 18)
    
    
    635
    
    
    
    428Unrealized loss on derivative instruments
    
    
    96
    
    
    
    76Others
    
    
    268
    
    
    
    1223,968
    
    
    
    3,133Minority interests
    
    
    329
    
    
    
    27Stockholders equityPreferred class A stock - 600,000,000 no-par-value
shares authorized and 138,575,913 issued
    
    
    1,055
    
    
    
    904Common stock - 300,000,000 no-par-value shares
authorized and 249,983,143 issued
    
    
    1,902
    
    
    
    1,630Treasury stock - 4,183 (2002 - 4,481) preferred and
4,715,170 common shares
    
    
    (88
    )
    
    
    (88
    )Additional paid-in capital
    
    
    498
    
    
    
    498Other cumulative comprehensive income
    
    
    (4,375
    )
    
    
    (5,175
    )Appropriated retained earnings
    
    
    3,035
    
    
    
    2,230Unappropriated retained earnings
    
    
    2,857
    
    
    
    3,2884,884
    
    
    
    3,287TOTAL
    
    
    11,434
    
    
    
    7,955
 See notes to consolidated financial statements. F-4




---



##### 



Consolidated Statements of Income
Expressed in millions of United States dollars
(except number of shares and per-share amounts) Year ended December 31,2003
    
    2002
    
    2001Operating revenues, net of discounts, returns and allowancesSales of ores and metalsIron ore and pellets
    
    
    3,500
    
    
    
    2,820
    
    
    
    2,600Gold
    
    
    21
    
    
    
    103
    
    
    
    139Manganese and ferroalloys
    
    
    349
    
    
    
    283
    
    
    
    259Potash
    
    
    94
    
    
    
    91
    
    
    
    71Others
    
    
    96
    
    
    
    45
    
    
    
    414,060
    
    
    
    3,342
    
    
    
    3,110Revenues from logistic services
    
    
    604
    
    
    
    458
    
    
    
    608Aluminum products
    
    
    852
    
    
    
    462
    
    
    
    284Other products and services
    
    
    29
    
    
    
    20
    
    
    
    755,545
    
    
    
    4,282
    
    
    
    4,077Value-added tax
    
    
    (195
    )
    
    
    (159
    )
    
    
    (142
    )Net operating revenues
    
    
    5,350
    
    
    
    4,123
    
    
    
    3,935Operating costs and expensesCost of ores and metals sold
    
    
    (2,066
    )
    
    
    (1,579
    )
    
    
    (1,550
    )Cost of logistic services
    
    
    (370
    )
    
    
    (252
    )
    
    
    (378
    )Cost of aluminum products
    
    
    (678
    )
    
    
    (412
    )
    
    
    (269
    )Others
    
    
    (14
    )
    
    
    (20
    )
    
    
    (75
    )(3,128
    )
    
    
    (2,263
    )
    
    
    (2,272
    )Selling, general and administrative expenses
    
    
    (265
    )
    
    
    (224
    )
    
    
    (241
    )Research and development
    
    
    (82
    )
    
    
    (50
    )
    
    
    (43
    )Employee profit sharing plan
    
    
    (32
    )
    
    
    (38
    )
    
    
    (38
    )Others
    
    
    (199
    )
    
    
    (119
    )
    
    
    (379
    )(3,706
    )
    
    
    (2,694
    )
    
    
    (2,973
    )Operating income
    
    
    1,644
    
    
    
    1,429
    
    
    
    962Non-operating income (expenses)Financial income
    
    
    102
    
    
    
    127
    
    
    
    135Financial expenses
    
    
    (351
    )
    
    
    (375
    )
    
    
    (335
    )Foreign exchange and monetary gains (losses), net
    
    
    242
    
    
    
    (580
    )
    
    
    (426
    )Gain on sale of investments
    
    
    17
    
    
    
    
    
    
    
    78410
    
    
    
    (828
    )
    
    
    158Income before income taxes, equity results and minority interests
    
    
    1,654
    
    
    
    601
    
    
    
    1,120Income taxesCurrent
    
    
    (90
    )
    
    
    (12
    )
    
    
    46Deferred
    
    
    (207
    )
    
    
    161
    
    
    
    172(297
    )
    
    
    149
    
    
    
    218Equity in results of affiliates and joint ventures and change in
provision for losses on equity investments
    
    
    306
    
    
    
    (87
    )
    
    
    (53
    )Minority interests
    
    
    (105
    )
    
    
    17
    
    
    
    2Income from continuing operations
    
    
    1,558
    
    
    
    680
    
    
    
    1,287Change in accounting pratice for asset retirement obligations (Note 4)
    
    
    (10
    )
    
    
    
    
    
    
    Net income
    
    
    1,548
    
    
    
    680
    
    
    
    1,287Basic earnings per Preferred Class A Share
    
    
    4.03
    
    
    
    1.77
    
    
    
    3.34Basic earnings per Common Share
    
    
    4.03
    
    
    
    1.77
    
    
    
    3.34Weighted average number of shares outstanding (thousands of shares)Common shares
    
    
    245,268
    
    
    
    249,864
    
    
    
    249,864Preferred Class A shares
    
    
    138,571
    
    
    
    135,042
    
    
    
    135,042
 See notes to consolidated financial statements. F-5




---



##### 



Consolidated Statements of Cash Flows
Expressed in millions of United States dollars Year ended December 31,2003
    
    2002
    
    2001Cash flows from operating activities:Net income
    
    
    1,548
    
    
    
    680
    
    
    
    1,287Adjustments to reconcile net income to cash provided by
operating activities:Depreciation, depletion and amortization
    
    
    238
    
    
    
    214
    
    
    
    212Dividends received
    
    
    197
    
    
    
    91
    
    
    
    132Equity in results of affiliates and joint ventures and change in provision
for losses on equity investments
    
    
    (306
    )
    
    
    87
    
    
    
    53Deferred income taxes
    
    
    207
    
    
    
    (161
    )
    
    
    (172
    )Current income taxes contingency
    
    
    
    
    
    
    
    
    
    
    Provisions for other contingencies
    
    
    9
    
    
    
    53
    
    
    
    79Impairment of property, plant and equipment
    
    
    51
    
    
    
    62
    
    
    
    79Gain on sale of investments
    
    
    (17
    )
    
    
    
    
    
    
    (784
    )Change in accounting pratice for asset retirement obligations (Note 4)
    
    
    10
    
    
    
    
    
    
    
    Pension plan
    
    
    12
    
    
    
    11
    
    
    
    32Foreign exchange and monetary losses (gains)
    
    
    (382
    )
    
    
    1,031
    
    
    
    460Net unrealized derivative losses (gains)
    
    
    43
    
    
    
    83
    
    
    
    38Minority interests
    
    
    105
    
    
    
    (17
    )
    
    
    (2
    )Others
    
    
    (15
    )
    
    
    46
    
    
    
    131Decrease (increase) in assets:Accounts receivable
    
    
    37
    
    
    
    (123
    )
    
    
    (49
    )Inventories
    
    
    (22
    )
    
    
    (69
    )
    
    
    (40
    )Others
    
    
    (9
    )
    
    
    (105
    )
    
    
    17Increase (decrease) in liabilities:Suppliers
    
    
    (18
    )
    
    
    102
    
    
    
    21Payroll and related charges
    
    
    (25
    )
    
    
    23
    
    
    
    42Others
    
    
    94
    
    
    
    94
    
    
    
    (18
    )Net cash provided by operating activities
    
    
    1,757
    
    
    
    2,102
    
    
    
    1,518Cash flows from investing activities:Loans and advances receivableRelated partiesAdditions
    
    
    (157
    )
    
    
    (101
    )
    
    
    (75
    )Repayments
    
    
    71
    
    
    
    75
    
    
    
    79Others
    
    
    35
    
    
    
    20
    
    
    
    7Guarantees and deposits
    
    
    (99
    )
    
    
    (78
    )
    
    
    (85
    )Additions to investments
    
    
    (68
    )
    
    
    (1
    )
    
    
    (338
    )Additions to property, plant and equipment
    
    
    (1,543
    )
    
    
    (766
    )
    
    
    (595
    )Proceeds from disposal of investments
    
    
    83
    
    
    
    
    
    
    
    989Proceeds from disposals of property, plant and equipment
    
    
    58
    
    
    
    7
    
    
    
    3Cash used to acquire subsidiaries, net of cash acquired
    
    
    (380
    )
    
    
    (45
    )
    
    
    (516
    )Net cash used in investing activities
    
    
    (2,000
    )
    
    
    (889
    )
    
    
    (531
    )Cash flows from financing activities:Short-term debt, net issuances (repayments)
    
    
    (38
    )
    
    
    (345
    )
    
    
    (28
    )LoansRelated partiesAdditions
    
    
    72
    
    
    
    54
    
    
    
    145Repayments
    
    
    (26
    )
    
    
    (75
    )
    
    
    (44
    )Issuances of long-term debtRelated parties
    
    
    14
    
    
    
    17
    
    
    
    66Others
    
    
    1,025
    
    
    
    698
    
    
    
    317Repayments of long-term debtRelated parties
    
    
    (4
    )
    
    
    (15
    )
    
    
    (40
    )Others
    
    
    (766
    )
    
    
    (330
    )
    
    
    (310
    )Interest attributed to stockholders
    
    
    (675
    )
    
    
    (602
    )
    
    
    (1,066
    )Treasury stock
    
    
    
    
    
    
    
    
    
    
    (27
    )Net cash used in financing activities
    
    
    (398
    )
    
    
    (598
    )
    
    
    (987
    )Increase (decrease) in cash and cash equivalents
    
    
    (641
    )
    
    
    615
    
    
    
    Effect of exchange rate changes on cash and cash equivalents
    
    
    135
    
    
    
    (641
    )
    
    
    (94
    )Cash and cash equivalents, beginning of period
    
    
    1,091
    
    
    
    1,117
    
    
    
    1,211Cash and cash equivalents, end of period
    
    
    585
    
    
    
    1,091
    
    
    
    1,117Cash paid during the period for:Interest on short-term debt
    
    
    (7
    )
    
    
    (46
    )
    
    
    (45
    )Interest on long-term debt
    
    
    (178
    )
    
    
    (157
    )
    
    
    (164
    )Income tax
    
    
    (55
    )
    
    
    (12
    )
    
    
    (46
    )Non-cash transactionsSpecial pension plan contribution in shares of CSN
    
    
    
    
    
    
    
    
    
    
    (249
    )Conversion of loans receivable to investments
    
    
    (187
    )
    
    
    (55
    )
    
    
    (35
    )Income tax paid with credits
    
    
    (81
    )
    
    
    
    
    
    
    
 See notes to consolidated financial statements. F-6




---



##### 



Consolidated Statements of Changes in Stockholders Equity
Expressed in millions of United States dollars
(except number of shares and per-share amounts) Year ended December 31,2003
    
    2002
    
    2001Preferred class A stock (including one special share)Beginning of the period
    
    
    904
    
    
    
    820
    
    
    
    709Transfer from appropriated retained earnings
    
    
    151
    
    
    
    84
    
    
    
    111End of the period
    
    
    1,055
    
    
    
    904
    
    
    
    820Common stockBeginning of the period
    
    
    1,630
    
    
    
    1,479
    
    
    
    1,279Transfer from appropriated retained earnings
    
    
    272
    
    
    
    151
    
    
    
    200End of the period
    
    
    1,902
    
    
    
    1,630
    
    
    
    1,479Treasury stockBeginning of the period
    
    
    (88
    )
    
    
    (88
    )
    
    
    (61
    )Acquisitions in 2001
    
    
    
    
    
    
    
    
    
    
    (27
    )End of the period
    
    
    (88
    )
    
    
    (88
    )
    
    
    (88
    )Additional paid-in capitalEnd of the period
    
    
    498
    
    
    
    498
    
    
    
    498Other cumulative comprehensive incomeAmounts not recognized as net periodic pension costBeginning of the period
    
    
    
    
    
    
    
    
    
    
    (100
    )Excess of additional minimum liability
    
    
    
    
    
    
    
    
    
    
    151Tax effect on above
    
    
    
    
    
    
    
    
    
    
    (51
    )End of the period
    
    
    
    
    
    
    
    
    
    
    Cumulative translation adjustmentsBeginning of the period
    
    
    (5,185
    )
    
    
    (3,475
    )
    
    
    (2,972
    )Change in the period
    
    
    736
    
    
    
    (1,710
    )
    
    
    (503
    )End of the period
    
    
    (4,449
    )
    
    
    (5,185
    )
    
    
    (3,475
    )Unrealized gain on available-for-sale securitiesBeginning of the period
    
    
    
    
    
    
    
    
    
    
    24Change in the period
    
    
    74
    
    
    
    
    
    
    
    (24
    )End of the period
    
    
    74
    
    
    
    
    
    
    
    Adjustments relating to investments in affiliatesBeginning of the period
    
    
    10
    
    
    
    10
    
    
    
    8Change in the period
    
    
    
    
    
    
    
    
    
    
    2Transfer to retained earnings
    
    
    (10
    )
    
    
    
    
    
    
    End of the period
    
    
    
    
    
    
    10
    
    
    
    10Total other cumulative comprehensive income
    
    
    (4,375
    )
    
    
    (5,175
    )
    
    
    (3,465
    )Appropriated retained earningsBeginning of the period
    
    
    2,230
    
    
    
    3,212
    
    
    
    3,537Transfer (to) from retained earnings
    
    
    1,228
    
    
    
    (747
    )
    
    
    (14
    )Transfer to capital stock
    
    
    (423
    )
    
    
    (235
    )
    
    
    (311
    )End of the period
    
    
    3,035
    
    
    
    2,230
    
    
    
    3,212Retained earningsBeginning of the period
    
    
    3,288
    
    
    
    2,184
    
    
    
    1,647Net income
    
    
    1,548
    
    
    
    680
    
    
    
    1,287Interest attributed to stockholdersPreferred class A stock
    
    
    (275
    )
    
    
    (117
    )
    
    
    (276
    )Common stock
    
    
    (486
    )
    
    
    (206
    )
    
    
    (488
    )Appropriation (to) from reserves
    
    
    (1,218
    )
    
    
    747
    
    
    
    14End of the period
    
    
    2,857
    
    
    
    3,288
    
    
    
    2,184Total stockholders equity
    
    
    4,884
    
    
    
    3,287
    
    
    
    4,640Comprehensive income (loss) is comprised as follows:Net income
    
    
    1,548
    
    
    
    680
    
    
    
    1,287Amounts not recognized as net periodic pension cost
    
    
    
    
    
    
    
    
    
    
    100Cumulative translation adjustments
    
    
    736
    
    
    
    (1,710
    )
    
    
    (503
    )Unrealized gain (loss) on available-for-sale securities
    
    
    74
    
    
    
    
    
    
    
    (24
    )Adjustments relating to investments in affiliates
    
    
    
    
    
    
    
    
    
    
    2Total comprehensive income (loss)
    
    
    2,358
    
    
    
    (1,030
    )
    
    
    862SharesPreferred class A stock (including one special share)
    
    
    138,575,913
    
    
    
    138,575,913
    
    
    
    138,575,913Common stock
    
    
    249,983,143
    
    
    
    249,983,143
    
    
    
    249,983,143Treasury stock (1)Beginning of the period
    
    
    (4,719,651
    )
    
    
    (4,715,261
    )
    
    
    (3,659,311
    )Acquisitions
    
    
    
    
    
    
    (4,390
    )
    
    
    (1,055,950
    )Sales
    
    
    298
    
    
    
    
    
    
    
    End of the period
    
    
    (4,719,353
    )
    
    
    (4,719,651
    )
    
    
    (4,715,261
    )383,839,703
    
    
    
    383,839,405
    
    
    
    383,843,795Interest attributed to stockholders (per share)Preferred class A stock (including one special share)
    
    
    1.98
    
    
    
    0.84
    
    
    
    1.99Common stock
    
    
    1.98
    
    
    
    0.84
    
    
    
    1.99
 See notes to consolidated financial statements.  (1)
    
    As of December 31, 2003, 4,715,170 common shares and 4,183 preferred shares were held in treasury in the amount of US$ 88. The 4,715,170 common
 shares guarantee a loan of to our subsidiary Alunorte. F-7




---



##### 



Notes to the Consolidated Financial StatementsExpressed in millions of United States dollars, unless otherwise stated  1
    
    The Company and its operationsCompanhia Vale do Rio Doce (CVRD) is a limited liability company, duly
organized and existing under the laws of the Federative Republic of Brazil.
Our operations are carried out through CVRD and its subsidiary companies,
joint ventures and affiliates, and mainly consist of mining, non-ferrous
metal production and logistics, as well as energy, aluminum and steel
activities. Further details of our operations and those of our joint
ventures and affiliates are described in Note 13.The main operating subsidiaries we consolidate are as follows: Head office
    
    PrincipalSubsidiary
    
    % ownership
    
    location
    
    activityAlumina do Norte do Brasil S.A.  Alunorte
    
    
    57
    
    
    Brazil
    
    AluminumCADAM S.A. (2) (4)
    
    
    37
    
    
    Brazil
    
    KaolinCELMAR S.A.  Indústria de Celulose e Papel (3)
    
    
    100
    
    
    Brazil
    
    ForestryCVRD Overseas Ltd.
    
    
    100
    
    
    Cayman Island
    
    TradingFerrovia Centro-Atlântica S.A. (4)
    
    
    100
    
    
    Brazil
    
    LogisticsFerteco Mineração S.A.  FERTECO (3)
    
    
    100
    
    
    Brazil
    
    Iron ore and PelletsItabira Rio Doce Company Ltd.  ITACO
    
    
    100
    
    
    Cayman Island
    
    TradingMineração Serra do Sossego S.A. (1) (5)
    
    
    100
    
    
    Brazil
    
    CopperMinerações Brasileiras Reunidas S.A.  MBR (4) (7)
    
    
    56
    
    
    Brazil
    
    Iron oreNavegação Vale do Rio Doce S.A.  DOCENAVE
    
    
    100
    
    
    Brazil
    
    ShippingPará Pigmentos S.A.
    
    
    82
    
    
    Brazil
    
    KaolinRio Doce International Finance Ltd.  RDIF
    
    
    100
    
    
    Bahamas
    
    International financeRio Doce Manganèse Europe  RDME
    
    
    100
    
    
    France
    
    FerroalloysRio Doce Manganese Norway  RDMN
    
    
    100
    
    
    Norway
    
    FerroalloysSalobo Metais S.A. (1)
    
    
    100
    
    
    Brazil
    
    CopperRio Doce Manganês S.A. (6)
    
    
    100
    
    
    Brazil
    
    Manganese and FerroalloysUrucum Mineração S.A.
    
    
    100
    
    
    Brazil
    
    Iron ore, Ferroalloys andManganeseVale do Rio Doce Alumínio S.A.  ALUVALE (5)
    
    
    100
    
    
    Brazil
    
    Aluminum
  (1)
    
    Development stage companies(2)
    
    Through Caemi Mineração e Metalurgia S.A.(3)
    
    Merged with CVRD on August 29, 2003(4)
    
    Consolidated as from September 2003(5)
    
    Merged with CVRD on December 30, 2003(6)
    
    Formerly Sibra-Eletrosiderúrgica Brasileira S.A.(7)
    
    Through Caemi Mineração e Metalurgia S.A. and Belém Administrações e
Participações Ltda.  2
    
    Basis of consolidationAll majority-owned subsidiaries where we have both share and
management control are consolidated, with elimination of all
significant intercompany accounts and transactions. Investments in
unconsolidated affiliates and joint ventures are reported at cost plus
our equity in undistributed earnings or losses. Included in this
category are certain joint ventures in which we have majority
ownership but, by force of shareholders agreements, do not have
effective management control. We provide for losses on equity
investments with negative stockholders equity where applicable (see
Note 13).We evaluate the carrying value of our listed investments relative to
publicly available quoted market prices. If the quoted market price is
below book value, and such decline is considered other than temporary,
we write-down our equity investments to quoted market value.We define joint ventures as businesses in which we and a small group
of other partners F-8




---



##### 



each participate actively in the overall entity
management, based on a shareholders agreement. We define affiliates as
businesses in which we participate as a minority stockholder but with
significant influence over the operating and financial policies of the
investee.3
    
    Summary of significant accounting policiesIn preparing the consolidated financial statements, we are required to
use estimates to account for certain assets, liabilities, revenues and
expenses. Our consolidated financial statements therefore include
various estimates concerning the selection of useful lives of
property, plant and equipment, provisions necessary for contingent
liabilities, fair values assigned to assets and liabilities acquired
in business combinations, income tax valuation allowances, employee
post-retirement benefits and other similar evaluations; actual results
may vary from our estimates.(a)
    
    Basis of presentationWe have prepared the consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America
(US GAAP), which differ in certain respects from the accounting practices
adopted in Brazil that we use in preparing our statutory financial
statements.The U.S. dollar amounts for the years presented have been remeasured
(translated) from the Brazilian currency amounts in accordance with the
criteria set forth in Statement of Financial Accounting Standards 52 
Foreign Currency Translation ( SFAS 52).Prior to July 1, 1997, Brazil was considered under SFAS 52 to have a highly
inflationary economy and accordingly, up to June 30, 1997, we adopted the
U.S. dollar as both our functional currency and reporting currency.As from July 1, 1997, we concluded that the Brazilian economy had ceased to
be highly inflationary and changed our functional currency from the
reporting currency (U.S. dollars) to the local currency (Brazilian reais),
for Brazilian operations and extensions thereof. Accordingly, we translated
the U.S. dollar amounts of non-monetary assets and liabilities into reais
at the current exchange rate, and those amounts became the new accounting
bases for such assets and liabilities.We have remeasured all assets and liabilities into U.S. dollars at the
current exchange rate at each balance sheet date (R$2.8892 and R$3.5333 to
US$1.00 at December 31, 2003 and 2002, respectively), and all accounts in
the statements of income (including amounts relative to local currency
indexation and exchange variances on assets and liabilities denominated in
foreign currency) at the average rates prevailing during the period. The
translation gain or loss resulting from this remeasurement process is
included in the cumulative translation adjustments account in stockholders
equity.The net exchange transaction gain (loss) included in our statement of
income was $222, ($515) and ($410) in 2003, 2002 and 2001, respectively,
included within the line Foreign exchange and monetary losses, net.(b)
    
