##### Table of Contents



As filed with the Securities and Exchange Commission on May 25, 2006
   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
 For the fiscal year ended: December 31, 2005
 Commission file number: 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
  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 Exchange8.25% Guaranteed Notes due 2034, issued by Vale Overseas
    
    New York Stock Exchange6.25% Guaranteed Notes due 2016, issued by Vale Overseas
    
    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. None
 None
  735,803,919 common shares, no par value per share
415,716,278 preferred class A shares, no par value per share
3 golden shares, no par value per share
  þ o
 þ o
  o þ
 o þ
  þ o
 þ o
  þ o o
 o o þ
  o þ
 o þ
  o þ
 o þ




---



##### Table of Contents



TABLE OF CONTENTS
 PageGlossary
    
    
    3Presentation of Financial Information
    
    
    6Presentation of Information Concerning Reserves
    
    
    7Forward-Looking Statements
    
    
    7PART IItem 1. Identity of Directors, Senior Management and Advisers
    
    
    8Item 2. Offer Statistics and Expected Timetable
    
    
    8Item 3. Key Information
    
    
    9Selected Financial Data
    
    
    9Exchange Rates
    
    
    11Risk Factors
    
    
    11Item 4. Information on the Company
    
    
    21Business Overview
    
    
    21Lines of Business
    
    
    27Regulatory Matters
    
    
    52Capital Expenditures
    
    
    57Item 5. Operating and Financial Review and Prospects
    
    
    59Overview
    
    
    59Results of Operations2005 Compared to 2004
    
    
    64Results of Operations2004 Compared to 2003
    
    
    69Liquidity and Capital Resources
    
    
    76Shareholder Debentures
    
    
    77Contractual Obligations
    
    
    78Off-balance Sheet Arrangements
    
    
    78Critical Accounting Policies and Estimates
    
    
    78Item 6. Directors, Senior Management and Employees
    
    
    82Board Of Directors
    
    
    82Executive Officers
    
    
    86Fiscal Council
    
    
    89Advisory Committees
    
    
    91Compensation of Directors, Executive Officers, Fiscal Council Members and Advisory Committees
    
    
    92Employees
    
    
    92Item 7. Major Shareholders and Related Party Transactions
    
    
    94Major Shareholders
    
    
    94Related Party Transactions
    
    
    97Item 8. Financial Information
    
    
    98Legal Proceedings
    
    
    98Dividends and Interest on Shareholders Equity
    
    
    99Item 9. The Offer and Listing
    
    
    102Share Price History
    
    
    102Trading Markets
    
    
    102Item 10. Additional Information
    
    
    103Memorandum and Articles of Association
    
    
    103Common Shares and Preferred Shares
    
    
    104Material Contracts
    
    
    110Exchange Controls and Other Limitations Affecting Security Holders
    
    
    110Taxation
    
    
    112Documents on Display
    
    
    116Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    117Interest Rate and Exchange Rate Risk
    
    
    117
 i




---



##### Table of Contents



TABLE OF
CONTENTS
 PageProduct Price Risk
    
    
    120Credit Risk
    
    
    121Item 12. Description of Securities Other than Equity Securities
    
    
    121PART IIItem 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    121Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    121Item 15. Controls and Procedures
    
    
    122Evaluation of Disclosure Controls and Procedures
    
    
    122Changes in Internal Controls
    
    
    122Item 16A. Audit Committee Financial Expert
    
    
    122Item 16B. Code of Ethics
    
    
    122Item 16C. Principal Accountant Fees and Services
    
    
    122Principal Accountant Fees
    
    
    122Audit Committee Pre-Approval Policies and Procedures
    
    
    123Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    123Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    123PART IIIItem 17. Financial Statements
    
    
    123Item 18. Financial Statements
    
    
    123Item 19. Exhibits
    
    
    124Signatures
    
    
    125Index to Consolidated Financial Statements
    
    
    F-1EX-1.1: BYLAWSEX-8: LIST OF SUBSIDIARIESEX-12.1: CERTIFICATIONEX-12.2: CERTIFICATIONEX-12.3: CERTIFICATIONEX-12.4: CERTIFICATIONEX-13.1: CERTIFICATIONEX-13.2: CERTIFICATIONEX-14.1: CONSENT OF PRICEWATERHOUSECOOPERSEX-14.2: CONSENT OF TREVISANEX-14.3: CONSENT OF TREVISANEX-14.4: CONSENT OF DELOITTE TOUCHE TOHMATSUEX-14.5: CONSENT OF DELOITTE TOUCHE TOHMATSUEX-14.6: CONSENT OF DELOITTE TOUCHE TOHMATSUEX-14.7: CONSENT OF DELOITTE TOUCHE TOHMATSUEX-14.8: CONSENT OF DELOITTE TOUCHE TOHMATSUEX-14.9: CONSENT OF DELOITTE TOUCHE TOHMATSUEX-14.10:CONSENT OF DELOITTE TOUCHE TOHMATSUEX-14.11:CONSENT OF DELOITTE TOUCHE TOHMATSUEX-14.12:CONSENT OF DELOITTE TOUCHE TOHMATSUEX-14.13: CONSENT OF AMEC
  ii




---



##### Table of Contents



GLOSSARY
 Alumina
    
    Aluminum oxide. It is the main
component of bauxite, and extracted
from bauxite ore in a chemical
refining process. It is the
principal raw material in the
electro-chemical process from which
aluminum is produced.ANEEL
    
    Agência Nacional de Energia
Elétrica, the Brazilian electrical
energy regulatory agency.Anthracite
    
    The hardest coal type which contains
a high percentage of fixed carbon
and a low percentage of volatile
matter. Anthracite is the highest
rank coal and it contains
approximately 90% fixed carbon, more
than any other form of coal.
Anthracite has a semi-metallic
luster and is capable of burning
with little smoke. Mainly used for
metallurgical purposes.ANTT
    
    Agência Nacional de Transportes
Terrestres, the Brazilian regulatory
agency for the transportation
sector.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
    
    A variety of processes whereby
extracted ore from mining is reduced
to particles that can be separated
into mineral and waste, the former
suitable for further processing or
direct use.BNDES
    
    Banco Nacional de Desenvolvimento
Econômico e Social, the Brazilian
National Development Bank.Coal
    
    Coal is a black or brownish-black
solid combustible substance formed
by the decomposition of vegetable
matter without access to air. The
rank of coal, which includes
anthracite, bituminous coal (both
are called hard coal), subbituminous
coal, and lignite, is based on fixed
carbon, volatile matter, and heating
value.Coke
    
    Coal that has been processed in a
coke oven, for use as a reduction
agent in blast furnaces and in
foundries for the purposes of
transforming iron ore into pig iron.Coking coal
    
    A bituminous hard coal with a
quality that allows the production
of coke. Normally used in coke
ovens for metallurgical purposes.Concentration
    
    Physical, chemical or biological
process to increase the grade of the
metal or mineral of interest.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.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.DR
    
    Direct Reduction. Process that
removes oxygen from iron ore by
using natural gas. The resulting
product has an iron content of 90% to 92%.
 3




---



##### Table of Contents



DRI
    
    Direct Reduced Iron. Iron ore (lump
or pellets) converted by the Direct
Reduction process, used mainly as a
scrap substitute in electric arc
furnace steel making.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 one 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 steel making. The
principal ferroalloys are those of
chromium, manganese, and silicon.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.Gold
    
    A precious metal sometimes found
free in nature, but usually found in
conjunction with silver, quartz,
calcite, lead, tellurium, zinc or
copper. It is the most malleable
and ductile metal, a good conductor
of heat and electricity and
unaffected by air and most reagents.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. Because DRI (direct
reduced iron) may 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
    
    A hard brittle metallic element
found primarily in the minerals
pyrolusite, hausmannite and
manganate. Manganese is essential
to the production of virtually all
steels and is important in the
production of cast iron.Methanol
    
    An alcohol fuel largely used in the
production of chemical and plastic
compounds.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.
 4




---



##### Table of Contents



Nickel
    
    A silvery white metal that takes on
a high polish. It is hard,
malleable, ductible, somewhat
ferromagnetic, and a fair conductor
of heat and electricity. It belongs
to the iron-cobalt group of metals
and is chiefly valuable for the
alloys it forms, such as stainless
steel and other corrosion-resistant
alloys.Ntk
    
    Net ton (the weight of the goods
being transported excluding the
weight of the wagon) kilometer.Open pit mining
    
    Method of extracting rock or
minerals from the earth by their
removal from an open pit. Open-pit
mines for extraction of ore are used
when deposits of commercially useful
minerals or rock are found near the
surface; that is, where the
overburden (surface material
covering the valuable deposit) is
relatively thin or the material of
interest is structurally unsuitable
for underground mining.Oxides
    
    Compounds of oxygen with another
element. For example, magnetite is
an oxide mineral formed by the
chemical union of iron with oxygen.Pellet feed fines or PFF (Ultra-fine)
    
    Ultra-fine iron ore (less than 0.15
mm) generated by mining and grading.
This material is aggregated into
pellets through an agglomeration
process.Pellets
    
    Agglomerated ultra-fine iron ore
particles of a size and quality
suitable for particular steel making
processes. Our pellets range in
size from 8 mm to 18 mm.Pig iron
    
    Product of smelting iron ore with
coke and limestone in a blast
furnace.Potash
    
    A potassium chloride compound,
chiefly KCl, used as simple
fertilizer and in the production of
mixture fertilizer.Primary aluminum
    
    White metal that is obtained in the
electro-chemical process of
reduction of the aluminum oxide.Probable 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 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
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.
 5




---



##### Table of Contents



Run-of-mine
    
    Ore in its natural (unprocessed)
state, as mined, without having been
crushed.Seaborne market
    
    Comprises the total ore trade
(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
approximately 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.Thermal coal
    
    Refers to the type of hard coal that
is suitable to energy generation
after its steaming properties (for
use in thermal power stations).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.
 
 PRESENTATION OF FINANCIAL INFORMATION
 Comissão de Valores Mobiliários
 
    
    reports to Brazilian shareholders;
    
    filings with the CVM;
    
    determination of dividend payments; and
    
    determination of tax liability.
 reais
 
 real, reais reais real
 6




---



##### Table of Contents



PRESENTATION OF INFORMATION CONCERNING RESERVES
 in situ Item 3. Key
InformationRisk Factors Risks Relating to Our Business
 
 FORWARD-LOOKING STATEMENTS
  
    
    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 implementation of our operational excellence program;
    
    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.
 7




---



##### Table of Contents



Item 3.
Key InformationRisk Factors Item 3. Key InformationRisk Factors
 
 PART I
 
 Item 1. Identity of Directors, Senior Management and Advisers
  
 Item 2. Offer Statistics and Expected Timetable
  8




---



##### Table of Contents



Item 3. Key Information
 
 SELECTED FINANCIAL DATA
  Statement of Income Data
 For the year ended December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(in millions of US$)Net operating revenues
    
    US$
    3,935
    
    
    US$
    4,123
    
    
    US$
    5,350
    
    
    US$
    8,066
    
    
    US$
    12,792Cost of products and services
    
    
    (2,272
    )
    
    
    (2,263
    )
    
    
    (3,128
    )
    
    
    (4,081
    )
    
    
    (6,229
    )Selling, general and administrative expenses
    
    
    (241
    )
    
    
    (224
    )
    
    
    (265
    )
    
    
    (452
    )
    
    
    (583
    )Research and development
    
    
    (43
    )
    
    
    (50
    )
    
    
    (82
    )
    
    
    (153
    )
    
    
    (277
    )Employee profit sharing plan
    
    
    (38
    )
    
    
    (38
    )
    
    
    (32
    )
    
    
    (69
    )
    
    
    (97
    )Other expenses
    
    
    (379
    )
    
    
    (119
    )
    
    
    (199
    )
    
    
    (188
    )
    
    
    (174
    )Operating income
    
    
    962
    
    
    
    1,429
    
    
    
    1,644
    
    
    
    3,123
    
    
    
    5,432Non-operating income (expenses):Financial income (expenses)
    
    
    (200
    )
    
    
    (248
    )
    
    
    (249
    )
    
    
    (589
    )
    
    
    (437
    )Foreign exchange and monetary losses, net
    
    
    (426
    )
    
    
    (580
    )
    
    
    242
    
    
    
    65
    
    
    
    299Gain on sale of investments
    
    
    784
    
    
    
    
    
    
    
    17
    
    
    
    404
    
    
    
    126Subtotal
    
    
    158
    
    
    
    (828
    )
    
    
    10
    
    
    
    (120
    )
    
    
    (12
    )Income before income taxes, equity results
and minority interests
    
    
    1,120
    
    
    
    601
    
    
    
    1,654
    
    
    
    3,003
    
    
    
    5,420Income taxes benefit (charge)
    
    
    218
    
    
    
    149
    
    
    
    (297
    )
    
    
    (749
    )
    
    
    (880
    )Equity in results of affiliates and joint
ventures and change in provision for losses
on equity investments
    
    
    (53
    )
    
    
    (87
    )
    
    
    306
    
    
    
    542
    
    
    
    760Minority interests
    
    
    2
    
    
    
    17
    
    
    
    (105
    )
    
    
    (223
    )
    
    
    (459
    )Change in accounting practice for asset
retirement obligations
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    Net income
    
    US$
    1,287
    
    
    US$
    680
    
    
    US$
    1,548
    
    
    US$
    2,573
    
    
    US$
    4,841Total cash paid to shareholders(1)
    
    US$
    1,066
    
    
    US$
    602
    
    
    US$
    675
    
    
    US$
    787
    
    
    US$
    1,300
 
 (1)
    
    Total cash paid to shareholders consists of cash paid during the period in respect to
interest on shareholders equity and dividends. Per
Share Data  Earnings and Dividends
 For the year ended December 31,2001 (1)
    
    
    2002 (1)
    
    
    2003 (1)
    
    
    2004 (1)
    
    
    2005(in US$ except recorded dividends and interest on shareholdersequity per share inreaisand share numbers)Basic earnings per Common and Preferred
Class A
Share(2)
    
    US$
    1.11
    
    
    US$
    0.59
    
    
    US$
    1.34
    
    
    US$
    2.23
    
    
    US$
    4.20Diluted Earnings per Common and
Preferred Class A Share (2)
    
    US$
    1.11
    
    
    US$
    0.59
    
    
    US$
    1.34
    
    
    US$
    2.23
    
    
    US$
    4.20Distributions on shareholders equity
per share in US$(3)
    
    US$
    0.88
    
    
    US$
    0.56
    
    
    US$
    0.59
    
    
    US$
    0.68
    
    
    US$
    1.14Distributions on shareholders equity
per share in reais(3)
    
    R$
    1.88
    
    
    R$
    1.66
    
    
    R$
    1.68
    
    
    R$
    1.95
    
    
    R$
    2.68Weighted average number of shares
outstanding (in thousands):Common shares(2)
    
    
    749,592
    
    
    
    749,592
    
    
    
    734,804
    
    
    
    735,804
    
    
    
    735,804Preferred class A shares(2)
    
    
    405,126
    
    
    
    405,126
    
    
    
    415,714
    
    
    
    415,716
    
    
    
    415,716Total
    
    
    1,154,718
    
    
    
    1,154,718
    
    
    
    1,151,518
    
    
    
    1,151,520
    
    
    
    1,151,520
 
 (1)
    
    In August 2004, a three for one stock split was carried out. Share and per-share
amounts for all periods give effect to the stock split. The share numbers set forth in
this table do not give effect to the two for one stock split approved by our shareholders
in April 2006.(2)
    
    Each common American depositary share represents one common share and each preferred
American depositary share represents one preferred class A share.(3)
    
    Our distributions to shareholders may take the form of dividends or of interest on
shareholders equity. From 1997 to 2003, all distributions were in the form of interest on
shareholders equity. From 2004 to 2005, part of the distribution was made in the form of
interest on shareholders equity and part as dividends. The amount shown represents
distributions paid during the year. 9




---



##### Table of Contents



Balance Sheet Data
 At December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(in millions of US$)Current assets
    
    US$
    2,638
    
    
    US$
    2,589
    
    
    US$
    2,474
    
    
    US$
    3,890
    
    
    US$
    4,775Property, plant and equipment, net
    
    
    3,813
    
    
    
    3,297
    
    
    
    6,484
    
    
    
    9,063
    
    
    
    14,166Investments in affiliated companies and joint
ventures and other investments
    
    
    1,218
    
    
    
    732
    
    
    
    1,034
    
    
    
    1,159
    
    
    
    1,672Other assets
    
    
    1,839
    
    
    
    1,337
    
    
    
    1,442
    
    
    
    1,603
    
    
    
    2,031Total assets
    
    US$
    9,508
    
    
    US$
    7,955
    
    
    US$
    11,434
    
    
    US$
    15,715
    
    
    US$
    22,644Current liabilities
    
    
    1,921
    
    
    
    1,508
    
    
    
    2,253
    
    
    
    2,455
    
    
    
    3,325Long-term liabilities (1)
    
    
    772
    
    
    
    774
    
    
    
    1,201
    
    
    
    1,867
    
    
    
    2,410Long-term debt (2)
    
    
    2,170
    
    
    
    2,359
    
    
    
    2,767
    
    
    
    3,214
    
    
    
    3,714Total liabilities
    
    
    4,863
    
    
    
    4,641
    
    
    
    6,221
    
    
    
    7,536
    
    
    
    9,449Minority interest
    
    
    5
    
    
    
    27
    
    
    
    329
    
    
    
    788
    
    
    
    1,218Shareholders equity:Capital stock
    
    
    2,211
    
    
    
    2,446
    
    
    
    2,869
    
    
    
    3,209
    
    
    
    5,868Additional paid-in capital
    
    
    498
    
    
    
    498
    
    
    
    498
    
    
    
    498
    
    
    
    498Reserves and retained earnings
    
    
    1,931
    
    
    
    343
    
    
    
    1,517
    
    
    
    3,684
    
    
    
    5,611Total shareholders equity
    
    
    4,640
    
    
    
    3,287
    
    
    
    4,884
    
    
    
    7,391
    
    
    
    11,977Total liabilities and shareholders equity
    
    US$
    9,508
    
    
    US$
    7,955
    
    
    US$
    11,434
    
    
    US$
    15,715
    
    
    US$
    22,644
 
 (1)
    
    Excludes long-term debt.(2)
    
    Excludes current portion of long-term debt. 10




---



##### Table of Contents



EXCHANGE RATES
 real real real Item 3. Key InformationRisk FactorsRisks
Relating to Brazil
  reais
 Average forYear ended December 31,
    
    Period-end
    
    Period (1)
    
    Low
    
    High2001
    
    R$
    2.320
    
    
    R$
    2.353
    
    
    R$
    1.936
    
    
    R$
    2.8012002
    
    
    3.533
    
    
    
    2.998
    
    
    
    2.271
    
    
    
    3.9552003
    
    
    2.889
    
    
    
    3.060
    
    
    
    2.822
    
    
    
    3.6622004
    
    
    2.654
    
    
    
    2.917
    
    
    
    2.654
    
    
    
    3.2052005
    
    
    2.341
    
    
    
    2.412
    
    
    
    2.163
    
    
    
    2.762MonthDecember 2005
    
    
    2.341
    
    
    
    
    
    
    
    2.180
    
    
    
    2.373January 2006
    
    
    2.216
    
    
    
    
    
    
    
    2.212
    
    
    
    2.346February 2006
    
    
    2.136
    
    
    
    
    
    
    
    2.118
    
    
    
    2.222March 2006
    
    
    2.172
    
    
    
    
    
    
    
    2.107
    
    
    
    2.224April 2006
    
    
    2.089
    
    
    
    
    
    
    
    2.089
    
    
    
    2.154May 2006 (until May 23)
    
    
    2.260
    
    
    
    
    
    
    
    2.059
    
    
    
    2.288
 
 (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.
Source: Central Bank of Brazil.  
 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.
   11




---



##### Table of Contents



The mining industry is an intensely competitive industry, and we may have difficulty effectively
competing with other mining companies in the future.
  Demand for iron ore and pellets in peak periods may outstrip our production capacity, rendering
us unable to satisfy customer demand.
  Adverse economic developments in our principal markets, especially China, could reduce demand
for our products, leading to lower revenues and profitability.
  Aluminum and copper are actively traded on world commodity exchanges and their prices are
subject to significant fluctuations.
  A reduction of global demand for Brazilian steel and/or agriculture products could reduce the
demand for our logistics services.
  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.
  12




---



##### Table of Contents



We may not be able to replenish our reserves, which could adversely affect our mining prospects.
  Even if we discover mineral deposits, we remain subject to drilling and production risks, which
could adversely affect the mining process.
  
    
    establish ore reserves through drilling;
    
    determine appropriate mining and metallurgical processes for optimizing the recovery of
metal contained in ore;
    
    obtain environmental and other licenses;
    
    construct mining, processing facilities and infra-structure required for greenfield properties; and
    
    obtain the ore or extract the metals from the ore.
  We may experience delays, higher than expected costs, difficulties in obtaining environmental
permits and other obstacles when implementing our capital expenditure projects.
  13




---



##### Table of Contents




    
    we may encounter delays or higher than expected costs in obtaining the necessary
equipment or services to build and operate our projects;
    
    we may fail to obtain or experience delays or higher than expected costs in obtaining
the required environmental permits to build our projects;
    
    changes in market conditions may make our projects less profitable than expected at the
time we initiated work on the project; and
    
    adverse mining conditions may delay and hamper our ability to produce the expected
quantities of minerals.
  We face rising extraction costs over time as reserves deplete.
  An increase in fuel costs may adversely affect our business.
  We are involved in ongoing antitrust proceedings that could result in divestitures, fines or
other restrictions that could harm our business.
  Financial
InformationLegal Proceedings
 Our principal shareholder could have significant influence over our company.
 Item 7. Major
Shareholders and Related Party TransactionsMajor ShareholdersPrincipal Shareholder
 14




---



##### Table of Contents



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.
 Item 4.
Information on the CompanyLines of Business
 Our market risk management strategy may not be effective.
 Item 11. Quantitative and Qualitative
Disclosures About Market Risk.
 Failure to maintain effective internal control over financial reporting could harm investor
confidence in the integrity of our financial information, which could have an adverse impact on
the trading price of our securities.
   We may not have adequate, if any, insurance coverage for some business risks that could lead to
economically harmful consequences to us.
  
    
    industrial accidents;
    
    railroad accidents;
    
    labor disputes;
    
    slope failures;
    
    environmental hazards;
 15




---



##### Table of Contents




    
    electricity stoppages;
    
    equipment or vessel failures; and
    
    severe weather and other natural phenomena.
  If we are unable to successfully manage the health and safety risks to which our business
exposes our employees, our business may be adversely affected.
  We may face a shortage in our supply of mining equipment due to increased consumption by mining
companies that exceeds suppliers capacity.
   Actions by protestors, including from indigenous communities that live near our mining sites,
may hamper our mining and logistic operations.
  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.
  16




---



##### Table of Contents




    
    currency volatility;
    
    inflation acceleration;
    
    monetary policy and interest rate increases;
    
    fiscal policy and tax changes;
    
    international trade policy including tariff and non-tariff trade barriers;
    
    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.
 Índice Geral de Preços do Mercado Fundação Getúlio Vargas
 Fluctuations in the value of the real against 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 and cash flow.
  real real
 reais real
 17




---



##### Table of Contents



real reais. real 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 an acceptable cost or reduce 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.
   Item 4.
Information on the CompanyRegulatory Matters.
 Our mining and logistics activities depend on authorizations of regulatory agencies, and changes
in regulations could have an adverse effect on our business.
  18




---



##### Table of Contents



Item 4. Information on the CompanyRegulatory Matters.
 Brazilian environmental laws may adversely affect our mining and energy businesses.
    Item 4. Information on the CompanyRegulatory MattersEnvironmental
Matters.
  Item 4. Information on the CompanyRegulatory MattersEnvironmental Matters 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.
  reais reais reais reais
 19




---



##### Table of Contents



If you exchange American Depositary Shares for the underlying shares, you risk losing the
ability to remit foreign currency abroad and Brazilian tax advantages.
 Item 10.
Additional InformationExchange Controls and Other Limitations Affecting Security Holders
 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.
 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.
    20




---



##### Table of Contents



Item
6. Directors, Senior Management and Employees.
 