    Business combinationsWe adopt the procedures determined by SFAS 141  Business Combinations to
recognize acquisitions of interests in other companies. The method of
accounting used in our business combination transactions is the purchase
method, which requires that acquirers reasonably determine the fair value
of the identifiable assets and liabilities of acquired companies,
individually, in order to determine the goodwill paid in the purchase to be
recognized as an intangible asset. On the acquisition of assets, which
include the rights to mine reserves of natural resources, the establishment
of values for these assets includes the placing of fair values on purchased
reserves, which are classified in the balance sheet as property, plant and
equipment.Goodwill was amortized in a systematic manner over the periods estimated to
be benefited through December 31, 2001. As required by SFAS 142  Goodwill
and Other Intangible F-9




---



##### 



Assets from January 1, 2002 goodwill resulting from
the acquisitions is not amortized, but is tested for impairment at least
annually and reduced to fair value to the extent any such impairment is
identified.(c)
    
    InventoriesInventories are stated at the average cost of purchase or production, lower
than replacement or realizable values. We record allowances for slow
moving or obsolete inventories when considered appropriate, reflecting our
periodic assessment of recoverability. A write-down of inventory utilizing
the allowance establishes a new cost basis for the related inventory.Finished goods inventories include all related materials, labor and direct
production expenditures, and exclude general and administrative expenses.(d)
    
    Property, plant and equipmentProperty, plant and equipment are recorded at cost, including interest cost
incurred during the construction of major new facilities. We compute
depreciation on the straight-line basis at annual rates which take into
consideration the useful lives of the items, such as: from 2% to 20% for
the railroads, 5% for ships, 3% for buildings, from 2% to 5% for
installations and from 5% to 20% for mining and other equipment.
Expenditures for maintenance and repairs are charged to operating costs and
expenses as incurred.We capitalize the costs of developing major new ore bodies or expanding the
capacity of operating mines and amortize these to operations on the
unit-of-production method based on the total probable and proven quantity
of ore to be recovered. Exploration costs are expensed until economic
viability of mining activities is established; subsequently such costs are
capitalized together with further exploration costs. We capitalize mine
development costs as from the time we actually begin such development.(e)
    
    Available-for-sale equity securitiesEquity securities classified as available-for-sale are recorded in
accordance with SFAS 115 Accounting for Certain Investments in Debt and
Equity Securities. Accordingly, we exclude unrealized holding gains and
losses, net of taxes, if applicable, from income and recognize them as a
separate component of stockholders equity until realized.(f)
    
    Revenues and expensesRevenues are recognized when title has transferred to the customer or
services are rendered. Revenue from exported products is recognized when
such products are loaded on board the ship. Revenue from products sold in
the domestic market is recognized when delivery is made to the customer.
Revenue from transportation services, other than shipping operations, is
recognized when the service order has been fulfilled. Shipping operations
are recorded on the completed voyage basis and net revenue, costs and
expenses of voyages not completed at period-end are deferred. Anticipated
losses on voyages are provided when probable and can be reasonably
estimated. Expenses and costs are recognized on the accrual basis.(g)
    
    Environmental and site reclamation and restoration costsExpenditures relating to ongoing compliance with environmental regulations
are charged against earnings or capitalized as appropriate. These ongoing
programs are designed to minimize the environmental impact of our
activities. With respect to our major iron ore mine at Carajás, which has
extensive remaining reserves, liabilities for final site reclamation and
restoration costs will be recorded when the respective reclamation and
restoration strategies can be reasonably determined and the related costs
can be reasonably estimated. F-10




---



##### 



(h)
    
    Compensated absencesWe fully accrue the employees compensation liability for vacations vested
during the year.(i)
    
    Income taxesIn accordance with SFAS 109  Accounting for Income Taxes, the deferred
tax effects of tax loss carryforwards and temporary differences have been
recognized in the consolidated financial statements. A valuation allowance
is made when we believe that it is more likely than not that tax assets
will not be fully recoverable in the future.(j)
    
    Statement of cash flowsCash flows relating to overnight financing and investment are reported net.
Short-term investments that have a ready market and maturity to us, when
purchased, of 90 days or less are considered cash equivalents.(k)
    
    Earnings per shareEarnings per share are computed by dividing net income by the weighted
average number of common and preferred shares outstanding during the
period.(l)
    
    Interest attributed to stockholdersAs from January 1, 1996 Brazilian corporations are permitted to attribute
interest on stockholders equity. The calculation is based on the
stockholders equity amounts as stated in the statutory accounting records
and the interest rate applied may not exceed the long-term interest rate
(TJLP) determined by the Brazilian Central Bank. Also, such interest may
not exceed 50% of net income for the year nor 50% of retained earnings plus
revenue reserves.The amount of interest attributed to stockholders is deductible for income
tax purposes. Accordingly, the benefit to us, as opposed to making a
dividend payment, is a reduction in our income tax charge equivalent to the
statutory tax rate applied to such amount. Income tax is withheld from the
stockholders relative to interest at the rate of 15%.Under Brazilian law, interest attributable to stockholders is considered as
part of the annual minimum dividend (See Note 16). Accordingly such
distributions are treated as dividends for accounting purposes.We have opted to pay such tax-deductible interest to our stockholders and
have therefore accrued the amounts due as of December 31, 2003, 2002 and
2001, with a direct charge to stockholders equity.(m)
    
    Derivatives and hedging activitiesAs of January 1, 2001 we adopted SFAS 133  Accounting for Derivative
Financial Instruments and Hedging Activities, as amended by SFAS 137, SFAS
138 and SFAS 149. Those standards require that we recognize all derivative
financial instruments as either assets or liabilities on our balance sheet
and measure such instruments at fair value. Changes in the fair value of
derivatives are recorded in each period in current earnings or in other
comprehensive income, in the latter case depending on whether a transaction
is designated as an effective hedge.The transition adjustment relating to the fair value of derivatives
existing as of December 31, 2000 is recorded as a charge of $8 in our
statement of income for the year ended December 31, 2001. In view of the
immateriality of this effect of a change in accounting principle the
corresponding amount was included with other non-operating expenses.
Certain of our affiliated companies and joint ventures also recorded
similar charges, of which our portion of $4 is included in the caption
Equity in results of
affiliates and joint ventures in the statement of income. F-11




---



##### 



Further information about our derivatives and hedging activities is
included in Note 22.(n)
    
    Comprehensive incomeWe have disclosed comprehensive income as part of the Statement of Changes
in Stockholders Equity, in compliance with SFAS 130  Reporting
Comprehensive Income.(o)
    
    ReclassificationCertain minor reclassifications have been made to the financial statements
for 2002 and 2001 to make them comparable with the 2003 presentation.4
    
    Change in accounting practiceIn June 2001, the FASB issued SFAS 143  Accounting for Asset Retirement
Obligations. We adopted SFAS 143 as from January 1, 2003, and as a
consequence an additional $26 for asset retirement obligations was recorded
as Others  long-term liabilities, a net increase of $11 in mine
development costs was registered within Property, plant and equipment and
a resulting charge of $10 was registered as Change in Accounting Practice
for Asset Retirement Obligations on the Statement of Income, net of income
tax ($15 gross of deferred income tax). Over time the liabilities will be
accreted for the change in their present value and initial capitalized
costs will be amortized over the useful lives of the related assets.5
    
    Recently-issued accounting pronouncementsIn December 2003, the FASB issued FIN 46R  Consolidation of Variable
Interest Entities, (revised December 2003). The primary objectives of FIN
46R are to provide guidance on the identification of entities for which
control is achieved through means other than through voting rights
(variable interest entities or VIEs) and how to determine when and which
business enterprise should consolidate the VIE (the primary beneficiary).
This new model for consolidation applies to an entity in which either (1)
the equity investors (if any) do not have a controlling financial interest
or (2) the equity investment at risk is insufficient to finance that
entitys activities without receiving additional subordinated financial
support from other parties. In addition, FIN 46R requires that both the
primary beneficiary and all other enterprises with a significant variable
interest in a VIE make additional disclosures regarding the nature,
purpose, size and activities of the VIE and the enterprises maximum
exposure to loss as a result of its involvement with the VIE.The implementation date of FIN 46R is the first period ending after
December 15, 2003 for Special Purpose Entities (SPEs) and as from January
1 2004 for previously existing variable interest entities which are not
SPEs. FIN 46R may be applied prospectively with a cumulative adjustment as
of the date on which it is first applied or by restating previously issued
financing statements for one or more years with a cumulative-effect
adjustment as of the beginning of the first year restated. It is possible
that we will consolidate or disclose information in relation to certain
joint ventures and equity investments.With respect to SPEs the adoption of FIN 46R did not result in
consolidation of any additional entities at December 31, 2003 and it is
reasonably possible that Albras  Alumínio Brasileiro S.A., an aluminum
producer with total assets of $ 649 at December 31, 2003 will be
consolidated in 2004.We are evaluating the impact of implementing FIN 46R as from January 1,
2004 with respect to consolidating variable interest entities which are not
SPEs.In May 2003 FASB issued SFAS No. 150  Accounting For Certain Financial
Instruments with Characteristics of both Liabilities and Equity, which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both F-12




---



##### 



liabilities and equity.
It requires that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances). The FASB
decided to make this statement effective shortly after issuance
for contracts created or modified after it is issued and for existing
contracts at the beginning of the first interim period beginning after June
15, 2003. We do not expect SFAS 150 to have a material impact on our
financial statements.Emerging Issue Task Force No. 01-08 (EITF 01-08), Determining Whether an
Arrangement is a Lease,provides guidance in determining whether an
arrangement should be considered a lease subject to the requirements of
FASB Statement No. 13 (FAS 13), Accounting for Leases. The rule defines,
among others, that an arrangement conveys the right to use the property,
plant, and equipment (PP&E) if the purchaser (lessee) has (1) the ability
to operate the PP&E, (2) control physical access to the PP&E, or (3) it is
remote that one or more other parties will take more than a minor amount of
the output and the pricing for the output is not fixed per unit or based on
current market prices at the date of delivery.The consensus is to be applied to arrangements agreed or committed to,
modified, or acquired in business combinations initiated after the
beginning of an entitys next reporting period beginning after May 28,
2003. We have not entered into significant arrangements since this date.6
    
    Our privatizationIn May 1997, we were privatized by the Brazilian Government, which
transferred voting control to Valepar S.A. (Valepar). The Brazilian
Government has retained certain rights with respect to our future
decisions and those of Valepar and has also caused us to enter into
agreements which may affect our activities and results of operations
in the future. These rights and agreements are:  
    
    Preferred Special Share. The Brazilian
Government holds a preferred special share
of CVRD which confers upon it permanent veto
rights over changes in our (i) name, (ii)
headquarters location, (iii) corporate
purpose with respect to mineral exploration,
(iv) continued operation of our integrated
iron ore mining systems and (v) certain
other matters.
    
    Preferred Class A Share of Valepar. The Brazilian Government
held a preferred class A share of Vale par which confers upon it
approval rights for a period of five years in respect of (i)
concentration of ownership of Vale par by particular types of
investors in excess of prescribed limitations and (ii) changes in the
Valepar holding company structure relating to ownership of our common shares. This share was cancelled on April 28, 2003.
    
    Shareholder revenue interests. On July 7, 1997, we issued to
shareholders of record on April 18, 1997 (including the Brazilian
Government) revenue interests providing holders thereof with the right
to receive semi-annual payments based on a percentage of our net
revenues above threshold production volumes from identified mining
resources. These instruments are not secured by the corresponding
mineral reserves and deposits.  In addition to the preferred special share mentioned above, the National
Treasury and the Banco Nacional de Desenvolvimento Econômico e Social 
BNDES, the Government  owned development bank, together held 32% of our
common shares and 4% of our preferred shares, which in aggregate
represented 22% of our total capital at December 31, 2001. These common shares were sold through a public offering in Brazil and abroad which was
completed on March 27, 2002.7
    
    Major acquisitions and disposals during the years presentedWe made the following acquisitions during the periods presented. Pro
forma information with respect to our acquisitions of the control of
Alunorte in June 2002 and Caemi in September 2003 is shown in items
(b) and (c) below: F-13




---



##### 



(a)
    
    On April 27, 2001 we acquired 100% of Ferteco Mineração S.A.  FERTECO, a
non-public company whose main activity is production and commercialization
of iron ore and pellets, for $523 in cash.  The assets and liabilities acquired and corresponding goodwill were as
follows: Fair value of assets
    
    
    401Fair value of liabilities
    
    
    (251
    )Net assets at fair value
    
    
    150Purchase price
    
    
    523Goodwill
    
    
    373
  For FERTECO inventories were valued at $57, property, plant and equipment
were valued at $178, and the deferred tax liability was $24.(b)
    
    In December 2001, acting through our wholly-owned foreign subsidiary
Itabira Rio Doce Company Ltd.  Itaco, we acquired 659,375,000 common
shares of Caemi Mineração e Metalurgia S.A. (Caemi), corresponding to
16.82% of its total capital and 50% of its voting capital from Cayman Iron
Ore Investment Co., Ltd., a wholly-owned subsidiary of Mitsui & Co., Ltd.
(Mitsui) for US$ 279. Caemi is a Brazilian company headquartered in Rio de
Janeiro, which operates in the iron ore, kaolin, refractory bauxite and
railroad sectors and was accounted for as an equity investee up to
September 2, 2003 (see below).This acquisition was approved by the European Commission subject to the
commitment for Caemi to sell its equity investment in Quebec Cartier Mining
Company (QCM), a Canadian producer of iron ore and pellets. On December 31,
2003 Caemi sold its holding of QCM  ́s common shares to the Quebec Provincial
Government for the symbolic amount of 100 Canadian dollars and converted
loans to QCM of 20 million Canadian dollars into preferred stock with no
voting rights (other than on matters required by law). Caemi will continue
to guarantee certain financings of QCM until 2007 and has undertaken to
provide further financial support to QCM, if necessary, in the form of
subordinated loans up to 2010, limited to 34.5 million Canadian dollars
(equivalent to $27 at December 31, 2003). The fair value of this commitment
has been fully provided.CVRD and Mitsui, each of which held 50% of Caemis common shares, entered
into a shareholder agreement requiring both shareholders to approve all
major decisions affecting Caemi.The estimated net assets and corresponding goodwill were as follows: December 31, 2001Estimated fair value of assets
    
    
    1,127Estimated fair value of liabilities
    
    
    (734
    )Net assets at fair value
    
    
    393Interest in total capital acquired
    
    
    16.82
    %Estimated fair value of net assets acquired
    
    
    66Purchase price
    
    
    279Goodwill
    
    
    213
  On September 2, 2003 we acquired a further 43.37% of the capital of Caemi
for $426, increasing our participation to 60.23%. Caemi has been
consolidated as from this date. F-14




---



##### 



The acquisition cost of the 43.37% of Caemi, net of cash acquired, was
as follows: September 2, 2003Estimated fair value of assets
    
    
    1,699Estimated fair value of liabilities
    
    
    (716
    )Net assets at fair value
    
    
    983Interest in total capital acquired
    
    
    43.37
    %Estimated fair value of net assets acquired
    
    
    426Purchase price
    
    
    426Less cash acquired
    
    
    (46
    )Acquisition cost of Caemi, net of cash acquired
    
    
    380
  Caemi Pro formaThe unaudited condensed pro forma income statement below shows the
impact of the acquisition of Caemi on the consolidated statements of income
as if the current 60.23% participation in Caemi had been acquired on
January 1, 2002 (instead of the 16.86% equity investment previously held,
being 16.82% initially acquired and 0.04% purchased subsequently). 2003
    
    2002Pre-CVRD
    
    acquisition
    
    
    
    
    
    CVRDConsolidated
    
    CAEMI (1)
    
    Pro Forma
    
    Consolidated
    
    CAEMI (2)
    
    Pro Forma(unaudited)
    
    (unaudited)Net operating revenues
    
    
    5,350
    
    
    
    424
    
    
    
    5,774
    
    
    
    4,123
    
    
    
    572
    
    
    
    4,695Operating costs and expenses
    
    
    (3,706
    )
    
    
    (343
    )
    
    
    (4,049
    )
    
    
    (2,694
    )
    
    
    (545
    )
    
    
    (3,239
    )Operating income (loss)
    
    
    1,644
    
    
    
    81
    
    
    
    1,725
    
    
    
    1,429
    
    
    
    27
    
    
    
    1,456Non-operating income (expenses)
    
    
    10
    
    
    
    16
    
    
    
    26
    
    
    
    (828
    )
    
    
    (101
    )
    
    
    (929
    )Income before income taxes, equity results
and minority interests
    
    
    1,654
    
    
    
    97
    
    
    
    1,751
    
    
    
    601
    
    
    
    (74
    )
    
    
    527Income taxes
    
    
    (297
    )
    
    
    (41
    )
    
    
    (338
    )
    
    
    149
    
    
    
    12
    
    
    
    161Equity in results of affiliates and joint
ventures and change
in provision for losses on equity investments
    
    
    306
    
    
    
    (20
    )
    
    
    286
    
    
    
    (87
    )
    
    
    (2
    )(3)
    
    
    (89
    )Minority interests
    
    
    (105
    )
    
    
    18
    
    
    
    (87
    )
    
    
    17
    
    
    
    64
    
    
    
    81Income from continuing operations
    
    
    1,558
    
    
    
    54
    
    
    
    1,612
    
    
    
    680
    
    
    
    
    
    
    
    680Change in accounting pratice for asset
retirement obligations
    
    
    (10
    )
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    1,548
    
    
    
    54
    
    
    
    1,602
    
    
    
    680
    
    
    
    
    
    
    
    680
  (1)
    
    Period from January to August, 2003 (Consolidated as from
September 2003).(2)
    
    Period from January to December, 2002, net of consolidation
adjustments.(3)
    
    Includes elimination of Caemi equity investment write-down based
on quoted market price  $86.  (c)
    
    On June 27, 2002 we acquired a further 12.62% of the capital of ALUNORTE
for $42, increasing our participation to 57.03% (represented by 62.09% of
total common stock and 19.05% of total preferred stock). ALUNORTE has been
consolidated as from this date.Unaudited pro forma information with respect to the effect on our
consolidated statements of income, reflecting the consolidation of
ALUNORTE as if control has been acquired as at January 1, 2001 is as
follows: F-15




---



##### 



2002
    
    2001Pre-CVRD
    
    acquisition
    
    Pro Forma
    
    CVRD
    
    
    
    
    
    Pro FormaConsolidated
    
    ALUNORTE
    
    (unaudited)
    
    Consolidated
    
    ALUNORTE
    
    (unaudited)Net operating revenues
    
    
    4,123
    
    
    
    138
    
    
    
    4,261
    
    
    
    3,935
    
    
    
    294
    
    
    
    4,229Operating costs and expenses
    
    
    (2,694
    )
    
    
    (151
    )
    
    
    (2,845
    )
    
    
    (2,973
    )
    
    
    (219
    )
    
    
    (3,192
    )Operating income
    
    
    1,429
    
    
    
    (13
    )
    
    
    1,416
    
    
    
    962
    
    
    
    75
    
    
    
    1,037Non-operating income (expenses)
    
    
    (828
    )
    
    
    (38
    )
    
    
    (866
    )
    
    
    158
    
    
    
    (83
    )
    
    
    75Income before income taxes,
equity results
and minority interests
    
    
    601
    
    
    
    (51
    )
    
    
    550
    
    
    
    1,120
    
    
    
    (8
    )
    
    
    1,112Income taxes
    
    
    149
    
    
    
    
    
    
    
    149
    
    
    
    218
    
    
    
    (5
    )
    
    
    213Equity in results of
affiliates and joint ventures
    
    
    (28
    )
    
    
    23
    
    
    
    (5
    )
    
    
    (49
    )
    
    
    7
    
    
    
    (42
    )Change in provision for losses
on equity investments
    
    
    (59
    )
    
    
    
    
    
    
    (59
    )
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Minority interests
    
    
    17
    
    
    
    28
    
    
    
    45
    
    
    
    2
    
    
    
    
    
    
    
    2Net income
    
    
    680
    
    
    
    
    
    
    
    680
    
    
    
    1,287
    
    
    
    (6
    )
    
    
    1,281
  (d)
    
    On March 9, 2001 we transferred our 10.33% interest in Companhia
Siderúrgica Nacional  CSN to VALIA, as a special pension plan
contribution, for $249 (fair market value determined based on the weighted
average price of the last thirty trading sessions at the São Paulo stock
exchange in the period ended on March 9, 2001). This transfer resulted in
a gain of $107. We have provided VALIA with a guarantee that we will make
additional contributions to the pension plan if the market value of the
CSN shares falls below threshold levels prior to the sale thereof by
VALIA. At December 31, 2003 we have provided $1 in respect of this
commitment.(e)
    
    On April 27, 2001 we concluded the sale of our 32.00% interest in Bahia
Sul Celulose S.A.  BSC for $318, received in cash on May 7, 2001. This
operation resulted in a gain of $170.(f)
    
    On June 6, 2001 we concluded the sale of our 51.48% interest in Celulose
Nipo-Brasileira S.A.  CENIBRA for $671, received in cash on September 14,
2001. This operation resulted in a gain of $507.(g)
    
    On October 10, 2003, the subsidiary Companhia Paulista de Ferro Ligas
(CPFL) finalized the sale of its shares in Fertilizantes Fosfatados S.A.
(Fosfértil) to Bunge Fertilizantes S.A. for $84. The profit on the
operation was $61.This transaction is in line with CVRDs focus on mining and logistics and
its strategy to sell equity participations which had assumed the nature of
portfolio investments.(h)
    
    On November 7, 2003 we sold our investment in Companhia Ferroviária do
Nordeste (CFN) to CSN for a symbolic amount, recording a loss on this
transaction of $44.8
    
    Income taxesIncome taxes in Brazil comprise federal income tax and social
contribution, which is an additional federal tax. The statutory
composite enacted tax rate applicable in the periods presented is 34%
represented by a 25% federal income tax rate plus a 9% social
contribution rate. F-16




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##### 



The amount reported as income tax expense in our consolidated financial
statements is reconciled to the statutory rates as follows: Year ended December 31,2003
    
    2002
    
    2001Income before income taxes, equity results and minority interests
    
    
    1,654
    
    
    
    601
    
    
    
    1,120Federal income tax and social contribution expense at
statutory enacted rates
    
    
    (562
    )
    
    
    (204
    )
    
    
    (381
    )Adjustments to derive effective tax rate:Tax benefit on interest attributed to stockholders
    
    
    271
    
    
    
    99
    
    
    
    260Exempt foreign income (expenses)
    
    
    (59
    )
    
    
    196
    
    
    
    226Difference on tax basis of equity investees
    
    
    (56
    )
    
    
    20
    
    
    
    58Tax effect related to provision for losses and write-downs
    
    
    
    
    
    
    29
    
    
    
    59Tax incentives
    
    
    60
    
    
    
    4
    
    
    
    26Valuation allowance reversal (provision)
    
    
    53
    
    
    
    (12
    )
    
    
    (44
    )Other non-taxable gains (losses)
    
    
    (4
    )
    
    
    17
    
    
    
    14Federal income tax and social contribution expense in
consolidated statements of income
    
    
    (297
    )
    
    
    149
    
    
    
    218
 We have certain tax incentives relative to our iron ore and manganese
operations in Carajás and relative to alumina in Barcarena. The incentives
relative to iron ore and manganese comprise full income tax exemption on
defined production levels up to 2005 and partial exemption up to 2013. Both
incentives relative to alumina expire in 2010. An amount equal to the tax
saving must be appropriated to a reserve account within stockholders
equity and may not be distributed in the form of cash dividends.  The major components of the deferred tax accounts in the balance sheet are
as follows: As of December 312003
    
    2002Net current deferred tax assetsAccrued expenses deductible only when disbursed
    
    
    91
    
    
    
    21191
    
    
    
    211Long-term deferred tax assets and liabilitiesAssetsDeferred tax relative to temporary differences
    
    
    3
    
    
    
    5Tax deductible goodwill in business combinations
    
    
    79
    
    
    
    66Related to provision for losses and write-downs of investments
    
    
    149
    
    
    
    158Additional retirement benefits provision, net of unrecognized pension obligation
    
    
    73
    
    
    
    47Tax loss carryforwards
    
    
    132
    
    
    
    187Other temporary differences
    
    
    206
    
    
    
    211642
    
    
    
    674LiabilitiesInflationary income
    
    
    (26
    )
    
    
    (21
    )Relative to investments acquired
    
    
    (202
    )
    
    
    Prepaid retirement benefit
    
    
    (28
    )
    
    
    (27
    )Fair value adjustments in business combinations
    
    
    (40
    )
    
    
    (38
    )(296
    )
    
    
    (86
    )Valuation allowanceBeginning balance
    
    
    (230
    )
    
    
    (213
    )Translation adjustments
    
    
    (37
    )
    
    
    73Business acquisition, sales and others
    
    
    102
    
    
    
    (78
    )Net change in allowance
    
    
    53
    
    
    
    (12
    )Ending balance
    
    
    (112
    )
    
    
    (230
    )Net long-term deferred tax assets
    
    
    234
    
    
    
    358
 F-17




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##### 



9
    
    Cash and cash equivalents As of December 312003
    
    2002Cash
    
    
    88
    
    
    
    51Deposits in local currency
    
    
    267
    
    
    
    220Deposits in United States dollars
    
    
    230
    
    
    
    820585
    
    
    
    1,091
  10
    
    Accounts receivable As of December 312003
    
    2002CustomersDomestic
    
    
    195
    
    
    
    189Export, all denominated in United States dollars
    
    
    665
    
    
    
    503860
    
    
    
    692Allowance for doubtful accounts
    
    
    (30
    )
    
    
    (26
    )Allowance for ore weight credits
    
    
    (12
    )
    
    
    (6
    )Total
    
    
    818
    
    
    
    660
  Accounts receivable from customers in the steel industry amount to 27.5%
and 18.4% of domestic receivables (export receivables  88.1% and 95.1%) at
December 31, 2003 and 2002, respectively. No single customer accounted for
more than 10% of total revenues in any of the years presented.11
    
    Inventories As of December 312003
    
    2002Finished productsIron ore and pellets
    
    
    146
    
    
    
    86Manganese and ferroalloys
    
    
    78
    
    
    
    51Alumina
    
    
    20
    
    
    
    15Kaolin
    
    
    16
    
    
    
    6Others
    
    
    8
    
    
    
    6Spare parts and maintenance supplies
    
    
    237
    
    
    
    128505
    
    
    
    292
 F-18




---



##### 



12
    
    Property, plant and equipmenta)
    
    Per business area: As of December 31, 2003
    
    As of December 31, 2002Accumulated
    
    
    
    
    
    
    
    
    
    AccumulatedCost
    
    depreciation
    
    Net
    
    Cost
    
    depreciation
    
    NetFerrousFerrous  Southern SystemMining
    
    
    2,196
    
    
    
    812
    
    
    
    1,384
    
    
    
    728
    
    
    
    318
    
    
    
    410Railroads
    
    
    866
    
    
    
    389
    
    
    
    477
    
    
    
    646
    
    
    
    308
    
    
    
    338Marine terminals
    
    
    183
    
    
    
    87
    
    
    
    96
    
    
    
    99
    
    
    
    60
    
    
    
    393,245
    
    
    
    1,288
    
    
    
    1,957
    
    
    
    1,473
    
    
    
    686
    
    
    
    787Ferrous  Northern SystemMining
    
    
    676
    
    
    
    277
    
    
    
    399
    
    
    
    483
    
    
    
    208
    
    
    
    275Railroads
    
    
    924
    
    
    
    376
    
    
    
    548
    
    
    
    727
    
    
    
    292
    
    
    
    435Marine terminals
    
    
    196
    
    
    
    85
    
    
    
    111
    
    
    
    139
    
    
    
    65
    
    
    
    741,796
    
    
    
    738
    
    
    
    1,058
    
    
    
    1,349
    
    
    
    565
    
    
    
    784Pelletizing
    
    
    382
    
    
    
    133
    
    
    
    249
    
    
    
    283
    
    
    
    76
    
    
    
    207Ferroalloys
    
    
    273
    
    
    
    153
    
    
    
    120
    
    
    
    171
    
    
    
    96
    
    
    
    75Energy
    
    
    128
    
    
    
    11
    
    
    
    117
    
    
    
    58
    
    
    
    6
    
    
    
    52Construction in progress
    
    
    914
    
    
    
    
    
    
    
    914
    
    
    
    406
    
    
    
    
    
    
    
    4066,738
    
    
    
    2,323
    
    
    
    4,415
    
    
    
    3,740
    
    
    
    1,429
    
    
    
    2,311Non-FerrousPotash
    
    
    54
    
    
    
    22
    
    
    
    32
    
    
    
    39
    
    
    
    15
    
    
    
    24Gold
    
    
    27
    
    
    
    25
    
    
    
    2
    
    
    
    119
    
    
    
    100
    
    
    
    19Kaolin
    
    
    220
    
    
    
    75
    
    
    
    145
    
    
    
    71
    
    
    
    17
    
    
    
    54Research and projects
    
    
    86
    
    
    
    62
    
    
    
    24
    
    
    
    63
    
    
    
    48
    
    
    
    15Construction in progress
    
    
    797
    
    
    
    
    
    
    
    797
    
    
    
    288
    
    
    
    
    
    
    
    2881,184
    
    
    
    184
    
    
    
    1,000
    
    
    
    580
    
    
    
    180
    
    
    
    400LogisticsGeneral cargo
    
    
    575
    
    
    
    188
    
    
    
    387
    
    
    
    232
    
    
    
    109
    
    
    
    123Maritime transportation
    
    
    8
    
    
    
    6
    
    
    
    2
    
    
    
    10
    
    
    
    8
    
    
    
    2Construction in progress
    
    
    35
    
    
    
    
    
    
    
    35
    
    
    
    19
    
    
    
    
    
    
    
    19618
    
    
    
    194
    
    
    
    424
    
    
    
    261
    
    
    
    117
    
    
    
    144HoldingsAluminum
    
    
    545
    
    
    
    92
    
    
    
    453
    
    
    
    248
    
    
    
    55
    
    
    
    193Others
    
    
    2
    
    
    
    1
    
    
    
    1
    
    
    
    12
    
    
    
    2
    
    
    
    10Construction in progress
    
    
    111
    
    
    
    
    
    
    
    111
    
    
    
    204
    
    
    
    
    
    
    
    204658
    
    
    
    93
    
    
    
    565
    
    
    
    464
    
    
    
    57
    
    
    
    407Corporate CenterCorporate
    
    
    67
    
    
    
    28
    
    
    
    39
    
    
    
    35
    
    
    
    13
    
    
    
    22Construction in progress
    
    
    41
    
    
    
    
    
    
    
    41
    
    
    
    13
    
    
    
    
    
    
    
    13108
    
    
    
    28
    
    
    
    80
    
    
    
    48
    
    
    
    13
    
    
    
    35Total
    
    
    9,306
    
    
    
    2,822
    
    
    
    6,484
    
    
    
    5,093
    
    
    
    1,796
    
    
    
    3,297
  b)
    
    Per type of assets: As of December 31, 2003
    
    As of December 31, 2002Accumulated
    
    
    
    
    
    
    
    
    
    AccumulatedCost
    
    depreciation
    
    Net
    
    Cost
    
    depreciation
    
    NetLand and buildings
    
    
    749
    
    
    
    303
    
    
    
    446
    
    
    
    489
    
    
    
    188
    
    
    
    301Installations
    
    
    2,466
    
    
    
    932
    
    
    
    1,534
    
    
    
    1,448
    
    
    
    590
    
    
    
    858Equipment
    
    
    883
    
    
    
    405
    
    
    
    478
    
    
    
    391
    
    
    
    196
    
    
    
    195Railroads
    
    
    1,741
    
    
    
    756
    
    
    
    985
    
    
    
    1,258
    
    
    
    568
    
    
    
    690Mine development costs
    
    
    353
    
    
    
    115
    
    
    
    238
    
    
    
    193
    
    
    
    53
    
    
    
    140Purchased mining reserves
    
    
    578
    
    
    
    8
    
    
    
    570
    
    
    
    
    
    
    
    
    
    
    
    Others
    
    
    638
    
    
    
    303
    
    
    
    335
    
    
    
    384
    
    
    
    201
    
    
    
    1837,408
    
    
    
    2,822
    
    
    
    4,586
    
    
    
    4,163
    
    
    
    1,796
    
    
    
    2,367Construction in progress
    
    
    1,898
    
    
    
    
    
    
    
    1,898
    
    
    
    930
    
    
    
    
    
    
    
    930Total
    
    
    9,306
    
    
    
    2,822
    
    
    
    6,484
    
    
    
    5,093
    
    
    
    1,796
    
    
    
    3,297
 F-19




---



##### 



Losses on disposals and impairments of property, plant and equipment totaled
$51, $62 and $79 in 2003, 2002 and 2001, respectively. Disposals and
impairments mainly relate to impairment of gold mines, sales of ships and
trucks, locomotives and other equipment which were replaced in the normal
course of business.In 2002 we sold certain forestry assets of our subsidiary Florestas Rio Doce
S.A. for $59 and recorded a gain on this sale of $49. In 2003 we sold our
last significant gold mining operations for $ 21 which was the book value.(c)
    
    Hydroelectric projectsWe participate in several jointly-owned hydroelectric plants, already in
operation or under construction. We have an undivided interest in these
plants and are responsible for our proportionate share of the costs of
construction and operation and are entitled to our proportionate share of
the energy produced.The situation of these projects at December 31, 2003 is as follows: Date of
    
    
    
    
    
    
    
    
    
    Ourcompletion /
    
    Our
    
    
    
    
    
    share of
    
    Our share of
    
    
    
    
    
    Our share ofexpected
    
    interest
    
    Plant in
    
    plant in
    
    accumulated
    
    Plant under
    
    plant underProject
    
    completion
    
    %
    
    service
    
    service
    
    depreciation
    
    construction
    
    constructionIgarapava
    
    January, 1999
    
    
    38.1
    
    
    
    136
    
    
    
    52
    
    
    
    (8
    )
    
    
    
    
    
    
    Porto Estrela
    
    September, 2001
    
    
    33.3
    
    
    
    57
    
    
    
    19
    
    
    
    (1
    )
    
    
    
    
    
    
    Funil
    
    December, 2003
    
    
    51.0
    
    
    
    112
    
    
    
    57
    
    
    
    (2
    )
    
    
    
    
    
    
    Candonga
    
    August, 2004
    
    
    50.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87
    
    
    
    44Aimorés
    
    July, 2004
    
    
    51.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178
    
    
    
    91Capim Branco I
    
    February, 2006
    
    
    48.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    12Capim Branco II
    
    December, 2006
    
    
    48.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    4Foz do Chapecó
    
    July, 2008
    
    
    40.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    2Estreito
    
    October, 2008
    
    
    30.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    1
  Income and expenses relating to operating plants are not material. F-20




---



##### 



13 Investments in affiliated companies and joint ventures December 31,2003
    
    Investments
    
    Equity AdjustmentsYear ended December 31,Participation in
    
    
    
    
    
    Net income forcapital (%)
    
    Net equity
    
    the period
    
    2003
    
    2002
    
    2003
    
    2002
    
    2001voting
    
    totalSteelUsinas Siderúrgicas de Minas Gerais S.A.  USIMINAS
    
    
    22.99
    
    
    
    11.46
    
    
    
    271
    
    
    
    297
    
    
    
    31
    
    
    
    
    
    
    
    34
    
    
    
    (15
    )
    
    
    Companhia Siderúrgica de Tubarão  CST (1)
    
    
    26.93
    
    
    
    28.79
    
    
    
    307
    
    
    
    161
    
    
    
    86
    
    
    
    27
    
    
    
    45
    
    
    
    19
    
    
    
    (1
    )California Steel Industries Inc.  CSI
    
    
    50.00
    
    
    
    50.00
    
    
    
    206
    
    
    
    5
    
    
    
    103
    
    
    
    107
    
    
    
    2
    
    
    
    19
    
    
    
    (3
    )SIDERAR (costs $15)  available for sale investments
    
    
    4.85
    
    
    
    4.85
    
    
    
    
    
    
    
    
    
    
    
    89
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    309
    
    
    
    164
    
    
    
    81
    
    
    
    23
    
    
    
    (4
    )Aluminum and bauxiteMineração Rio do Norte S.A.  MRN
    
    
    40.00
    
    
    
    40.00
    
    
    
    420
    
    
    
    81
    
    
    
    168
    
    
    
    162
    
    
    
    33
    
    
    
    38
    
    
    
    32Valesul Alumínio S.A.  VALESUL
    
    
    54.51
    
    
    
    54.51
    
    
    
    90
    
    
    
    18
    
    
    
    49
    
    
    
    39
    
    
    
    10
    
    
    
    14
    
    
    
    11Alumínio Brasileiro S.A.  ALBRAS
    
    
    51.00
    
    
    
    51.00
    
    
    
    220
    
    
    
    203
    
    
    
    112
    
    
    
    
    
    
    
    104
    
    
    
    
    
    
    
    Alumínio Brasileiro S.A.  ALBRAS  change in provision for losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    10
    
    
    
    4Alumina do Norte do Brasil S.A.  ALUNORTE (4)
    
    
    62.09
    
    
    
    57.03
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23
    )
    
    
    (6
    )329
    
    
    
    200
    
    
    
    147
    
    
    
    39
    
    
    
    41FerrousCaemi Mineração e Metalurgia S.A. (3)
    
    
    100.00
    
    
    
    60.23
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    77
    
    
    
    23
    
    
    
    (102
    )
    
    
    Companhia Nipo-Brasileira de Pelotização  NIBRASCO
    
    
    51.11
    
    
    
    51.00
    
    
    
    35
    
    
    
    6
    
    
    
    18
    
    
    
    12
    
    
    
    3
    
    
    
    4
    
    
    
    (2
    )Companhia Hispano-Brasileira de Pelotização  HISPANOBRÁS
    
    
    51.00
    
    
    
    50.89
    
    
    
    32
    
    
    
    6
    
    
    
    17
    
    
    
    14
    
    
    
    3
    
    
    
    5
    
    
    
    5Companhia Coreano-Brasileira de Pelotização  KOBRASCO
    
    
    50.00
    
    
    
    50.00
    
    
    
    
    
    
    
    38
    
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    (2
    )
    
    
    (8
    )Companhia Coreano-Brasileira de Pelotização  KOBRASCO -
change in provision for losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    17
    
    
    
    (15
    )
    
    
    Companhia Ítalo-Brasileira de Pelotização  ITABRASCO
    
    
    51.00
    
    
    
    50.90
    
    
    
    21
    
    
    
    5
    
    
    
    11
    
    
    
    9
    
    
    
    3
    
    
    
    5
    
    
    
    4Gulf Industrial Investment Company  GIIC
    
    
    50.00
    
    
    
    50.00
    
    
    
    80
    
    
    
    24
    
    
    
    40
    
    
    
    37
    
    
    
    12
    
    
    
    5
    
    
    
    (17
    )SAMARCO Mineração S.A.  SAMARCO (5)
    
    
    50.00
    
    
    
    50.00
    
    
    
    369
    
    
    
    140
    
    
    
    221
    
    
    
    184
    
    
    
    70
    
    
    
    28
    
    
    
    11Minas da Serra Geral S.A.  MSG
    
    
    50.00
    
    
    
    50.00
    
    
    
    31
    
    
    
    4
    
    
    
    15
    
    
    
    9
    
    
    
    2
    
    
    
    4
    
    
    
    Others
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    24
    
    
    
    (1
    )
    
    
    2
    
    
    
    344
    
    
    
    350
    
    
    
    133
    
    
    
    (66
    )
    
    
    (7
    )LogisticsCompanhia Ferroviária do Nordeste  CFN  change in provision for losses (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (4
    )
    
    
    (8
    )Ferroban  Ferrovias Bandeirantes S.A.  change in provision for losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    Ferrovia Centro-Atlântica S.A.  FCA  change in provision for losses (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (93
    )
    
    
    (42
    )
    
    
    (95
    )MRS Logística S.A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    
    
    
    
    39
    
    
    
    (20
    )
    
    
    MRS Logística S.A.  change in provision for losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    6
    
    
    
    (7
    )
    
    
    Sepetiba Tecon S.A.  change in provision for losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (1
    )
    
    
    (9
    )
    
    
    (3
    )Others
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (2
    )44
    
    
    
    (10
    )
    
    
    (52
    )
    
    
    (88
    )
    
    
    (108
    )Other affiliates and joint venturesFertilizantes Fosfatados S.A.  FOSFERTIL (2)
    
    
    10.96
    
    
    
    11.12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    1
    
    
    
    8
    
    
    
    5Others
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    3
    
    
    
    (4
    )
    
    
    (3
    )
    
    
    208
    
    
    
    28
    
    
    
    (3
    )
    
    
    5
    
    
    
    25Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,034
    
    
    
    732
    
    
    
    306
    
    
    
    (87
    )
    
    
    (53
    )
   [Continued from above table, first column(s) repeated] QuotedDividends received
    
    marketDecem-Year ended December 31,
    
    ber 31,2003
    
    2002
    
    2001
    
    2003SteelUsinas Siderúrgicas de Minas Gerais S.A.  USIMINAS
    
    
    3
    
    
    
    4
    
    
    
    3
    
    
    
    219Companhia Siderúrgica de Tubarão  CST (1)
    
    
    52
    
    
    
    4
    
    
    
    10
    
    
    
    476California Steel Industries Inc.  CSI
    
    
    5
    
    
    
    9
    
    
    
    2
    
    
    
    SIDERAR (costs $15)  available for sale investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8960
    
    
    
    17
    
    
    
    15
    
    
    
    784Aluminum and bauxiteMineração Rio do Norte S.A.  MRN
    
    
    27
    
    
    
    31
    
    
    
    31
    
    
    
    Valesul Alumínio S.A.  VALESUL
    
    
    9
    
    
    
    6
    
    
    
    
    
    
    
    Alumínio Brasileiro S.A.  ALBRAS
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Alumínio Brasileiro S.A.  ALBRAS  change in provision for losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Alumina do Norte do Brasil S.A.  ALUNORTE (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    37
    
    
    
    31
    
    
    
    FerrousCaemi Mineração e Metalurgia S.A. (3)
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    290Companhia Nipo-Brasileira de Pelotização  NIBRASCO
    
    
    
    
    
    
    2
    
    
    
    5
    
    
    
    Companhia Hispano-Brasileira de Pelotização  HISPANOBRÁS
    
    
    2
    
    
    
    2
    
    
    
    5
    
    
    
    Companhia Coreano-Brasileira de Pelotização  KOBRASCO
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Companhia Coreano-Brasileira de Pelotização  KOBRASCO -
change in provision for losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Companhia Ítalo-Brasileira de Pelotização  ITABRASCO
    
    
    1
    
    
    
    4
    
    
    
    5

    
    
    
    Gulf Industrial Investment Company  GIIC
    
    
    9
    
    
    
    6
    
    
    
    11
    
    
    
    SAMARCO Mineração S.A.  SAMARCO (5)
    
    
    78
    
    
    
    17
    
    
    
    21
    
    
    
    Minas da Serra Geral S.A.  MSG
    
    
    1
    
    
    
    1
    
    
    
    5
    
    
    
    Others
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91
    
    
    
    35
    
    
    
    52
    
    
    