 Item 4. Information on the Company
 
 BUSINESS OVERVIEW
 General
   
    
    Ferrous minerals (75% of 2005 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 MBRs mines and port facilities. At
December 31, 2005, we had a total of 7,981 million tons of proven and probable iron ore
reserves in our three systems in Brazil, with an average grade of 52.1% iron in our
Southern System, 66.8% in our Northern System and 59.8% in MBRs iron ore mines. We also
operate ten pellet-producing facilities, six of which are joint ventures with 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 (5.4% of 2005 consolidated gross operating revenues).We are the
worlds third largest producer of kaolin and Brazils sole producer of potash. Our Sossego
copper mine in Carajás, in the state of Pará, Brazil, began production of copper
concentrate in June 2004 and is Brazils largest producer of copper.
    
    Aluminum-related operations (10.5% of 2005 consolidated gross operating revenues).
Through subsidiaries and joint ventures, we conduct major operations in the production of
aluminum-related products. They include:
 o
    
    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 17.2 million
tons of bauxite in 2005. We are developing a wholly owned bauxite mine in the
Paragominas region, in the state of Pará, that is expected to begin commercial
production in the first half of 2007.o
    
    Alumina refining, which we conduct via our 57.0% interest in our alumina
refining subsidiary, Alunorte-Alumina do Norte do Brasil S.A., or Alunorte, which
currently has a nominal production capacity of 4.4 million tons of alumina per year,
including the latest expansion, through the construction of stages 4 and 5, which added
1.8 million tons to the plants annual capacity. We are currently developing another
two stages, scheduled to start up by 2008, which are expected to bring the plants
annual capacity to 6.3 million tons. We are also negotiating the terms of a potential
joint venture with Aluminum Corporation of
 21




---



##### Table of Contents



China Limited (Chalco) to construct a new alumina
refinery in the state of Pará.o
    
    Aluminum metal smelting, which we conduct through our subsidiary, Albras -
Alumínio Brasileiro S.A., or Albras, which produces aluminum ingots and in which we
have a 51.0% interest, and our joint venture, Valesul Alumínio S.A., or Valesul, which
produces aluminum ingots, billets and alloys and in which we have a 54.5% interest.
These companies currently have a combined production capacity of approximately 540,000
tons of aluminum per year.
 
    
    Logistics (9.1% of 2005 consolidated gross operating revenues).We are a leading
provider of logistics services in Brazil, with railroad, coastal shipping and port handling
operations. 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 our mining products, general cargo and passenger
rail transportation, bulk terminal storage and ship loading services to us and third
parties. In 2005, our railroads transported approximately 66% of the total freight tonnage
transported by Brazilian railroads, or 146.5 billion ntk of cargo, of which 119.6
billion ntk were our iron ore and pellets.
    
    Other investments.In addition to our core mining activities, we currently have
investments in three steel companies, and our Board of Directors recently approved a joint
venture, Ceará Steel, with Dongkuk, a Korean steelmaker, and Danieli, an Italian equipment
provider. This slab plant will be located in the state of Ceará, Brazil and CVRD will
invest US$25 million. Our Board of Directors has also approved an investment stake in
Companhia Siderúrgica do Atlântico, a joint venture with ThyssenKrupp Stahl AG, to build a
slab plant in the state of Rio de Janeiro, Brazil. We will invest a total of US$200
million in Companhia Siderúrgica do Atlântico. We are in the process of conducting
feasibility studies to determine whether to implement joint ventures with Baosteel Shanghai
Group Corporation (Baosteel), Arcelor Group (Arcelor) and Posco to construct and operate
steel slab plants in São Luís, in the state of Maranhão. We also hold stakes in eight
hydroelectric power generation projects with a total projected capacity of 2,509 MW (of
which our share is 991.4 MW), six of which are already under operation, and the remainder
of which are scheduled to start operations within the next four years.
  CVRD and Vale Overseas
 CVRD
 sociedade por ações
  Vale Overseas
  22




---



##### Table of Contents



Business Strategy
    Maintaining Our Leadership Position in the Iron Ore Market
   Growing Our Logistics Business
  Increasing Our Aluminum-Related Activities
  Developing Our Copper Resources
  Investing in Nickel and Coal
  Globalization of Multi-Commodity Exploration Efforts
  23




---



##### Table of Contents



Developing
Power Generation Projects
  Recent Acquisitions, Dispositions and Significant Changes
  Iron
Ore and Pellets
 Brucutu expansion project
 Carajás expansion.
 Samarco expansion.
 Fábrica Nova iron ore mine
 Itabiritos project.
 Acquisition of Rio Verde Mineração
 Stock merger with CAEMI.
 Aluminum-Related
Operations
 Paragominas project.
 24




---



##### Table of Contents



Alunorte expansion.
 ABC refinery project
 Copper
 118.
 Nickel
 Vermelho
 Onça Puma
 Potash
  Phosphates
  Coal
and Coke
  25




---



##### Table of Contents




    
    Mozambique coal mine feasibility study. In November 2004, CVRD won an international
auction to explore coal deposits in the Moatize region, in the north of Mozambique for
US$122.8 million. We own 95% of the winning consortium; American Metals & Coal
International (AMCI), an American coal producer, owns the remaining 5%. Moatize is
believed to have coal reserves that might allow the extraction of coking and thermal coal.
The projects conceptual study has been concluded and the feasibility study is expected to
be completed in the second half of 2006. If the project proceeds, the total investment
will include mine development costs, the construction of a maritime terminal for ship
loading, related investments and social projects.
    
    Shandong coke and coal projects. In July 2004, we agreed to acquire a 25% stake in a
joint venture with the Yankuang Group (Yankuang), one of the largest coal producers in
China, and with Itochu Corporation, a Japanese trading company. Our equity investment
commitment was approximately US$26 million. The purpose of the joint venture is to operate
a plant in Jining City, Shandong province, China, that would produce two million tons of
coke and 200,000 tons of methanol per year. In December 2004, the Chinese government
approved the incorporation of the joint venture, which is named Shandong Yankuang
International Coking Company Limited. After the incorporation, we made an initial capital
contribution of US$10.6 million. Currently, we own a 25% interest, Yankuang holds a 70%
equity interest and Itochu holds the remaining 5%. As currently planned, the plant would
begin operations in 2006 and we have the right to off take approximately 25% of the plants
production, which will be exported primarily to Brazil. We are also exploring with
Yankuang the possibility of participating in a joint venture to develop a new coal mine in
the city of Zhaolou, Shandong province, China. The Zhaolou mine has an expected production
capacity of approximately 3.0 million tons of coal per year, and if the project proceeds,
the mine is expected to start operations in 2007.
    
    Belvedere.In July 2005, we signed an agreement with the Australian mining companies
Aquila Resources Limited and AMCI Holdings for an exploration study of the Belvedere Coal
Underground Project, or Belvedere. Belvedere is an estimated 2.7 billion ton hard coking
coal resource located in the state of Queensland, Australia. At the conclusion of the
pre-feasibility study, we have the option to acquire a 51% interest in Belvedere at a price
of US$90 million. We have further options to increase our stake in the project to 100% by
acquiring our partners interests at a fair market value determined at the time of our
exercising each option.
 Steel
and Metallics
 Steel slab projects
 
    
    Ceará Steel. In November 2005, we agreed to acquire a minority stake in Ceará Steel, an
export-oriented steel slab project in the state of Ceará, Brazil, with a nominal capacity
of 1.5 million tons of slabs per year. The main shareholders are Dongkuk Steel, a Korean
steel maker, and Danieli, an Italian equipment supplier, and we will invest US$25 million.
The total cost of the project will be US$750 million and we will be the
exclusive supplier of pellets for Ceará Steel. The plant is expected to start production
in 2009 and we have put options to divest our stake in the future.
    
    ThyssenKrupp  Companhia Siderúrgica do Atlântico (CSA). In December 2004, we signed a
memorandum of understanding with ThyssenKrupp Stahl A.G., one of the largest European steel
makers, for the construction of a 4.4 million ton integrated slab plant in state of Rio de
Janeiro, Brazil. The project has been formally approved by both ThyssenKrupp Stahl A.G.
and CVRD, and is now being implemented. Commissioning of the plant is foreseen for 2009,
and our Board of Directors has approved an investment of
US$200 million in CSA. We intend to have a
put option to divest our stake in the future.
    
    Baosteel. In February 2004, we agreed with Baosteel, Chinas largest steel maker, to
study the feasibility of a joint venture to build and operate an integrated steel plant to
produce 4 million tons of slabs per year in São Luís, in the state of Maranhão. The basic
engineering and formal feasibility study for the project have been concluded, but issues
related to environmental licensing have delayed the final decision regarding this project.
Arcelor has also participated in the feasibility study, but no agreement has been reached
regarding its potential participation in the project.
 26




---



##### Table of Contents




    
    Posco.In September 2004, we signed a memorandum of understanding with Posco, the
largest Korean steel maker, to carry out a pre-feasibility study for the construction of an
integrated slab plant in São Luís, in the state of Maranhão. The pre-feasibility has been
concluded and submitted to Posco. The project is pending approval by Posco to proceed.
 Electricity
 Aimorés hydroelectric power plant
 Start up of Capim Branco I.
 Power Purchases.
 Dispositions and Asset Sales
  QCM.
 Foz do Chapecó and Santa Isabel hydroelectric power projects.
 Nova Era Silicon
 
 LINES OF BUSINESS
  27




---



##### Table of Contents



28




---



##### Table of Contents



Mining
 Ferrous
Minerals
   For the Year ended December 31,2003 (1)
    
    
    2004
    
    
    2005(in millions of US$)Gross revenues classified by categoryIron ore
    
    US$
    2,662
    
    
    US$
    3,995
    
    
    US$
    7,396Pellets
    
    
    838
    
    
    
    1,148
    
    
    
    2,083Manganese ore and ferroalloys
    
    
    349
    
    
    
    701
    
    
    
    571Total
    
    US$
    3,849
    
    
    
    5,844
    
    
    US$
    10,050
 
 (1)
    
    The operations of MBR are reflected in the above table as of September 2003, the date
on which we acquired and began consolidating its operations. Iron
Ore
  Reserves
  29




---



##### Table of Contents



Proven and ProbableBegan
    
    Projected/Actual
    
    Production For the Year Ended
    
    Reserves atMine(1)
    
    Operations
    
    Exhaustion Date
    
    December 31,
    
    December 31, 2005Ore2003

    
    2004
    
    2005
    
    Tonnage(2)
    
    Grade(in millions
    
    (% Fe)(in millions of tons)
    
    of tons)Southern SystemItabira mines:Cauê(3)
    
    
    1942
    
    
    
    2005
    
    
    
    22.3
    
    
    
    22.0
    
    
    
    23.5
    
    
    
    
    
    
    
    Conceição(4)
    
    
    1957
    
    
    
    2023
    
    
    
    20.8
    
    
    
    21.6
    
    
    
    22.2
    
    
    
    395.6
    
    
    
    54.4Minas do Meio(5)
    
    
    1976
    
    
    
    2023
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    635.7
    
    
    
    54.8Centrais minesÁgua Limpa / Cururu(6)
    
    
    2000
    
    
    
    2013
    
    
    
    4.0
    
    
    
    4.1
    
    
    
    3.9
    
    
    
    63.8
    
    
    
    45.0Gongo Soco (7)
    
    
    2000
    
    
    
    2013
    
    
    
    3.2
    
    
    
    5.4
    
    
    
    5.7
    
    
    
    96.2
    
    
    
    64.0Brucutu(8)
    
    
    1994
    
    
    
    2027
    
    
    
    1.6
    
    
    
    6.0
    
    
    
    7.2
    
    
    
    736.6
    
    
    
    51.8Baú(9)
    
    
    2006
    
    
    
    2029
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37.1
    
    
    
    55.6Maquiné(10)
    
    
    2009
    
    
    
    2029
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    278.7
    
    
    
    58.3Córrego do Meio (11)
    
    
    2000
    
    
    
    2005
    
    
    
    1.2
    
    
    
    1.9
    
    
    
    0.9
    
    
    
    
    
    
    
    Andrade (19)
    
    
    2005
    
    
    
    2027
    
    
    
    
    
    
    
    
    
    
    
    1.5
    
    
    
    129.2
    
    
    
    59.0Mariana minesAlegria(12)
    
    
    2000
    
    
    
    2029
    
    
    
    9.9
    
    
    
    12.2
    
    
    
    12.3
    
    
    
    281.8
    
    
    
    50.4Fábrica Nova(12)
    
    
    2005
    
    
    
    2023
    
    
    
    
    
    
    
    
    
    
    
    7.8
    
    
    
    946.3
    
    
    
    46.8Fazendão(13)
    
    
    1976
    
    
    
    2032
    
    
    
    0.3
    
    
    
    0.6
    
    
    
    0.8
    
    
    
    351.3
    
    
    
    50.0Timbopeba(14)
    
    
    1984
    
    
    
    2008
    
    
    
    5.8
    
    
    
    6.2
    
    
    
    4.6
    
    
    
    81.7
    
    
    
    55.0Capanema/Ouro Fino(15)
    
    
    1982
    
    
    
    2003
    
    
    
    6.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Oeste minesCórrego do Feijão(16)
    
    
    2003
    
    
    
    2014
    
    
    
    7.2
    
    
    
    7.7
    
    
    
    8.1
    
    
    
    51.3
    
    
    
    66.5Segredo/João Pereira(17)
    
    
    2003
    
    
    
    2025
    
    
    
    9.9
    
    
    
    11.1
    
    
    
    11.5
    
    
    
    501.5
    
    
    
    50.7Total Southern System
    
    
    
    
    
    
    
    
    
    
    92.6
    
    
    
    98.8
    
    
    
    109.9
    
    
    
    4,586.8
    
    
    
    52.1Urucum
    
    
    1993
    
    
    
    2024
    
    
    
    0.8
    
    
    
    0.7
    
    
    
    1.1
    
    
    
    64.3
    
    
    
    61.1Northern System(18)Serra NorteN4W
    
    
    1994
    
    
    
    2020
    
    
    
    13.2
    
    
    
    19.4
    
    
    
    21.9
    
    
    
    601.2
    
    
    
    66.4N4E
    
    
    1984
    
    
    
    2017
    
    
    
    21.4
    
    
    
    21.9
    
    
    
    27.2
    
    
    
    438.8
    
    
    
    66.7N5-W
    
    
    1998
    
    
    
    2023
    
    
    
    6.1
    
    
    
    5.0
    
    
    
    8.4
    
    
    
    325.4
    
    
    
    66.3N5E
    
    
    1998
    
    
    
    2017
    
    
    
    17.9
    
    
    
    21.7
    
    
    
    12.7
    
    
    
    55.7
    
    
    
    67.3N5E-N
    
    
    2003
    
    
    
    2016
    
    
    
    0.3
    
    
    
    1.4
    
    
    
    2.4
    
    
    
    28.2
    
    
    
    65.9N5S
    
    
    2006
    
    
    
    2024
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    607.0
    
    
    
    67.5Serra Leste
    
    
    2007
    
    
    
    2037
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60.8
    
    
    
    66.2Total Northern System
    
    
    
    
    
    
    
    
    
    
    58.9
    
    
    
    69.4
    
    
    
    72.5
    
    
    
    2,117.1
    
    
    
    66.8MBR SystemPico Complex:Pico / Sapecado/
Galinheiro(20)
    
    
    1942
    
    
    
    2030
    
    
    
    12.6
    
    
    
    13.1
    
    
    
    14.1
    
    
    
    662.0
    
    
    
    54.6Vargem Grande ComplexTamanduá(21)
    
    
    1993
    
    
    
    2016
    
    
    
    10.2
    
    
    
    10.5
    
    
    
    9.1
    
    
    
    99.3
    
    
    
    66.5Capitão do Mato(21)
    
    
    1997
    
    
    
    2016
    
    
    
    10.2
    
    
    
    10.8
    
    
    
    9.6
    
    
    
    147.5
    
    
    
    66.2Abóboras(21)
    
    
    2004
    
    
    
    2024
    
    
    
    
    
    
    
    0.2
    
    
    
    2.5
    
    
    
    32.2
    
    
    
    66.0Paraopeba ComplexJangada(21)
    
    
    2001
    
    
    
    2017
    
    
    
    3.0
    
    
    
    3.6
    
    
    
    4.0
    
    
    
    92.8
    
    
    
    66.0Capão Xavier(21)
    
    
    2004
    
    
    
    2021
    
    
    
    
    
    
    
    4.2
    
    
    
    11.1
    
    
    
    179.8
    
    
    
    65.6Total MBR System
    
    
    
    
    
    
    
    
    
    
    35.9
    
    
    
    42.4
    
    
    
    50.4
    
    
    
    1,213.6
    
    
    
    59.8Total CVRD
    
    
    
    
    
    
    
    
    
    
    188.3
    
    
    
    211.3
    
    
    
    233.9
    
    
    
    7,981.8
    
    
    
    57.2
 
 (1)
    
    Open pit mines. CVRDs equity interest in mines is 100% unless otherwise noted.(2)
    
    Reserves are in wet, run-of-mine (ROM) metric ore tons unless otherwise noted.(3)
    
    Reserves were not reported for 2005 due to the mines depleted state. The Cauê plant
beneficiates iron ore from Minas do Meio mines.(4)
    
    Average product recovery after beneficiation is 76.2%. The Conceição plant beneficiates
iron ore from Conceição mine and Minas do Meio mines. 30




---



##### Table of Contents



(5)
    
    Average product recovery after beneficiation is 73.2%. The run-of-mine is sent to Cauê
Concentration Plant and Conceição Concentration Plant. The production is declared in Cauê
and Conceição.(6)
    
    Average product recovery after beneficiation is 73.8%.(7)
    
    Average product recovery after beneficiation is 84%.(8)
    
    Average product recovery after beneficiation is 100% (direct shipping).(9)
    
    Average product recovery after beneficiation is 100% (direct shipping).(10)
    
    Average product recovery after beneficiation is 84%.(11)
    
    Reserves were not reported for 2005 due to the mines depleted state.(12)
    
    Average product recovery after beneficiation is 71.5%.(13)
    
    Average product recovery after beneficiation is 100% (direct shipping).(14)
    
    Average product recovery after beneficiation is 77.8%.(15)
    
    CVRDs ownership interest is 51%. Reserves were not reported for 2005 due to the mines
depleted state.(16)
    
    Average product recovery after beneficiation is 79%.(17)
    
    Average product recovery after beneficiation is 70%. The run-of-mine is sent to Fábrica
Concentration Plant.(18)
    
    Average product recovery after beneficiation is 92%.(19)
    
    Average product recovery after beneficiation is 100% (direct shipping). In 2004, we
entered into an agreement to lease the Andrade iron ore mine, but we only started to run this
mine in January 2005.(20)
    
    Average product recovery after beneficiation for Pico and Sapecado is 82%. Average product
recovery after beneficiation for Galinheiro is 81%.(21)
    
    Average product recovery after beneficiation is 81%. Integrated Systems
  31




---



##### Table of Contents



Southern System
 
 Item 4. Information on the CompanyLine of BusinessLogistics
   32




---



##### Table of Contents



Northern System
 
    33




---



##### Table of Contents



MBR System
 
   
    
    the Pico complex, which includes Pico, Sapecado and Galinheiro mines, with a major and
three secondary plants;
    
    the Vargem Grande complex, comprising Tamanduá, Capitão do Mato and Abóbodas mines, with
one major beneficiation plant; and
    
    the Paraopeba complex, consisting of Jangada (with a beneficiation plant) and Capão
Xavier (Mutuca plant) mines.
  Casa de Pedra Iron Ore Mine
  
    
    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
 34




---



##### Table of Contents




    
    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.
 Item 3. Key Information  Risk Factors  We are involved in
ongoing antitrust proceedings that could result in divestitures, fines or other restrictions that
could harm our business
 Pellets
  Our Direct or
    
    
    
    
    
    
    Total Pellet Production (1)Indirect Share of
    
    
    
    
    
    
    for the Year Ended
    
    
    NominalSystem
    
    
    Capital
    
    
    Partners
    
    
    December 31,
    
    
    CapacityVoting
    
    
    Total
    
    
    
    
    
    
    2003
    
    
    2004
    
    
    2005%
    
    
    
    
    
    
    (in millions of tons)CVRD
    
    Tubarão, Fábrica and São Luis
    
    
    n.a.
    
    
    
    n.a.
    