    290LogisticsCompanhia Ferroviária do Nordeste  CFN  change in provision for losses (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ferroban  Ferrovias Bandeirantes S.A.  change in provision for losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ferrovia Centro-Atlântica S.A.  FCA  change in provision for losses (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MRS Logística S.A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MRS Logística S.A.  change in provision for losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sepetiba Tecon S.A.  change in provision for losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OthersSepetiba Tecon S.A.  change in provision for losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other affiliates and joint venturesFertilizantes Fosfatados S.A.  FOSFERTIL (2)
    
    
    9
    
    
    
    2
    
    
    
    3
    
    
    
    Others
    
    
    1
    
    
    
    
    
    
    
    31
    
    
    
    10
    
    
    
    2
    
    
    
    34
    
    
    
    Total
    
    
    197
    
    
    
    91
    
    
    
    132
    
    
    
    1,074
  (1)
    
    During the quarter ended June 30, 2003 CVRD acquired an additional 4.42%
of the voting shares and 5.64% of the preferred shares, representing 5.17% of
CSTs total capital for $ 60;(2)
    
    Investment sold in 2003;(3)
    
    Consolidated as from September, 2003, after acquisition of control;(4)
    
    Consolidated as from June 30, 2002, after acquisition of control;(5)
    
    Investment includes goodwill of $37 and $30 in 2003 and 2002, respectively. F-21




---



##### 



14
    
    Short-term debtOur short-term borrowings are from commercial banks and relate export financing
denominated in United States dollars.Average annual interest rates on short-term borrowings were 3.19%, 3.97%
and 4.96% in 2003, 2002 and 2001, respectively.15
    
    Long-term debt As of December 31Current liabilities
    
    Long-Term liabilities2003
    
    2002
    
    2003
    
    2002Foreign debtLoans and financing contracted in the following currencies:United States dollars
    
    
    470
    
    
    
    431
    
    
    
    1,151
    
    
    
    1,034Japanese Yen
    
    
    30
    
    
    
    1
    
    
    
    2
    
    
    
    29Others
    
    
    3
    
    
    
    1
    
    
    
    25
    
    
    
    1Fixed Rate Notes  US$ denominated
    
    
    300
    
    
    
    200
    
    
    
    600
    
    
    
    600Securitization of export receivables  US$ denominated
    
    
    44
    
    
    
    25
    
    
    
    481
    
    
    
    275Perpetual notes
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    63Accrued charges
    
    
    54
    
    
    
    20
    
    
    
    
    
    
    
    901
    
    
    
    678
    
    
    
    2,324
    
    
    
    2,002Local debtIndexed by Long-Term Interest Rate  TJLP
    
    
    10
    
    
    
    8
    
    
    
    88
    
    
    
    22Indexed by General Price Index-Market (IGPM)
    
    
    16
    
    
    
    14
    
    
    
    19
    
    
    
    24Basket of currencies
    
    
    30
    
    
    
    13
    
    
    
    23
    
    
    
    32Non-convertible debentures
    
    
    
    
    
    
    
    
    
    
    90
    
    
    
    64Indexed by U.S. dollars
    
    
    33
    
    
    
    1
    
    
    
    221
    
    
    
    215Accrued charges
    
    
    19
    
    
    
    3
    
    
    
    2
    
    
    
    108
    
    
    
    39
    
    
    
    443
    
    
    
    357Total
    
    
    1,009
    
    
    
    717
    
    
    
    2,767
    
    
    
    2,359
  The long-termPportion at December 31, 2003 becomes due in the following years: 2005
    
    
    4802006
    
    
    5642007
    
    
    5542008
    
    
    198Thereafter
    
    
    816No due date (Perpetual notes and non-convertible debentures)
    
    
    1552,767
  At December 31, 2003 annual interest rates on long-term debt were as follows: F-22




---



##### 



Up to 7%
    
    
    2,3667.1% to 9%
    
    
    9309.1% to 11%
    
    
    316Over 11%
    
    
    99Variable (Perpetual notes)
    
    
    653,776
  The indexes applied to debt and respective percentage variations in
each year were as follows: 2003
    
    2002
    
    2001TJLP  Long-Term Interest Rate (effective rate)
    
    
    11.50
    
    
    
    9.87
    
    
    
    9.50IGP-M  General Price Index  Market
    
    
    8.71
    
    
    
    25.31
    
    
    
    10.37United States Dollar
    
    
    (18.23
    )
    
    
    52.27
    
    
    
    18.67
  At December 31, 2003 the US$ denominated Fixed Rate Notes of $900 (2002
  $800) and other debt of $1,606 (2002  $1,430) are unsecured. The
export securitization of $525 (2002  $300) is secured by existing and
future accounts receivable of our subsidiary CVRD Overseas Ltd. Loans
from international lenders of $232 (2002- $295) are guaranteed by the
Federal Government, to which we have given counter-guarantees of $163
(2002  $204) secured by our own shares and accounts receivable
from us and a
subsidiary. We have also loans from local and international
institutions secured by property, plant and equipment in the amount of
$165 (2002  $129). The remaining long-term debt of $387 (2002  $213)
is secured mainly by assets of subsidiaries.  The Perpetual Notes are exchangeable for 48 billion preferred shares of
the affiliate MRN (initially equivalent to 8% of the total number of
shares of MRN owned by us). Interest is payable on the Notes in an
amount equal to dividends paid on the underlying preferred shares,
relative to periods starting as from the 2000 fiscal year. The Notes
may be redeemed at our option or the Noteholders at any time by
transfer of the underlying preferred shares to the Noteholders,
providing the preemptive rights of the existing shareholders of MRN
have been waived or have expired. Redemption by transfer of the
underlying net assets of MRN is compulsory if certain events occur,
including the liquidation or merger of MRN or the transfer of MRNs
asset and liabilities to a consortium formed by its shareholders to
take over the operations of MRN. In the event of early termination the
Notes may be redeemed, at the option the Noteholders, in lieu of
transfer of the shares, for a cash sum equal to $48 plus the net
present value of average annual earnings declared and paid by MRN for
the three years immediately preceding such termination multiplied by 20
and discounted by 10% per year. This latter amount represents a fair
value at December 31, 2003 of $65.  16
    
    Stockholders equity  Each holder of common and preferred class A stock is entitled to one vote
for each share on all matters that come before a stockholders meeting, except
for the election of the Board of Directors, which is restricted to the holders
of common stock. As described in Note 6, the Brazilian Government holds a
preferred special share which confers on it permanent veto rights over certain
matters.  As of December 31, 2003, we had acquired 4,719,353 shares to be held in
treasury for subsequent disposal or cancellation at an average weighted unit
cost of R$27.80 (minimum cost of R$20.07 and maximum of R$52.09).Both common and preferred stockholders are entitled to receive a dividend
of at least 25% of annual net income, upon approval at the annual
stockholders meeting. In the case of preferred stockholders, this dividend cannot be less than 6% of the
preferred capital as F-23




---



##### 



stated in the statutory accounting records or, if
greater, 3% of the book equity value per share. With respect to each of
2003, 2002 and 2001 we distributed dividends to preferred stockholders
in excess of this limit. Interest attributed to stockholders as from
January 1, 1996 is considered part of the minimum dividend.Brazilian law permits the payment of cash dividends only from retained
earnings as stated in the statutory accounting records and such payments are
made in Reais. At December 31, 2003, we had no undistributed retained
earnings. In addition, appropriated retained earnings at December 31, 2003
includes $2,283, related to the unrealized income and expansion reserves,
which could be freely transferred to retained earnings and paid as dividends,
if approved by the stockholders.No withholding tax is payable on distribution of profits earned as from
January 1, 1996, except for distributions in the form of interest attributed
to stockholders as explained in Note 3 (l).Brazilian laws and our By-laws require that certain appropriations be
made from retained earnings to reserve accounts on an annual basis, all
determined in accordance with amounts stated in the statutory accounting
records, as detailed below: Year ended December 312003
    
    2002
    
    2001Appropriated retained earningsUnrealized income reserveBalance January 1
    
    
    211
    
    
    
    548
    
    
    
    874Transfer to retained earnings
    
    
    (18
    )
    
    
    (337
    )
    
    
    (326
    )Balance December 31
    
    
    193
    
    
    
    211
    
    
    
    548Expansion reserveBalance January 1
    
    
    1,494
    
    
    
    1,667
    
    
    
    1,546Transfer to capital stock
    
    
    (423
    )
    
    
    
    
    
    
    (278
    )Transfer from (to) retained earnings
    
    
    1,019
    
    
    
    (173
    )
    
    
    399Balance December 31
    
    
    2,090
    
    
    
    1,494
    
    
    
    1,667Legal reserveBalance January 1
    
    
    241
    
    
    
    325
    
    
    
    307Transfer from (to) retained earnings
    
    
    133
    
    
    
    (84
    )
    
    
    18Balance December 31
    
    
    374
    
    
    
    241
    
    
    
    325Fiscal incentive depletion reserveBalance January 1
    
    
    284
    
    
    
    649
    
    
    
    771Transfer to capital stock
    
    
    
    
    
    
    (212
    )
    
    
    Transfer to retained earnings
    
    
    63
    
    
    
    (153
    )
    
    
    (122
    )Balance December 31
    
    
    347
    
    
    
    284
    
    
    
    649Fiscal incentive investment reserveBalance January 1
    
    
    
    
    
    
    23
    
    
    
    39Transfer to capital stock
    
    
    
    
    
    
    (23
    )
    
    
    (33
    )Transfer from retained earnings
    
    
    31
    
    
    
    
    
    
    
    17Balance December 31
    
    
    31
    
    
    
    
    
    
    
    23Total appropriated retained earnings
    
    
    3,035
    
    
    
    2,230
    
    
    
    3,212  The purpose and basis of appropriation to such reserves is described
below:  .
    
    Unrealized income reserve  this represents principally our share of
the earnings of affiliates and joint ventures, not yet received in the form of
cash dividends..
    
    Expansion reserve  this is a general reserve for expansion of our
activities..
    
    Legal reserve  this reserve is a requirement for all Brazilian
corporations and represents the appropriation of 5% of annual net income under
Brazilian GAAP up to a limit of 20% of capital stock under Brazilian GAAP..
    
    Fiscal incentive depletion reserve  this represents an additional
amount relative to mineral reserve depletion equivalent to 20% of the sales
price of mining production, which is deductible for tax purposes providing an
equivalent amount is transferred from retained earnings to the reserve
account. This fiscal incentive expired in 1996..
    
    Fiscal incentive investment reserve  this reserve results from an
option to designate a portion of income tax otherwise payable for investment
in government approved projects and is recorded in the year following that in
which the taxable income was earned. As from 2000, this reserve also
contemplates the tax incentives described in Note 8.  17
    
    Pension plansSince 1973 we have sponsored a defined benefit pension plan (the Old
Plan) covering substantially all employees, with benefits based on years of
service, salary and social security benefits. This plan is administered by
Fundação Vale do Rio Doce de Seguridade Social  VALIA and was funded by
monthly contributions made by us and our employees, calculated based on
periodic actuarial appraisals.In May 2000, we implemented a new pension plan, which is primarily a
defined contribution plan with a defined benefit feature relative to service
prior to May 2000 (the New Plan), and offered our active employees the
opportunity of transferring to the New Plan. Over 98% of our active employees
opted to transfer to the New Plan. The Old Plan will continue in existence,
covering almost exclusively retired participants and their beneficiaries.The following information details the status of the defined benefit
elements of our plans in accordance with SFAS 132  Employers Disclosure
about Pensions and Other Post-retirement Benefits, as amended. F-24




---



##### 



(a)
    
    Change in benefit obligation As of December 312003
    
    2002Benefit obligation at beginning of year
    
    
    1,308
    
    
    
    1,388Service cost
    
    
    2
    
    
    
    2Interest cost
    
    
    136
    
    
    
    120Benefits paid
    
    
    (111
    )
    
    
    (94
    )Effect of exchange rate changes
    
    
    20
    
    
    
    (288
    )Actuarial loss
    
    
    75
    
    
    
    180Benefit obligation at end of year
    
    
    1,430
    
    
    
    1,308
  We use a measurement date of December 1, 2003 for our pension and
postretirement benefit plans.  (b) Change in plan assets As of December 312003
    
    2002Fair value of plan assets at beginning of year
    
    
    1,285
    
    
    
    1,374Actual return on plan assets
    
    
    432
    
    
    
    277Employer contributions
    
    
    14
    
    
    
    12Benefits paid
    
    
    (111
    )
    
    
    (94
    )Effect of exchange rate changes
    
    
    17
    
    
    
    (284
    )Fair value of plan assets at end of year
    
    
    1,637
    
    
    
    1,285
  Plan assets at December 31, 2003 include $194 of portfolio investments
in our own shares ($102 at December 31, 2002) and $20 of shares of
related parties ($8 at December 31, 2002), as well as $323 of Federal
Government Securities ($387 at December 31, 2002).Employer contributions expected for 2004 are $14 (unaudited). F-25




---



##### 



(c)
    
    Accrued pension cost liability (prepaid pension cost) As of December 312003
    
    2002Funded status, excess of benefit obligation over plan assets
    
    
    (207
    )
    
    
    23Unrecognized net transitory obligation
    
    
    (56
    )
    
    
    (65
    )Unrecognized net actuarial loss
    
    
    181
    
    
    
    (37
    )Accrued pension cost liability (prepaid pension cost)
    
    
    (82
    )
    
    
    (79
    )
  (d)
    
    Assumptions used in each year (expressed in nominal terms) 2003
    
    2002Discount rate
    
    
    11.30% p.a
    
    
    
    11.30% p.aExpected return on plan assets
    
    
    13.40% p.a
    
    
    
    11.30% p.aRate of compensation increase  up to 47 years
    
    
    6.91% p.a
    
    
    
    6.91% p.aInflation
    
    
    5.00% p.a
    
    
    
    5.00% p.a
  All assumptions will be revised during 2004.  (e)
    
    Investment targets and composition of plan assets  The asset allocation for the Companys pension plans at the end of 2003
and 2002, and the target allocation for 2004, by asset category,
follows. The fair value of plan assets for these plans is $1,637 and
$1,285 at the end of 2003 and 2002, respectively. Percentage of plan assets atTarget
    
    December 31,allocationAsset category
    
    for 2004
    
    2003
    
    2002Equity securities
    
    
    30
    %
    
    
    27
    %
    
    
    29
    %Real estate
    
    
    7
    %
    
    
    6
    %
    
    
    7
    %Loans
    
    
    4
    %
    
    
    2
    %
    
    
    3
    %Fixed Income
    
    
    59
    %
    
    
    65
    %
    
    
    61
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  The fixed income allocation target of 59% was established in order to
match the asset with the benefit payments. The proposal for 2004 is an
increase of up to 33% in the investments in inflation-indexed funds.
The remaining investments in fixed income would be responsible for the
payment of short-term plan benefits.The increase in the target allocation for equity securities is related
to a 32% expected return in the IBOVESPA (Brazilian stock index). This
high return is due to an expected increase of corporate profits, and a
belief that Brazils risk will decrease, economic activity will
increase, and U.S. interest rates will remain low. F-26




---



##### 



(f)
    
    Pension costs Year ended December 312003
    
    2002
    
    2001Service cost  benefits earned during the period
    
    
    2
    
    
    
    2
    
    
    
    2Interest cost on projected benefit obligation
    
    
    136
    
    
    
    120
    
    
    
    180Actual return on assets
    
    
    (432
    )
    
    
    (277
    )
    
    
    (220
    )Amortization of initial transitory obligation
    
    
    9
    
    
    
    9
    
    
    
    12Net deferral
    
    
    297
    
    
    
    157
    
    
    
    58Net periodic pension cost
    
    
    12
    
    
    
    11
    
    
    
    32
  In addition to benefits provided under our pension plan, accruals have
been made relative to supplementary benefits extended in previous periods as
part of early-retirement programs. Such accruals included in long-term
liabilities totaled $198 and $141, at December 31, 2003 and 2002,
respectively, plus $32 and $23, respectively, in current liabilities.The cost recognized in the years 2003, 2002 and 2001 relative to the
defined contribution element of the New Plan was $5, $5 and $3,
respectively.18
    
    Commitments and contingencies  (a)
    
    At December 31, 2003, we had extended guarantees for borrowings obtained
by affiliates and joint ventures in the amount of $283, of which $242 is
denominated in United States dollars and the remaining $41 in local currency,
as follows: Amount of
    
    Denominated
    
    
    
    
    
    Final
    
    CounterAffiliate or Joint Venture
    
    guarantee
    
    currency
    
    Purpose
    
    maturity
    
    guaranteesALBRAS
    
    
    231
    
    
    US$
    
    Debt guarantee
    
    
    2007
    
    
    None40
    
    
    
    R$
    
    
    Debt guarantee
    
    
    2010
    
    
    NoneSAMARCO
    
    
    10
    
    
    US$
    
    Debt guarantee
    
    
    2020
    
    
    NoneVALESUL
    
    
    1
    
    
    
    R$
    
    
    Debt guarantee
    
    
    2006
    
    
    NoneCollateralNIBRASCO
    
    
    1
    
    
    US$
    
    Debt guarantee
    
    
    2004
    
    
    Pledge283
  We expect no losses to arise as a result of the above guarantees.
We charge commission for extending these guarantees in the case of
Albras and Samarco.We have not provided any significant guarantees since January 1,
2003 which would require fair value adjustments under FIN 45 
Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others.(b)
    
    CVRD and its subsidiaries are defendants in numerous legal actions in the
normal course of business. Based on the advice of our legal counsel,
management believes that the provision made against contingent losses is
sufficient to cover probable losses in connection with such actions. F-27




---



##### 



The provision for contingencies and the related judicial deposits are composed
as follows: December 31, 2003
    
    December 31, 2002Provision for
    
    Judicial
    
    Provision for
    
    Judicialcontingencies
    
    deposits
    
    contingencies
    
    depositsLabor claims
    
    
    177
    
    
    
    66
    
    
    
    109
    
    
    
    52Civil claims
    
    
    167
    
    
    
    54
    
    
    
    95
    
    
    
    32Tax  related actions
    
    
    285
    
    
    
    279
    
    
    
    220
    
    
    
    153Others
    
    
    6
    
    
    
    8
    
    
    
    4
    
    
    
    2635
    
    
    
    407
    
    
    
    428
    
    
    
    239
  Labor  related actions principally comprise employee claims for (i)
payment of time spent travelling from their residences to the
work-place, (ii) additional payments for alleged dangerous or unhealthy
working conditions and (iii) various other matters, often in connection
with disputes about the amount of indemnities paid upon dismissal.

Civil actions principally relate to claims made against us by
contractors in connection with losses alleged to have been incurred by
them as a result of various past government economic plans during which
full indexation of contracts for inflation was not permitted.
Tax - related actions principally comprise our challenges of certain revenue
taxes, VAT and of the tax on financial movements  CPMF.
We continue to
vigorously pursue our interests in all the above actions but recognize
that probably we will incur some losses in the final instance, for
which we have made provisions.Our judicial deposits are made as required by the courts for us to be
able to enter or continue a legal action. When judgment is favorable to
us, we receive the deposits back; when unfavorable, the deposits are
delivered to the prevailing party. An increase of $126 for tax deposits
during 2003 refers mainly to an action in which we challenged the
annual limitation on use to our tax loss carryforwards.Contingencies settled in 2003, 2002 and 2001 aggregated $182 $178 and $6,
respectively, and additional provisions aggregated $146, $264 and $79,
respectively.In addition to the contingencies for which we have made provisions
we have possible losses in connection with tax contingencies totaling
$308 and $220 at December 31, 2003 and 2002, respectively, for which no
provision is maintained.(c)
    
    We are defendants in two actions seeking substantial compensatory damages
brought by the Municipality of Itabira, State of Minas Gerais, which we
believe are without merit. Due to the remote likelihood that any loss will
arise therefrom no provision has been made in the financial statements with
respect to these two actions.(d)
    
    We are committed under a take-or-pay agreement to take annual delivery of
approximately 207,060 metric tons per year of aluminum from ALBRAS at market
prices. This estimate is based on 51% of ALBRAS expected production and, at a
market price of $1,458.16 per metric ton, at December 31, 2003, represents an
annual commitment of $302. Actual take from Albras was $296, $257 and $220
during 2003, 2002 and 2001, respectively.(e)
    
    We and BNDES entered into a contract, known as the Mineral Risk Contract,
in March 1997, relating to prospecting authorizations for mining regions where
drilling and exploration are still in their early stages. The Mineral Risk
Contract provides for the joint development of certain unexplored mineral
deposits in approximately two million identified hectares of land in the
Carajás region, as well as proportional participation in any financial benefits
earned from the development of such resources. Iron ore and manganese deposits
already identified and subject to development are specifically excluded from
the Mineral Risk Contract. F-28




---



##### 



Pursuant to the Mineral Risk Contract, we and BNDES each agreed to
provide US$ 205 million, which represents half of the US$ 410 million in
expenditures estimated as necessary to complete geological exploration and
mineral resource development projects in the region over a period of five
years, which was extended for an additional period of two years. We will
oversee these projects and BNDES will advance us half of our costs on a
quarterly basis. Under the Mineral Risk Contract, as of December 31,
2003, the remaining contributions towards exploration and development
activities totaled US$ 87 million. In the event that either of us wishes
to conduct further exploration and development after having spent such US$
205 million, the contract provides that each party may either choose to
match the other partys contributions, or may choose to have its financial
interest proportionally diluted. If a partys participation in the
project is diluted to an amount lower than 40% of the amount invested in
connection with exploration and development projects, then the Mineral
Risk Contract provides that the diluted party will lose all the rights and
benefits provided for in the Mineral Risk Contract and any amounts
previously contributed to the project.Under the Mineral Risk Contract, BNDES has agreed to compensate us
through a finders fee production royalty on their share of mineral
resources that are discovered and placed into production. This finders
fee is equal to 3.5% of the revenues derived from the sale of gold, silver
and platinum group metals and 1.5% of the revenues derived from the sale
of other minerals, including copper, except for gold and other minerals
discovered at Serra Leste, for which the finders fee is equal to 6.5% of
revenues.(f)
    
    At the time of our privatization in 1997, we issued shareholder revenue
interests known in Brazil as debentures to our then-existing shareholders,
including the Brazilian Government. The terms of the debentures, were set
to ensure that our pre-privatization shareholders, including the Brazilian
Government, would participate alongside us in potential future financial
benefits that we are able to derive from exploiting our mineral resources.In preparation for the issuance of the debentures, we issued series B preferred
shares on a one-for-one basis to all holders of our common shares and series A
preferred shares. We then exchanged all of the series B shares for the
debentures at par value. The debentures are not redeemable or convertible, and
do not trade on a stapled basis or otherwise with our common or preferred
shares. During 2002 we registered the debentures with the CVM in order to
permit trading.Under Brazilian Central Bank regulations, pre-privatization
shareholders that held their shares through our preferred share
American Depositary Receipt, or ADR, program and institutional
investors that held their shares through rule 1,298/87 of Brazilian
Central Bank were not permitted to receive the debentures or any
financial benefits relating to the debentures. We sought approval
from the Central Bank to distribute the debentures to these investors,
but the Central Bank rejected our request. We renewed our request to
the Central Bank, but we cannot be sure that we will succeed.
Therefore, unless the Central Bank approves our request, the
debentures will not have any value for ADR holders and foreign
investors through annex V.Under the terms of the debentures, holders
will have the right to receive semi-annual payments equal to an agreed
percentage of our net revenues (revenues less value added tax) from
certain identified mineral resources that we owned as of May 1997, to
the extent that we exceed defined threshold production volumes of
these resources, and from the sale of mineral rights that we owned as
of May 1997. Our obligation to make payments to the holders will
cease when the relevant mineral resources are exhausted at which time
we are required to repay the original par value plus accrued interest.
Based on current production levels, and estimates for new projects,
we expect to start payments referring to copper resources in 2004, to
iron ore resources in approximately 2020 for the Northern System and
2030 for the Southern System, and payments related to other mineral
resources at the end of the decade.The table below summarizes the amounts we will be required to pay under the
debentures based on the net revenues we earn from the identified mineral
resources and the sale of mineral rights. F-29




---



##### 



Area
    
    Mineral
    
    Required Payments by CVRDSouthern System
    
    Iron ore
    
    1.8% of net revenue, after total sales from May
1997 exceeds 1.7 billion tons.Northern System
    
    Iron ore
    
    1.8% of net revenue, after total sales from May
1997 exceeds 1.2 billion tons.Pojuca, Andorinhas,
Liberdade and
Sossego
    
    Gold and
copper
    
    2.5% of net revenue from the beginning of
commercialization corresponding to our
ownership interest at April 15, 1997.Igarapé Bahia and
Alemão
    
    Gold and
copper
    
    2.5% of net revenue, after total sales from May
1997 exceeds 70 tons of gold.Fazenda Brasileiro (*)
    
    Gold
    
    2.5% of net revenue after total sales from May
1997 exceeds 26 tons.Other areas,
excluding Carajás/
Serra Leste
    
    Gold
    
    2.5% of net revenue.Other areas owned
as of May 1997
    
    Other
minerals
    
    1% of net revenue, 4 years after the beginning
of the commercialization.All areas
    
    Sale of mineral 
rights owned as
of May 1997
    
    1% of the sales price.
  (*)
    
    We sold Fazenda Brasileiro in August 2003 and will pay the corresponding
amount of $2 debenture holders by March 31, 2004.(g)
    
    We use various judgments and assumptions when measuring our environmental
liabilities and asset retirement obligations. Changes in circumstances, law
or technology may affect our estimates and we periodically review the amounts
accrued and adjust them as necessary. Our accruals do not reflect unasserted
claims because we are currently not aware of any such issues. Also the amounts
provided are not reduced by any potential recoveries under cost sharing,
insurance or indemnification arrangements because such recoveries are
considered uncertain. The changes are demonstrated as follows: Balance as of December 31, 2002
    
    
    15Initial recognition of SFAS 143 as at January 1, 2003
    
    
    26Increase due to new subsidiaries acquired
    
    
    11Accretion expense
    
    
    6Revisions to estimated cash flows
    
    
    15Cumulative translation adjustment
    
    
    8Balance as of December 31, 2003
    
    
    81
  Had SFAS 143 been applied prior to January 1, 2003, the pro forma
asset retirement obligation at December 31, 2002, 2001 and 2000 would
have been $41, $44 and $42, respectively.Additionaly, had SFAS 143 been applied previously, net income for the
years ended December 31, 2002 and 2001 on a pro forma basis would have
been lower by $8 and $6 (unaudited).Had SFAS 143 been applied in prior years the impact on net income and
earnings per share would be as follows: F-30




---



##### 



2002
    
    2001Net income
    
    
    680
    
    
    
    1,287Net income (pro forma  unaudited)
    
    
    672
    
    
    
    1,281Basic earnings per Preferred Class A Share
    
    
    1.77
    
    
    
    3.34Basic earnings per Common Share
    
    
    1.77
    
    
    
    3.34Basic earnings per Preferred Class A Share (pro forma  unaudited)
    
    
    1.75
    
    
    
    3.32Basic earnings per Common Share (pro forma  unaudited)
    
    
    1.75
    
    
    
    3.32
  (h)
    
    Description of Leasing ArrangementsWe conducts part of our railroad and port operation using equipments
and facilities under 30 and 25 year operating leases, respectively. At
the end of the lease term, we will return the leased assets.The following is a schedule of future minimum operating lease
payments required under long-term operating leases as of December
31, 2003: Year ending December 31:2004
    
    
    372005
    
    
    372006
    
    
    372007
    
    
    372008
    
    
    37Later years
    
    
    656Total minimum payments required
    
    
    841
  The total of expenses in 2003 and 2002 was $37 and $26, respectively.19
    
    Segment and geographical informationIn 1999 we adopted SFAS 131 Disclosures about Segments of an Enterprise
and Related Information with respect to the information we present about our
operating segments. SFAS 131 introduced a management approach concept for
reporting segment information, whereby such information is required to be
reported on the basis that the chief decision-maker uses internally for
evaluating segment performance and deciding how to allocate resources to
segments. Our business segments are currently organized as follows:Ferrous products  comprises iron ore mining and pellet production, as
well as the Northern and Southern transportation systems, including railroads,
ports and terminals, as they pertain to mining operations. Manganese mining
and ferroalloys are also included in this segment.Non-ferrous products  comprises the production of non-ferrous minerals.Logistics  comprises our transportation systems as they pertain to the
operation of our ships, ports and railroads for third-party cargos.Holdings  divided into the following sub-groups: F-31




---



##### 




    
    Aluminum  comprises aluminum trading activities, alumina refining
and investments in joint ventures and affiliates engaged in bauxite
mining and aluminum metal smelting.
    
    Steel  comprises our investments in joint ventures and affiliates
operating in the steel industry.
    
    Others  comprises our investments in joint ventures and affiliates
engaged in other businesses.  Information presented to top management with respect to the performance
of each segment is generally derived directly from the accounting records
maintained in accordance with accounting practices generally accepted in
Brazil together with certain minor inter-segment allocations.Consolidated net income and principal assets are reconciled as follows: F-32




---



##### 



Results by segment  before eliminations As of and for the year ended December 31,2003HoldingsNonFerrous
    
    ferrous
    
    Logistics
    
    Aluminum
    
    Others
    
    Eliminations
    
    ConsolidatedGross revenues  Export
    
    
    5.257
    
    
    
    104
    
    
    
    75
    
    
    
    758
    
    
    
    
    
    
    
    (2.354
    )
    
    
    3.840Gross revenues  Domestic
    
    
    1.142
    
    
    
    107
    
    
    
    472
    
    
    
    165
    
    
    
    
    
    
    
    (181
    )
    
    
    1.705Cost and expenses
    
    
    (4.871
    )
    
    
    (192
    )
    
    
    (366
    )
    
    
    (760
    )
    
    
    3
    
    
    
    2.535
    
    
    
    (3.651
    )Depreciation, depletion and amortization
    
    
    (191
    )
    
    
    (18
    )
    
    
    (14
    )
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    (238
    )Pension plan
    
    
    (11
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Operating income
    
    
    1.326
    
    
    
    1
    
    
    
    166
    
    
    
    148
    
    
    
    3
    
    
    
    
    
    
    
    1.644Financial income
    
    
    195
    
    
    
    1
    
    
    
    14
    
    
    
    10
    
    
    
    4
    
    
    
    (122
    )
    
    
    102Financial expenses
    
    
    (406
    )
    
    
    (4
    )
    
    
    (9
    )
    
    
    (49
    )
    
    
    (5
    )
    
    
    122
    
    
    
    (351
    )Foreign exchange and monetary gains (losses), net
    
    
    150
    
    
    
    16
    
    
    
    (14
    )
    
    
    93
    
    
    
    (3
    )
    
    
    
    
    
    
    242Gain on sale of investments
    
    
    (27
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27
    )Equity in results of affiliates and joint ventures and
change in provision for losses on equity investments
    
    
    133
    
    
    
    3
    
    
    
    (9
    )
    
    
    147
    
    
    
    76
    
    
    
    
    
    
    
    350Income taxes
    
    
    (226
    )
    
    
    (3
    )
    
    
    (2
    )
    
    
    (27
    )
    
    
    1
    
    
    
    
    
    
    
    (257
    )Minority interests
    
    
    (44
    )
    
    
    (3
    )
    
    
    
    
    
    
    (58
    )
    
    
    
    
    
    
    
    
    
    
    (105
    )Income from continuing operations
    
    
    1.101
    
    
    
    11
    
    
    
    146
    
    
    
    264
    
    
    
    76
    
    
    
    
    
    
    
    1.598Change in accounting pratice for asset retirement
obligations (note 4)
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Net income
    
    
    1.091
    
    
    
    11
    
    
    
    146
    
    
    
    264
    
    
    
    76
    
    
    
    
    
    
    
    1.588Sales classified by geographic destination:Export marketAmerica, except United States
    
    
    526
    
    
    
    
    
    
    
    38
    
    
    
    156
    
    
    
    
    
    
    
    (329
    )
    
    
    391United States
    
    
    337
    
    
    
    8
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    (188
    )
    
    
    189Europe
    
    
    2.214
    
    
    
    75
    
    
    
    30
    
    
    
    378
    
    
    
    
    
    
    
    (913
    )
    
    
    1.784Middle East/Africa/Oceania
    
    
    292
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    (70
    )
    
    
    226Japan
    
    
    569
    
    
    
    13
    
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    (259
    )
    
    
    419China (2)
    
    
    897
    
    
    
    7
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    (401
    )
    
    
    580Asia, other than Japan and China
    
    
    422
    
    
    
    1
    
    
    
    3
    
    
    
    19
    
    
    
    
    
    
    
    (194
    )
    
    
    2515.257
    
    
    
    104
    
    
    
    75
    
    
    
    758
    
    
    
    
    
    
    
    (2.354
    )
    
    
    3.840Domestic market
    
    
    1.142
    
    
    
    107
    
    
    
    472
    
    
    
    165
    
    
    
    
    
    
    
    (181
    )
    
    
    1.7056.399
    
    
    
    211
    
    
    
    547
    
    
    
    923
    
    
    
    
    
    
    
    (2.535
    )
    
    
    5.545Assets:Property, plant and equipment, net
    
    
    4.495
    
    
    
    1.000
    
    
    
    424
    
    
    
    564
    
    
    
    1
    
    
    
    
    
    
    
    6.484Additions to Property, plant and equipment
    
    
    822
    
    
    
    440
    
    
    
    186
    
    
    
    95
    
    
    
    
    
    
    
    
    
    
    
    1.543Investments in affiliated companies and joint ventures and
other investments, net of provision for losses
    
    
    344
    
    
    
    
    
    
    
    44
    
    
    
    329
    
    
    
    317
    
    
    
    
    
    
    
    1.034Capital employed
    
    
    4.137
    
    
    
    266
    
    
    
    429
    
    
    
    498
    
    
    
    20
    
    
    
    
    
    
    
    5.350
   [Continued from above table, first column(s) repeated] As of and for the year ended December 31,2002HoldingsNon
    
    
    
    
    
    (1)Ferrous
    
    ferrous
    
    Logistics
    
    Aluminum
    
    Others
    
    Eliminations
    
    ConsolidatedGross revenues  Export
    
    
    4,200
    
    
    
    143
    
    
    
    41
    
    
    
    387
    
    
    
    
    
    
    
    (1,843
    )
    
    
    2,928Gross revenues  Domestic
    
    
    996
    
    
    
    96
    
    
    
    374
    
    
    
    75
    
    
    
    3
    
    
    
    (190
    )
    
    
    1,354Cost and expenses
    
    
    (3,773
    )
    
    
    (225
    )
    
    
    (244
    )
    
    
    (426
    )
    
    
    7
    
    
    
    2,033
    
    
    
    (2,628
    )Depreciation, depletion and amortization
    
    
    (170
    )
    
    
    (25
    )
    
    
    (14
    )
    
    
    (4
    )
    
    
    (1
    )
    
    
    
    
    
    
    (214
    )Pension plan
    
    
    (9
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Operating income
    
    
    1,244
    
    
    
    (12
    )
    
    
    156
    
    
    
    32
    
    
    
    9
    
    
    
    
    
    
    
    1,429Financial income
    
    
    193
    
    
    
    1
    
    
    
    11
    
    
    
    11
    
    
    
    4
    
    
    
    (93
    )
    
    
    127Financial expenses
    
    
    (433
    )
    
    
    (6
    )
    
    
    (5
    )
    
    
    (15
    )
    
    
    (9
    )
    
    
    93
    
    
    
    (375
    )Foreign exchange and monetary gains (losses), net
    
    
    (442
    )
    
    
    (36
    )
    
    
    (18
    )
    
    
    (85
    )
    
    
    1
    
    
    
    
    
    
    
    (580
    )Gain on sale of investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity in results of affiliates and joint ventures and
change in provision for losses on equity investments
    
    
    (66
    )
    
    
    
    
    
    
    (88
    )
    
    
    39
    
    
    
    28
    
    
    
    
    
    
    
    (87
    )Income taxes
    
    
    145
    
    
    
    
    
    
    
    (8
    )
    
    
    22
    
    
    
    (10
    )
    
    
    
    
    
    
    149Minority interests
    
    
    2
    
    
    
    (6
    )
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    17Income from continuing operations
    
    
    643
    
    
    
    (59
    )
    
    
    48
    
    
    
    25
    
    
    
    23
    
    
    
    
    
    
    
    680Change in accounting pratice for asset retirement
obligations (note 4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    643
    
    
    
    (59
    )
    
    
    48
    
    
    
    25
    
    
    
    23
    
    
    
    
    
    
    
    680Sales classified by geographic destination:Export marketAmerica, except United States
    
    
    392
    
    
    
    
    
    
    
    25
    
    
    
    27
    
    
    
    
    
    
    
    (207
    )
    
    
    237United States
    
    
    340
    
    
    
    35
    
    
    
    3
    
    
    
    10
    
    
    
    
    
    
    
    (190
    )
    
    
    198Europe
    
    
    1,799
    
    
    
    100
    
    
    
    9
    
    
    
    318
    
    
    
    
    
    
    
    (734
    )
    
    
    1,492Middle East/Africa/Oceania
    
    
    239
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46
    )
    
    
    193Japan
    
    
    488
    
    
    
    3
    
    
    
    1
    
    
    
    11
    
    
    
    
    
    
    
    (228
    )
    
    
    275China (2)
    
    
    574
    
    
    
    4
    
    
    
    1
    
    
    
    21
    
    
    
    
    
    
    
    (270
    )
    
    
    330Asia, other than Japan and China
    
    
    368
    
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    (168
    )
    
    
    2034,200
    
    
    
    143
    
    
    
    41
    
    
    
    387
    
    
    
    
    
    
    
    (1,843
    )
    
    
    2,928Domestic market
    
    
    996
    
    
    
    96
    
    
    
    374
    
    
    
    75
    
    
    
    3
    
    
    
    (190
    )
    
    
    1,3545,196
    
    
    
    239
    
    
    
    415
    
    
    
    462
    
    
    
    3
    
    
    
    (2,033
    )
    
    
    4,282Assets:Property, plant and equipment, net
    
    
    2,346
    
    
    
    400
    
    
    
    144
    
    
    
    383
    
    
    
    24
    
    
    
    
    
    
    
    3,297Additions to Property, plant and equipment
    
    
    524
    
    
    
    132
    
    
    
    33
    
    
    
    63
    
    
    
    14
    
    
    
    
    
    
    
    766Investments in affiliated companies and joint ventures and
other investments, net of provision for losses
    
    
    350
    
    
    
    
    
    
    
    (10
    )
    
    
    200
    
    
    
    192
    
    
    
    
    
    
    
    732Capital employed
    
    
    2,364
    
    
    
    119
    
    
    
    161
    
    
    
    209
    
    
    
    24
    
    
    
    
    
    
    
    2,877
   [Continued from above table, first column(s) repeated] As of and for the year ended December 31,2001HoldingsNonFerrous
    
    ferrous
    
    Logistics
    
    Aluminum
    
    Others
    
    Eliminations
    
    ConsolidatedGross revenues  Export
    
    
    3,558
    
    
    
    173
    
    
    
    147
    
    
    
    283
    
    
    
    47
    
    
    
    (1,414
    )
    
    
    2,794Gross revenues  Domestic
    
    
    1,083
    
    
    
    78
    
    
    
    344
    
    
    
    1
    
    
    
    8
    
    
    
    (231
    )
    
    
    1,283Cost and expenses
    
    
    (3,632
    )
    
    
    (176
    )
    
    
    (412
    )
    
    
    (259
    )
    
    
    (37
    )
    
    
    1,645
    
    
    
    (2,871
    )Depreciation, depletion and amortization
    
    
    (167
    )
    
    
    (17
    )
    
    
    (26
    )
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (212
    )Pension plan
    
    
    (27
    )
    
    
    (3
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32
    )Operating income
    
    
    815
    
    
    
    55
    
    
    
    51
    
    
    
    25
    
    
    
    16
    
    
    
    
    
    
    
    962Financial income
    
    
    169
    
    
    
    1
    
    
    
    11
    
    
    
    7
    
    
    
    6
    
    
    
    (59
    )
    
    
    135Financial expenses
    
    
    (368
    )
    
    
    (10
    )
    
    
    (11
    )
    
    
    (1
    )
    
    
    (4
    )
    
    
    59
    
    
    
    (335
    )Foreign exchange and monetary gains (losses), net
    
    
    (396
    )
    
    
    (21
    )
    
    
    (10
    )
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (426
    )Gain on sale of investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    784
    
    
    
    
    
    
    
    784Equity in results of affiliates and joint ventures and
change in provision for losses on equity investments
    
    
    (7
    )
    
    
    
    
    
    
    (108
    )
    
    
    41
    
    
    
    21
    
    
    
    
    
    
    
    (53
    )Income taxes
    
    
    220
    
    
    
    
    
    
    
    (3
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    218Minority interests
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Income from continuing operations
    
    
    435
    
    
    
    25
    
    
    
    (70
    )
    
    
    73
    
    
    
    824
    
    
    
    
    
    
    
    1,287Change in accounting pratice for asset retirement
obligations (note 4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    435
    
    
    
    25
    
    
    
    (70
    )
    
    
    73
    
    
    
    824
    
    
    
    
    
    
    
    1,287Sales classified by geographic destination:Export marketAmerica, except United States
    
    
    238
    
    
    
    
    
    
    
    65
    
    
    
    9
    
    
    
    
    
    
    
    (118
    )
    
    
    194United States
    
    
    247
    
    
    
    139
    
    
    
    21
    
    
    
    73
    
    
    
    47
    
    
    
    (112
    )
    
    
    415Europe
    
    
    1,469
    
    
    
    33
    
    
    
    44
    
    
    
    173
    
    
    
    
    
    
    
    (635
    )
    
    
    1,084Middle East/Africa/Oceania
    
    
    216
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    200Japan
    
    
    525
    
    
    
    
    
    
    
    10
    
    
    
    12
    
    
    
    
    
    
    
    (155
    )
    
    
    392China (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Asia, other than Japan and China
    
    
    863
    
    
    
    1
    
    
    
    3
    
    
    
    16
    
    
    
    
    
    
    
    (374
    )
    
    
    5093,558
    
    
    
    173
    
    
    
    147
    
    
    
    283
    
    
    
    47
    
    
    
    (1,414
    )
    
    
    2,794Domestic market
    
    
    1,083
    
    
    
    78
    
    
    
    344
    
    
    
    1
    
    
    
    8
    
    
    
    (231
    )
    
    
    1,2834,641
    
    
    
    251
    
    
    
    491
    
    
    
    284
    
    
    
    55
    
    
    
    (1,645
    )
    
    
    4,077Assets:Property, plant and equipment, net
    
    
    3,171
    
    
    
    240
    
    
    
    305
    
    
    
    
    
    
    
    97
    
    
    
    
    
    
    
    3,813Additions to Property, plant and equipment
    
    
    508
    
    
    
    40
    
    
    
    25
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    595Investments in affiliated companies and joint ventures and
other investments, net of provision for losses
    
    
    673
    
    
    
    29
    
    
    
    34
    
    
    
    287
    
    
    
    195
    
    
    
    
    
    
    
    1,218Capital employed
    
    
    2,976
    
    
    
    249
    
    
    
    313
    
    
    
    18
    
    
    
    70
    
    
    
    4
    
    
    
    3,630
  (1)
    
    Control of Alunorte was acquired and consolidated from June 2002.  (2)
    
    In 2001 China was classified within Asia. F-33




---



##### 



Operating income by product  after eliminations Year ended December 31,2003Impairment/Gain on saleRevenues
    
    Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    of property,
    
    Depreciation,added
    
    Net
    
    Cost and
    
    
    
    
    
    plant and
    
    depletion and
    
    OperatingExport
    
    Domestic
    
    Total
    
    tax
    
    revenues
    
    expenses
    
    Net
    
    equipment
    
    amortization
    
    incomeFerrousIron ore
    
    
    2,108
    
    
    
    554
    
    
    
    2,662
    
    
    
    (65
    )
    
    
    2,597
    
    
    