    
    
    
    
    
    13.0
    
    
    
    16.3
    
    
    
    16.4
    
    
    
    16.7GIIC
    
    Bahrain
    
    
    50.0
    
    
    
    50.0
    
    
    GIC
    
    
    3.7
    
    
    
    3.7
    
    
    
    4.0
    
    
    
    4.0Hispanobras
    
    Tubarão
    
    
    51.0
    
    
    
    50.9
    
    
    Arcelor
    
    
    3.6
    
    
    
    4.0
    
    
    
    4.2
    
    
    
    3.8Itabrasco
    
    Tubarão
    
    
    51.0
    
    
    
    50.9
    
    
    Ilva
    
    
    3.3
    
    
    
    3.5
    
    
    
    3.9
    
    
    
    3.3Kobrasco
    
    Tubarão
    
    
    50.0
    
    
    
    50.0
    
    
    Posco
    
    
    4.4
    
    
    
    4.5
    
    
    
    4.9
    
    
    
    4.3Nibrasco
    
    Tubarão
    
    
    51.1
    
    
    
    51.0
    
    
    Nippon Steel
    
    
    7.7
    
    
    
    8.3
    
    
    
    9.0
    
    
    
    8.4SumitomoJFE SteelKobe SteelNisshin SteelSOJITZ Corp.Samarco
    
    Ponta do Ubú
    
    
    50.0
    
    
    
    50.0
    
    
    BHP Billiton
    
    
    13.3
    
    
    
    13.8
    
    
    
    13.7
    
    
    
    14.0Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49.0
    
    
    
    54.1
    
    
    
    56.1
    
    
    
    54.5
 
 (1)
    
    Total production by joint venture entity.    35




---



##### Table of Contents



For the Year EndedDecember 31,2003
    
    2004
    
    2005(in millions of tons)GIIC
    
    
    2.7
    
    
    
    3.5
    
    
    
    4.0Hispanobras
    
    
    3.8
    
    
    
    4.2
    
    
    
    4.5Itabrasco
    
    
    3.5
    
    
    
    3.7
    
    
    
    4.1Kobrasco
    
    
    4.7
    
    
    
    4.8
    
    
    
    5.2Nibrasco
    
    
    7.1
    
    
    
    7.1
    
    
    
    7.9Samarco
    
    
    2.0
    
    
    
    2.0
    
    
    
    2.0Total
    
    
    23.9
    
    
    
    25.3
    
    
    
    27.7
 Customers,
Sales and Marketing (Iron Ore and Pellets)
    Distribution
(Iron Ore and Pellets)
 Logistics
  36




---



##### Table of Contents



Competition
(Iron Ore and Pellets)
    
    
    Kumba Resources (South Africa);
    
    Luossavaara Kiirunavaara AB  LKAB (Sweden);
    
    Sociétè Nationale Industrielle et Minière  SNIM (Mauritania);
    
    Rio Tinto PLC (UK), Rio Tinto Ltd (Australia) and their subsidiaries and affiliates; and
    
    BHP Billiton (Australia) and its subsidiaries and affiliates.
  Manganese
Ore and Ferroalloys
    
    
    metallurgical ore used primarily for the production of ferroalloys;
 37




---



##### Table of Contents




    
    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.
  Projected
    
    ProductionBegan
    
    Exhaustion
    
    For the Year EndedOperations
    
    Date
    
    December 31,
    
    Proven and Probable ReservesIn million of tonsOre2003
    
    2004
    
    2005
    
    Type
    
    Tonnage (1)
    
    Grade(2)Azul(3)
    
    
    1985
    
    
    
    2017
    
    
    
    1.5
    
    
    
    2.0
    
    
    
    2.2
    
    
    Open Pit
    
    
    45.7
    
    
    
    35.7Urucum(4)
    
    
    1976
    
    
    
    2020
    
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.4
    
    
    Underground
    
    
    8.2
    
    
    
    45.3Morro da Mina(5)
    
    
    1902
    
    
    
    2030
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.3
    
    
    Open Pit
    
    
    9.6
    
    
    
    23.0Bahia mines (6).
    
    
    1972
    
    
    
    n.a.
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1
    
    
    Open Pit
    
    
    n.a.
    
    
    
    n.a.Total
    
    
    
    
    
    
    
    
    
    
    2.2
    
    
    
    2.7
    
    
    
    3.0
    
    
    
    
    
    
    
    63.5
    
    
    
    35.0
 
 (1)
    
    Reserves reported as run-of-mine wet tons, in millions of tons.(2)
    
    Reported as run-of-mine Mn% grade.(3)
    
    Average product recovery after beneficiation is 78% of ROM tons.(4)
    
    Average product recovery after beneficiation is 75% of ROM tons.(5)
    
    Morro da Mina mine is located in the state of Minas Gerais. Average product recovery
after beneficiation is 88% of ROM tons.(6)
    
    There are no proven and probable manganese reserves at the mines located in the state
of Bahia. Item 3. Key InformationRisk Factors
 Production
    
    Production inCapacity
    
    2005(In thousands of
    
    (In thousandstons per year)
    
    of tons)Rio Doce Manganèse Europe (RDME)
    
    
    136
    
    
    
    118Rio Doce Manganese Norway (RDMN)
    
    
    110
    
    
    
    77Rio Doce Manganês S.A. (RDM)
    
    
    368
    
    
    
    347Urucum Mineração S.A.
    
    
    20
    
    
    
    22Nova Era Silicon S.A. (NES) (1)
    
    
    45
    
    
    
    38Total
    
    
    651
    
    
    
    602
 
 (1)
    
    Sold in February 2006.  Competition
(Manganese Ore and Ferroalloys)
  38




---



##### Table of Contents



e.g.
 Coal
  Non-Ferrous
Minerals
  For the Year Ended December 31,2003(1)
    
    
    2004
    
    
    2005(in millions of US$)Gross revenues classified by categoryGold
    
    US$
    21
    
    
    US$
    
    
    
    US$
    Potash
    
    
    94
    
    
    
    124
    
    
    
    149Copper
    
    
    
    
    
    
    201
    
    
    
    391Kaolin
    
    
    96
    
    
    
    164
    
    
    
    177Total
    
    US$
    211
    
    
    US$
    489
    
    
    US$
    717
 
 (1)
    
    The operations of CADAM are reflected in the above table as of September 2003, the date
on which we acquired and began consolidating its operations. Kaolin
  39




---



##### Table of Contents



Projected
    
    
    ProductionBegan
    
    
    Exhaustion
    
    
    For the Year EndedOperations
    
    
    Date
    
    
    December 31,
    
    
    Proven and Probable Reserves(1)(in tons per year)
    
    
    
    
    
    
    
    
    
    
    Grade(%)Ore2003
    
    
    2004
    
    
    2005
    
    
    Type
    
    
    Tonnage
    
    
    Brightness
    
    
    Grit
    
    
    PSDMorro do Felipe
    
    
    1976
    
    
    
    2013
    
    
    
    711.2
    
    
    
    750.0
    
    
    
    701.0
    
    
    Open Pit
    
    
    36.7
    
    
    
    86.7
    
    
    
    n.a.
    
    
    
    n.a.Rio Capim (2)
    
    
    1996
    
    
    
    2008
    
    
    
    423.0
    
    
    
    460.1
    
    
    
    517.0
    
    
    Open Pit
    
    
    33.5
    
    
    
    82.8
    
    
    
    34.5
    
    
    
    66.6Total
    
    
    
    
    
    
    
    
    
    
    1,134.2
    
    
    
    1,210.1
    
    
    
    1,218
    
    
    
    
    
    
    
    70.2
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Expressed as dry in situ metric ore tons.(2)
    
    Average recovery of Century product is 55% of the ore tons.   Potash
  Projected
    
    
    ProductionLeased
    
    
    Exhaustion
    
    
    For the Year EndedSince
    
    
    Date
    
    
    December 31,
    
    
    Proven and Probable Reserves(in thousands of tons per year)Ore2003
    
    
   
    
    
    
    2004
    
    
    
    
    
    
    2005
    
    
    Type
    
    
    Tonnage
    
    
    Grade(%)Taquari  Vassouras(1)
    
    
    1992
    (2)
    
    
    2012
    
    
    
    
    
    
    
    658
    
    
    
    
    
    
    
    638
    
    
    
    
    
    
    
    641
    
    
    Underground
    
    
    19.2
    
    
    
    31.0Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.2
    
    
    
    31.0
 
 (1)
    
    Expressed as dry in situ metric tons; equivalent to 5.9Mt of KCl. Average mining
extraction is 46% of the in situ ore, giving 8.8Mt of recoverable ore and 2.7Mt of
recoverable KCl.(2)
    
    The mine began operations in 1986. Copper
  40




---



##### Table of Contents



Production of copperProjected
    
    
    contained inBegan
    
    
    Exhaustion
    
    
    concentrate for theOperations
    
    
    Date
    
    
    Year Ended (tons)
    
    
    Proven and Probable Reserves2004
    
    
    2005OreType
    
    
    Tonnage
    
    
    Grade0.98% Cu and 0.271Sossego
    
    
    2004
    
    
    
    2021
    
    
    
    73,000
    
    
    
    107,000
    
    
    Open pit
    
    
    225.1
    
    
    Au (GPT)
  Item 4. Information on
the CompanyLines of BusinessMiningMineral Risk Contract.
   Mineral Prospecting and Development
  41




---



##### Table of Contents




    
    copper exploration projects in Salobo, Cristalino and Alemão sites, located in the state of Pará, Brazil;
    
    a phosphates exploration project in Bayóvar deposit located in the department of Piura, Peru;
    
    a potash exploration project in the province of Neuquen, on the banks of Colorado river in Argentina;
    
    coal exploration projects in the Moatize region, in the north of Mozambique (Moatize
Project), and in the state of Queensland, Australia (Belvedere Project); and
    
    a bauxite exploration project in Pitinga region, in the state of Amazonas, Brazil.
  
    
    Vermelho nickel project, located in the state of Pará, Brazil; and
    
    118 copper project, also located in the state of Pará, Brazil.
   Mineral Risk Contract
     42




---



##### Table of Contents



Aluminum-Related Operations
  For the Year Ended December 31,2003
    
    
    2004
    
    
    2005(in millions of US$)Revenues classified by categoryBauxite
    
    US$
    37
    
    
    US$
    53
    
    
    US$
    54Alumina
    
    
    495
    
    
    
    458
    
    
    
    531Aluminum
    
    
    320
    
    
    
    739
    
    
    
    823Total
    
    US$
    852
    
    
    US$
    1,250
    
    
    US$
    1,408
  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) (1)
    


    Alumina
    
    
    59.53
    
    
    
    57.03
    
    
    Companhia Brasileira deAlumínio  CBAJAICMitsuiMitsubishiNippon AmazonNorsk HydroMineração Rio do Norte S.A. (MRN)
    
    Bauxite
    
    
    40.00
    
    
    
    40.00
    
    



    AbalcoAlcoaAlcanAWABHP Billiton MetaisCompanhia Brasileira deAlumínio  CBANorsk HydroValesul Alumínio S.A. (Valesul)
    
    Aluminum
    
    
    54.51
    
    
    
    54.51
    
    
    BHP Billiton Metais
 
 (1)
    
    The percentages reflecting our direct or indirect share of capital for Alunorte refer to
paid-in capital.  
    
    mining bauxite,
    
    refining bauxite into alumina, and
    
    smelting alumina to produce primary aluminum and aluminum alloys.
 43




---



##### Table of Contents



Bauxite
 MRN.
  Proven and Probable Reserves(1)ProjectedExhaustion Date
    
    Type
    
    Ore Tonnage
    
    Grade(2)(millions of tons)
    
    (% Al203)Mineração Rio do Norte S.A.Almeidas
    
    
    2009
    
    
    Open pit
    
    
    11.7
    
    
    
    51.2Aviso
    
    
    2012
    
    
    Open pit
    
    
    48.2
    
    
    
    51.1Bacaba
    
    
    2009
    
    
    Open pit
    
    
    6.2
    
    
    
    53.1Saracá V
    
    
    2010
    
    
    Open pit
    
    
    5.7
    
    
    
    47.2Saracá W
    
    
    2015
    
    
    Open pit
    
    
    17.1
    
    
    
    50.3Total
    
    
    
    
    
    
    
    
    
    
    88.9
    
    
    
    50.8
    (3)
 
 (1)
    
    CVRDs ownership of MRNs bauxite reserves is 40%.(2)
    
    Expressed as available Al203.(3)
    
    Expressed as dry product metric tons. Recovery of dry product from dry ROM bauxite
ranges from 69 to 82%, depending on the deposit, with a weighted average of 74%.    Paragominas project.
  Proven and Probable Reserves (1)Ore Tonnage
    
    Grade(millions of tons)
    
    (% Al203)Miltonia 3
    
    
    204.9
    
    
    
    49.4Miltonia 5
    
    
    98.6
    
    
    
    47.3Total
    
    
    303.5
    
    
    
    48.7
 
 (1)
    
    Expressed as dry product metric tons. Planned product recovery is an average of 70% of the
dry ROM tons. 44




---



##### Table of Contents



Alumina
    For the Year Ended December 31,2003
    
    2004
    
    2005(millions of tons)Alunorte production
    
    
    2.323
    
    
    
    2.548
    
    
    
    2.570
  Aluminum
  Albras
   For the Year Ended December 31,2003
    
    2004
    
    2005(thousands of tons)Albras production
    
    
    432.1
    
    
    
    435.0
    
    
    
    445.8
  45




---



##### Table of Contents



Fundação Getúlio
Vargas Item 4. Information on the CompanyRegulatory MattersEnergy
 Valesul.
 Item 8.
Financial InformationLegal Proceedings.
 Competition
in Bauxite, Alumina and Aluminum
  Bauxite.
 Alumina.
 Aluminum.
 Logistics
  46




---



##### Table of Contents



For the Year Ended December 31,2003(1)
    
    
    2004
    
    
    2005Revenues classified by categoryRailroads
    
    US$
    373
    
    
    US$
    612
    
    
    US$
    881Ports
    
    
    144
    
    
    
    173
    
    
    
    230Ships
    
    
    87
    
    
    
    92
    
    
    
    105Total
    
    US$
    604
    
    
    US$
    877
    
    
    US$
    1,216
 
 (1)
    
    The operations of CAEMI and FCA are reflected in the above table as of September
2003, the date on which we acquired and began consolidating their operations. Railroads
 Vitória a Minas railroad.
  
    
    iron ore and pellets, carried for us and customers;
    
    steel, coal, pig iron, limestone and other raw material carried for customers with steel
mills located along the railroad;
    
    agricultural products, such as soybean, soybean meal and fertilizers; and
    
    other general cargo, such as building materials, pulp, fuel and chemical products.
  Carajás railroad.
 47




---



##### Table of Contents



Ferrovia Centro-Atlântica.
 MRS See Item 3. Risk FactorsRisks Related
to Our Business  We are involved in ongoing antitrust proceedings that could result in
divestitures, fines or other restrictions that could harm our business Item 8. Financial
InformationLegal Proceedings. Item 4. Information on the Company  Regulatory Matters  Railroads
 Ports and Terminals
 Item 4. Information
on the CompanyLines of BusinessMiningFerrous MineralsPelletsDistribution (Iron Ore and
Pellets)
 Tubarão Port.
 Vitória Port.
 48




---



##### Table of Contents



Ponta da Madeira maritime terminal.
  Inácio Barbosa maritime terminal (TMIB).
 Terminal de Vila Velha S.A. (TVV).
 Cia. Portuária Baía de Sepetiba (CPBS)  Itaguaí maritime terminal
 Guaíba Island maritime terminal
 Shipping
   For the Year Ended December 31,2003
    
    
    2004
    
    
    2005(thousands of tons)Iron ore:CVRD
    
    
    4,386
    
    
    
    5,291
    
    
    
    1,981Third party
    
    
    1,860
    
    
    
    312
    
    
    
    148Coal
    
    
    256
    
    
    
    306
    
    
    
    Other
    
    
    2,819
    
    
    
    830
    
    
    
    2,196Total
    
    
    9,321
    
    
    
    6,739
    
    
    
    4,325
 49




---



##### Table of Contents



Competition in the logistics industry.
 Investments in Steelmaking
  Our Direct or IndirectShare of Capital
    
    
    
    
    
    2005 Net
    
    Principal(VotingTotal)
    
    Partners
    
    Revenues
    
    ProductsVoting
    
    Total
    
    (in millions of US$)(%)CSI (California, United States)
    
    
    50.00
    %
    
    
    50.00
    %
    
    JFE Steel
    
    US$
    1,234
    
    
    Hot-rolled steel;cold-rolled steel;galvanized steel;steel tubesSiderar (Argentina)
    
    
    4.85
    
    
    
    4.85
    
    
    Ternium
    
    
    1,454
    
    
    Steel slabs;Employees
    
    
    
    
    
    hot-rolled steel;Others
    
    
    
    
    
    cold-rolled steel;galvanized steel;tin platesUsiminas (Brazil)
    
    
    22.99
    
    
    
    11.46
    
    
    Nippon Usiminas
    
    
    5,548
    
    
    Hot-rolled steel;Previ
    
    
    
    
    
    cold-rolled steel;Caixa dos
    
    
    
    
    
    heavy steel plates;Empregados
    
    
    
    
    
    electro galvanizedda Usiminas
    
    
    
    
    
    steelOthers
   50




---



##### Table of Contents



Energy Investments
   Our
    
    
    
    
    
    Capacity/Ownership
    
    
    
    Begins/Began
    
    ProjectedLocation
    
    Interest (1)
    
    Partners
    
    Operations
    
    Capacity
    
    Our InvestmentAs ofDecember
    
    Projected(%)
    
    
    
    
    
    (in MW)
    
    31, 2005
    
    Total(in millions of US$)Aimorés
    
    Rio Doce basin, in
the state of Minas
Gerais.
    
    
    51.00
    %
    
    Cemig
    
    July 2005
    
    
    330
    
    
    US$
    136.5
    
    
    US$
    141Candonga
    
    Rio Doce basin, in
the state of Minas
Gerais.
    
    
    50.00
    
    
    Novelís
    
    September 2004
    
    
    140
    
    
    
    46.0
    
    
    
    Capim Branco I (3)
    
    Araguari river, in
the state of Minas
Gerais.
    
    
    48.42
    
    
    Cemig
Suzano
Votorantim
    
    February 2006
    
    
    240
    
    
    
    87.1
    
    
    
    90Capim Branco II (3)
    
    Araguari river, in
the state of Minas
Gerais.
    
    
    48.42
    
    
    Cemig
Suzano
Votorantim
    
    December 2006(2)
    
    
    210
    
    
    
    63.0
    
    
    
    90Estreito
    
    Tocantins river, on
the border of the
states of Maranhão
and Tocantins.
    
    
    30.00
    
    
    Suez
Alcoa
Camargo Correia
    
    August 2009(2)
    
    
    1,087
    
    
    
    4.3
    
    
    
    355Funil
    
    Rio Grande river,
in the state of
Minas Gerais.
    
    
    51.00
    
    
    Cemig
    
    December 2002
    
    
    180
    
    
    
    49.0
    
    
    
    Igarapava
    
    Rio Grande, on the
border of the
states of São Paulo
and Minas Gerais.
    
    
    38.15
    
    
    Votorantim
CSN
Cemig
Anglo-American
    
    January 1999
    
    
    210
    
    
    
    88.1
    
    
    
    Porto Estrela
    
    Santo Antonio
river, in the state
of Minas Gerais.
    
    
    33.33
    
    
    Cemig
Coteminas
    
    September 2001
    
    
    112
    
    
    
    20.0
    
    
    
    
 51




---



##### Table of Contents



(1)
    
    In February 2006, we sold to Furnas Centrais Elétricas for approximately R$10 million
our 40% stake in the consortium to build and operate the Foz do Chapecó hydroelectric power
plant. The closing of this transaction is subject to certain conditions precedent,
including ANEELs approval of the transfer of control.(2)
    
    Projected date for commencement of the first unit of the project.(3)
    
    Capim Branco I and Capim Branco II are two different plants operated by the same
consortium.   
 REGULATORY MATTERS
 Mining
   
    
    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.
 Departamento Nacional de Produção Mineral
 Compensação Financeira pela
Exploração de Recursos Minerais
 
    
    bauxite, potash and manganese ore, 3%;
    
    iron ore, kaolin, copper, nickel and fertilizers, 2%; and
    
    gold, 1%.
 52




---



##### Table of Contents



Item 8. Financial InformationLegal Proceedings.
 Railroads
  Item 4. Information on the CompanyLines of
BusinessLogistics Item 8. Financial InformationLegal Proceedings
  Electric Energy
   53




---



##### Table of Contents



Mecanismo de Realocação de Energia
 Câmara de Comercialização de Energia Elétrica
 consumidor livre,
    Item 8. Financial InformationLegal Proceedings.
 54




---



##### Table of Contents



Environmental Matters
    Issuance of Environmental Licenses.
 Environmental Compensation.
 Legal Reserve.
 Prevention and Environmental Control Measures.
 Water Use.
 55




---



##### Table of Contents



ISO Certifications
 Environmental Control Systems:
       Item 3. Risk FactorsRisks Related to Our Business  Actions by protestors, including from
indigenous communities that live
 56




---



##### Table of Contents



near  our mining sites, may hamper our mining and logistic
operations
 
 CAPITAL EXPENDITURES
 Item 5. OverviewKey Factors Affecting Revenues and Results of
OperationsDivestitures and Asset Sales
 For the Year Ended December 31,2003
    
    
    2004
    
    
    2005(in millions of US$)Ferrous Minerals
    
    US$
    698
    
    
    US$
    636
    
    
    US$
    1,584Non-ferrous Minerals
    
    
    332
    
    
    
    302
    
    
    
    264Logistics
    
    
    274
    
    
    
    484
    
    
    
    1,092Aluminum
    
    
    79
    
    
    
    224
    
    
    
    669Coal
    
    
    
    
    
    
    10
    
    
    
    135Energy
    
    
    40
    
    
    
    79
    
    
    
    125Corporate center
    
    
    120
    
    
    
    178
    
    
    
    108Acquisitions and other investments
    
    
    448
    
    
    
    143
    
    
    
    840Total
    
    US$
    1,991
    
    
    US$
    2,056
    
    
    US$
    4,817
 2005 Capital Expenditures and Budgeted Capital Expenditures for 2006
   Item 4 
Acquisitions, Asset Sales and Significant Changes in 2005 and 2006
   57




---



##### Table of Contents



Area
    
    Project
    
    Actual
    
    Budgeted
    
    Status2005
    
    2006
    
    Total(in millions of US$)Ferrous Minerals
    
    Expansion of
Carajás iron ore
mines to 85 million
tons per year
(Northern System)
    
    
    168
    
    
    
    41
    
    
    
    296
    
    
    This project will
add 15 million tons
per year to our
production capacity
and is scheduled to
be completed in the
third quarter of
2006.Expansion of
Carajás iron ore
mines to 100
million tons per
year (Northern
System)
    
    
    
    
    
    
    289
    
    
    
    366
    
    
    This project will
add 15 million tons
per year to our
production capacity
and is scheduled to
be completed in the
second half of
2007.Brucutu iron ore
mine (Southern
System)
    
    
    354
    
    
    
    310
    
    
    
    856
    
    
    Phase I of the
project is expected
to be completed in
the second quarter
of 2006, bringing
nominal production
capacity to 12
million tons per
year. Completion
of Phase II is
planned for the
first quarter of
2007, bringing
capacity to 24
million tons per
year. Studies are
in progress for
expansion to 30
million tons per
year.Expansion of
Fazendão iron ore
mine (Southern
System)
    
    
    3
    
    
    
    39
    
    
    
    100
    
    
    Project for 14
million tons per
year of run-of-mine
(ROM) iron ore.
Work is planned to
begin in the first
half of 2006, with
targeted completion
and start-up in the
fourth quarter of
2007.Expansion of
Fábrica iron ore
mine (Southern
System)
    
    
    7
    
    
    
    88
    
    
    
    144
    
    
    Project to expand
capacity by 5
million tons per
year from 12 to 17
million tons per
year, with targeted
start-up in the
fourth quarter of
2007.Expansion of the
Tubarão Port
(Southern System)
    
    
    31
    
    
    
    20
    
    
    
    65
    
    
    Project to expand
conveyor belt
systems and cargo
handling area
machinery, and
build new cargo
handling areas.
Completion
scheduled for the
first quarter of
2007.Itabiritos
pelletizing plant
(Southern System)
    
    
    
    
    