    (1,318
    )
    
    
    1,279
    
    
    
    (10
    )
    
    
    (105
    )
    
    
    1,642Pellets
    
    
    627
    
    
    
    211
    
    
    
    838
    
    
    
    (19
    )
    
    
    819
    
    
    
    (627
    )
    
    
    192
    
    
    
    (12
    )
    
    
    (11
    )
    
    
    169Manganese
    
    
    38
    
    
    
    11
    
    
    
    49
    
    
    
    (5
    )
    
    
    44
    
    
    
    (35
    )
    
    
    9
    
    
    
    
    
    
    
    (2
    )
    
    
    7Ferroalloys
    
    
    201
    
    
    
    99
    
    
    
    300
    
    
    
    (21
    )
    
    
    279
    
    
    
    (218
    )
    
    
    61
    
    
    
    (17
    )
    
    
    (10
    )
    
    
    342,974
    
    
    
    875
    
    
    
    3,849
    
    
    
    (110
    )
    
    
    3,739
    
    
    
    (2,198
    )
    
    
    1,541
    
    
    
    (39
    )
    
    
    (128
    )
    
    
    1,374Non ferrousGold
    
    
    21
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    21
    
    
    
    (2
    )
    
    
    19
    
    
    
    
    
    
    
    (2
    )
    
    
    17Potash
    
    
    
    
    
    
    94
    
    
    
    94
    
    
    
    (12
    )
    
    
    82
    
    
    
    (40
    )
    
    
    42
    
    
    
    
    
    
    
    (7
    )
    
    
    35Kaolin
    
    
    83
    
    
    
    13
    
    
    
    96
    
    
    
    (3
    )
    
    
    93
    
    
    
    (70
    )
    
    
    23
    
    
    
    (12
    )
    
    
    (7
    )
    
    
    4104
    
    
    
    107
    
    
    
    211
    
    
    
    (15
    )
    
    
    196
    
    
    
    (112
    )
    
    
    84
    
    
    
    (12
    )
    
    
    (16
    )
    
    
    56AluminumAlumina
    
    
    342
    
    
    
    153
    
    
    
    495
    
    
    
    (8
    )
    
    
    487
    
    
    
    (363
    )
    
    
    124
    
    
    
    
    
    
    
    (15
    )
    
    
    109Aluminum
    
    
    312
    
    
    
    8
    
    
    
    320
    
    
    
    
    
    
    
    320
    
    
    
    (295
    )
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    25Bauxite
    
    
    34
    
    
    
    3
    
    
    
    37
    
    
    
    (1
    )
    
    
    36
    
    
    
    (33
    )
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3688
    
    
    
    164
    
    
    
    852
    
    
    
    (9
    )
    
    
    843
    
    
    
    (691
    )
    
    
    152
    
    
    
    
    
    
    
    (15
    )
    
    
    137LogisticsRailroads
    
    
    
    
    
    
    373
    
    
    
    373
    
    
    
    (39
    )
    
    
    334
    
    
    
    (153
    )
    
    
    181
    
    
    
    
    
    
    
    (70
    )
    
    
    111Ports
    
    
    1
    
    
    
    143
    
    
    
    144
    
    
    
    (14
    )
    
    
    130
    
    
    
    (75
    )
    
    
    55
    
    
    
    
    
    
    
    (9
    )
    
    
    46Ships
    
    
    54
    
    
    
    33
    
    
    
    87
    
    
    
    (3
    )
    
    
    84
    
    
    
    (122
    )
    
    
    (38
    )
    
    
    
    
    
    
    
    
    
    
    (38
    )55
    
    
    
    549
    
    
    
    604
    
    
    
    (56
    )
    
    
    548
    
    
    
    (350
    )
    
    
    198
    
    
    
    
    
    
    
    (79
    )
    
    
    119Others
    
    
    19
    
    
    
    10
    
    
    
    29
    
    
    
    (5
    )
    
    
    24
    
    
    
    (66
    )
    
    
    (42
    )
    
    
    
    
    
    
    
    
    
    
    (42
    )3,840
    
    
    
    1,705
    
    
    
    5,545
    
    
    
    (195
    )
    
    
    5,350
    
    
    
    (3,417
    )
    
    
    1,933
    
    
    
    (51
    )
    
    
    (238
    )
    
    
    1,644
   [Continued from above table, first column(s) repeated] Year ended December 31,2003Impairment/Gain on saleRevenues
    
    Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    of property,
    
    Depreciation,added
    
    Net
    
    Cost and
    
    
    
    
    
    plant and
    
    depletion and
    
    OperatingExport
    
    Domestic
    
    Total
    
    tax
    
    revenues
    
    expenses
    
    Net
    
    equipment
    
    amortization
    
    incomeFerrousIron ore
    
    
    1,642
    
    
    
    505
    
    
    
    2,147
    
    
    
    (63
    )
    
    
    2,084
    
    
    
    (915
    )
    
    
    1,169
    
    
    
    
    
    
    
    (87
    )
    
    
    1,082Pellets
    
    
    530
    
    
    
    143
    
    
    
    673
    
    
    
    (19
    )
    
    
    654
    
    
    
    (548
    )
    
    
    106
    
    
    
    
    
    
    
    (5
    )
    
    
    101Manganese
    
    
    24
    
    
    
    12
    
    
    
    36
    
    
    
    (5
    )
    
    
    31
    
    
    
    (20
    )
    
    
    11
    
    
    
    
    
    
    
    (6
    )
    
    
    5Ferroalloys
    
    
    176
    
    
    
    71
    
    
    
    247
    
    
    
    (14
    )
    
    
    233
    
    
    
    (169
    )
    
    
    64
    
    
    
    
    
    
    
    (5
    )
    
    
    592,372
    
    
    
    731
    
    
    
    3,103
    
    
    
    (101
    )
    
    
    3,002
    
    
    
    (1,652
    )
    
    
    1,350
    
    
    
    
    
    
    
    (103
    )
    
    
    1,247Non ferrousGold
    
    
    103
    
    
    
    
    
    
    
    103
    
    
    
    
    
    
    
    103
    
    
    
    (86
    )
    
    
    17
    
    
    
    (35
    )
    
    
    (15
    )
    
    
    (33
    )Potash
    
    
    
    
    
    
    91
    
    
    
    91
    
    
    
    (12
    )
    
    
    79
    
    
    
    (43
    )
    
    
    36
    
    
    
    
    
    
    
    (4
    )
    
    
    32Kaolin
    
    
    40
    
    
    
    5
    
    
    
    45
    
    
    
    (1
    )
    
    
    44
    
    
    
    (27
    )
    
    
    17
    
    
    
    
    
    
    
    (2
    )
    
    
    15143
    
    
    
    96
    
    
    
    239
    
    
    
    (13
    )
    
    
    226
    
    
    
    (156
    )
    
    
    70
    
    
    
    (35
    )
    
    
    (21
    )
    
    
    14AluminumAlumina
    
    
    85
    
    
    
    74
    
    
    
    159
    
    
    
    (4
    )
    
    
    155
    
    
    
    (119
    )
    
    
    36
    
    
    
    
    
    
    
    (4
    )
    
    
    32Aluminum
    
    
    279
    
    
    
    1
    
    
    
    280
    
    
    
    
    
    
    
    280
    
    
    
    (254
    )
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    26Bauxite
    
    
    23
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    23
    
    
    
    (22
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1387
    
    
    
    75
    
    
    
    462
    
    
    
    (4
    )
    
    
    458
    
    
    
    (395
    )
    
    
    63
    
    
    
    
    
    
    
    (4
    )
    
    
    59LogisticsRailroads
    
    
    
    
    
    
    286
    
    
    
    286
    
    
    
    (27
    )
    
    
    259
    
    
    
    (55
    )
    
    
    204
    
    
    
    (4
    )
    
    
    (72
    )
    
    
    128Ports
    
    
    
    
    
    
    107
    
    
    
    107
    
    
    
    (11
    )
    
    
    96
    
    
    
    (67
    )
    
    
    29
    
    
    
    
    
    
    
    (7
    )
    
    
    22Ships
    
    
    26
    
    
    
    39
    
    
    
    65
    
    
    
    (3
    )
    
    
    62
    
    
    
    (69
    )
    
    
    (7
    )
    
    
    (7
    )
    
    
    (6
    )
    
    
    (20
    )26
    
    
    
    432
    
    
    
    458
    
    
    
    (41
    )
    
    
    417
    
    
    
    (191
    )
    
    
    226
    
    
    
    (11
    )
    
    
    (85
    )
    
    
    130Others
    
    
    
    
    
    
    20
    
    
    
    20
    
    
    
    
    
    
    
    20
    
    
    
    (40
    )
    
    
    (20
    )
    
    
    
    
    
    
    (1
    )
    
    
    (21
    )2,928
    
    
    
    1,354
    
    
    
    4,282
    
    
    
    (159
    )
    
    
    4,123
    
    
    
    (2,434
    )
    
    
    1,689
    
    
    
    (46
    )
    
    
    (214
    )
    
    
    1,429
   [Continued from above table, first column(s) repeated] Year ended December 31,2003Impairment/Gain on saleRevenues
    
    Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    of property,
    
    Depreciation,added
    
    Net
    
    Cost and
    
    
    
    
    
    plant and
    
    depletion and
    
    Pension
    
    OperatingExport
    
    Domestic
    
    Total
    
    tax
    
    revenues
    
    expenses
    
    Net
    
    equipment
    
    amortization
    
    plan
    
    incomeFerrousIron ore
    
    
    1,529
    
    
    
    474
    
    
    
    2,003
    
    
    
    (58
    )
    
    
    1,945
    
    
    
    (869
    )
    
    
    1,076
    
    
    
    (263
    )
    
    
    (80
    )
    
    
    
    
    
    
    733Pellets
    
    
    474
    
    
    
    123
    
    
    
    597
    
    
    
    (12
    )
    
    
    585
    
    
    
    (497
    )
    
    
    88
    
    
    
    (45
    )
    
    
    (4
    )
    
    
    
    
    
    
    39Manganese
    
    
    50
    
    
    
    7
    
    
    
    57
    
    
    
    (5
    )
    
    
    52
    
    
    
    (39
    )
    
    
    13
    
    
    
    
    
    
    
    (2
    )
    
    
    (17
    )
    
    
    (6
    )Ferroalloys
    
    
    131
    
    
    
    71
    
    
    
    202
    
    
    
    (18
    )
    
    
    184
    
    
    
    (114
    )
    
    
    70
    
    
    
    
    
    
    
    (7
    )
    
    
    (10
    )
    
    
    532,184
    
    
    
    675
    
    
    
    2,859
    
    
    
    (93
    )
    
    
    2,766
    
    
    
    (1,519
    )
    
    
    1,247
    
    
    
    (308
    )
    
    
    (93
    )
    
    
    (27
    )
    
    
    819Non ferrousGold
    
    
    139
    
    
    
    
    
    
    
    139
    
    
    
    
    
    
    
    139
    
    
    
    (99
    )
    
    
    40
    
    
    
    (47
    )
    
    
    (15
    )
    
    
    (2
    )
    
    
    (24
    )Potash
    
    
    
    
    
    
    71
    
    
    
    71
    
    
    
    (6
    )
    
    
    65
    
    
    
    (37
    )
    
    
    28
    
    
    
    (2
    )
    
    
    (4
    )
    
    
    (1
    )
    
    
    21Kaolin
    
    
    34
    
    
    
    7
    
    
    
    41
    
    
    
    (2
    )
    
    
    39
    
    
    
    5
    
    
    
    44
    
    
    
    (29
    )
    
    
    (1
    )
    
    
    
    
    
    
    14173
    
    
    
    78
    
    
    
    251
    
    
    
    (8
    )
    
    
    243
    
    
    
    (131
    )
    
    
    112
    
    
    
    (78
    )
    
    
    (20
    )
    
    
    (3
    )
    
    
    11AluminumAlumina
    
    
    32
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    32
    
    
    
    (32
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Aluminum
    
    
    230
    
    
    
    1
    
    
    
    231
    
    
    
    
    
    
    
    231
    
    
    
    (209
    )
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22Bauxite
    
    
    21
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    21
    
    
    
    (19
    )
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2283
    
    
    
    1
    
    
    
    284
    
    
    
    
    
    
    
    284
    
    
    
    (260
    )
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24LogisticsRailroads
    
    
    
    
    
    
    299
    
    
    
    299
    
    
    
    (26
    )
    
    
    273
    
    
    
    (89
    )
    
    
    184
    
    
    
    (10
    )
    
    
    (74
    )
    
    
    (2
    )
    
    
    98Ports
    
    
    
    
    
    
    104
    
    
    
    104
    
    
    
    (10
    )
    
    
    94
    
    
    
    (45
    )
    
    
    49
    
    
    
    (3
    )
    
    
    (9
    )
    
    
    
    
    
    
    37Ships
    
    
    105
    
    
    
    100
    
    
    
    205
    
    
    
    (4
    )
    
    
    201
    
    
    
    (195
    )
    
    
    6
    
    
    
    (34
    )
    
    
    (13
    )
    
    
    
    
    
    
    (41
    )105
    
    
    
    503
    
    
    
    608
    
    
    
    (40
    )
    
    
    568
    
    
    
    (329
    )
    
    
    239
    
    
    
    (47
    )
    
    
    (96
    )
    
    
    (2
    )
    
    
    94Others
    
    
    49
    
    
    
    26
    
    
    
    75
    
    
    
    (1
    )
    
    
    74
    
    
    
    (56
    )
    
    
    18
    
    
    
    (1
    )
    
    
    (3
    )
    
    
    
    
    
    
    142,794
    
    
    
    1,283
    
    
    
    4,077
    
    
    
    (142
    )
    
    
    3,935
    
    
    
    (2,295
    )
    
    
    1,640
    
    
    
    (434
    )
    
    
    (212
    )
    
    
    (32
    )
    
    
    962
 F-34




---



##### 



20
    
    Related party transactionsTransactions with major related parties resulted in the following balances: As of December 312003
    
    2002Assets
    
    Liabilities
    
    Assets
    
    LiabilitiesAFFILIATED COMPANIES AND JOINT VENTURESFCA
    
    
    
    
    
    
    
    
    
    
    70
    
    
    
    1HISPANOBRAS
    
    
    18
    
    
    
    29
    
    
    
    18
    
    
    
    25ITABRASCO
    
    
    16
    
    
    
    17
    
    
    
    19
    
    
    
    25NIBRASCO
    
    
    36
    
    
    
    25
    
    
    
    26
    
    
    
    17KOBRASCO
    
    
    51
    
    
    
    14
    
    
    
    40
    
    
    
    8CST
    
    
    31
    
    
    
    
    
    
    
    23
    
    
    
    USIMINAS
    
    
    7
    
    
    
    
    
    
    
    5
    
    
    
    ALBRAS
    
    
    14
    
    
    
    95
    
    
    
    10
    
    
    
    58Others
    
    
    38
    
    
    
    87
    
    
    
    48
    
    
    
    53211
    
    
    
    267
    
    
    
    259
    
    
    
    187Current
    
    
    171
    
    
    
    263
    
    
    
    170
    
    
    
    180Long-term
    
    
    40
    
    
    
    4
    
    
    
    89
    
    
    
    7
  These balances are included in the following balance sheet
classifications: As of December 312003
    
    2002Assets
    
    Liabilities
    
    Assets
    
    LiabilitiesCurrent assetsAccounts receivable
    
    
    115
    
    
    
    
    
    
    
    121
    
    
    
    Loans and advances to related parties
    
    
    56
    
    
    
    
    
    
    
    49
    
    
    
    Other assetsLoans and advances to related parties
    
    
    40
    
    
    
    
    
    
    
    89
    
    
    
    Current liabilitiesSuppliers
    
    
    
    
    
    
    144
    
    
    
    
    
    
    
    116Loans from related parties
    
    
    
    
    
    
    119
    
    
    
    
    
    
    
    64Long-term liabilitiesLong-term debt
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    7211
    
    
    
    267
    
    
    
    259
    
    
    
    187
 F-35




---



##### 



The principal amounts of business and financial operations carried out with
major related parties are as follows: Year ended December 312003
    
    2002
    
    2001Income
    
    Expense
    
    Income
    
    Expense
    
    Income
    
    ExpenseAFFILIATED COMPANIES AND JOINT VENTURESCST
    
    
    136
    
    
    
    
    
    
    
    152
    
    
    
    
    
    
    
    146
    
    
    
    NIBRASCO
    
    
    116
    
    
    
    133
    
    
    
    146
    
    
    
    150
    
    
    
    135
    
    
    
    132ALUNORTE (to June 2002)
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    84
    
    
    
    38SIDERAR
    
    
    53
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    30
    
    
    
    ITABRASCO
    
    
    61
    
    

    
    20
    
    
    
    74
    
    
    
    53
    
    
    
    67
    
    
    
    33HISPANOBRAS
    
    
    66
    
    
    
    69
    
    
    
    77
    
    
    
    77
    
    
    
    74
    
    
    
    74KOBRASCO
    
    
    62
    
    
    
    57
    
    
    
    84
    
    
    
    46
    
    
    
    75
    
    
    
    63CENIBRA (to May 2001)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    46USIMINAS
    
    
    79
    
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    59
    
    
    
    ALBRAS
    
    
    149
    
    
    
    286
    
    
    
    73
    
    
    
    265
    
    
    
    5
    
    
    
    208VALESUL
    
    
    10
    
    
    
    
    
    
    
    7
    
    
    
    1
    
    
    
    
    
    
    
    MRN
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    17Others
    
    
    55
    
    
    
    176
    
    
    
    79
    
    
    
    94
    
    
    
    99
    
    
    
    142BRAZILIAN FEDERAL GOVERNMENTBanco do Brasil S.A
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    27
    
    
    
    Petróleo Brasileiro S.A.  PETROBRAS
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    18Centrais Elétricas Brasileiras S.A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    BNDES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    1
    
    
    
    19787
    
    
    
    741
    
    
    
    812
    
    
    
    744
    
    
    
    835
    
    
    
    790
  These amounts are included in the following statement of income
classifications: Year ended December 312003
    
    2002
    
    2001Income
    
    Expense
    
    Income
    
    Expense
    
    Income
    
    ExpenseSales / Cost of iron ore and pellets
    
    
    608
    
    
    
    317
    
    
    
    599
    
    
    
    380
    
    
    
    518
    
    
    
    349Revenues from logistic services
    
    
    13
    
    
    
    
    
    
    
    66
    
    
    
    
    
    
    
    85
    
    
    
    Sales / Cost of aluminum products
    
    
    153
    
    
    
    427
    
    
    
    74
    
    
    
    314
    
    
    
    
    
    
    
    254Financial income/expenses
    
    
    (17
    )
    
    
    (4
    )
    
    
    15
    
    
    
    18
    
    
    
    180
    
    
    
    59Others
    
    
    30
    
    
    
    1
    
    
    
    58
    
    
    
    32
    
    
    
    52
    
    
    
    128787
    
    
    
    741
    
    
    
    812
    
    
    
    744
    
    
    
    835
    
    
    
    790
  21
    
    Fair value of financial instrumentsThe carrying amount of our current financial instruments generally
approximates fair market value because of the short-term maturity or frequent
repricing of these instruments.The market value of long-term investments, where available, is disclosed
in Note 13 to these financial statements.Based on borrowing rates currently available to us for bank loans with
similar terms and average maturities, the fair market value of long-term debt
at December 31, 2003 and 2002 is estimated as follows: F-36




---



##### 



As of December 312003
    
    2002Fair market value
    
    
    2,839
    
    
    
    2,379Carrying value
    
    
    2,767
    
    
    
    2,359
  Fair market value estimates are made at a specific point in time, based
on relevant market information and information about the financial
instruments. Changes in assumptions could significantly affect the
estimates.22
    
    Derivative financial instrumentsVolatility of interest rates, exchange rates and commodity prices are
the main market risks to which we are exposed  all three are managed
through derivative operations. These have the exclusive aim of reducing
exposure to risk. We do not use derivatives for speculation purposes.We monitor and evaluate our derivative positions on a regular basis and
adjust our strategy in response to market conditions. We also
periodically review the credit limits and credit worthiness of our
counter-parties in these transactions. In view of the policies and
practices established for operations with derivatives, management
considers the occurrence of non-measurable risk situations as unlikely.The asset (liability) balances and the movement in fair value of
derivative financial instruments is as follows: InterestratesGold
    
    (LIBOR)
    
    Currencies
    
    Alumina
    
    TotalUnrealized gains (losses) at January 1, 2001
    
    
    9
    
    
    
    (8
    )
    
    
    (4
    )
    
    
    
    
    
    
    (3
    )Unrealized gains and (losses) realized in the period
    
    
    2
    
    
    
    (36
    )
    
    
    (4
    )
    
    
    
    
    
    
    (38
    )Financial settlement
    
    
    (4
    )
    
    
    8
    
    
    
    4
    
    
    
    
    
    
    
    8Unrealized gains (losses) at December 31, 2001
    
    
    7
    
    
    
    (36
    )
    
    
    (4
    )
    
    
    
    
    
    
    (33
    )Gain recognized upon consolidation of Alunorte
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Financial settlement
    
    
    (2
    )
    
    
    21
    
    
    
    3
    
    
    
    1
    
    
    
    23Unrealized gains (losses) in the period
    
    
    (22
    )
    
    
    (60
    )
    
    
    (1
    )
    
    
    
    
    
    
    (83
    )Effect of exchange rate changes
    
    
    2
    
    
    
    15
    
    
    
    1
    
    
    
    
    
    
    
    18Unrealized gains (losses) at December 31, 2002
    
    
    (15
    )
    
    
    (60
    )
    
    
    (1
    )
    
    
    3
    
    
    
    (73
    )Financial settlement
    
    
    8
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    38Unrealized gains (losses) in the period
    
    
    (24
    )
    
    
    (3
    )
    
    
    6
    
    
    
    (22
    )
    
    
    (43
    )Effect of exchange rate changes
    
    
    (1
    )
    
    
    (13
    )
    
    
    
    
    
    
    1
    
    
    
    (13
    )Unrealized gains (losses) at December 31, 2003
    
    
    (32
    )
    
    
    (46
    )
    
    
    5
    
    
    
    (18
    )
    
    
    (91
    )
  Unrealized gains (losses) in the period are included in our income statement
under the following captions:Gold  financial expenses;
Interest rates  financial expenses; 
Currencies  financial expenses; 
Alumina  financial expenses.Final maturity dates for the above instruments are as follows: F-37




---



##### 



Gold
    
    Dec 2007Interest rates (LIBOR)
    
    Oct 2007Currencies
    
    Dec 2011Alumina
    
    Sep 2005
  (a)
    
    Interest Rate and Exchange Rate RiskInterest rate risks mainly relate to that part of the foreign debt
borrowed at floating rates. The foreign currency debt is largely
subject to fluctuations in the London Interbank Offered Rate  LIBOR.
That portion of local currency denominated debt that is subject to
floating rates is linked to the Long Term Interest Rate  TJLP, fixed
quarterly by the Brazilian Central Bank. We have used derivative
instruments to protect ourselves against fluctuations in the LIBOR
rate.There is an exchange rate risk associated with our foreign currency
denominated debt. On the other hand, the majority of our revenues is
denominated in, or automatically indexed to, the U.S. dollar, while the
majority of our costs is denominated in reais. This provides a natural
hedge against any devaluation of the Brazilian real against the U.S.
dollar. When events of this nature occur, the immediate negative impact
on foreign currency denominated debt is offset over time by the
positive effect of devaluation on future cash flows.With the floating exchange rate regime in Brazil, we adopt a strategy
of monitoring market fluctuations, using derivatives to protect against
specific risks from exchange rate variation.From time to time we enter into foreign exchange derivative swap
transactions seeking to change the characteristics of our
real-denominated cash investments to US dollar-indexed instruments. The
extent of such transactions depends on our perception of market and
currency risk, but is never speculative in nature. All such operations
are marked-to-market at each balance sheet date and the effect included
in financial income or expense. During the periods presented our use of
such instruments was not significant.(b)
    
    Commodity Price RiskWe also use derivative instruments to manage exposure to changing gold
prices and to ensure an average minimum profit level for future and
alumina production. However, they may also have the effect of
eliminating potential gains on certain price increases in the spot
market. We manage our contract positions actively, and the results are
reviewed at least monthly, allowing adjustments to targets and strategy
to be made in response to changing market conditions.In the case of gold and alumina derivatives, our policy has been to
settle all contracts through cash payments or receipts, without
physical delivery of product. F-38




---



##### 



23
    
    Information about independent auditorsOur consolidated financial statements are audited by
PricewaterhouseCoopers Auditores Independentes. The financial
statements of certain of our subsidiaries and affiliates have been
audited by independent auditors other than PricewaterhouseCoopers
Auditores Independentes as described below, and, as mentioned in their
report, PricewaterhouseCoopers Auditores Independentes has relied on
such audits when expressing their opinion on our consolidated financial
statements.The following entities prepare financial statements in US GAAP which
are audited in accordance with auditing standards generally accept in
the United States of America: Auditors
    
    Years Audited
    
    City
    
    State
    
    CountrySteelAlumínio Brasileiro S.A.  ALBRAS
    
    Trevisan
    
    
    2003
    
    
    RJ
    
    RJ
    
    BrazilAlumina do Norte do Brasil S.A.  ALUNORTE
    
    Trevisan
    
    
    2003
    
    
    RJ
    
    RJ
    
    BrazilAlumina do Norte do Brasil S.A.  ALUNORTE
    
    DTT
    
    
    2002, 2001
    
    
    RJ
Orange
    
    RJ
    
    BrazilCalifornia Steel Industries, Inc.
    
    KPMG LLP
    
    
    2002, 2001
    
    
    County
    
    CA
    
    USANavegação Vale do Rio Doce S.A.  DOCENAVE
    
    DTT
    
    
    2003, 2002, 2001
    
    
    RJ
    
    RJ
    
    BrazilCelulose Nipo-Brasileira S.A  CENIBRA
    
    DTT
    
    
    2001
    
    
    Salvador
    
    BA
    
    BrazilCompanhia Hispano-Brasileira de Pelotização  HISPANOBRAS
    
    AA
    
    
    2001
    
    
    Vitória
    
    ES
    
    BrazilCompanhia Hispano-Brasileira de Pelotização  HISPANOBRAS
    
    DTT
    
    
    2003, 2002
    
    
    Vitória
    
    ES
    
    BrazilCompanhia
Ítalo-Brasileira de Pelotização  ITABRASCO
    
    AA
    
    
    2001
    
    
    Vitória
    
    ES
    
    BrazilCompanhia
Ítalo-Brasileira de Pelotização  ITABRASCO
    
    DTT
    
    
    2003, 2002
    
    
    Vitória
    
    ES
    
    BrazilCompanhia Coreano Brasileira de Pelotização  KOBRASCO
    
    DTT
    
    
    2003, 2002, 2001
    
    
    Vitória
    
    ES
    
    BrazilMineração Rio do Norte S.A.
    
    AA
    
    
    2001
    
    
    RJ
    
    RJ
    
    BrazilMineração Rio do Norte S.A.
    
    DTT
    
    
    2003, 2002
    
    
    RJ
    
    RJ
    
    BrazilCompanhia Nipo-Brasileira de Pelotização  NIBRASCO
    
    DTT
    
    
    2003, 2002, 2001
    
    
    RJ
    
    RJ
    
    BrazilValesul Alumínio S.A.
    
    KPMG
    
    
    2002, 2001
    
    
    RJ
    
    RJ
    
    BrazilValesul Alumínio S.A.
    
    DTT
    
    
    2003
    
    
    RJ
    
    RJ
    
    BrazilUrucum Mineração S.A.
    
    DTT
    
    
    2003
    
    
    Salvador
    
    BA
    
    BrazilRio Doce Manganês S.A.
    
    DTT
    
    
    2003, 2002, 2001
    
    
    Salvador
    
    BA
    
    Brazil
  AA  Arthur Andersen S/C (ceased business in 2002) 
DTT  Deloitte Touche Tohmatsu 
RJ  Rio de Janeiro
ES  Espírito Santo BA  Bahia24
    
    Subsequent EventOn January 9, 2004 we launched a bond issue maturing in 2034. The bonds
carry a coupon of 8.25% a year with semiannual payment and will be sold
at 98.904% of face value, priced to have a yield to maturity of 8.35%,
at a spread of 336 basis points over 30-year US Treasuries. The bonds
mature on January 17, 2034 and received a risk rating of Ba2 from
Moody  ́s Investor Services. The 30-year term is the longest for a bond
issued by a Brazilian company in the international capital market.The bonds are unsecured and non-subordinated obligations of Vale
Overseas Limited and have the full and unconditional guarantee of CVRD.
The guarantee will be pari passu to all obligations of CVRD of a
similar nature. The funds raised with this issue are earmarked to cover
the general needs of the Company. * * * F-39




---



##### 



Board of Directors, Fiscal Council and Executive Officers Board of Directors Sérgio Ricardo Silva Rosa
Chairman Mário da Silveira Teixeira Júnior Arlindo Magno de Oliveira Cláudio Bernardo Guimarães de Moraes Erik Persson Francisco Valadares Póvoa Jaques Wagner Katsuto Momii Oscar Augusto de Camargo Filho Renato da Cruz Gomes Ricardo Carvalho Giambroni Advisory Committees of the Board of Directors Audit Committee
Antonio José de Figueiredo Ferreira
Marcos Fábio Coutinho
Paulo Roberto Ferreira de Medeiros
Ricardo Wiering de Barros Executive Development Committee
Arlindo Magno de Oliveira
Francisco Valadares Póvoa
João Moisés de Oliveira
Olga Loffredi
Oscar Augusto de Camargo Filho Strategic Committee
Roger Agnelli
Gabriel Stoliar
Cézar Manoel de Medeiros
José Roberto Mendonça de Barros
Samir Zraick Finance Committee
Roger Agnelli
Fábio de Oliveira Barbosa
Luiz Carlos Siqueira Aguiar
Rômulo de Mello Dias
Wanderlei Viçoso Fagundes Governance and Ethics Committee
Renato da Cruz Gomes
Ricardo Simonsen
Ricardo Carvalho Giambroni Fiscal Council Joaquim Vieira Ferreira Levy Luiz Octávio Nunes West Pedro Carlos de Mello Vicente Barcelos Wilson Risolia Rodrigues Executive Officers Roger AgnelliChief Executive Officer Antonio Miguel MarquesExecutive Officer for Equity Holdings and
Business Development Armando de Oliveira Santos NetoExecutive Officer for Ferrous Minerals Carla GrassoExecutive Officer for Human Resources and
Corporate Services Diego Cristobal Hernández CabreraExecutive Officer for Non-Ferrous Minerals Fábio de Oliveira BarbosaChief Financial Officer Gabriel StoliarExecutive Officer for Planning Guilherme Rodolfo LaagerExecutive Officer for Logistics Otto de Souza Marques JuniorChief Officer of Control Department Eduardo de Carvalho DuarteChief Accountant
CRC-RJ 57439 F-40




---



##### 



Report of Independent Auditors To the Board of Directors
and Stockholders of Vale Overseas Limited In our opinion, the accompanying balance sheets and the related statements of
income and changes in accumulated loss and of cash flows, present fairly, in
all material respects, the financial position of Vale Overseas Limited (the
Company) at December 31, 2003 and 2002, and the results of its operations and
its cash flows for the year ended December 31, 2003 and 2002, in conformity
with accounting principles generally accepted in the United States of America
(U.S. GAAP) . These financial statements are the responsibility of the
Companys management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above. These financial statements are prepared for the purpose of consolidation in the
Companhia Vale do Rio Doce consolidated U.S. GAAP financial statements, as
explained in notes 2a and 7. PricewaterhouseCoopers
Auditores Independentes Rio de Janeiro, Brazil
February 16, 2004 F-41




---



##### 



Vale Overseas Limited
Balance Sheets as of December 31
Expressed in thousands of United States dollars 2003
    
    2002AssetsCurrent assetsCash and cash equivalents
    
    
    
    
    
    
    1Advances to related parties
Rio Doce International Finance Ltd
    
    
    678
    
    
    
    678Loans and advances to related parties
Itabira Rio Doce Ltd.  ITACO
    
    
    18,700
    
    
    
    8,122Deferred costs related to long term debt
    
    
    1,585
    
    
    
    98120,963
    
    
    
    9,782Other assetsLoans to related parties
Itabira Rio Doce Ltd.  ITACO
    
    
    600,000
    
    
    
    300,000Deferred costs related to long term debt
    
    
    7,390
    
    
    
    3,173607,390
    
    
    
    303,173TOTAL
    
    
    628,353
    
    
    
    312,955Liabilities and stockholders equityCurrent liabilitiesAdvances from related parties
Rio Doce International Finance Ltd
    
    
    680
    
    
    
    680CVRD Overseas
    
    
    2
    
    
    
    2Interest on long-term debt
    
    
    18,700
    
    
    
    8,122Deferred income related to loans to related parties
    
    
    1,585
    
    
    
    98120,967
    
    
    
    9,785Long-term liabilitiesLong-term debt
    
    
    600,000
    
    
    
    300,000Deferred income related to loans to related parties
    
    
    7,390
    
    
    
    3,173607,390
    
    
    
    303,173
 Stockholders equity See notes to financial statements F-42




---



##### 



Vale Overseas Limited
Statement of Income and Changes in Accumulated Loss
For the year ended December 31
Expressed in thousands of United States dollars
(except number of shares and for share amounts) 2003
    
    2002Interest income
    
    
    37,674
    
    
    
    21,811Interest expense
    
    
    (37,675
    )
    
    
    (21,813
    )Foreign exchange and monetary gains, net
    
    
    1
    
    
    
    6General and administrative
    
    
    
    
    
    
    (2
    )Net income for the year
    
    
    
    
    
    
    2Accumulated earningsBeginning of year
    
    
    61
    
    
    
    59Net income for the year
    
    
    
    
    
    
    2End of year
    
    
    61
    
    
    
    61Basic earnings per share
    
    
    
    
    
    
    2,000.00Weighted average number of common shares outstanding
    
    
    1.000
    
    
    
    1.000
 See notes to financial statements F-43




---



##### 



Vale Overseas Limited
Statement of Cash Flows
For the year ended December 31
Expressed in thousands of United States dollars 2003
    
    2002Cash flows from operating activities:Net income for the year
    
    
    
    
    
    
    2Adjustments to reconcile net income for the year with
cash provided by (used in) operating activities:Foreign exchange losses
    
    
    (1
    )
    
    
    (3
    )Decrease (increase) in assets:Advances to related parties
    
    
    
    
    
    
    (8,800
    )Deferred costs related to long term debt
    
    
    (4,821
    )
    
    
    (4,154
    )Loans to related parties
    
    
    (310,578
    )
    
    
    (295,773
    )Increase (decrease) in liabilities:Advances from related parties
    
    
    
    
    
    
    682Interest on long-term debt
    
    
    10,578
    
    
    
    8,122Deferred costs related to loans to related parties
    
    
    4,821
    
    
    
    (73
    )Long-term debt
    
    
    300,000
    
    
    
    300,000Net cash provided by operating activities
    
    
    (1
    )
    
    
    3Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    (3
    )Decrease in cash and cash equivalents
    
    
    (1
    )
    
    
    Cash and cash equivalents, beginning of year
    
    
    1
    
    
    
    1Cash and cash equivalents, end of year
    
    
    
    
    
    
    1Interest paid
    
    
    25,875
    
    
    
    
 See notes to financial statements. F-44




---



##### 



Vale Overseas Limited
Notes to the Financial Statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)  1
    
    The Company and its operations  Vale Overseas Limited (the Company), located in the Cayman Islands, was
constituted in April, 2001 as a special-purpose wholly owned subsidiary
of Companhia Vale do Rio Doce (CVRD) and operates principally as a
finance company.  2
    
    Summary of significant accounting policies  The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (US
GAAP). In preparing the financial statements, the use of estimates is
required to account for certain assets, liabilities and transactions;
actual results may vary from the estimates. Significant accounting
practices are described below:  (a)
    
    Basis of presentationWe adopt the functional currency of our parent company (Brazilian reais)
as our functional currency as we consider our operations as an extension
of the parent companys operations. Accordingly, we remeasured the U.S.
dollar denominated assets, liabilities, income and expenses into reais at
the transaction date exchange rates or using average period exchange
rates.Subsequently, we have remeasured all assets and liabilities from reais
into U.S. dollars at the current exchange rate at each balance sheet date
(R$ 2.8892 and R$ 3.5333 to US$ 1.00 at December 31, 2003 and 2002,
respectively), and all accounts in the statement of income at the average
rates prevailing during the year. The translation gain or loss resulting
from this remeasurement process is included in the cumulative translation
adjustments account in the stockholders equity.(b)
    
    Income and expensesIncome and expenses are recognized on the accrual basis.(c)
    
    Income taxThe Companys operations are exempt of taxes in the Cayman Islands.(d)
    
    Statement of cash flowsShort-term investments that have a ready market and maturity to the
Company, when purchased, of 90 days or less are considered cash
equivalents.(e)
    
    Loss per shareBasic loss per share are computed by dividing net loss by the weighted
average number of shares outstanding during the period.(g)
    
    Recently-issued accounting pronouncementsIn December 2003, the FASB issued FIN 46R  Consolidation of Variable
Interest Entities, (revised December 2003). The primary objectives of
FIN 46R are to provide guidance on the identification of entities for
which control is achieved through means
other than through voting F-45




---



##### 



rights (variable interest entities or VIEs) and
how to determine when and which business
enterprise should consolidate the VIE (the primary beneficiary). This new
model for consolidation applies to an entity in which either (1) the
equity investors (if any) do not have a controlling financial interest or
(2) the equity investment at risk is insufficient to finance that
entitys activities without receiving additional subordinated financial
support from other parties. In addition, FIN 46R equiresthat both the
primary beneficiary and all other enterprises with a significant variable
interest in a VIE make additional disclosures regarding the nature,
purpose, size and activities of the VIE and the enterprises maximum
exposure to loss as a result of its involvement with the VIE.The implementation date of FIN 46R is the first period ending after
December 15, 2003 for Special Purpose Entities (SPEs) and as from January
1, 2004 for previously existing variable interest entities which are not
SPEs. FIN 46R may be applied prospectively with a cumulative adjustment
as of the date on which it is first applied or by restating previously
issued financing statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first year
restated. It is possible that we will consolidate or disclose information
in relation to certain joint ventures and equity investments.In May 2003 FASB issued SFAS No. 150  Accounting For Certain Financial
Instruments with Characteristics of both Liabilities and Equity, which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that
is within its scope as a liability (or an asset in some circumstances).
The FASB decided to make this statement effective shortly after issuance
for contracts created or modified after it is issued and for existing
contracts at the beginning of the first interim period beginning after
June 15, 2003. We do not expect SFAS 150 to have a material impact on our
financial statements.Emerging Issue Task Force No. 01-08 (EITF 01-08), Determining Whether na
Arrangement is a Lease, provides guidance in determining whether an
arrangement should be considered a lease subject to the requirements of
FASB Statement No. 13 (FAS 13), Accounting for Leases. The rule defines,
among others, that an arrangement conveys the right to use the property,
plant, and equipment (PP&E) if the purchaser (lessee) has (1) the ability
to operate the PP&E, (2) control physical access to the PP&E, or (3) it
is remote that one or more other parties will take more than a minor
amount of the output and the pricing for the output is not fixed per unit
or based on current market prices at the date of delivery.The consensus is to be applied to arrangements agreed or committed to,
modified, or acquired in business combinations initiated after the
beginning of an entitys next reporting period beginning after May 28,
2003.The adoption of these statements will not have impact on the Companys
financial statements.(g)
    
    Statements of cash flowsAs the Companys principal operation is rendering financial services,
financial transactions have been treated as operational in the cash flow
statements.  3
    
    Cash and cash equivalents  Cash and cash equivalents were all denominated in U.S. dollars and were
represented by short-term bank deposits.  4
    
    Long-term debt  Long-term debt consists of:  a)
    
    US$ 300,000 8.625% enhanced guaranteed notes due March 8, 2007,
unconditionally guaranteed by CVRD.b)
    
    US$ 300,000 9% enhanced guaranteed notes due August 8, 2013,
unconditionally guaranteed by CVRD. F-46




---



##### 



The Company and CVRD registered the long-term debts under the U.S.
Securities Act of 1933 to be declared effective for an offer to exchange
the notes for a new issue of registered notes and for resale.The loans obtained imposes certain limitations on the Company with
respect to the incurrence of liens, indebtedness and mergers. Related party transactions  At December 31, 2003 the long term loan receivable of US$ 600,000
thousand (US$ 300,000 thousand in 2002) from Itabira International
Company, a subsidiary of CVRD, has the same terms and maturities the
long-term debts obtained in the same amount.  6
    
    Stockholders equity  The authorized capital by the immediate parent company CVRD is US$ 1
thousand, composed of 1,000 shares of US$ 1.00 each.  7
    
    Accounting Changes  These financial statements are prepared for the purpose of consolidation
in the CVRD consolidated U.S. GAAP financial statements and use the
Brazilian real as the functional currency.Net income for the year ended December 31, 2002 is different to that
shown in reports previously presented for the company on a stand-alone
basis, as follows: 2002Net loss previously reported
    
    
    (4
    )Foreign exchange and monetary gain, net
    
    
    6Net income reported herein
    
    
    2Basic loss per share previously reported
    
    
    (4.00
    )Basic earnings per share reported herein
    
    
    2.00Retained loss previously reported
    
    
    (4
    )Foreign exchange and monetary gain, net
    
    
    65Retained earnings reported herein
    
    
    61
 * * * * * BOARD OF DIRECTORSGabriel Stoliar
Director Fábio de Oliveira Barbosa
Director Eduardo de Carvalho Duarte
Chief Accountant
CRC-RJ 57.439 F-47




---



##### 



INDEX TO AUDIT REPORTS FROM INDEPENDENT ACCOUNTANTS LISTED IN NOTE 23 TO THE
CONSOLIDATED FINANCIAL STATEMENTS OF COMPANHIA VALE DO RIO DOCE Report of Trevisan Auditores Independentes dated January 21, 2004
with respect to the financial statements of Albras for the year ended
December 31, 2003
    
    B-3Report of Deloitte Touche Tohmatsu dated January 17, 2003 with
respect to the financial statements of Albras for the three years
ended December 31, 2002
    
    B-4Report of Trevisan Auditores Independentes dated January 21, 2004
with respect to the financial statements of Alunorte for the year
ended December 31, 2003
    
    B-5Report of Deloitte Touche Tohmatsu dated January 17, 2003 with
respect to the financial statements of Alunorte for the three years
ended December 31, 2002
    
    B-62000 Report of KPMG LLP dated January 17, 2003 with respect to the
financial statements of CSI for the three years ended December 31,
2002
    
    B-7Report of Deloitte Touche Tohmatsu dated January 25, 2002 with
respect to the financial statements of Cenibra for the two years
ended December 31, 2001
    
    B-8Report of Deloitte Touche Tohmatsu dated January 21, 2004 with
respect to the financial statements of Docenave for the three years
ended December 31, 2003
    
    B-9Report of Deloitte Touche Tohmatsu dated January 15, 2004 with
respect to the financial statements of Hispanobras for the two years
ended December 31, 2003.
    