    
    338
    
    
    
    759
    
    
    This project
comprises a
pelletizing plant,
located in the
state of Minas
Gerais, with
nominal capacity of
7 million tons per
year, and an iron
ore concentration
plant. Start up is
targeted for the
second half of
2008.Tubarão VIII
palletizing plant
(Southern System)
    
    
    
    
    
    
    31
    
    
    
    516
    
    
    Pelletizing plant
with nominal
capacity of 7
million tons per
year located at the
Tubarão Complex.
Completion and
start-up scheduled
for 2008. This
project is subject
to CVRD Board of
Directors approval.Coal
    
    Metallurgical coke
plant
    
    
    11
    
    
    
    9
    
    
    
    26
    
    
    Acquisition of a
25% stake, in
association with
the Chinese coal
producer Yankuang,
in Shandong
Yankuang
International
Coking Ltd, to
produce
metallurgical coke. The project has
estimated
production capacity
of 2 million tons
per year of coke
and 200,000 tons
per year of
methanol. Start-up
scheduled for the
first half of 2006.Non-ferrous minerals
    
    118 copper mine
    
    
    
    
    
    
    21
    
    
    
    232
    
    
    118 is expected to
have production
capacity of 36,000
tons per year of
copper cathode.
The principal
equipment has been
ordered. Start-up
is scheduled for
the first half of
2008.Vermelho nickel mine
    
    
    5
    
    
    
    97
    
    
    
    1,200
    
    
    The estimated
production capacity
of 46,000 tons per
year of metallic
nickel and 2,800
tons per year of
cobalt. The main
equipment has been
ordered. The EPCM
(Engineering,
Procurement
Construction
Management) was
contracted in
December 2005.
Work on obtaining
the environmental
license is in
progress. Start-up
of the mine is
scheduled for the
fourth quarter of
2008.Aluminum
    
    Expansion of
Alunorte: stages 4
and 5alumina
    
    
    396
    
    
    
    144
    
    
    
    583
    
    
    Stages 4 and 5 will
increase the
alumina refinerys
capacity to 4.4
million tons per
year from the
current 2.4 million
tons per year.
Stage 4 and 5 were
completed in the
first quarter of
2006.Paragominas I
bauxite mine
    
    
    182
    
    
    
    210
    
    
    
    352
    
    
    Our construction of
the first module of
this mine with
estimated
production capacity
of 5.4 million tons
per year is
scheduled to be
completed in the
first quarter of
2007. The
construction of the
244-km ore
pipeline, which
will carry bauxite
from the mine to
the alumina
refinery in
Barcarena, state of
Pará, is expected
to be completed on
March 2006.Expansion of
Alunorte: stages 6
and 7alumina
    
    
    
    
    
    
    239
    
    
    
    846
    
    
    Stages 6 and 7 will
increase alumina
refinery capacity
to 6.26 millions
tons per year, with
start-up planned
for the second
quarter of 2008.
 58




---



##### Table of Contents



Area
    
    Project
    
    Actual
    
    Budgeted
    
    Status2005
    
    2006
    
    Total(in millions of US$)Paragominas II
bauxite mine
    
    
    
    
    
    
    14
    
    
    
    196
    
    
    The second module
of Paragominas will
add 4.5 million
tons per year of
bauxite to the
production capacity
of 5.4 million tons
per year achieved
on the first
module. Start-up
is scheduled for
the second quarter
of 2008.Logistics
    
    EFVM, EFC, FCA:
acquisition of
locomotives and
wagons
    
    
    465
    
    
    
    379
    
    
    
    379
    
    
    In 2006, we expect
to purchase 22
locomotives (all of
them for iron ore
transportation) and
1,426 wagons (150
for general cargo
transportation and
1,276 for iron ore
transportation).Power Generation
    
    Capim Branco I and
II hydroelectric
power plants
    
    
    90
    
    
    
    61
    
    
    
    181
    
    
    These two power
plants on the
Araguari river in
the state of Minas
Gerais will have
generation capacity
of 240MW and 210MW
respectively.
Capim Branco I
started operating
in the first
quarter of 2006,
while the start-up
of Capim Branco II
is planned for the
first quarter of
2007.Estreito
hydroelectric power
plant
    
    
    
    
    
    
    68
    
    
    
    355
    
    
    Located on the
Tocantins river,
between the states
of Maranhão and
Tocantins. It will
have generation
capacity of 1,087
MW. Construction
is planned for the
first half of 2006,
subject to
obtaining
operational
license. The
start-up of its
first rotor is
expected for the
second half of
2009.Steel joint ventures
    
    Ceará Steel
    
    
    
    
    
    
    11
    
    
    
    25
    
    
    Steel slab project
located at Ceará
state, with nominal
production capacity
of 1.5 million tons
per year.
Operations are
scheduled to start
in 2009.CSA
    
    
    
    
    
    
    72
    
    
    
    200
    
    
    Steel slab project
located at Rio de
Janeiro state, with
nominal production
capacity of 4.4
million tons per
year. Operations
are scheduled to
start in 2009.
   Item 4A. Unresolved Staff Comments
  
 Item 5. Operating and Financial Review and Prospects
 
 Overview
 real
 59




---



##### Table of Contents



Demand
 Demand for iron ore and pellets
   Demand for aluminum-related products
  Demand for transportation services
  Production Capacity
  
    
    Our greenfield iron ore project at Fábrica Nova, which has a capacity of 15 million tons
per year, began operations in the second quarter of 2005 and produced 7.8 million tons in
2005.
    
    We completed our capacity expansion project at the Taquari-Vassouras potash mine in
September 2005, increasing its capacity from 600,000 tons per year to 850,000 tons per
year. We expect a significant increase in production in 2006.
    
    We purchased 125 locomotives and 5,414 wagons in 2005 to expand the general cargo and
iron ore transportation capacity of our railroads.In 2006, we expect to complete the following major projects:
    
    An expansion project at Carajás, designed to increase the nominal capacity of the mine
to 85 million tons per year from the current 70 million tons per year, is expected to be
completed in the second half of 2006.
    
    Phase I of the Brucutu iron ore mine, with nominal production capacity of 12 million
tons per year, is targeted for completion in the third quarter of 2006.
    
    The expansion of our Tubarão Port in the Southern System is targeted for completion by
December 2006.
    
    Our Yankuang metallurgical coke plant, with an estimated production capacity of 2
million tons of coke per year and 200,000 tons per year of methanol, is targeted to begin
production in the first half of 2006.
 60




---



##### Table of Contents




    
    Stages 4 and 5 of the expansion of Alunorte, designed to increase nominal capacity to
4.4 million tons per year from the current 2.4 million tons per year, were completed in the
first quarter of 2006.
    
    We are purchasing an additional 22 locomotives (all for iron ore transportation) and
1,426 wagons (primarily for iron ore transportation).
 Item 4. Information on the CompanyCapital Expenditures
 Prices
 Ores and metals
 Iron ore.
 Reference Prices for Europe in US$ cents/metric ton Fe unitYear
    
    Carajás fines
    
    Standard sinter feed
    
    Blast furnace pellets2003

    
    
    31.95
    
    
    
    31.04
    
    
    
    52.002004

    
    
    37.90
    
    
    
    36.45
    
    
    
    61.882005

    
    
    65.00
    
    
    
    62.51
    
    
    
    115.512006

    
    
    77.35
    
    
    
    74.39
    
    
    
    112.05
   Aluminum-related operations.
 Aluminum1Q03
    
    
    1,392.042Q03
    
    
    1,379.553Q03
    
    
    1,419.944Q03
    
    
    1,519.801Q04
    
    
    1,667.372Q04
    
    
    1,687.603Q04
    
    
    1,716.604Q04
    
    
    1,813.801Q05
    
    
    1,888.602Q05
    
    
    1,796.323Q05
    
    
    1,847.494Q05
    
    
    2,066.541Q06
    
    
    2,443.54
 
 Source:
    
    Bloomberg. 61




---



##### Table of Contents




    
    MRN (an unconsolidated joint venture) produces bauxite. It sells on a take-or-pay basis
to us and the other joint venture partners, at a price that is determined by a formula
linked to the price of aluminum for three-month contracts in the London Metal Exchange and
to the price of alumina exported from Australia.
    
    Alunorte (a consolidated subsidiary) produces alumina. It purchases all of its bauxite
requirements from MRN, and its annual purchase commitment for 2005 was approximately US$150
million. It sells alumina on a take-or-pay basis to us and the other joint-venture
partners in proportion to their respective interests, at a price which is determined by a
formula based on the price of aluminum for three-month contracts on the London Metal
Exchange. In 2005, Alunortes alumina production was sold 60.2% to clients located in
other countries than Brazil, 33.4% to Albras, and 6.4% to Valesul.
    
    Albras (a consolidated subsidiary) produces primary aluminum. It sells on a take-or-pay
basis to us and the other joint-venture partners, in proportion to their respective
interests. We sell the aluminum we purchase from Albras directly to customers.
    
    Valesul (an unconsolidated joint venture) also produces aluminum. We do not have a
take-or-pay commitment to Valesul, which sells aluminum products directly to its customers.
 Manganese ore and ferroalloys.
  Potash and kaolin.
 Copper.
 Logistics.
 62




---



##### Table of Contents



Currency Exchange Rates
  Acquisitions and Dispositions
 Item 4.
Information on the CompanyBusiness OverviewRecent Acquisitions, Dispositions and Significant
Changes in 2005 and 2006
 Inflation in Brazil
 reais, . real
 Operating expenses
  
    
    Cost of goods sold.Our cost of goods sold consists principally of costs for raw
materials (especially bauxite purchased under take-or-pay arrangements from MRN, and iron
ore and pellets purchased from third parties), services (especially mine waste removal and
freight), materials and supplies, labor, fuel, energy, and depreciation and depletion.
    
    Selling, general and administrative expenses.Our selling, general and administrative
expenses consist principally of the expenses of our corporate headquarters.
    
    Research and development expenses.Our research and development expenses consist
primarily of investments related to mineral exploration and studies for the development of
projects. We expect our research and development investments to increase in 2006.
 Brazilian Taxes
  
    
    Value-added taxes and revenue taxes Our gross revenues include value-added taxes that
we collect on our sales operations. Net operating revenues represent gross revenues less
value-added taxes and revenue taxes. Value-added tax (ICMS) is paid to the state fiscal
authorities and revenue taxes (PIS and COFINS) to the federal fiscal authorities. These taxes (ICMS, PIS and COFINS) are
 63




---



##### Table of Contents



recorded under the line
item taxes on revenues. Export sales are currently exempt from both value-added and
revenue taxes.
    
    Income tax and social contribution on profits Income taxes in Brazil include the
federal income tax and a social contribution on profits, which represents an additional
federal tax. The statutory composite tax rate is 34%, composed of 25% federal income tax
rate plus a 9% social contribution on profits rate.
 
 Results of Operations2005 Compared to 2004
 Revenues
  Year
ended December 31,2005
    
    
    2004
    
    
    % Change(in millions of US$)Iron ore and pelletsIron ore
    
    US$
    7,396
    
    
    US$
    3,995
    
    
    
    85.1
    %Pellets
    
    
    2,083
    
    
    
    1,148
    
    
    
    81.4Subtotal
    
    
    9,479
    
    
    
    5,143
    
    
    
    84.3Manganese and Ferroalloys
    
    
    571
    
    
    
    701
    
    
    
    (18.5
    )Potash
    
    
    149
    
    
    
    124
    
    
    
    20.2Kaolin
    
    
    177
    
    
    
    164
    
    
    
    7.9Copper
    
    
    391
    
    
    
    201
    
    
    
    94.5Minerals and metals
    
    
    10,767
    
    
    
    6,333
    
    
    
    70.0Revenues from logistic services
    
    
    1,216
    
    
    
    877
    
    
    
    38.7Aluminum-related products
    
    
    1,408
    
    
    
    1,250
    
    
    
    12.6Other products and services
    
    
    14
    
    
    
    19
    
    
    
    (26.3
    )Gross revenues
    
    
    13,405
    
    
    
    8,479
    
    
    
    58.1Value-added tax
    
    
    (613
    )
    
    
    (413
    )
    
    
    48.4Net operating revenues
    
    US$
    12,792
    
    
    US$
    8,066
    
    
    
    58.6
    %
 Iron ore.
 Pellets.
 Manganese ore and ferroalloys. Item 5. Operating and Financial
Review and ProspectsOverviewPricesManganese ore and ferroalloys
 64




---



##### Table of Contents




    
    Gross revenues from ferroalloys decreased by 21.0%, from US$625 million in 2004 to
US$494 million in 2005, due to a 14.1% decrease in sales volume and an 11.5% decrease
in average selling prices.
    
    Gross revenues from manganese ore remained stable, at US$76 million in 2004 and
US$77 million in 2005, reflecting an 11.2% increase in average selling prices and a
9.5% decrease in volume.
 Potash.
 Kaolin.
 Logistics services.
 
    
    Revenues from railroad transportation increased by 44.0%, from US$612 million in
2004 to US$881 million in 2005. Average prices increased by 50.0%. Volume shipped
remained stable.
    
    Revenues from port operations increased by 32.9%, from US$173 million in 2004 to
US$230 million in 2005. Average prices increased by 25.7%. Volume increased by 6.7%.
    
    Revenues from shipping increased by 14.1%, from US$92 million in 2004 to US$105
million in 2005. Average selling prices increased by 25.0%. Volume decreased by 5.0%
due to operational problems with one of our ships.
 Aluminum-related products.
 
    
    An 11.4% increase in gross revenues from sales of aluminum, from US$739 million in
2004 to US$823 million in 2005. This increase was mainly driven by an 8.9% rise in
average selling prices, reflecting strong worldwide demand for aluminum. Volume
increased by 4.0% due to production increase.
    
    A 15.9% increase in gross revenues from sales of alumina, from US$458 million in
2004 to US$531 million in 2005. The increase in alumina gross revenues resulted from a
2.2% increase in sales volume and an increase in worldwide demand for alumina that
drove a 13.5% increase in average selling prices.
    
    Gross revenues from sales of bauxite remained stable, at US$54 million in 2005,
compared to US$53 million in 2004. An 11.3% increase in average selling prices due to
a general rise in worldwide bauxite prices was partially offset by an 8.3% decrease in
volume, reflecting higher consumption of bauxite by our Alunorte subsidiary, which
reduced the amount of bauxite available for sale to clients.
 Copper.
 Other products and services.
 65




---



##### Table of Contents



Operating costs and expenses
  Year
ended December 31,2005
    
    
    2004
    
    
    % change(in millions of US$)Cost of ores and metals
    
    US$
    4,620
    
    
    US$
    2,881
    
    
    
    60.4Cost of logistic services
    
    
    705
    
    
    
    513
    
    
    
    37.4Cost of aluminum-related products
    
    
    893
    
    
    
    674
    
    
    
    32.5Others
    
    
    11
    
    
    
    13
    
    
    
    (15.4
    )Cost of goods sold
    
    
    6,229
    
    
    
    4,081
    
    
    
    52.6Selling, general and administrative expenses
    
    
    581
    
    
    
    452
    
    
    
    28.5Research and development
    
    
    277
    
    
    
    153
    
    
    
    81.0Employee profit sharing plan
    
    
    97
    
    
    
    69
    
    
    
    40.6Other costs and expense
    
    
    176
    
    
    
    188
    
    
    
    (6.4
    )Total operating costs and expenses
    
    US$
    7,360
    
    
    US$
    4,943
    
    
    
    48.9
 Cost
of goods sold
 General.
 
    
    The average value of the real increased 16.8% against the U.S. dollar in 2005
compared to the 2004. Because approximately 70% of our costs and expenses are
denominated in reais, this led to increased U.S. dollar costs.
    
    Material costs increased by US$646 million, or 58.3%, in 2005, driven primarily by
the rise in the price of raw materials and fuel, as well as expanded production and an
increase in prices for spare parts.
    
    Outsourced services costs increased by US$670 million, or 82.4%, in 2005, driven
primarily by higher sales volumes, increases in rail freight charges, increased waste
material removal in the mines and higher prices for maintenance services.
    
    Cost of iron ore and pellets purchased from other mining companies increased by
60.5%, reflecting price increases in 2005 as well as higher volumes purchased. Iron
ore purchased from third party suppliers in 2005 increased to 16.4 million tons, 3.2%
more than the 15.9 million tons purchased in 2004.
    
    Energy costs increased by US$141 million, or 44.8%, in 2005 driven primarily by
higher electricity prices under the Albras long-term energy supply contract. In
addition to the basic price, the seller participates 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). The LME price has exceeded the threshold during the
entire contract to date.
 Cost of ores and metals.
 Cost of logistics services.
 66




---



##### Table of Contents



Cost of aluminum-related products.
 Cost of other products and services.
 Selling, general and administrative expenses
 real
 Research and development expenses
  Other costs and expenses
  Operating Income by Segment
  Year ended December 31,2005
    
    
    2004Segment operating income (loss)
    
    
    Segment operating income (loss)(% of segment net
    
    
    
    
    
    
    (% of segment net(in millions of US$)
    
    
    operating revenues)
    
    
    (in millions of US$)
    
    
    operating revenues)Ferrous mineralsIron ore
    
    US$
    4,085
    
    
    
    57.0
    %
    
    US$
    1,836
    
    
    
    47.5
    %Pellets
    
    
    661
    
    
    
    33.0
    
    
    
    268
    
    
    
    24.3Manganese ore
    
    
    (11
    )
    
    
    
    
    
    
    26
    
    
    
    36.1Ferroalloys
    
    
    83
    
    
    
    18.6
    
    
    
    243
    
    
    
    42.4Non-ferrous mineralsGold
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    Potash
    
    
    44
    
    
    
    31.9
    
    
    
    53
    
    
    
    48.6Kaolin
    
    
    (26
    )
    
    
    
    
    
    
    51
    
    
    
    32.3Copper
    
    
    146
    
    
    
    38.1
    
    
    
    92
    
    
    
    46.5Aluminum-relatedAlumina
    
    
    37
    
    
    
    7.3
    
    
    
    71
    
    
    
    16.1Aluminum
    
    
    395
    
    
    
    48.3
    
    
    
    435
    
    
    
    59.1Bauxite
    
    
    5
    
    
    
    9.3
    
    
    
    5
    
    
    
    9.4LogisticsRailroads
    
    
    173
    
    
    
    23.5
    
    
    
    150
    
    
    
    29.3Ports
    
    
    65
    
    
    
    33.2
    
    
    
    51
    
    
    
    35.4Ships
    
    
    (7
    )
    
    
    
    
    
    
    (39
    )
    
    
    Others
    
    
    (218
    )
    
    
    
    
    
    
    (117
    )
    
    
    Total
    
    US$
    5,432
    
    
    
    42.5
    
    
    US$
    3,123
    
    
    
    38.7
   67




---



##### Table of Contents




    
    The decline in aluminum segment margins primarily reflects the appreciation of the
real and higher energy and other raw material prices, which more than offset the impact
of higher aluminum prices.
    
    The decline in kaolin operating margins is due to higher storage and packaging costs
and port expenses in Europe and higher fuel costs.
    
    The decline in copper operating margins resulted primarily from higher unit
operating costs and lower than expected volumes due to the adverse drilling conditions
described above.
    
    The decline in the railroad segment operating margins primarily reflects higher fuel
prices, which were only partially offset by higher average selling prices.
 Non-operating income (expenses)
  Year ended December 31,2005
    
    
    2004(millions of US$)Financial income
    
    US$
    123
    
    
    US$
    82Financial expenses
    
    
    (560
    )
    
    
    (671
    )Foreign exchange and monetary gains (losses) net
    
    
    299
    
    
    
    65Gain on sale of investments
    
    
    126
    
    
    
    404Non-operating income (expenses)
    
    US$
    (12
    )
    
    US$
    (120
    )
  
    
    The positive impact of exchange rate movements on our net U.S.-dollar
denominated liabilities caused by the appreciation of the real, which was 11.0% in
2005 and 8.1% in 2004.
    
    An increase in financial income from US$82 million in 2004 to US$123 million in
2005 due mainly to an increase in treasury funds invested.
    
    A decrease in financial expenses from US$671 million in 2004 to US$560 million
in 2005, principally due to a reduction in average debt.
    
    A gain on sale of investments in 2005 of US$126 million due to the sale of
Quebec Cartier Mining Company in July 2005, compared to a gain of US$404 million in
2004, due to the sale of CST.
 Income Taxes
  Affiliates and Joint Ventures
  68




---



##### Table of Contents



Year ended December 31,2005
    
    
    2004(in millions of US$)Equity in results of affiliates and joint ventures and
provision for losses on equity investmentsFerrous
    
    US$
    435
    
    
    US$
    170Logistics
    
    
    54
    
    
    
    33Aluminum-related products
    
    
    65
    
    
    
    71Steel
    
    
    197
    
    
    
    271Coal
    
    
    9
    
    
    
    Others
    
    
    
    
    
    
    (3
    )Total equity in results of affiliates and joint ventures and
provisions for losses
    
    US$
    760
    
    
    US$
    542
 Ferrous Minerals.
 Logistics.
 Aluminum-related.
 Steel.
 Coal.
 
 Results of Operations2004 Compared to 2003
 Revenues
  Year ended December 31,2004
    
    
    2003
    
    
    % Change(in millions of US$)Iron ore and pelletsIron ore
    
    US$
    3,995
    
    
    US$
    2,662
    
    
    
    50.1
    %Pellets
    
    
    1,148
    
    
    
    838
    
    
    
    37.0Subtotal
    
    
    5,143
    
    
    
    3,500
    
    
    
    46.9Manganese and Ferroalloys
    
    
    701
    
    
    
    349
    
    
    
    100.9Potash
    
    
    124
    
    
    
    94
    
    
    
    31.9Kaolin
    
    
    164
    
    
    
    96
    
    
    
    70.8Copper
    
    
    201
    
    
    
    
    
    
    
    100.0Gold
    
    
    
    
    
    
    21
    
    
    
    Minerals and metals
    
    
    6,333
    
    
    
    4,060
    
    
    
    56.0Revenues from logistic services
    
    
    877
    
    
    
    604
    
    
    
    45.2Aluminum-related products
    
    
    1,250
    
    
    
    852
    
    
    
    46.7Other products and services
    
    
    19
    
    
    
    29
    
    
    
    (34.5
    )Gross revenues
    
    
    8,479
    
    
    
    5,545
    
    
    
    52.9Value-added tax
    
    
    (413
    )
    
    
    (195
    )
    
    
    111.8Net operating revenues
    
    US$
    8,066
    
    
    US$
    5,350
    
    
    
    50.8
    %
 69




---



##### Table of Contents



Iron ore.
 Pellets.
 Manganese ore and ferroalloys.
 
    
    A 108.3% increase in gross revenues from ferroalloys, from US$300 million in 2003 to
US$625 million in 2004. The increase was driven by strong demand for our principal
ferroalloy products from the steel industry and the impact of a full year of ferroalloy production from RDMN in 2004, which
drove a 22.7% increase in sales volume, and a 74.7% increase in average selling prices.
    
    A 55.1% increase in gross revenues of manganese ore, from US$49 million in 2003 to US$76
million in 2004. Revenues were positively affected by 36.8% increase in average selling
prices compared to 2003 while volumes increased by 13.2%.
 Potash
 Kaolin
 Copper
 Logistic services
 
    
    A 64.1% increase in gross revenues from railroad transportation, from US$373 million in
2003 to US$612 million in 2004. Of the US$239 million increase in revenues, US$156 million
resulted from our consolidation of FCA. The increase reflects a 37.1% increase in volume
transported, reflecting the FCA acquisition, the strong demand for general cargo services,
which continued to exceed supply, and the expansion of our rolling stock through the
addition of wagons and locomotives, as well as a 19.4% increase in average selling prices, reflecting higher prices due to the appreciation of the real,as
well as higher real-denominated prices due to increased demand and inflation.
 70




---



##### Table of Contents




    
    A 20.1% increase in gross revenues from port operations, from US$144 million in 2003 to
US$173 million in 2004. The increase in port operations gross revenues was driven by a
15.0% increase in average selling prices, reflecting the appreciation of the realas well
as higher real-denominated prices due to high demand and inflation.
    
    A 5.7% increase in gross revenues from shipping, from US$87 million in 2003 to US$92
million in 2004.
 Aluminum-related products
 
    
    A 130.9% increase in gross revenues from sales of aluminum, from US$320 million in 2003
to US$739 million in 2004. Of the US$419 million increase, the consolidation of Albras was
responsible for US$384 million, and the remainder is largely due to the increased worldwide
demand for aluminum and improvements that helped expand production. Sales volume increased
by 104.8% and the average selling price rose by 20.0%. The price increase primarily
reflects strong worldwide demand for aluminum.
    
    A 43.2% increase in gross revenues from sales of bauxite, from US$37 million in 2003 to
US$53 million in 2004. This increase was largely the result of a 41.0% increase in volume
sold. The price remained relatively stable, reflecting that bauxite prices are established
based on the aluminum and alumina prices of the three previous quarters, excluding the
quarter immediately preceding price negotiations.
    
    A 7.5% decrease in gross revenues from sales of alumina, from US$495 million in 2003 to
US$458 million in 2004. The decrease in alumina gross revenues resulted primarily from a
32.6% decrease in sales volume due to the consolidation of Albras beginning January 1, 2004
and to higher revenues in 2003 due to resales of alumina purchased in the spot market. The
decline in sales volume more than offset a 37.1% increase in average selling prices for
alumina driven by the increase in worldwide demand for alumina.
 Gold
 Other products and services
 Operating costs and expenses
  Year ended December 31,2004
    
    
    2003
    
    
    % change(in millions of US$)Cost of ores and metals
    
    US$
    2,881
    
    
    US$
    2,066
    
    
    
    39.4Cost of logistic services
    
    
    513
    
    
    
    370
    
    
    
    38.6Cost of aluminum-related products
    
    
    674
    
    
    
    678
    
    
    
    (0.6
    )Others
    
    
    13
    
    
    
    14
    
    
    
    (7.1
    )Cost of goods sold
    
    
    4,081
    
    
    
    3,128
    
    
    
    30.5Selling, general and administrative expenses
    
    
    452
    
    
    
    265
    
    
    
    70.6Research and development
    
    
    153
    
    
    
    82
    
    
    
    86.6Employee profit sharing plan
    
    
    69
    
    
    
    32
    
    
    
    115.6Other costs and expense
    
    
    188
    
    
    
    199
    
    
    
    (5.5
    )Total operating costs and expenses
    
    US$
    4,943
    
    
    US$
    3,706
    
    
    
    33.4
 Cost of goods sold
 General.
 71




---



##### Table of Contents




    
    Material costs, including fuel and gas, increased by US$301 million, or 39.6%, in 2004,
driven primarily by the significant increase in our total production, resulting primarily
from the consolidation of CAEMI, FCA and Albras which accounted for US$123 million of the
total US$301 million increase, as well as increased prices of fuel and gas.
    
    Appreciation of the realagainst the U.S. dollar and the concurrent increase in
inflation as measured by the IGP-M, which reached 12.4% in 2004, led to increased costs,
when translated into U.S. dollars, because the majority of our costs and expenses are
denominated in reais.
    
    Cost of outsourced services increased by US$239 million, or 42.6%, in 2004, resulting
mainly from 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to
transport its iron ore to the port. CAEMI accounted for US$184 million in outsourced
logistics costs in 2004 compared with US$94 million in 2003. In 2004, our Minas do Meio
mines in the Southern System also transported a portion of their output via MRS, for a
total freight cost of US$73 million in 2004 compared with US$39 million in 2003, reflecting
higher volumes transported as well as higher prices.
    
    Expenditures on purchases of products other than iron ore and pellets decreased by 32.0%
from US$604 million in 2003 to US$411 million in 2004 due mainly to the consolidation of
Albras, which contributed US$240 million.
    
    Energy expenses increased by US$172 million in 2004 compared to 2003, driven primarily
by the consolidation of Albras, which accounted for US$137 million of the total increase.
    
    Demurrage costs increased from US$46 million in 2003 to US$83 million in 2004,
reflecting congestion in the ports due to high demand.
 Cost of ores and metals.
 Cost of logistic services.
 Cost of aluminum-related products.
 Cost of other products and services.
 Selling, general and administrative expenses
  72




---



##### Table of Contents



Research and development
  Other costs and expenses
  Operating Income by Segment
  Year ended December 31,2004
    
    
    2003Operating 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$
    1,836
    
    
    
    47.5
    %
    
    US$
    1,164
    
    
    
    45.0
    %Pellets
    
    
    268
    
    
    
    24.3
    
    
    
    169
    
    
    
    22.0Manganese ore
    
    
    26
    
    
    
    36.1
    
    
    
    7
    
    
    
    Ferroalloys
    
    
    243
    
    
    
    42.4
    
    
    
    34
    
    
    
    28Non-ferrous mineralsGold
    
    
    (2
    )
    
    
    
    
    
    
    17
    
    
    
    81.0Potash
    
    
    53
    
    
    
    48.6
    
    
    
    35
    
    
    
    43.0Kaolin
    
    
    51
    
    
    
    32.3
    
    
    
    4
    
    
    
    4.0Copper
    
    
    92
    
    
    
    46.5
    
    
    
    
    
    
    
    Aluminum-relatedAlumina
    
    
    71
    
    
    
    16.1
    
    
    
    109
    
    
    
    24.0Aluminum
    
    
    435
    
    
    
    59.1
    
    
    
    25
    
    
    
    8.0Bauxite
    
    
    5
    
    
    
    9.4
    
    
    
    3
    
    
    
    8.0LogisticsRailroads
    
    
    150
    
    
    
    29.3
    
    
    
    111
    
    
    
    33.0Ports
    
    
    51
    
    
    
    35.4
    
    
    
    46
    
    
    
    35.0Ships
    
    
    (39
    )
    
    
    
    
    
    
    (38
    )
    
    
    Others
    
    
    (117
    )
    
    
    
    
    
    
    (42
    )
    
    
    Total
    
    US$
    3,123
    
    
    
    38.7
    
    
    US$
    1,644
    
    
    
    30.7
 .
 Non-operating income (Expenses)
  73




---



##### Table of Contents



Year ended December 31,2004
    
    
    2003(millions of US$)Financial income
    
    US$
    82
    
    
    US$
    102Financial expenses
    
    
    (671
    )
    
    
    (351
    )Foreign exchange and monetary gains (losses) net
    
    
    65
    
    
    
    242Gain on sale of investments
    
    
    404
    
    
    
    17Non-operating income (expenses)
    
    US$
    (120
    )
    
    US$
    10
  
    
    The effect of the 8.1% depreciation of the U.S. dollar from year-end 2003 to year-end
2004 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$79 million in
2004, compared to a gain of US$222 million in 2003 (where the depreciation from year-end
2002 to year-end 2003 was 18.2%).
    
    A decrease in financial income from US$102 million in 2003 to US$82 million in 2004 due
to reductions in interest rates and the balance of cash equivalents from bonds.
    
    An increase in financial expenses from US$351 million in 2003 to US$671 million in 2004,
principally due to the consolidation of CAEMI, FCA and Albras, which accounted for US$165
million of the increase. The remainder of the increase reflects an increase in average
outstanding debt and losses on derivative contracts for alumina and aluminum during 2004
and the premium paid related to the repurchase by us of a portion of Vale Overseas
outstanding 8.625% Enhanced Guaranteed Notes due 2007.
    
    A gain of US$404 million in 2004, reflecting the sale of our stake in CST compared to a
net gain of US$17 million reflecting the selling of Fosfertil.
 Income Taxes
  
    
    An increase in tax expense at nominal statutory rates from US$562 million in 2003 to
US$1,021 million in 2004 due to higher pre-tax income.
    
    A tax benefit of US$247 million in respect of exempt foreign income in 2004, compared to
a US$59 million expense in 2003. This change resulted primarily from the effects of the
foreign exchange variations on exempt foreign assets.
    
    Accrual of a US$240 million expense related to the difference on tax basis of equity
investments in 2004, compared to a US$56 million expense in 2003. This resulted mainly
from the effect of the sale of CST.
    
    Accrual of a US$57 million expense related to write-offs of derivative-related deferred
tax assets as a result of a change in the applicable tax legislation under which we can no
longer deduct payments or losses on derivative investments, effective January 1, 2005.
    
    A tax benefit of US$77 million compared to US$53 million registered in 2003. The US$77
million tax benefit relates primarily to a reversal of tax valuation allowances at Albras
and Alunorte due to an increase in actual and expected future taxable income that made it
more likely than not that Albras and Alunorte would be able to use their tax loss
carryforwards.
 Affiliates and Joint Ventures
  74




---



##### Table of Contents



Year ended December 31,2004
    
    
    2003(in millions of US$)Equity in results of affiliates and joint ventures and
provision for losses on equity investmentsFerrous
    
    US$
    170
    
    
    US$
    133Logistics
    
    
    33
    
    
    
    (52
    )Aluminum-related products
    
    
    71
    
    
    
    147Steel
    
    
    271
    
    
    
    81Others
    
    
    (3
    )
    
    
    (3
    )Total equity in results of affiliates and joint ventures and
provisions for losses
    
    US$
    542
    
    
    US$
    306
 Ferrous Minerals.
 Logistics.
 Aluminum-related.
 real
 
    
    Valesul.In 2004, Valesul generated net income of US$26 million on gross revenues of
US$204 million, compared to net income of US$18 million in 2003 on gross revenues of US$172
million. CVRDs portion of the net income of Valesul was US$14 million in 2004, compared
to US$10 million in 2003. The improvement of the results was driven by higher average
selling prices.
    
    MRN.In 2004, MRN generated net income of US$142 million on gross revenues of US$351
million, compared to net income of US$81 million in 2003 on gross revenues of US$276
million. Our portion of the net income of MRN was US$57 million in 2004 and US$33 million
in 2003. The revenue increase was driven by a 16.5% increase in sales volume, driven
primarily by higher demand, as well as an 11% increase in average selling price.
 Steel
 75




---



##### Table of Contents



Liquidity and Capital Resources
 Overview
    Sources of Funds
    Uses of Funds
 Capital Expenditures
 see Item 4. Information on the CompanyCapital Expenditures
 Dividends
 Item 8. Financial InformationDividends and Interest on Shareholders
Equity
 76




---



##### Table of Contents



Debt
    
    
    U.S. dollar-denominated foreign loans and financing (US$2,442 million at December 31,
2005).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.
    
    U.S. dollar-denominated fixed rate notes (US$1,213 million at December 31, 2005).We
have issued several series of fixed rate bonds through our finance subsidiary Vale Overseas
Limited with a CVRD guarantee.
    
    U.S. dollar-denominated export securitizations (US$427 million outstanding at December
31, 2005).We have a US$550 million securitization program based on existing and future
receivables generated by our subsidiary CVRD Overseas Ltd from 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$75 million at December 31, 2005).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.
    
    Domestic debt (US$659 million at December 31, 2005).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.
  
 Shareholder debentures
  77




---



##### Table of Contents



Contractual Obligations
  Payments Due by PeriodLess than 1Total
    
    
    year
    

    2007-2008
    
    
    2009-2010
    
    
    Thereafter(in millions of
US$)Long-term debt (1)
    
    US$
    4,932
    
    
    US$
    1,218
    
    
    US$
    831
    
    
    US$
    712
    
    
    US$
    2,171Short-term debt
    
    
    15
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    3⁄4Operating lease obligations
    
    
    967
    
    
    
    49
    
    
    
    98
    
    
    
    87
    
    
    
    733Purchase obligations (2)
    
    
    12,313
    
    
    
    2,552
    
    
    
    1,599
    
    
    
    1,323
    
    
    
    6,839Take-or-pay obligation (MRN)(3)
    
    
    776
    
    
    
    145
    
    
    
    290
    
    
    
    290
    
    
    
    51Total
    
    US$
    19,003
    
    
    US$
    3,979
    
    
    US$
    2,818
    
    
    US$
    2,412
    
    
    US$
    9,794
 
 (1)
    
    Figures do not reflect the January 2006 issuance of US$1 billion in 2016 notes.(2)
    
    Amounts, including for purchases of iron ore from mining companies located in Brazil,
are based on 2005 prices.(3)
    
    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. 
 Off-balance Sheet Arrangements
 reais
 
 Critical Accounting Policies and Estimates
  Translation Adjustments
 real real real
 78




---



##### Table of Contents



Mineral Reserves and Life of Mines
   Environmental and Site Reclamation Costs
   
    
    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.
  Impairment of Long-Lived Assets and Goodwill
  79




---



##### Table of Contents



Derivatives and Hedging Activity
  Income Taxes
   80




---



##### Table of Contents



Contingencies
    Employee Post-retirement Benefits
   Consolidation of Variable Interest Entities
   81




---



##### Table of Contents



Item 6. Directors, Senior Management and Employees
 
 BOARD OF DIRECTORS
 Overview
   Item 10. Additional InformationMemorandum and Articles
of IncorporationCommon Shares and Preferred SharesGeneral. Item 7. Major Shareholders and Related Party TransactionsMajor
ShareholdersPrincipal Shareholder
 Directors of CVRD
  82




---



##### Table of Contents



YearFirstElected
    
    Position
    
    AgeSérgio Ricardo Silva Rosa (1)
    
    
    2003
    
    
    Chairman
    
    
    46Erik Persson (1)
    
    
    2001
    
    
    Director
    
    
    52Jorge Luiz Pacheco (1)
    
    
    2003
    
    
    Director
    
    
    51Arlindo Magno de Oliveira (1)
    
    
    2003
    
    
    Director
    
    
    54Luciano Siani Pires (2)
    
    
    2005
    
    
    Director
    
    
    36Renato da Cruz Gomes (1)
    
    
    2001
    
    
    Director
    
    
    53Mário da Silveira Teixeira Júnior (1)
    
    
    2003
    
    
    Vice-Chairman
    
    
    60Hiroshi Tada (1)
    
    
    2005
    
    
    Director
    
    
    61Oscar Augusto de Camargo Filho (1)
    
    
    2003
    
    
    Director
    
    
    68Francisco Augusto da Costa e Silva (1)
    
    
    2005
    
    
    Director
    
    
    57Eduardo Fernando Jardim Pinto (3)
    
    
    2005
    
    
    Director
    
    
    43
 
 (1)
    
    Appointed by Valepar and approved at the annual shareholders meeting.(2)
    
    Appointed by the members of the Board of Directors in April 2006 to replace Mr. Jaques
Wagner, who resigned in March 2006. Mr. Pires appointment will be confirmed by the
shareholders in the first shareholders meeting to take place after the annual shareholders
meeting, held on April 27, 2006.(3)
    
    Appointed by our employees and approved at the annual general shareholders meeting.  YearFirstElected
    
    Position
    
    AgeGerardo Xavier Santiago (1)
    
    
    2003
    
    
    Director
    
    
    46Rita de Cássia Paz Andrade Robles (1)
    
    
    2005
    
    
    Director
    
    
    39Sérgio Ricardo Lopes de Farias (1)
    
    
    2005
    
    
    Director
    
    
    41José Mauro Guahyba de Almeida (1)
    
    
    2005
    
    
    Director
    
    
    61Vacant
    
    
    
    
    
    
    
    
    Rômulo de Mello Dias (1)
    
    
    2001
    
    
    Director
    
    
    44João Moisés de Oliveira (1)
    
    
    2001
    
    
    Director
    
    
    61Hidehiro Takahashi (1)
    
    
    2005
    
    
    Director
    
    
    50Wanderlei Viçoso Fagundes (1)
    
    
    2003
    
    
    Director
    
    
    60Vacant
    
    
    
    
    
    

    
    
    José Horta Mafra Costa (2)
    
    
    2005
    
    
    Director
    
    
    59
 
 (1)
    
    Appointed by Valepar and approved at the annual shareholders meeting.(2)
    
    Appointed by our employees and approved at the annual shareholders meeting in 2005.  Sérgio Ricardo Silva Rosa
 Erik Persson S
 Jorge Luiz Pacheco
 83




---



##### Table of Contents



Arlindo Magno de Oliveira
 Luciano Siani Pires summa cum laude
 Renato da Cruz Gomes
 Mário da Silveira Teixeira Júnior.
 Hiroshi Tada.
 Oscar Augusto de Camargo Filho.
 84




---



##### Table of Contents



Francisco Augusto da Costa e Silva.
 Eduardo Fernando Jardim Pinto.
 Directors of Vale Overseas
  Position
    
    AgeFabio de Oliveira Barbosa
    
    Director
    
    
    45Fernando Ramos Nóbrega
    
    Director
    
    
    47Bernardeth Vieira de Souza
    
    Director
    
    
    54Leonardo Moretzsohn de Andrade
    
    Director
    
    
    48
 Executive Officers
 Fernando Ramos Nóbrega.
 Bernardeth Vieira de Souza. Fundação Getúlio Vargas
 Leonardo Moretzsohn de Andrade.
 85




---



##### Table of Contents



EXECUTIVE OFFICERS
 Overview
  Executive Officers
  Year ofAppointment
    
    Position
    
    AgeRoger Agnelli
    
    
    2001
    
    
    Chief Executive Officer
    
    
    47Fabio de Oliveira Barbosa
    
    
    2002
    
    
    Chief Financial Officer
    
    
    45José Carlos Martins
    
    
    2005
    
    
    Executive Officer (Ferrous Minerals)
    
    
    56Murilo Ferreira
    
    
    2005
    
    
    Executive Officer (Holdings, Energy and Business Development)
    
    
    52José Auto Lancaster Oliveira
    
    
    2004
    
    
    Executive Officer (Non-Ferrous Minerals)
    
    
    59Guilherme Rodolfo Laager
    
    
    2001
    
    
    Executive Officer (Logistics)
    
    
    49Gabriel Stoliar
    
    
    1997
    
    
    Executive Officer (Planning and Control)
    
    
    52Carla Grasso
    
    
    2001
    
    
    Executive Officer (Human Resources and Corporate Services)
    
    
    44Tito Botelho Martins
    
    
    2006
    
    
    Executive Officer (Corporate Affairs)
    
    
    43
  Roger Agnelli.
 Fabio de Oliveira Barbosa
 86




---



##### Table of Contents



José Carlos Martins.
 Murilo Ferreira.
 José Auto Lancaster Oliveira.
 Guilherme Rodolfo Laager.
 Gabriel Stoliar
 87




---



##### Table of Contents



Carla Grasso
 Tito Botelho Martins.
 88




---



##### Table of Contents



FISCAL COUNCIL
       First Year ofAppointmentBernard Appy (1)
    
    
    2006José Bernardo de Medeiros Neto (2)
    
    
    2005Marcelo Amaral Moraes (2)
    
    
    2004Aníbal Moreira dos Santos (2)
    
    
    2005
 
 (1)
    
    Appointed by the preferred shareholders.(2)
    
    Appointed by Valepar.  First Year ofAppointmentTarcísio José Massote de Godoy (1)
    
    
    2004Marcos Coimbra (2)
    
    
    2006Oswaldo Mário Pêgo de Amorim Azevedo (2)
    
    
    2004Vacant
    
    
    
 
 (1)
    
    Appointed by the preferred shareholders.(2)
    
    Appointed by Valepar. 89




---



##### Table of Contents



Bernard Appy.
 José Bernardo de Medeiros Neto.
 Marcelo Amaral Moraes.
 Aníbal Moreira dos Santos.
 90




---



##### Table of Contents



ADVISORY COMMITTEES
 Advisory Committees
  
    
    The Executive Development Committeeis responsible for reporting on general human
resources policies; recommending compensation levels for our executive officers;
establishing guidelines for evaluating the performance of our executive officers; and
reporting on policies relating to corporate responsibility, such as the environment,
health, safety and social responsibility of the company submitted by the executive
officers. The members of the executive development committee are: João Moisés de
Oliveira, Arlindo Magno de Oliveira, Olga Loffredi and Oscar Augusto de Camargo Filho.
    
    The Strategy 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 strategy committee are: Roger
Agnelli, Gabriel Stoliar, Sérgio Ricardo da Silva Rosa, Oscar Augusto de Camargo Filho,
Demian Fiocca and Mario da Silva Teixeira.
    
    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: Fabio de Oliveira Barbosa, Rômulo de Mello Dias, Ivan Luiz Modesto Schara
and Wanderlei Viçoso Fagundes.
    
    The Accounting Committeeis responsible for recommending the appointment of 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
accounting committee are: Inácio Clemente da Silva, Antonio José de Figueiredo Ferreira and
Paulo Roberto Ferreira de Medeiros. None of the members of our accounting committee is a
member of the Board of Directors.
    