    B-10Report of Arthur Andersen S/C dated January 24, 2002 with respect to
the financial statements of Hispanobras for the three years ended
December 31, 2001
    
    B-11Report of Deloitte Touche Tohmatsu dated January 15, 2004 with
respect to the financial statements of Itabrasco for the two years
ended December 31, 2003
    
    B-12Report of Arthur Andersen S/C dated January 24, 2002 with respect to
the financial statements of Itabrasco for the three years ended
December 31, 2001
    
    B-13Report of Deloitte Touche Tohmatsu dated January 16, 2004 with
respect to the financial statements of Kobrasco for the three years
ended December 31, 2003
    
    B-14Report of Deloitte Touche Tohmatsu dated January 14, 2004 with
respect to the financial statements of MRN for the two year ended
December 31, 2003
    
    B-15Report of Arthur Andersen S/C dated January 25, 2002 with respect to
the financial statements of MRN for the two years ended December 31,
2001
    
    B-16Report of Deloitte Touche Tohmatsu dated January 16, 2004 with
respect to the financial statements of Nibrasco for the three years
ended December 31, 2003
    
    B-17Report of Deloitte Touche Tohmatsu dated January 12, 2004 with
respect to the financial statements of Valesul for the year ended
December 31, 2003
    
    B-18Report of KPMG Auditores Independentes dated January 7, 2003 with
respect to the financial statements of Valesul for the three years
ended December 31, 2002
    
    B-19
 B-1




---



##### 



Report of Deloitte Touche Tohmatsu dated January 26, 2004 with
respect to the financial statements of Urucum for the three years
ended December 31, 2003
    
    B-20Report of Deloitte Touche Tohmatsu dated January 26, 2004 with
respect to the financial statements of RDM for the three years ended
December 31, 2003
    
    B-21
 B-2




---



##### 



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the directors and stockholders
ALBRAS  Alumínio Brasileiro S.A.
Barcarena  PA  1.
    
    We have audited the accompanying balance sheet of ALBRAS  Alumínio
Brasileiro S.A. as of December 31, 2003, and the related statements of
income and comprehensive income, changes in stockholders equity and cash
flows for the year then ended (all expressed in the United States
dollars). These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of
ALBRAS  Alumínio Brasileiro S.A. as of December 31, 2002 and for the two
years ended December 31, 2002 and 2001, were audited by other auditors
whose report dated January 17, 2003, expressed an unqualified opinion on
those statements.  2.
    
    We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provide a reasonable basis for our
opinion.  3.
    
    In our opinion the accompanying financial statements referred to above
present fairly, in all material respects, the financial position of ALBRAS
 Alumínio Brasileiro S.A. as of December 31, 2003 and the results of its
operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. Rio de Janeiro, Brazil, January 21, 2004 /s/ Trevisan Auditores Independentes
 B-3




---



##### 



INDEPENDENT ACCOUNTANTS REPORT To the Directors and Stockholders of
ALBRAS  Alumínio Brasileiro S.A.
Barcarena  PA We have audited the accompanying balance sheets of ALBRAS  Alumínio Brasileiro
S.A. as of December 31, 2002 and 2001, and the related statements of
operations, changes in stockholders equity (deficit) and cash flows for the
three-year period ended December 31, 2002 (all expressed in United States
dollars). These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the accompanying financial statements referred to above present
fairly, in all material respects, the financial position of ALBRAS  Alumínio
Brasileiro S.A. as of December 31, 2002 and 2001, and the results of its
operations and its cash flows for the three-year period ended December 31,
2002, in conformity with accounting principles generally accepted in the United
States of America. /s/ Deloitte Touche Tohmatsu
 January 17, 2003 B-4




---



##### 



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the directors and stockholders
ALUNORTE  Alumina do Norte do Brasil S.A.
Barcarena  PA  1.
    
    We have audited the accompanying balance sheet of ALUNORTE  Alumina do
Norte do Brasil S.A. as of December 31, 2003, and the related statements
of income and comprehensive income, changes in stockholders equity and
cash flows for the year then ended (all expressed in the United States
dollars). These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of
ALUNORTE  Alumina do Norte do Brasil S.A. as of December 31, 2002 and for
the two years ended December 31, 2002 and 2001 were audited by other
auditors whose report, dated January 17, 2003, expressed an unqualified
opinion on those statements.  2.
    
    We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provide a reasonable basis for our
opinion.  3.
    
    In our opinion the accompanying financial statements referred to above
present fairly, in all material respects, the financial position of
ALUNORTE  Alumina do Norte do Brasil S.A. as of December 31, 2003 and the
results of its operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United
States of America. Rio de Janeiro, Brazil, January 21, 2004 /s/ Trevisan Auditores Independentes
 B-5




---



##### 



INDEPENDENT ACCOUNTANTS REPORT To the Directors and Shareholders
ALUNORTE  Alumina do Norte do Brasil S.A.
Bacarena  PA We have audited the accompanying balance sheets of ALUNORTE  Alumina do Norte
do Brasil S.A. as of December 31, 2002 and 2001, and the related statements of
operations, changes in stockholders equity and cash flows for the three-year
period ended December 31, 2002 (all expressed in United States dollars). These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the accompanying financial statements referred to above present
fairly, in all material respects, the financial position of Alunorte  Alumina
do Norte do Brasil S.A. as of December 31, 2002 and 2001, and the results of
its operations and its cash flows for the three-year period ended December 31,
2002, in conformity with accounting principles generally accepted in the United
States of America. /s/ Deloitte Touche Tohmatsu
 January 17, 2003 B-6




---



##### 



INDEPENDENT AUDITORS REPORT The Board of Directors
California Steel Industries, Inc.: We have audited the accompanying consolidated balance sheets of California
Steel Industries, Inc. and subsidiary as of December 31, 2002 and 2001 and the
related consolidated statements of operations, stockholders equity, and cash
flows for each of the years in the three-year period ended December 31, 2002.
These consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of California Steel
Industries, Inc. and subsidiary as of December 31, 2002 and 2001 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America. /s/ KPMG LLP
 Orange County, California
January 17, 2003 B-7




---



##### 



INDEPENDENT AUDITORS OPINION To the Shareholders and Directors of
Celulose Nipo-Brasileira S.A.  CENIBRA
Belo Orient/MG We have audited the accompanying consolidated balance sheets of Celulose
Nipo-Brasileira S.A.  CENIBRA as of December 31, 2001 and 2000 and the related
statements of operations, changes in stockholders equity and of cash flows for
the years then ended (all expressed in United States dollars). These
consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Celulose
Nipo-Brasileira S.A.  CENIBRA and its subsidiaries as of December 31, 2001 and
2000, the results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in United
States of America. /s/ Deloitte Touche Tohmatsu
 January 25, 2002 B-8




---



##### 



INDEPENDENT AUDITORS REPORT To the Board of Directors and Stockholders
Navegação Vale do Rio Doce S.A.  DOCENAVE
Rio de Janeiro  RJ We have audited the accompanying consolidated balance sheets of Navegação Vale
do Rio Doce S.A.  DOCENAVE and subsidiaries as of December 31, 2003 and 2002,
and the related consolidated statements of operations, cash flows and changes
in stockholders equity and comprehensive loss for the three-year period ended
December 31, 2003 (all expressed in United States dollars). These consolidated
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall financial statement presentation. We believe that our
audits and the reports of other auditors provide a reasonable basis for our
opinion. In our opinion, the accompanying financial statements referred to above
presented fairly, in all material respects, the financial position of Navegação
Vale do Rio Doce S.A.  DOCENAVE and subsidiaries as of December 31, 2003 and
2002, and the results of its operations and its cash flows for the three-year
period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America. /s/ Deloitte Touche Tohmatsu
 January 21, 2004 B-9




---



##### 



INDEPENDENT AUDITORS REPORT To the Board of Directors and Stockholders of
Companhia Hispano-Brasileira de Pelotização  HISPANOBRAS
Vitória  Brazil  1.
    
    We have audited the accompanying balance sheets of Companhia
Hispano-Brasileira de Pelotização  HISPANOBRAS (a Brazilian Corporation
and an investee of Companhia Vale do Rio Doce  CVRD) as of December 31,
2003 and 2002, and the related statements of income and other
comprehensive losses, changes in stockholders equity, and cash flows for
the years then ended. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits. The financial statements
of Companhia Hispano-Brasileira de Pelotização  HISPANOBRAS as of
December 31, 2001, were audited by other auditors whose reports thereon,
dated January 24, 2002 expressed an unqualified opinion on those
statements.  2.
    
    We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.  3.
    
    In our opinion, the financial statements referred to in paragraph (1)
present fairly, in all material respects, the financial position of
Companhia Hispano-Brasileira de Pelotização  HISPANOBRAS as of December
31, 2003 and 2002, and the results of its operations, changes in its
stockholders equity and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United
States of America. /s/ Deloitte Touche Tohmatsu
 January 15, 2004 B-10




---



##### 



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS This report is a copy of the previously issued report and Arthur Andersen S/C
has not reissued the report. To the Stockholders of
Companhia Hispano-Brasileira de
Pelotização  HISPANOBRÁS:  (1)
    
    We have audited the accompanying balance sheets of COMPANHIA
HISPANO-BRASILEIRA DE PELOTIZAÇÃO  HISPANOBRAS (a Brazilian corporation
and a subsidiary of Companhia Vale do Rio Doce), translated into U.S.
dollars, as of December 31, 2001 and 2000, and the related translated
statements of income, changes in stockholders equity and cash flows for
the years ended December 31, 2001, 2000 and 1999. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements
based on our audits.  (2)
    
    We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.  (3)
    
    These translated financial statements have been prepared as the basis for
application of the equity method by its stockholders and, accordingly,
they translate the assets, liabilities, stockholders equity and revenues
and expenses of Companhia Hispano-Brasileira de Pelotização  Hispanobrás
for that purpose, as explained in Note 2.  (4)
    
    In our opinion financial statements referred to in paragraph 1 present
fairly, in all material respects, and for the purpose described in the
preceding paragraph, the financial position of Companhia
Hispano-Brasileira de Pelotização  Hispanobrás as of December 31, 2001
and 2000, and the results of its operations, the changes in its
stockholders equity and its cash flows for the years ended December 31,
2001, 2000 and 1999, in conformity with generally accepted accounting
principles in the United States of America. Rio de Janeiro, Brazil, /s/ Arthur Andersen S/C
 January 24, 2002 B-11




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INDEPENDENT AUDITORS REPORT To the Board of Directors and Stockholders of
Companhia Italo-Brasileira de Pelotização  ITABRASCO
Vitória  Brazil  1.
    
    We have audited the accompanying balance sheets of Companhia
Italo-Brasileira de Pelotização  ITABRASCO (a Brazilian Corporation and
an investee of Companhia Vale do Rio Doce  CVRD) as of December 31, 2003
and 2002, and the related statements of income and other comprehensive
losses, changes in stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of
Companhia Italo-Brasileira de Pelotização  ITABRASCO as of December 31,
2001, were audited by other auditors whose report dated January 24, 2002
expressed an unqualified opinion on those statements.  2.
    
    We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.  3.
    
    In our opinion, the financial statements referred in paragraph (1)
present fairly, in all material respects, the financial position of
Companhia Italo-Brasileira de Pelotização ITABRASCO as of December 31,
2003 and 2002, and the results of its operations, changes in its
stockholders equity and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United
States of America. /s/ Deloitte Touche Tohmatsu
 January 15, 2004 B-12




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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS This report is a copy of the previously issued report and Arthur Andersen S/C
has not reissued the report. To the Stockholders of Companhia Italo-Brasileira de
Pelotização  ITABRASCO:  (1)
    
    We have audited the accompanying balance sheets of COMPANHIA
ITALO-BRASILEIRA DE PELOTIZAÇAO  ITABRASCO (a Brazilian corporation and a
subsidiary of Companhia Vale do Rio Doce), translated into US dollars, as
of December 31, 2001 and 2000, and the related translated statements of
income, changes in stockholders equity and cash flows for the years ended
December 31, 2001, 2000 and 1999. These financial statements are the
responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.  (2)
    
    We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.  (3)
    
    These translated financial statements have been prepared as the basis for
application of the equity method by its stockholders and, accordingly,
they translate the assets, liabilities, stockholders equity and revenues
and expenses of Companhia Italo-Brasileira de Pelotização  Itabrasco for
that purpose, as explained in Note 2.  (4)
    
    In our opinion, the financial statements referred to in paragraph 1
present fairly, in all material respects, and for the purpose described in
the preceding paragraph, the financial position of Companhia
Italo-Brasileira de Pelotização  Itabrasco as of December 31, 2001 and
2000, and the results of its operations, the changes in its stockholders
equity and its cash flows for the years ended December 31, 2001, 2000 and
1999, in conformity with generally accepted accounting principles in the
United States of America. Rio de Janeiro, Brazil, /s/ Arthur Andersen S/C
 January 24, 2002 B-13




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INDEPENDENT AUDITORS REPORT To the Board of Directors and Shareholders of
Companhia Coreano-Brasileira de Pelotização  KOBRASCO
Vitória  Brazil  1.
    
    We have audited the accompanying consolidated balance sheets of Companhia
Coreano Brasileira de Pelotização  KOBRASCO as of December 31, 2003 and
2002, and the related consolidated statements of income and other
comprehensive income, changes in shareholders equity and cash flows for
each of the years in the three-year period ended December 31, 2003 (all
expressed in United States dollars). These financial statements are the
responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.  2.
    
    We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. At audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.  3.
    
    In our report dated January 18, 2002, we expressed an opinion that the
2001 financial statements did not present fairly the financial position,
results of operations, and cash flows in conformity with accounting
principles generally accepted in the United States of America, because the
Company did not record an allowance for losses in the amount of US$24,758
thousand as of December 31, 2001, in respect of recoverable value added
tax (ICMS) credits related to the purchase of raw materials and other
supplies since such realization was uncertain. As described in note 16 to
the consolidated financial statements, the Company has recorded the
allowance and has restated its 2001 financial statements to conform with
accounting principles generally accepted in the United States of America.
Accordingly, our present opinion on the restated 2001 financial
statements, as expressed herein, is different from that expressed in our
previous report.  4.
    
    In our opinion, the accompanying consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Companhia Coreano Brasileira de Pelotização  KOBRASCO as of
December 31, 2003 and 2002, and the consolidated results of its operations
and cash flows for each of the years in the three-year period ended
December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America. /s/ Deloitte Touche Tohmatsu
 January 16, 2004 B-14




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INDEPENDENT AUDITORS REPORT To the Stockholders and Board of Directors of
Mineração Rio do Norte S.A.  1.
    
    We have audited the accompanying balance sheets of Mineração Rio do Norte
SA. (a Brazilian corporation), as of December 31, 2003 and 2002, and the
related statements of income, changes in stockholders equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audit.  2.
    
    We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.  3.
    
    In our opinion, the financial statements referred to in paragraph (1)
present fairly, in all material respects, the financial position of
Mineração Rio do Norte SA. as of December 31, 2003 and 2002, and the
results of its operations, changes in its stockholders equity and its
cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America. /s/ Deloitte Touche Tohmatsu
 Rio de Janeiro, Brazil,
January 14, 2004 B-15




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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS The report is a copy of the previously issued report and Arthur Andersen S/C
has not reissued the report. To the Stockholders and Board of
Directors of Mineração Rio do Norte S.A.:  (1)
    
    We have audited the accompanying balance sheets of Mineração Rio do Norte
S.A. (a Brazilian corporation), translated into US dollars, as of December
31, 2001 and 2000, and the related translated statements of income,
changes in stockholders equity and cash flows for the years then ended.
These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits.  (2)
    
    We did not audit the financial statements of the associated company
Alunorte  Alumina do Norte do Brasil S.A. as of December 31, 2001 and
2000. This investment represents 4% of the total assets (3% in 2000) and
-1% of the net income (7% in 2000). Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for that entity, is based solely on
the report of the other auditors.  (3)
    
    We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of other auditors
provide a reasonable basis for our opinion.  (4)
    
    These translated financial statements have been prepared as the basis for
application of the equity method by the Companys stockholders and,
accordingly, they translate the assets, liabilities, stockholders equity
and revenues and expenses of Mineração Rio do Norte S.A. for that purpose,
as explained in Note 2.  (5)
    
    In our opinion, based on our audits and on the report of other auditors,
as mentioned in paragraph (2), the financial statements referred to in
paragraph (1) present fairly, in all material respects, and for the
purpose described in the preceding paragraph, the financial position of
Mineração Rio do Norte S.A. as of December 31, 2001 and 2000, and the
results of its operations, the changes in its stockholders equity and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles in the United States. /s/ Arthur Andersen S/C
 Rio de Janeiro, Brazil,
January 25, 2002 B-16




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INDEPENDENT AUDITORS REPORT To the Board of Directors and Shareholders of
Companhia Nipo-Brasileira de Pelotização  NIBRASCO
Vitória  Brazil  1.
    
    We have audited the accompanying balance sheets of Companhia
Nipo-Brasileira de Pelotização  NIBRASCO as of December 31, 2003 and
2002, and the related statements of income and other comprehensive income;
changes in shareholders equity and cash flows for each of the years in the
three-year period ended December 31, 2003 (all expressed in United States
dollars). These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.  2.
    
    We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.  3.
    
    In our opinion, the accompanying financial statements referred to above
present fairly, in all material respects, the financial position of
Companhia Nipo-Brasileira de Pelotização  NIBRASCO as of December 31,
2003 and 2002, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 2003, in
conformity with accounting principles generally accepted in the United
States of America. /s/ Deloitte Touche Tohmatsu
 January 16, 2004 B-17




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INDEPENDENT AUDITORS REPORT To the stockholders and Board of Directors of
Valesul Alumínio S.A.  1.
    
    We have audited the accompanying balance sheet of Valesul Alumínio S.A.
(the Company) as of December 31, 2003, and the related statements of
income, changes in stockholders equity and comprehensive income/loss and
cash flows for the year ended December 31, 2003. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements
based on our audits.  2.
    
    We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.  3.
    
    In our opinion, the financial statements referred to in paragraph (1)
present fairly, in all material respects, the financial position of
Valesul Alumínio S.A. as of December 31, 2003, and the results of its
operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.  4.
    
    The financial statements as of December 31, 2002 and 2001, were audited
by other independent accountants, whose report, dated January 7, 2003,
stated that they were not aware of any material modifications that should
be made to those statements in order for them to be in conformity with
accounting principles generally accepted in the United States of America. /s/ Deloitte Touche Tohmatsu
 January 12, 2004
Rio de Janeiro, Brazil B-18




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Report of Independent Public Accounting Firm The Board of Directors of
Valesul Alumínio S.A. We have audited the accompanying balance sheets of Valesul Alumínio S.A. (the
Company) as of December 31, 2002 and 2001, and the related statements of
income, changes in stockholders equity and comprehensive income/loss and cash
flows for each of the years in the three-year period ended December 31, 2002.
These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluation the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Valesul Alumínio S.A. as of
December 31, 2002 and 2001, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2002,
in conformity with generally accepted accounting principles in the United
States of America. As more fully described in Notes 7 and 10 to the financial statements, the
Company has adjusted its property, plant and equipment and deferred income
taxes accounting balances as a result of corrections of errors. Consequently,
the Companys financial statements for 2002 referred to above have been
restated to conform with these adjustments. January 7, 2003 /s/ KPMG Auditores Independentes  Rio de Janeiro, Brazil B-19




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INDEPENDENT AUDITORS REPORT To the Shareholders, Administrative Council and Management ofURUCUM MINERAÇÃO S.A.
Corumbá  MS  1.
    
    We have audited the accompanying balance sheets of URUCUM MINERAÇÃO S.A.
as of December 31, 2003 and 2002, and the related statements of
operations, changes in shareholders equity and comprehensive income
(loss), aid cash flows for each of the three years in the period ended
December 31, 2003. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits.  2.
    
    We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.  3.
    
    In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of URUCUM
MINERAÇÃO S.A. as of December 31, 2003 and 2002, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.  4.
    
    As discussed in Note 3 to the financial statements, effective January 1,
2003, URUCUM MINERAÇÃO S.A. adopted Statement of Financial Accounting
Standards No. 143, Accounting for Asset Retirement Obligations. /s/ Deloitte Touche TohmatsuAuditores IndependentesSalvador  Brazil
 January 26, 2004 B-20




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INDEPENDENT AUDITORS REPORT To the Shareholders, Administrative Council and Management ofRIO DOCE MANGANÊS S.A. and Subsidiaries
Simões Filho  BA  1.
    
    We have audited the accompanying consolidated balance sheets of RIO DOCE
MANGANÊS S.A. (formerly SIBRA  ELETROSIDERÚRGICA BRASILEIRA S.A.) and
subsidiaries as of December 31, 2003 and 2002, and the related
consolidated statements of operations, changes in shareholders equity and
comprehensive income (loss), and cash flows for each of the three years in
the period ended December 31, 2003. These financial statement are the
responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.  2.
    
    We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement An audit
includes examining on a test basis, evidence supporting the amount and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used mid significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.  3.
    
    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of RIO
DOCE MANGANÊS S.A. and subsidiaries as of December 31, 2003 and 2002, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.  4.
    
    As discussed in note 1 to the financial statement, the controlling
shareholder concluded the restructuring process of its manganese
activities, which is intended to maximize management integration and
simplify the corporate structure of the Company and its subsidiaries. In
connection with this corporate restructuring, the shareholders decided at
an Extraordinary Shareholders Meeting held on October 23 and 27, 2003, to
transfer certain assets (including all of the ferro-alloy, manganese ore
and reforestation operations) and liabilities from the subsidiary
companies, Companhia Paulista de Ferro-Ligas, Sociedade Mineira de
Mineração  S.A., Minérios Metalúrgicos do Nordeste S.A., Mineração Urandi
S.A. and Sibra Florestal S.A, in the net amount of US$88,883, to RIO DOCE
MANGANÊS S.A., through a capital reduction which will occur on January 31,
2004. Conclusion of this process will affect the Company and its
subsidiaries economically in the upcoming year.  5.
    
    As mentioned in note 25 to the financial statements, a subsidiary
company, Companhia Paulista de Ferro-Ligas, sold its investments in
Fertilizantes Fosfatos S.A.  Fósfertil to Bunge Alimentos, generating a
gain of US$40,073, net of taxes.  6.
    
    As discussed in note 4 to the consolidated financial statements,
effective January 1, 2003, the Company adopted Statement of Financial
Accounting Standards No. 143, Accounting for Asset Retirement
Obligations. /s/ DELOITTE TOUCHE TOHMATSU   January 26, 2004 B-21