    The Governance and Sustainability 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; and issuing
reports on potential conflicts of interest between the company and its shareholders or
administrators. The members of the governance and sustainability committee are: Renato da
Cruz Gomes, Ricardo Carvalho Giambroni and Ricardo Simonsen.
 Significant Corporate Governance Differences
 http://www.cvrd.com.br/cvrd_us/media/
0311NYSEDifferencesChartRevisedi.pdf.
 91




---



##### Table of Contents



COMPENSATION OF DIRECTORS, EXECUTIVE OFFICERS, FISCAL COUNCIL MEMBERS AND
ADVISORY COMMITTEES
 General
    Fiscal Council
  Advisory Committees
  
 EMPLOYEES
 General
  At December 31,2003
    
    2004
    
    2005Ferrous Minerals
    
    
    13,107
    
    
    
    14,845
    
    
    
    17,858Logistics
    
    
    8,820
    
    
    
    10,001
    
    
    
    11,269Non-Ferrous Minerals
    
    
    1,332
    
    
    
    1,957
    
    
    
    2,307Aluminum, Steel and Business Development
    
    
    2,149
    
    
    
    2,328
    
    
    
    4,400Administrative
    
    
    5,563
    
    
    
    2,915
    
    
    
    2,726Total
    
    
    30,971
    
    
    
    32,046
    
    
    
    38,560
 92




---



##### Table of Contents



Wages and Benefits
  Pension Plans
   Other Benefits
  93




---



##### Table of Contents



Equity Ownership
  Employee Profit Sharing
  
 Item 7. Major Shareholders and Related Party Transactions
 
 MAJOR SHAREHOLDERS
 Overview
 Major CVRD Shareholders.
 Shares Owned
    
    Percent of ClassCommon SharesValepar S.A(1)
    
    
    392,147,133
    
    
    
    53.3
    %BNDESPAR(2)
    
    
    50,289,430
    
    
    
    6.8Directors and executive officers as a group
    
    
    41,161
    
    
    
    *Preferred Class A Shares(3)Directors and executive officers as a group
    
    
    231,889
    
    
    
    *Golden SharesBrazilian government
    
    
    3
    
    
    
    100.0
 
 (1)
    
    See the table below for more information on Valepars shareholders. Because each of
the shareholders of Valepar has the right to veto the transfer by Valepar of any shares it
holds in CVRD, each of the Valepar shareholders may be deemed a beneficial owner of the
entire Valepar stake under the rules of the SEC. 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. This does not imply that the person has the economic or other
benefits of ownership.(2)
    
    Excludes common shares owned directly by Valepar, in which BNDESPAR has an ownership
interest.(3)
    
    The Brazilian government (National Treasury) owns, through Fundo Garantidor das
Parcerias Público-Privadas, 15,226,023 preferred class A shares representing 3.7% of the
outstanding preferred class A shares, and BNDESPAR owns 364,333 preferred class A shares
representing 0.1% of the outstanding preferred class A shares.(*)
    
    Represents less than 1% of the outstanding shares of the class. 94




---



##### Table of Contents



Valepar Shareholders.
 Number of Valepar
    
    Percent of ValeparCommon Shares Owned
    
    Common Shares OwnedValepar S.A.Litel Participações S.A(1)
    
    
    315,982,596
    
    
    
    49.00
    %Eletron S.A.
    
    
    188,718
    
    
    
    0.03Bradespar S.A. (2)
    
    
    136,796,982
    
    
    
    21.21Mitsui & Co. Ltd.
    
    
    117,644,142
    
    
    
    18.24BNDESPAR
    
    
    74,250,000
    
    
    
    11.51Total
    
    
    644,862,438
    
    
    
    100.00
    %
 
 (1)
    
    Litel owns 99,568,944 preferred Class B shares of Valepar, which represents 71.41% of
the preferred shares. Litela, an affiliate of Litel owns 39,862,884 preferred Class B
shares of Valepar, which represents 28.59% of the preferred shares.(2)
    
    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. Litel Participações S.A.BB Carteira Ativa 0(1)
    
    
    202,753,508
    
    
    
    73.59
    %BB Carteira Ativa II(1)
    
    
    53,388,025
    
    
    
    19.38
    %BB Renda Fixa IV(1)
    
    
    19,371,990
    
    
    
    7.03
    %Others
    
    
    822
    
    
    
    Directors and Executive Officers as a group
    
    
    4
    
    
    
    Total
    
    
    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. Brazilian Government Holdings. Item 10. Additional InformationCommon and Preferred SharesGeneral
 Stock Splits.
  95




---



##### Table of Contents



Principal Shareholder
  
    
    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
50% 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 supermajority voting requirements for certain significant actions relating
to Valepar or to us.
  
    
    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 or Valepar;
    
    the participation by CVRD in a group of companies or in a consortium of any kind;
 96




---



##### Table of Contents




    
    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 shareholders
equity;
    
    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 affiliates
or subsidiaries;
    
    the passing of any resolution on any matter which, pursuant to applicable law, entitles
a shareholder to withdrawal rights;
    
    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 directors and officers; and
    
    any change in the debt to equity threshold, as defined in the shareholders agreement.
  American Depositary Shares
  
 RELATED PARTY TRANSACTIONS
   Item 4. Information on the Company
-Lines of Business  Non-Ferrous
 97




---



##### Table of Contents



Item 4. Information on the Company -Lines of
Business  Logistics  Ports and Terminals.
  
 Item 8. Financial Information
 
 LEGAL PROCEEDINGS
      98




---



##### Table of Contents



Item 4. Information on the Company  Regulatory Matters  Mining
  consumidores livres
 
 DIVIDENDS AND INTEREST ON SHAREHOLDERS EQUITY
  99




---



##### Table of Contents



reais
  
    
    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 as the mandatory dividend, unless the Board of
Directors advises our shareholders at our shareholders meeting that payment of the
mandatory dividend for the preceding year is inadvisable in light of our financial
condition.
    
    Valepar, our principal shareholder, recommends the distribution of a dividend equal to
at least 50% of the amount of net income with respect to each fiscal year, except in 2005
when it recommended a dividend distribution equal to 43.68% of our net income.
 Item 10. Additional Information
 Item 10. Additional
InformationTaxationBrazilian Tax Considerations.
 Item 10. Additional InformationCommon Shares
and Preferred SharesPayments on Shareholders Equity
 Item 10. Additional
InformationTaxationBrazilian Tax Considerations.
  100




---



##### Table of Contents



Payment
    
    Reaisper Share at
    
    U.S. Dollars per Share atYear
    
    Date
    
    Payment Date
    
    Payment Date2001
    
    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
    
    
    
    0.70October 29 (1) (2)
    
    
    1.27
    
    
    
    0.452005
    
    April 29
    
    
    1.11
    
    
    
    0.43October 31 (3)
    
    
    1.57
    
    
    
    0.702006
    
    April 28 (4)
    
    
    1.15
    
    
    
    0.54
 
 (1)
    
    On October 29, 2004, we paid 1.03 reaisper share in interest on shareholders equity
and 0.24 reaisper share in dividends.(2)
    
    A 3-for-1 stock split occurred in August 2004.(3)
    
    On October 31, 2005, we paid 0.68 reaisper share in interest on shareholders equity
and 0.89 reaisper share in dividends.(4)
    
    On April 28, 2006, we paid 0.67 reaisper share in interest on shareholders equity and
0.48 reaisper share in dividends. 101




---



##### Table of Contents



Item 9. The Offer and Listing
 
 SHARE PRICE HISTORY
  U.S. Dollars per Preferred
    
    U.S. Dollars per CommonReaisper Common
    
    Reaisper Preferred
    
    Class A American
    
    American DepositaryShare
    
    Class A Share
    
    Depositary Share
    
    ShareHigh
    
    Low
    
    High
    
    Low
    
    High
    
    Low
    
    High
    
    Low2001
    
    
    R$55.00
    
    
    
    R$42.70
    
    
    
    R$58.70
    
    
    
    R$44.00
    
    
    US$
    26.98
    
    
    US$
    18.65
    
    
    US$
    
    US$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
    
    
    
    25.712004
    
    
    77.50
    
    
    
    43.33
    
    
    
    64.19
    
    
    
    37.67
    
    
    
    24.38
    
    
    
    12.10
    
    
    
    29.01
    
    
    
    14.082005
    
    
    99.89
    
    
    
    64.00
    
    
    
    87.00
    
    
    
    55.00
    
    
    
    39.55
    
    
    
    21.93
    
    
    
    45.08
    
    
    
    25.601Q04
    
    
    180.00
    
    
    
    145.10
    
    
    
    159.00
    
    
    
    124.40
    
    
    
    55.50
    
    
    
    42.45
    
    
    
    62.87
    
    
    
    49.962Q04
    
    
    163.92
    
    
    
    129.99
    
    
    
    142.74
    
    
    
    113.01
    
    
    
    49.77
    
    
    
    36.30
    
    
    
    57.09
    
    
    
    42.243Q04 (1)
    
    
    65.00
    
    
    
    47.00
    
    
    
    55.50
    
    
    
    39.38
    
    
    
    19.41
    
    
    
    12.88
    
    
    
    22.66
    
    
    
    15.474Q04
    
    
    77.50
    
    
    
    58.50
    
    
    
    64.19
    
    
    
    50.61
    
    
    
    24.38
    
    
    
    17.68
    
    
    
    29.01
    
    
    
    20.321Q05
    
    
    95.75
    
    
    
    71.00
    
    
    
    79.02
    
    
    
    59.50
    
    
    
    30.00
    
    
    
    22.05
    
    
    
    36.55
    
    
    
    26.052Q05
    
    
    84.50
    
    
    
    64.00
    
    
    
    72.00
    
    
    
    55.00
    
    
    
    26.90
    
    
    
    21.93
    
    
    
    32.00
    
    
    
    25.603Q05
    
    
    99.89
    
    
    
    70.04
    
    
    
    86.85
    
    
    
    59.76
    
    
    
    39.55
    
    
    
    25.31
    
    
    
    44.78
    
    
    
    29.514Q05
    
    
    99.40
    
    
    
    83.75
    
    
    
    87.00
    
    
    
    74.10
    
    
    
    39.20
    
    
    
    32.87
    
    
    
    45.08
    
    
    
    36.851Q06
    
    
    112.80
    
    
    
    91.01
    
    
    
    97.80
    
    
    
    79.90
    
    
    
    44.38
    
    
    
    36.99
    
    
    
    51.27
    
    
    
    42.28December 2005
    
    
    99.40
    
    
    
    92.60
    
    
    
    86.20
    
    
    
    80.60
    
    
    
    39.20
    
    
    
    34.92
    
    
    
    45.08
    
    
    
    40.12January 2006
    
    
    112.80
    
    
    
    95.80
    
    
    
    97.80
    
    
    
    84.20
    
    
    
    44.38
    
    
    
    37.75
    
    
    
    51.27
    
    
    
    43.00February 2006
    
    
    111.80
    
    
    
    98.79
    
    
    
    97.00
    
    
    
    85.40
    
    
    
    43.60
    
    
    
    39.55
    
    
    
    50.38
    
    
    
    45.86March 2006
    
    
    105.90
    
    
    
    91.00
    
    
    
    94.00
    
    
    
    79.90
    
    
    
    43.23
    
    
    
    36.99
    
    
    
    48.53
    
    
    
    42.28April 2006
    
    
    111.00
    
    
    
    102.50
    
    
    
    96.36
    
    
    
    91.20
    
    
    
    45.90
    
    
    
    42.65
    
    
    
    51.75
    
    
    
    47.88May 2006 (2)
    
    
    59.55
    
    
    
    50.90
    
    
    
    49.08
    
    
    
    42.13
    
    
    
    48.39
    
    
    
    36.96
    
    
    
    58.18
    
    
    
    45.02
 
 (1)
    
    3-for-1 stock split occurred during this quarter.(2)
    
    Until May 23, 2006. 2-for-1 stock split occurred during this month, only with respect to
common and preferred Class A shares.
Source: Bloomberg LLP. 
 TRADING MARKETS
    
    
    ensure that shares of the issuer representing at least 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;
 102




---



##### Table of Contents




    
    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.
  
 Item 10. Additional Information
 
 MEMORANDUM AND ARTICLES OF ASSOCIATION
 Company Objects and Purposes
  
    
    the exploitation of mineral deposits in Brazil and abroad by means of extraction,
processing, industrialization, transportation, shipment and commerce of mineral goods;
    
    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 sub products;
    
    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
 Item 6. Directors, Management and EmployeesCompensation.
 103




---



##### Table of Contents



COMMON SHARES AND PREFERRED SHARES
  General
     (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 shares.
 104




---



##### Table of Contents



Calculation of Distributable Amount
  Legal reserve.
 Discretionary reserves
 Contingency reserve.
 Reserve for investment projects.
 Unrealized income reserve.
 Tax incentive investment reserve
  105




---



##### Table of Contents



Mandatory Dividend
 Item 10. Additional InformationCommon Shares and Preferred
SharesCalculation of Distributable Amount
  Item 8.
Financial InformationDividends and Interest on Shareholders Equity
 Dividend Preference of Preferred Shares
  Other Matters Relating to Preferred Class A Shares
  Payments on Shareholders Equity
  106




---



##### Table of Contents



i.e.
 Voting Rights
  Item 10. Additional InformationCommon Shares and
Preferred SharesGeneral
   Shareholders Meetings
   
    
    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.
 107




---



##### Table of Contents



Diário Oficial do Estado do Rio de Janeiro Jornal do Commercio Item 10. Additional InformationCommon Shares and Preferred SharesGeneral
            108




---



##### Table of Contents



Redemption Rights
  (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, a stock merger;(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) a stock merger as
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.
  provided
 Preemptive Rights
  109




---



##### Table of Contents



Tag-along rights
  Form and Transfer
  Companhia Brasileira de Liquidação e
Custódia
 
 MATERIAL CONTRACTS
 Item 4. Information on the Company Item 5. Operating and Financial Review and Prospects.
 
 EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITY HOLDERS
  110




---



##### Table of Contents




    
    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.
  i.e.
 Item 10. Additional InformationTaxationBrazilian Tax
Considerations.
 Item 3. Key
InformationExchange Rates.
  111




---



##### Table of Contents



TAXATION
    Brazilian Tax Considerations
  Taxation of dividends.
 Distributions of interest on shareholders equity
  Taxation of capital gains.
 112




---



##### Table of Contents




    
    are exempt from income tax when assessed by a non-Brazilian holder that (i) has
registered its investment in Brazil before the Brazilian Central Bank under the rules of
Resolution No. 2,689/2001 and (ii) is not a tax haven resident; or
    
    are subject to income tax at a rate of 15% in any other case, including the gains
assessed by a non-Brazilian holder that (i) has not registered its investment in Brazil
before the Brazilian Central Bank under the rules of Resolution No. 2,689/2001; or (ii) has
registered its investment in Brazil before the Brazilian Central Bank under the rules of
Resolution No. 2,689/2001 but is a tax haven resident. In these cases, a withholding
income tax at a rate of 0.005% shall be levied on the transaction and can be offset with
the eventual income tax due on the capital gain.
  113




---



##### Table of Contents



Other Brazilian taxes.
    U.S. Federal Income Tax Considerations
  
    
    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 financial transaction for tax
purposes,
    
    holders whose functional currency for tax purposes is not the U.S. dollar,
    
    partnerships or other pass-through entities for U.S. federal income tax purposes,
 114




---



##### Table of Contents




    
    persons subject to the alternative minimum tax, or
    
    persons owning, actually or constructively, 10% or more of our voting shares.
    
    
    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
    
    otherwise subject to U.S. federal income taxation on a net income basis with respect to
the preferred class A shares, common shares, or American Depositary Shares.
   Taxation of dividends.
 reais
   115




---



##### Table of Contents



Taxation of capital gains.
  Item 10. Additional InformationTaxationBrazilian Tax
Considerations
 Information reporting and backup withholding
   
 DOCUMENTS ON DISPLAY
 http://www.sec.gov
  116




---



##### Table of Contents



Item 11. Quantitative and Qualitative Disclosures About Market Risk
 Risk Management Policy
    InterestratesGold
    
    
    (LIBOR)
    
    
    Currencies
    
    
    Alumina
    
    
    Aluminum
    
    
    TotalUnrealized gain (loss) at January 1, 2004
    
    US$
    (32
    )
    
    US$
    (46
    )
    
    US$
    5
    
    
    US$
    (18
    )
    
    US$

    
    
    
    US$
    (91
    )Loss recognized upon consolidation of
Albras
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    (20
    )Financial settlement
    
    
    4
    
    
    
    29
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    31Unrealized gains (losses) in the period
    
    
    (5
    )
    
    
    1
    
    
    
    1
    
    
    
    (33
    )
    
    
    (98
    )
    
    
    (134
    )Effect of exchange rate changes
    
    
    (4
    )
    
    
    (1
    )
    
    
    
    
    
    
    (4
    )
    
    
    (9
    )
    
    
    (18
    )Unrealized gain (loss) at December 31, 2004
    
    US$
    (37
    )
    
    US$
    (17
    )
    
    US$
    4
    
    
    US$
    (55
    )
    
    US$
    (127
    )
    
    US$
    (232
    )Fair value at January 1, 2005
    
    US$
    (37
    )
    
    US$
    (17
    )
    
    US$
    4
    
    
    US$
    (55
    )
    
    US$
    (127
    )
    
    US$
    (232
    )Financial settlement
    
    
    11
    
    
    
    9
    
    
    
    (1
    )
    
    
    34
    
    
    
    36
    
    
    
    89Unrealized gains (losses) in the period
    
    
    (17
    )
    
    
    6
    
    
    
    (2
    )
    
    
    (28
    )
    
    
    (60
    )
    
    
    (101
    )Effect of exchange rate changes
    
    
    (3
    )
    
    
    (2
    )
    
    
    
    
    
    
    (4
    )
    
    
    (6
    )
    
    
    (15
    )Unrealized gain (loss) at December 31, 2005
    
    US$
    (46
    )
    
    US$
    (4
    )
    
    US$
    1
    
    
    US$
    (53
    )
    
    US$
    (157
    )
    
    US$
    (259
    )
 
 INTEREST RATE AND EXCHANGE RATE RISK
  At December 31,2004
    
    
    2005(in millions of US$, except percentages)Floating rate debt:Real-denominated
    
    US$
    120
    
    
    
    3.1
    %
    
    
    100
    
    
    
    2.1
    %Foreign currency denominated
    
    
    2,078
    
    
    
    53.8
    
    
    
    2,901
    
    
    
    60.3Fixed rate debt:Real-denominated
    
    
    74
    
    
    
    1.9
    
    
    
    32
    
    
    
    0.6Foreign currency denominated
    
    
    1,593
    
    
    
    41.2
    
    
    
    1,778
    
    
    
    37.0Total
    
    US$
    3,865
    
    
    
    100.0
    
    
    
    4,811
    
    
    
    100.0
 117




---



##### Table of Contents



reais ,
 Fair ValueWeighted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fair Value
    
    
    Accounting ataverage interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    To
    
    
    
    
    
    
    Cash Flow at
    
    
    December 31,rate (%)(1)(2)
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2034
    
    
    Total
    
    
    December 31, 2005
    
    
    2005(in millions of US$)U.S.
dollar-denominatedFixed rateBonds
    
    
    8.47
    
    
    
    
    
    
    
    111.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,102.2
    
    
    
    1,213.8
    
    
    
    1,384.3
    
    
    
    1,382.2Loans
    
    
    6.39
    
    
    
    122.2
    
    
    
    36.7
    
    
    
    18.4
    
    
    
    11.5
    
    
    
    7.1
    
    
    
    2.5
    
    
    
    198.4
    
    
    
    76.2
    
    
    
    198.4Securitization
Notes
    
    
    5.83
    
    
    
    27.0
    
    
    
    57.1
    
    
    
    53.1
    
    
    
    55.3
    
    
    
    57.6
    
    
    
    92.6
    
    
    
    342.7
    
    
    
    315.7
    
    
    
    342.7Trade Finance
    
    
    5.53
    
    
    
    20.0
    
    
    
    1.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21.8
    
    
    
    1.8
    
    
    
    21.8Floating RateLoans
    
    
    6.39
    
    
    
    205.3
    
    
    
    182.0
    
    
    
    197.8
    
    
    
    226.7
    
    
    
    219.5
    
    
    
    438.5
    
    
    
    1,469.8
    
    
    
    504.9
    
    
    
    1,469.8Securitization
Notes
    
    
    5.83
    
    
    
    55.1
    
    
    
    28.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84.0
    
    
    
    20.5
    
    
    
    84.0Trade Finance
    
    
    5.53
    
    
    
    613.0
    
    
    
    81.8
    
    
    
    23.7
    
    
    
    4.0
    
    
    
    99.2
    
    
    
    290.5
    
    
    
    1,112.2
    
    
    
    160.3
    
    
    
    1,112.2Subtotal
    
    
    
    
    
    
    1,042.6
    
    
    
    499.9
    
    
    
    293.0
    
    
    
    297.5
    
    
    
    383.4
    
    
    
    1,926.3
    
    
    
    4,442.7
    
    
    
    2,463.7
    
    
    
    4,611.1Real-denominatedFixed rate
loans
    
    
    12.49
    
    
    
    29.0
    
    
    
    2.6
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.3
    
    
    
    32.2
    
    
    
    2.8
    
    
    
    32.2Floating Rate
Loans
    
    
    12.49
    
    
    
    22.0
    
    
    
    14.4
    
    
    
    14.2
    
    
    
    12.4
    
    
    
    12.4
    
    
    
    24.7
    
    
    
    100.1
    
    
    
    78.0
    
    
    
    100.1Subtotal
    
    
    
    
    
    
    51.0
    
    
    
    17.0
    
    
    
    14.3
    
    
    
    12.5
    
    
    
    12.5
    
    
    
    25.0
    
    
    
    132.3
    
    
    
    80.8
    
    
    
    132.3Other
currency-denominatedFixed rate loan
    
    
    3.9
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.5
    
    
    
    1.0
    
    
    
    1.5Floating rate loan
    
    
    6.35
    
    
    
    3.0
    
    
    
    2.8
    
    
    
    2.8
    
    
    
    2.8
    
    
    
    2.8
    
    
    
    2.8
    
    
    
    17.0
    
    
    
    14.0
    
    
    
    17.0Subtotal
    
    
    
    
    
    
    3.5
    
    
    
    3.3
    
    
    
    3.3
    
    
    
    2.8
    
    
    
    2.8
    
    
    
    2.8
    
    
    
    18.5
    
    
    
    15.0
    
    
    
    18.5No maturity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    217.3
    
    
    
    217.3
    
    
    
    217.3Total
    
    
    
    
    
    
    1,097.1
    
    
    
    520.2
    
    
    
    310.6
    
    
    
    312.8
    
    
    
    398.7
    
    
    
    1,954.1
    
    
    
    4,810.8
    
    
    
    2,776.8
    
    
    
    4,979.2
 
 (1)
    
    Weighted average interest rates do not take into account the effect of the derivatives.(2)
    
    Weighted average variable interest rates are based on the applicable reference rate at December
31, 2005. Interest Rate Risk
 reais
  118




---



##### Table of Contents



At December 31, 2004
    
    
    At December 31, 2005Notional
    
    
    Interest Rate
    
    
    Unrealized
    
    
    Notional
    
    
    Interest Rate
    
    
    Unrealized
    
    
    FinalValue
    
    
    Range
    
    
    Gain (Loss)
    
    
    Value
    
    
    Range
    
    
    Gain (Loss)
    
    
    Maturity(in millions of US$, except interest rate ranges)Floor
    
    
    150
    
    
    
    5.7  6.0
    %
    
    
    (3.5
    )
    
    
    25
    
    
    
    5.8
    %
    
    
    0.0
    
    
    Nov 2006Cap
    
    
    300
    
    
    
    5.75  11.0
    %
    
    
    0.0
    
    
    
    175
    
    
    
    5.7  11.0
    %
    
    
    0.0
    
    
    May 2007Swap
    
    
    231
    
    
    
    5.8  6.7
    %
    
    
    (13.4
    )
    
    
    206
    
    
    
    5.8  6.7
    %
    
    
    (3.8
    )
    
    Oct 2007Total
    
    
    
    
    
    
    
    
    
    US$
    (16.9
    )
    
    
    
    
    
    
    
    
    
    
    (3.8
    )
 Exchange Rate Risk
 . real reais
 reais reais
  At December 31, 2004
    
    
    At December 31, 2005Notional
    
    
    
    
    
    
    Unrealized
    
    
    Notional
    
    
    
    
    
    
    Unrealized
    
    
    FinalValue
    
    
    Rate Range
    
    
    Gain (Loss)
    
    
    Value
    
    
    Rate Range
    
    
    Gain (Loss)
    
    
    Maturity(in millions, except rate ranges)Floating Rate purchased
    
    
    16.74
    
    
    Euribor + Spread 1
    
    
    
    
    
    
    14.35
    
    
    Euribor + Spread 1
    
    
    
    
    
    Dec 2011Floating Rate sold
    
    USD 18.89
    
    Libor + Spread 2
    
    
    
    
    
    USD 16.19
    
    Libor + Spread 2
    
    
    
    
    
    Dec 2011Total
    
    
    
    
    
    
    
    
    
    US$
    3.7
    
    
    
    
    
    
    
    
    
    
    US$
    0.7
 At December 31, 2004
    
    
    At December 31, 2005Notional
    
    
    
    
    
    
    Unrealized
    
    
    Notional
    
    
    
    
    
    
    Unrealized
    
    
    FinalValue
    
    
    Price Range

    
    Gain (Loss)
    
    
    Value
    
    
    Price Range
    
    
    Gain (Loss)
    
    
    Maturity(in millions, except price ranges)Japanese yen
purchased
    
    ¥
    64.7
    
    
    ¥
    79  83 per US$
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Euro purchased
    
    
    0.90
    
    

    US$1.22  1.23 per 

    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Euro sold
    
    
    3.3
    
    
    
    1.327
    
    

    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    US$
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    
 119




---



##### Table of Contents



PRODUCT PRICE RISK
  
    
    iron ore and pellets, which represented 70.7% of our 2005 gross consolidated revenues;
    
    manganese ore and ferroalloys, which represented 4.3% of our 2005 gross consolidated revenues;
    
    aluminum-related products, which represented 10.5% of our 2005 gross consolidated revenues;
    
    kaolin, which represented less than 1.3% of our 2005 gross consolidated revenues; and
    
    copper, which we began producing in 2004 as copper concentrate and represented 2.9% of
our 2005 gross consolidated revenues.
 Item 5. Operating and Financial Review and Prospects
   At December 31, 2004
    
    
    At December 31, 2005Notional
    
    
    
    
    
    
    Unrealized
    
    
    Notional
    
    
    
    
    
    
    Unrealized
    
    
    FinalValue
    
    
    Price Range
    
    
    Gain (Loss)
    
    
    Value
    
    
    Price Range
    
    
    Gain (Loss)
    
    
    Maturity(tons of
    
    
    (US$ per ton)
    
    
    (in millions
    
    
    (tons of
    
    
    (US$ per ton)
    
    
    (in millionsaluminum)
    
    
    
    
    
    
    of US$)
    
    
    aluminum)
    
    
    
    
    
    
    of US$)Puts purchased
    
    
    217,000
    
    
    
    US$1,385  1,400
    
    
    US$
    0.2
    
    
    
    78,500
    
    
    
    US$1,375  1,625
    
    
    
    0.0
    
    
    Dec 2006Forwards sold
    
    
    9,000
    
    
    
    1,545  1,650
    
    
    
    (23.7
    )
    
    
    3,000
    
    
    
    1,502  1,700
    
    
    
    (1.8
    )
    
    Dec 2006Calls sold
    
    
    241,000
    
    
    
    1,535  1,590
    
    
    
    (56.9
    )
    
    
    96,500
    
    
    
    1,535  1,640
    
    
    
    (19.3
    )
    
    Dec 2006Other instruments
    
    
    263,000
    
    
    
    1,390  1,700
    
    
    
    (33.9
    )
    
    
    147,000
    
    
    
    1,400  1,700
    
    
    
    (94.9
    )
    
    Dec 2008Total
    
    
    
    
    
    
    
    
    
    US$
    (114.3
    )
    
    
    
    
    
    
    
    
    
    US$
    (116.0
    )
  120




---



##### Table of Contents



At December 31, 2004
    
    
    At December 31, 2005Unrealized
    
    
    
    
    
    
    
    
    
    
    Unrealized
    
    
    FinalQuantity
    
    
    Price Range
    
    
    Gain (Loss)
    
    
    Quantity
    
    
    Price Range
    
    
    Gain (Loss)
    
    
    Maturity(oz.)
    
    
    (US$ per oz.)
    
    
    (in millions of US$)
    
    
    (oz.)
    
    
    (US$ per oz.)
    
    
    (in millions of US$)Puts purchased
    
    
    303,000
    
    
    
    285  385
    
    
    
    0.7
    
    
    
    222,200
    
    
    
    285  385
    
    
    
    (1.4
    )
    
    Dec 2008Calls sold
    
    
    393,000
    
    
    
    330  440
    
    
    
    (37.4
    )
    
    
    286,240
    
    
    
    343  440
    
    
    
    (44.6
    )
    
    Dec 2008Other instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    US$
    (36.7
    )
    
    
    
    
    
    
    
    
    
    US$
    (46.0
    )
  
 CREDIT RISK
 Financial Institutions Risk & Exposure
    Commercial Credit Exposure
  
 Item 12. Description of Securities Other than Equity Securities
  
 PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
  
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
  121




---



##### Table of Contents



Item 15. Controls and Procedures
 
 Evaluation of Disclosure Controls and Procedures
  
 Changes in Internal Controls
  
 Item 16A. Audit Committee Financial Expert
  
 Item 16B. Code of Ethics
  
 Item 16C. Principal Accountant Fees and Services
 
 Principal Accountant Fees
  Year ended December 31,2004
    
    
    2005(thousands of US$)Audit Fees
    
    US$
    1,075
    
    
    US$
    1,470Audit-Related Fees
    
    
    2,455
    
    
    
    2,736Tax Fees
    
    
    94
    
    
    
    85All Other Fees
    
    
    
    
    
    
    Total Fees
    
    US$
    3,624
    
    
    US$
    4,291
 122




---



##### Table of Contents



Audit Committee Pre-Approval Policies and Procedures
   
 Item 16D. Exemptions from the Listing Standards for Audit Committees
  
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  
 PART III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
  
 123




---



##### Table of Contents



Item 19. Exhibits
 ExhibitNumber1.1
    
    Bylaws of Companhia Vale do Rio Doce, as amended April 27, 2006 (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 Director and Principal Executive Officer and Director 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 Trevisan (Alunorte).14.4
    
    Consent of Deloitte Touche Tohmatsu (Docenave).14.5
    
    Consent of Deloitte Touche Tohmatsu (Hispanobras).14.6
    
    Consent of Deloitte Touche Tohmatsu (Itabrasco).14.7
    
    Consent of Deloitte Touche Tohmatsu (Kobrasco).14.8
    
    Consent of Deloitte Touche Tohmatsu (MRN).14.9
    
    Consent of Deloitte Touche Tohmatsu (Nibrasco).14.10
    
    Consent of Deloitte Touche Tohmatsu (Valesul).14.11
    
    Consent of Deloitte Touche Tohmatsu (RDM).14.12
    
    Consent of Deloitte Touche Tohmatsu (Urucum).14.13
    
    Consent of AMEC
 
 (*)
    
    Incorporated by reference to the annual report on Form 20-F of CVRD and Vale Overseas
Limited for the year ended December 31, 2002.(**)
    
    Incorporated by reference to the annual report on Form 20-F of CVRD and Vale Overseas Limited
for the year ended December 31, 2003. 124




---



##### Table of Contents



SIGNATURES
  COMPANHIA VALE DO RIO DOCEBy:
    /s/ Roger AgnelliName:
    Roger AgnelliTitle:
    Chief Executive Officer By:
    /s/ Fabio de Oliveira BarbosaName:
    Fabio de Oliveira BarbosaTitle:
    Chief Financial Officer VALE OVERSEAS LIMITEDBy:
    /s/ Fabio de Oliveira BarbosaName:
    Fabio de Oliveira BarbosaTitle:
    Director and Principal Executive Officer By:
    /s/ Leonardo Moretzsohn de AndradeName:
    Leonardo Moretzsohn de AndradeTitle:
    Director and Principal Financial Officer  125




---



##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageCompanhia
Vale do Rio DoceReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    
    F-3Consolidated
Statements of Income for the years ended December 31, 2005, 2004 and 2003
    
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31, 2005,
2004 and 2003
    
    
    F-6Consolidated Statements of Changes in Stockholders Equity for the years ended
December 31, 2005, 2004 and 2003
    
    
    F-7Notes to the Consolidated Financial Statements
    
    
    F-8
 Vale
Overseas LimitedReport
of Independent Registered Public Accounting Firm
    
    
    F-40Balance
Sheets as of December 31, 2005 and 2004
    
    
    F-41Statements
of Income and Changes in Retained Earnings (Accumulated Losses) for
the years ended December 31, 2005,2004 and 2003
    
    
    F-42Statements
of Cash Flows for the years ended December 31, 2005, 2004 and 2003
    
    
    F-43Notes to the Financial Statements
    
    
    F-44
 Index 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




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 To the Board of Directors and Stockholders of Companhia Vale do Rio Doce
   
 
 F - 2




---



##### Table of Contents



Consolidated Balance Sheets
 Expressed in millions of United States dollars
 As of December 31,2005
    
    
    2004AssetsCurrent assetsCash and cash equivalents
    
    
    1,041
    
    
    
    1,249Accounts receivableRelated parties
    
    
    159
    
    
    
    124Unrelated parties
    
    
    1,490
    
    
    
    905Loans and advances to related parties
    
    
    22
    
    
    
    56Inventories
    
    
    1,142
    
    
    
    849Deferred income tax
    
    
    186
    
    
    
    203Recoverable taxes
    
    
    362
    
    
    
    285Others
    
    
    373
    
    
    
    2194,775
    
    
    
    3,890Property, plant and equipment, net
    
    
    14,166
    
    
    
    9,063Investments in affiliated companies and joint ventures and other
investments, net of provision for losses on equity investments
    
    
    1,672
    
    
    
    1,159Other assetsGoodwill on acquisition of subsidiaries
    
    
    548
    
    
    
    486Loans and advancesRelated parties
    
    
    4
    
    
    
    55Unrelated parties
    
    
    61
    
    
    
    56Prepaid pension cost
    
    
    308
    
    
    
    170Deferred income tax
    
    
    
    
    
    
    70Judicial deposits
    
    
    568
    
    
    
    531Unrealized gain on derivative instruments
    
    
    1
    
    
    
    4Advances to suppliers  energy
    
    
    311
    
    
    
    98Others
    
    
    230
    
    
    
    1332,031
    
    
    
    1,603TOTAL
    
    
    22,644
    
    
    
    15,715
 F - 3




---



##### Table of Contents



Consolidated Balance Sheets
Expressed in millions of United States dollars
(Except number of shares)
 (Continued)
 As of December 31,2005
    
    
    2004Liabilities and stockholders equityCurrent liabilitiesSuppliers
    
    
    1,110
    
    
    
    689Payroll and related charges
    
    
    229
    
    
    
    141Current portion of long-term debt  unrelated parties
    
    
    1,218
    
    
    
    730Short-term debt
    
    
    15
    
    
    
    74Loans from related parties
    
    
    62
    
    
    
    52Provision for income taxes
    
    
    297
    
    
    
    459Others
    
    
    394
    
    
    
    3103,325
    
    
    
    2,455Long-term liabilitiesEmployees post-retirement benefits
    
    
    241
    
    
    
    215Long-term debt  unrelated parties
    
    
    3,714
    
    
    
    3,214Loans from related parties
    
    
    1
    
    
    
    18Provisions for contingencies (Note 18 (b))
    
    
    1,286
    
    
    
    914Unrealized loss on derivative instruments
    
    
    260
    
    
    
    236Deferred income tax
    
    
    2
    
    
    
    Provisions for environmental liabilities
    
    
    225
    
    
    
    134Others
    
    
    395
    
    
    
    3506,124
    
    
    
    5,081Minority interests
    
    
    1,218
    
    
    
    788Stockholders equityPreferred
class A stock  1,800,000,000
no-par-value shares authorized and 415,727,739 issued
    
    
    2,150
    
    
    
    1,176Common stock
 900,000,000 no-par-value
shares authorized and 749,949,429 issued
    
    
    3,806
    
    
    
    2,121Treasury
stock  11,458 (2004  11,951) preferred and
14,145,510 common shares
    
    
    (88
    )
    
    
    (88
    )Additional paid-in capital
    
    
    498
    
    
    
    498Other cumulative comprehensive deficit
    
    
    (2,729
    )
    
    
    (3,774
    )Appropriated retained earnings
    
    
    4,357
    
    
    
    4,143Unappropriated retained earnings
    
    
    3,983
    
    
    
    3,31511,977
    
    
    
    7,391TOTAL
    
    
    22,644
    
    
    
    15,715
 See
notes to consolidated financial statements.
 F - 4




---



##### Table of Contents



Consolidated Statements of Income
 Expressed in millions of United States dollars
(except number of shares and per-share amounts)
 Year ended December 31,2005
    
    
    2004
    
    
    2003Operating revenues, net of discounts, returns and allowancesSales of ores and metals
    
    
    10,767
    
    
    
    6,333
    
    
    
    4,060Revenues from logistic services
    
    
    1,216
    
    
    
    877
    
    
    
    604Aluminum products
    
    
    1,408
    
    
    
    1,250
    
    
    
    852Other products and services
    
    
    14
    
    
    
    19
    
    
    
    2913,405
    
    
    
    8,479
    
    
    
    5,545Taxes on revenues
    
    
    (613
    )
    
    
    (413
    )
    
    
    (195
    )Net operating revenues
    
    
    12,792
    
    
    
    8,066
    
    
    
    5,350Operating costs and expensesCost of ores and metals sold
    
    
    (4,620
    )
    
    
    (2,881
    )
    
    
    (2,066
    )Cost of logistic services
    
    
    (705
    )
    
    
    (513
    )
    
    
    (370
    )Cost of aluminum products
    
    
    (893
    )
    
    
    (674
    )
    
    
    (678
    )Others
    
    
    (11
    )
    
    
    (13
    )
    
    
    (14
    )(6,229
    )
    
    
    (4,081
    )
    
    
    (3,128
    )Selling, general and administrative expenses
    
    
    (583
    )
    
    
    (452
    )
    
    
    (265
    )Research and development
    
    
    (277
    )
    
    
    (153
    )
    
    
    (82
    )Employee profit sharing plan
    
    
    (97
    )
    
    
    (69
    )
    
    
    (32
    )Others
    
    
    (174
    )
    
    
    (188
    )
    
    
    (199
    )(7,360
    )
    
    
    (4,943
    )
    
    
    (3,706
    )Operating income
    
    
    5,432
    
    
    
    3,123
    
    
    
    1,644Non-operating income (expenses)Financial income
    
    
    123
    
    
    
    82
    
    
    
    102Financial expenses
    
    
    (560
    )
    
    
    (671
    )
    
    
    (351
    )Foreign exchange and monetary gains (losses), net
    
    
    299
    
    
    
    65
    
    
    
    242Gain on sale of investments
    
    
    126
    
    
    
    404
    
    
    
    17(12
    )
    
    
    (120
    )
    
    
    10Income before income taxes, equity results and minority interests
    
    
    5,420
    
    
    
    3,003
    
    
    
    1,654Income taxesCurrent
    
    
    (754
    )
    
    
    (433
    )
    
    
    (90
    )Deferred
    
    
    (126
    )
    
    
    (316
    )
    
    
    (207
    )(880
    )
    
    
    (749
    )
    
    
    (297
    )Equity in results of affiliates and joint ventures and change in provision
for losses on equity investments
    
    
    760
    
    
    
    542
    
    
    
    306Minority interests
    
    
    (459
    )
    
    
    (223
    )
    
    
    (105
    )Income from continuing operations
    
    
    4,841
    
    
    
    2,573
    
    
    
    1,558Change in accounting pratice for asset retirement obligations (Note 4(a))
    
    
    
    
    
    
    
    
    
    
    (10
    )Net income
    
    
    4,841
    
    
    
    2,573
    
    
    
    1,548Basic and diluted earnings per Preferred Class A Share
    
    
    4.20
    
    
    
    2.23
    
    
    
    1.34Basic and diluted earnings per Common Share
    
    
    4.20
    
    
    
    2.23
    
    
    
    1.34Weighted average number of shares outstanding(thousands of shares)Common shares
    
    
    735,804
    
    
    
    735,804
    
    
    
    735,804Preferred Class A shares
    
    
    415,716
    
    
    
    415,716
    
    
    
    415,714
 See
notes to consolidated financial statements.
 F - 5




---



##### Table of Contents



Consolidated Statements of Cash Flows
 Expressed in millions of United States dollars
 Year ended December 31,2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net income
    
    
    4,841
    
    
    
    2,573
    
    
    
    1,548Adjustments to reconcile net income to cash provided by
operating activities:Depreciation, depletion and amortization
    
    
    619
    
    
    
    399
    
    
    
    238Dividends received
    
    
    489
    
    
    
    200
    
    
    
    197Equity in results of affiliates and joint ventures and change in provision
for losses on equity investments
    
    
    (760
    )
    
    
    (542
    )
    
    
    (306
    )Deferred income taxes
    
    
    126
    
    
    
    316
    
    
    
    207Provisions for contingencies
    
    
    27
    
    
    
    137
    
    
    
    9Loss on disposal of property, plant and equipment
    
    
    26
    
    
    
    34
    
    
    
    51Gain on sale of investments
    
    
    (126
    )
    
    
    (404
    )
    
    
    (17
    )Change in accounting pratice for asset retirement obligations (Note 4(a))
    
    
    
    
    
    
    
    
    
    
    10Foreign exchange and monetary losses (gains)
    
    
    (237
    )
    
    
    112
    
    
    
    (382
    )Unrealized derivative losses, net
    
    
    101
    
    
    
    134
    
    
    
    43Minority interests
    
    
    459
    
    
    
    223
    
    
    
    105Interest payable, net
    
    
    62
    
    
    
    93
    
    
    
    24Others
    
    
    (159
    )
    
    
    (123
    )
    
    
    (27
    )Decrease (increase) in assets:Accounts receivable
    
    
    (416
    )
    
    
    (98
    )
    
    
    37Inventories
    
    
    (138
    )
    
    
    (216
    )
    
    
    (22
    )Others
    
    
    (639
    )
    
    
    (78
    )
    
    
    (9
    )Increase (decrease) in liabilities:Suppliers
    
    
    279
    
    
    
    230
    
    
    
    (18
    )Payroll and related charges
    
    
    40
    
    
    
    28
    
    
    
    (25
    )Income taxes
    
    
    413
    
    
    
    348
    
    
    
    Others
    
    
    154
    
    
    
    105
    
    
    
    94Net cash provided by operating activities
    
    
    5,161
    
    
    
    3,471
    
    
    
    1,757Cash flows from investing activities:Loans and advances receivableRelated partiesAdditions
    
    
    (27
    )
    
    
    (33
    )
    
    
    (157
    )Repayments
    
    
    115
    
    
    
    51
    
    
    
    71Others
    
    
    
    
    
    
    18
    
    
    
    35Guarantees and deposits
    
    
    (59
    )
    
    
    (111
    )
    
    
    (99
    )Additions to investments
    
    
    (103
    )
    
    
    (34
    )
    
    
    (68
    )Additions to property, plant and equipment
    
    
    (3,977
    )
    
    
    (2,022
    )
    
    
    (1,543
    )Proceeds from disposal of investments
    
    
    126
    
    
    
    579
    
    
    
    83Proceeds from disposals of property, plant and equipment
    
    
    16
    
    
    
    11
    
    
    
    58Cash used to acquire subsidiaries, net of cash acquired
    
    
    (737
    )
    
    
    
    
    
    
    (380
    )Net cash used in investing activities
    
    
    (4,646
    )
    
    
    (1,541
    )
    
    
    (2,000
    )Cash flows from financing activities:Short-term debt, net issuances (repayments)
    
    
    (86
    )
    
    
    (60
    )
    
    
    (38
    )LoansRelated partiesAdditions
    
    
    10
    
    
    
    21
    
    
    
    72Repayments
    
    
    (43
    )
    
    
    (27
    )
    
    
    (26
    )Issuances of long-term debtRelated parties
    
    
    15
    
    
    
    20
    
    
    
    14Others
    
    
    1,757
    
    
    
    1,031
    
    
    
    1,025Repayments of long-term debtRelated parties
    
    
    
    
    
    
    (3
    )
    
    
    (4
    )Others
    
    
    (884
    )
    
    
    (1,283
    )
    
    
    (766
    )Interest attributed to stockholders
    
    
    (1,300
    )
    
    
    (787
    )
    
    
    (675
    )Net cash used in financing activities
    
    
    (531
    )
    
    
    (1,088
    )
    
    
    (398
    )Increase (decrease) in cash and cash equivalents
    
    
    (16
    )
    
    
    842
    
    
    
    (641
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (192
    )
    
    
    (204
    )
    
    
    135Initial cash in new consolidated subsidiary
    
    
    
    
    
    
    26
    
    
    
    Cash and cash equivalents, beginning of year
    
    
    1,249
    
    
    
    585
    
    
    
    1,091Cash and cash equivalents, end of year
    
    
    1,041
    
    
    
    1,249
    
    
    
    585Cash paid during the year for:Interest on short-term debt
    
    
    (9
    )
    
    
    (5
    )
    
    
    (7
    )Interest on long-term debt
    
    
    (243
    )
    
    
    (295
    )
    
    
    (178
    )Income tax
    
    
    (481
    )
    
    
    (108
    )
    
    
    (55
    )Non-cash transactionsConversion of loans to investments
    
    
    
    
    
    
    
    
    
    
    (187
    )Income tax paid with credits
    
    
    (161
    )
    
    
    (100
    )
    
    
    (81
    )Interest capitalized
    
    
    (86
    )
    
    
    (31
    )
    
    
    (19
    )
 See notes to consolidated financial statements.
 F - 6




---



##### Table of Contents



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 31,2005
    
    
    2004
    
    
    2003Preferred class A stock (including three special share)Beginning of the period
    
    
    1,176
    
    
    
    1,055
    
    
    
    904Transfer from appropriated retained earnings
    
    
    974
    
    
    
    121
    
    
    
    151End of the period
    
    
    2,150
    
    
    
    1,176
    
    
    
    1,055Common stockBeginning of the period
    
    
    2,121
    
    
    
    1,902
    
    
    
    1,630Transfer from appropriated retained earnings
    
    
    1,685
    
    
    
    219
    
    
    
    272End of the period
    
    
    3,806
    
    
    
    2,121
    
    
    
    1,902Treasury stockBeginning and end of the period
    
    
    (88
    )
    
    
    (88
    )
    
    
    (88
    )Additional paid-in capitalBeginning and end of the period
    
    
    498
    
    
    
    498
    
    
    
    498Other cumulative comprehensive deficitCumulative translation adjustmentsBeginning of the period
    
    
    (3,869
    )
    
    
    (4,449
    )
    
    
    (5,185
    )Change in the period
    
    
    1,013
    
    
    
    580
    
    
    
    736End of the period
    
    
    (2,856
    )
    
    
    (3,869
    )
    
    
    (4,449
    )Adjustments relating to investments in affiliatesBeginning of the period
    
    
    
    
    
    
    
    
    
    
    10Transfer to retained earnings
    
    
    
    
    
    
    
    
    
    
    (10
    )End of the period
    
    
    
    
    
    
    
    
    
    
    Unrealized gain on available-for-sale securitiesBeginning of the period
    
    
    95
    
    
    
    74
    
    
    
    Change in the period
    
    
    32
    
    
    
    21
    
    
    
    74End of the period
    
    
    127
    
    
    
    95
    
    
    
    74Total other cumulative comprehensive deficit
    
    
    (2,729
    )
    
    
    (3,774
    )
    
    
    (4,375
    )Appropriated retained earningsBeginning of the period
    
    
    4,143
    
    
    
    3,035
    
    
    
    2,230Transfer from retained earnings
    
    
    2,873
    
    
    
    1,448
    
    
    
    1,228Transfer to capital stock
    
    
    (2,659
    )
    
    
    (340
    )
    
    
    (423
    )End of the period
    
    
    4,357
    
    
    
    4,143
    
    
    
    3,035Unappropriated retained earningsBeginning of the period
    
    
    3,315
    
    
    
    2,857
    
    
    
    3,288Net income
    
    
    4,841
    
    
    
    2,573
    
    
    
    1,548Dividends and interest attributed to stockholdersPreferred class A stock
    
    
    (469
    )
    
    
    (241
    )
    
    
    (275
    )Common stock
    
    
    (831
    )
    
    
    (426
    )
    
    
    (486
    )Appropriation to reserves
    
    
    (2,873
    )
    
    
    (1,448
    )
    
    
    (1,218
    )End of the period
    
    
    3,983
    
    
    
    3,315
    
    
    
    2,857Total stockholders equity
    
    
    11,977
    
    
    
    7,391
    
    
    
    4,884Comprehensive income is comprised as follows:Net income
    
    
    4,841
    
    
    
    2,573
    
    
    
    1,548Cumulative translation adjustments
    
    
    1,013
    
    
    
    580
    
    
    
    736Unrealized gain (loss) on available-for-sale securities
    
    
    32
    
    
    
    21
    
    
    
    74Total comprehensive income
    
    
    5,886
    
    
    
    3,174
    
    
    
    2,358SharesPreferred class A stock (including three special share)
    
    
    415,727,739
    
    
    
    415,727,739
    
    
    
    415,727,739Common stock
    
    
    749,949,429
    
    
    
    749,949,429
    
    
    
    749,949,429Treasury stock (1)Beginning of the period
    
    
    (14,157,461
    )
    
    
    (14,158,059
    )
    
    
    (14,158,953
    )Sales
    
    
    493
    
    
    
    598
    
    
    
    894End of the period
    
    
    (14,156,968
    )
    
    
    (14,157,461
    )
    
    
    (14,158,059
    )1,151,520,200
    
    
    
    1,151,519,707
    
    
    
    1,151,519,109Dividends and interest attributed to stockholders (per share)Preferred class A stock (including three special share)
    
    
    1.13
    
    
    
    0.58
    
    
    
    0.66Common stock
    
    
    1.13
    
    
    
    0.58
    
    
    
    0.66
 
 (1)
    
    As of December 31, 2005, 14,145,510 common shares and 11,458 preferred shares were held in
treasury in the amount of US$88. The 14,145,510 common shares are provided as collateral to
secure a loan of our subsidiary Alunorte. F-7




---



##### Table of Contents



Notes to the Consolidated Financial Statements
 Expressed in millions of United States dollars, unless otherwise stated
 1
    
    The Company and its operationCompanhia 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:
 % votingSubsidiary
    
    % ownership
    
    capital
    
    Head office location
    
    Principal activityAlumina do Norte do Brasil S.A.  Alunorte (Alunorte)
    
    57
    
    
    61
    
    
    Brazil
    
    AluminaAlumínio Brasileiro S.A.  Albras (Albras)
    
    51
    
    
    51
    
    
    Brazil
    
    AluminumCADAM S.A (CADAM) (1)
    
    37
    
    
    100
    
    
    Brazil
    
    KaolinCVRD Overseas Ltd.
    
    100
    
    
    100
    
    
    Cayman Islands
    
    TradingFerrovia Centro-Atlântica S. A.
    
    100
    
    
    100
    
    
    Brazil
    
    LogisticsItabira Rio Doce Company Ltd.  ITACO
    
    100
    
    
    100
    
    
    Cayman Islands
    
    TradingMinerações Brasileiras Reunidas S.A.  MBR (2)
    
    56
    
    
    90
    
    
    Brazil
    
    Iron oreMineração Onça Puma Ltda
    
    99
    
    
    99
    
    
    Brazil
    
    NickelNavegação Vale do Rio Doce S.A.  DOCENAVE
    
    100
    
    
    100
    
    
    Brazil
    
    ShippingPará Pigmentos S.A. (1)
    
    76
    
    
    86
    
    
    Brazil
    
    KaolinRio Doce International Finance Ltd.  RDIF
    
    100
    
    
    100
    
    
    Bahamas
    
    International financeRio Doce Manganês S.A.
    
    100
    
    
    100
    
    
    Brazil
    
    Manganese and FerroalloysRio Doce Manganèse Europe  RDME
    
    100
    
    
    100
    
    
    France
    
    FerroalloysRio Doce Manganese Norway  RDMN
    
    100
    
    
    100
    
    
    Norway
    
    FerroalloysSalobo Metais S.A.
    
    100
    
    
    100
    
    
    Brazil
    
    CopperUrucum Mineração S.A.
    
    100
    
    
    100
    
    
    Brazil
    
    Iron ore, Ferroalloys and Manganese
 
 (1)
    
    Through Caemi Mineração e Metalurgia S.A.. CVRD holds 60.2% of the total capital and 100% of the voting capital.(2)
    
    Through Caemi Mineração e Metalurgia S.A. and Belém Administrações e Participações Ltda. 2
    
    Basis of consolidationAll majority-owned subsidiaries in which we have both share and
management control are consolidated. All significant intercompany
accounts and transactions are eliminated. As from January 1, 2004,
our variable interest entities in which we are the primary
beneficiary (Note 4(b)) are consolidated. 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
(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 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.Investments in unincorporated joint ventures, formed for the
purpose of investing in hydroelectric power projects, are
proportionately consolidated.3
    
    Summary of significant accounting policiesThe preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Estimates are used for, but not limited to the
selection of
 F - 8




---



##### Table of Contents



(a)
    
    Basis of presentation
       (b)
    
    Business combinations
   (c)
    
    Inventories
   F - 9




---



##### Table of Contents



(d)
    
    Property, plant and equipment
   (e)
    
    Available-for-sale equity securities
  (f)
    
    Revenues and expenses
  (g)
    
    Environmental and site reclamation and restoration costs
  (h)
    
    Compensated absences
  (i)
    
    Income taxes
  (j)
    
    Statement of cash flows
  (k)
    
    Earnings per share
  F - 10




---



##### Table of Contents



(l)
    
    Interest attributed to stockholders
     (m)
    
    Derivatives and hedging activities
  (n)
    
    Comprehensive income
  (o)
    
    Stockpiled inventory
  (p)
    
    Removal of waste materials to access mineral deposits
   F - 11




---



##### Table of Contents



4
    
    Change in accounting practice
      2003Pro FormaCVRD
    
    
    (*)Albras
    
    
    (unaudited)Net revenues
    
    
    5,350
    
    
    
    165
    
    
    
    5,515Cost of sales
    
    
    (3,128
    )
    
    
    58
    
    
    
    (3,070
    )Operating costs
    
    
    (578
    )
    
    
    (16
    )
    
    
    (594
    )Non-operating income (expense)
    
    
    10
    
    
    
    34
    
    
    
    44Income taxes
    
    
    (297
    )
    
    
    (36
    )
    
    
    (333
    )Equity in results of affiliates and joint ventures
    
    
    306
    
    
    
    (105
    )
    
    
    201Change in
accounting pratice
    
    
    (10
    )
    
    
    
    
    
    
    (10
    )Minority interests
    
    
    (105
    )
    
    
    (100
    )
    
    
    (205
    )Net income
    
    
    1,548
    
    
    
    
    
    
    
    1,548
 
 (*)
    
    After eliminations of intercompany transactions. 5
    
    Recently-issued accounting pronouncements
   F - 12




---



##### Table of Contents



6
    
    Our privatization
  .
    
    Preferred Special Share. The Brazilian
Government holds three preferred special shares of CVRD which confers upon it
permanent veto rights over changes in our
(i) name, (ii) location of our
headquarters (iii) corporate purpose with
respect to mineral exploration, (iv)
continued operation of our integrated
iron ore mining systems and (v) certain
other matters..
    
    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 (Note 18(f)).
 7
    
    Major acquisitions and disposals during the years presented
  (a)
    
    In December 2001, acting through our wholly-owned foreign subsidiary Itabira Rio Doce Company
Ltd.  ITACO, we acquired 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 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).
 F - 13




---



##### Table of Contents



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 forma
  2003Pre-CVRD
    
    
    acquisitionConsolidated
    
    
    CAEMI (1)
    
    
    Pro Forma(unaudited)Net operating revenues
    
    
    5,350
    
    
    
    424
    
    
    
    5,774Operating costs and expenses
    
    
    (3,706
    )
    
    
    (343
    )
    
    
    (4,049
    )Operating income
    
    
    1,644
    
    
    
    81
    
    
    
    1,725Non-operating income
    
    
    10
    
    
    
    16
    
    
    
    26Income before income taxes, equity results
and minority interests
    
    
    1,654
    
    
    
    97
    
    
    
    1,751Income taxes
    
    
    (297
    )
    
    
    (41
    )
    
    
    (338
    )Equity in results of affiliates and joint ventures and change
in provision for losses on equity investments
    
    
    306
    
    
    
    (20
    )
    
    
    286Minority interests
    
    
    (105
    )
    
    
    18
    
    
    
    (87
    )Income from continuing operations
    
    
    1,558
    
    
    
    54
    
    
    
    1,612Change in accounting pratice for asset retirement obligations
    
    
    (10
    )
    
    
    
    
    
    
    (10
    )Net income
    
    
    1,548
    
    
    
    54
    
    
    
    1,602
 F - 14




---



##### Table of Contents



(b)
    
    On October 10, 2003, our 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 US$84 realizing a gain of US$61.
 (c)
    
    On November 7, 2003 we sold our investment in Companhia Ferroviária do Nordeste (CFN) to
Companhia Siderurgica Nacional (CSN) for a symbolic amount, recording a loss on this
transaction of US$44.
 (d)
    
    On July 2004 we sold part of our stake in Companhia Siderúrgica de Tubarão (CST) representing
4.42% of the voting capital and 29.96% of the non-voting capital for US$415. In December 2004
we concluded the sale of our remaining 20.51% voting capital interest for US$165. The gains on
these transactions were US$314 and US$90, respectively.
 (e)
    
    In November 2005, we acquired 93.0% of the voting capital of Canico Resource Corp. (Canico) a
Canadian-based junior resource company focused on the development of the Onça-Puma nickel
laterite, for US$ 750. In December 2005, we acquired an additional 6.20% of the voting capital
of Canico for US$ 50. Canico  ́s only significant asset other than US$ 63 of cash and cash
equivalents was US$ 794 of mining rights. Mining rights will be amortized over the estimated
life of the mine.On February 10, 2006, we concluded the acquisition of the outstanding common shares of
Canico, acquiring the remaining voting capital of Canico, 0.8% of its total capital for US$
6, which is now a wholly-owned subsidiary.
 8
    
    Income taxes
   Year ended December 31,2005
    
    
    2004
    
    
    2003Income before income taxes, equity results and minority interests
    
    
    5,420
    
    
    
    3,003
    
    
    
    1,654Federal income tax and social contribution expense at
statutory enacted rates
    
    
    (1,843
    )
    
    
    (1,021
    )
    
    
    (562
    )Adjustments to derive effective tax rate:Tax benefit on interest attributed to stockholders
    
    
    307
    
    
    
    214
    
    
    
    271Exempt foreign income (loss)
    
    
    617
    
    
    
    247
    
    
    
    (59
    )Difference on tax basis of equity investees
    
    
    (58
    )
    
    
    (240
    )
    
    
    (56
    )Tax incentives
    
    
    109
    
    
    
    53
    
    
    
    60Valuation allowance reversal (provision)
    
    
    3
    
    
    
    77
    
    
    
    53Non-taxable losses on derivative
    
    
    
    
    
    
    (57
    )
    
    
    Other non-taxable gains (losses)
    
    
    (15
    )
    
    
    (22
    )
    
    
    (4
    )Federal income tax and social contribution expense in
consolidated statements of income
    
    
    (880
    )
    
    
    (749
    )
    
    
    (297
    )
 F - 15




---



##### Table of Contents



As of December 312005
    
    
    2004Current deferred tax assetsAccrued expenses deductible only when disbursed
    
    
    
    
    
    
    186
    
    
    
    110Interest attributed to stockholders
    
    
    
    
    
    
    
    
    
    
    93186
    
    
    
    203Long-term deferred tax assets and liabilitiesAssetsDeferred tax relative to temporary differences
    
    
    
    
    
    
    
    
    
    
    Tax deductible goodwill in business combinations
    
    
    
    
    
    
    
    
    
    
    10Related to provision for losses and write-downs of
investments
    
    
    
    
    
    
    53
    
    
    
    51Employees post retirement benefits provision
    
    
    
    
    
    
    82
    
    
    
    83Tax loss carryforwards
    
    
    
    
    
    
    275
    
    
    
    235Other temporary differences
    
    
    
    
    
    
    3
    
    
    
    19413
    
    
    
    398LiabilitiesInflationary income
    
    
    
    
    
    
    (30
    )
    
    
    (23
    )Relative to equity investments acquired
    
    
    
    
    
    
    (144
    )
    
    
    (115
    )Prepaid retirement benefit
    
    
    
    
    
    
    (105
    )
    
    
    (58
    )Fair value adjustments in business combinations
    
    
    
    
    
    
    (52
    )
    
    
    (55
    )(331
    )
    
    
    (251
    )Valuation allowanceBeginning balance
    
    
    (2003 - (230)
    )
    
    
    (77
    )
    
    
    (112
    )Translation adjustments
    
    
    (2003 - (37)
    )
    
    
    (10
    )
    
    
    (42
    )Business acquisition, sales and others
    
    
    (2003 - 102
    )
    
    
    
    
    
    
    Change in allowance
    
    
    (2003 -  53
    )
    
    
    3
    
    
    
    77Ending balance
    
    
    
    
    
    
    (84
    )
    
    
    (77
    )Net long-term deferred tax assets
    
    
    
    
    
    
    (2
    )
    
    
    70
 9
    
    Cash and cash equivalents
 As of December 312005
    
    
    2004Cash
    
    
    177
    
    
    
    123Deposits denominated in local currency
    
    
    297
    
    
    
    385Deposits denominated in United States dollars
    
    
    567
    
    
    
    7411,041
    
    
    
    1,249
 F - 16




---



##### Table of Contents



10
    
    Accounts receivable
 As of December 312005
    
    
    2004CustomersDomestic
    
    
    349
    
    
    
    236Export, all denominated in
United States dollars
    
    
    1,355
    
    
    
    8471,704
    
    
    
    1,083Allowance for doubtful accounts
    
    
    (42
    )
    
    
    (37
    )Allowance for ore weight credits
    
    
    (13
    )
    
    
    (17
    )Total
    
    
    1,649
    
    
    
    1,029
   11
    
    Inventories
 As of December 312005
    
    
    2004Finished productsIron ore and pellets
    
    
    271
    
    
    
    205Manganese and ferroalloys
    
    
    151
    
    
    
    156Alumina
    
    
    22
    
    
    
    20Aluminum
    
    
    52
    
    
    
    54Kaolin
    
    
    18
    
    
    
    17Others
    
    
    28
    
    
    
    11Spare parts and maintenance supplies
    
    
    600
    
    
    
    3861,142
    
    
    
    849
  F - 17




---



##### Table of Contents



12
    
    Property, plant and equipment
 a)
    
    By business area:
 As of December 31, 2005
    
    
    As of December 31, 2004Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedCost
    
    
    depreciation
    
    
    Net
    
    
    Cost
    
    
    depreciation
    
    
    NetFerrousIron ore
    
    
    8,488
    
    
    
    3,190
    
    
    
    5,298
    
    
    
    5,916
    
    
    
    2,427
    
    
    
    3,489Pelletizing
    
    
    565
    
    
    
    197
    
    
    
    368
    
    
    
    430
    
    
    
    160
    
    
    
    270Ferroalloys
    
    
    359
    
    
    
    191
    
    
    
    168
    
    
    
    362
    
    
    
    197
    
    
    
    165Energy
    
    
    383
    
    
    
    29
    
    
    
    354
    
    
    
    198
    
    
    
    18
    
    
    
    180Construction in progress
    
    
    2,049
    
    
    
    
    
    
    
    2,049
    
    
    
    1,546
    
    
    
    
    
    
    
    1,54611,844
    
    
    
    3,607
    
    
    
    8,237
    
    
    
    8,452
    
    
    
    2,802
    
    
    
    5,650Non-FerrousCopper
    
    
    748
    
    
    
    114
    
    
    
    634
    
    
    
    578
    
    
    
    71
    
    
    
    507Potash
    
    
    175
    
    
    
    45
    
    
    
    130
    
    
    
    65
    
    
    
    30
    
    
    
    35Gold
    
    
    6
    
    
    
    2
    
    
    
    4
    
    
    
    6
    
    
    
    2
    
    
    
    4Kaolin
    
    
    329
    
    
    
    130
    
    
    
    199
    
    
    
    254
    
    
    
    97
    
    
    
    157Research and projects
    
    
    33
    
    
    
    10
    
    
    
    23
    
    
    
    33
    
    
    
    19
    
    
    
    14Construction in progress
    
    
    1,281
    
    
    
    
    
    
    
    1,281
    
    
    
    731
    
    
    
    
    
    
    
    7312,572
    
    
    
    301
    
    
    
    2,271
    
    
    
    1,667
    
    
    
    219
    
    
    
    1,448LogisticsGeneral cargo
    
    
    1,222
    
    
    
    306
    
    
    
    916
    
    
    
    769
    
    
    
    232
    
    
    
    537Maritime transportation
    
    
    14
    
    
    
    5
    
    
    
    9
    
    
    
    31
    
    
    
    8
    
    
    
    23Construction in progress
    
    
    74
    
    
    
    
    
    
    
    74
    
    
    
    114
    
    
    
    
    
    
    
    1141,310
    
    
    
    311
    
    
    
    999
    
    
    
    914
    
    
    
    240
    
    
    
    674HoldingsAluminum
    
    
    1,495
    
    
    
    552
    
    
    
    943
    
    
    
    1,317
    
    
    
    445
    
    
    
    872Others
    
    
    72
    
    
    
    5
    
    
    
    67
    
    
    
    1
    
    
    
    
    
    
    
    1Construction in progress
    
    
    1,148
    
    
    
    
    
    
    
    1,148
    
    
    
    230
    
    
    
    
    
    
    
    2302,715
    
    
    
    557
    
    
    
    2,158
    
    
    
    1,548
    
    
    
    445
    
    
    
    1,103Corporate CenterCorporate
    
    
    322
    
    
    
    82
    
    
    
    240
    
    
    
    68
    
    
    
    43
    
    
    
    25Construction in progress
    
    
    261
    
    
    
    
    
    
    
    261
    
    
    
    163
    
    
    
    
    
    
    
    163583
    
    
    
    82
    
    
    
    501
    
    
    
    231
    
    
    
    43
    
    
    
    188Total
    
    
    19,024
    
    
    
    4,858
    
    
    
    14,166
    
    
    
    12,812
    
    
    
    3,749
    
    
    
    9,063
 b)
    
    By type of assets:
 As of December 31, 2005
    
    
    As of December 31, 2004Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedCost
    
    
    depreciation
    
    
    Net
    
    
    Cost
    
    
    depreciation
    
    
    NetLand and buildings
    
    
    1,205
    
    
    
    447
    
    
    
    758
    
    
    
    991
    
    
    
    396
    
    
    
    595Installations
    
    
    4,917
    
    
    
    1,596
    
    
    
    3,321
    
    
    
    3,600
    
    
    
    1,262
    
    
    
    2,338Equipment
    
    
    1,855
    
    
    
    711
    
    
    
    1,144
    
    
    
    1,218
    
    
    
    574
    
    
    
    644Railroads
    
    
    2,846
    
    
    
    987
    
    
    
    1,859
    
    
    
    2,091
    
    
    
    884
    
    
    
    1,207Mine development costs
    
    
    1,945
    
    
    
    281
    
    
    
    1,664
    
    
    
    1,345
    
    
    
    150
    
    
    
    1,195Others
    
    
    1,443
    
    
    
    836
    
    
    
    607
    
    
    
    783
    
    
    
    483
    
    
    
    30014,211
    
    
    
    4,858
    
    
    
    9,353
    
    
    
    10,028
    
    
    
    3,749
    
    
    
    6,279Construction in progress
    
    
    4,813
    
    
    
    
    
    
    
    4,813
    
    
    
    2,784
    
    
    
    
    
    
    
    2,784Total
    
    
    19,024
    
    
    
    4,858
    
    
    
    14,166
    
    
    
    12,812
    
    
    
    3,749
    
    
    
    9,063
  F - 18




---



##### Table of Contents



(c)
    
    Hydroelectric projects
   Date of
    
    
    
    
    
    
    
    
    
    Our share
    
    
    Our share of
    
    
    
    
    
    
    Our share ofcompletion /

    
    Our
    
    
    Plant in
    
    
    of plant in
    
    
    accumulated
    
    
    Plant under
    
    
    plant underexpected

    
    interest
    
    
    service
    
    
    service
    
    
    depreciation
    
    
    construction
    
    
    constructionProject
    
    completion
    
    %
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $Igarapava
    
    September, 1999
    
    
    38.1
    
    
    
    168
    
    
    
    64
    
    
    
    (15
    )
    
    
    
    
    
    
    Porto Estrela
    
    November, 2001
    
    
    33.3
    
    
    
    72
    
    
    
    24
    
    
    
    (3
    )
    
    
    
    
    
    
    Funil
    
    January, 2003
    
    
    51.0
    
    
    
    155
    
    
    
    79
    
    
    
    (7
    )
    
    
    
    
    
    
    Candonga
    
    September, 2004
    
    
    50.0
    
    
    
    122
    
    
    
    61
    
    
    
    (2
    )
    
    
    
    
    
    
    Aimorés
    
    August, 2005
    
    
    51.0
    
    
    
    304
    
    
    
    155
    
    
    
    (2
    )
    
    
    
    
    
    
    Capim Branco I
    
    February, 2006
    
    
    48.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194
    
    
    
    94Capim Branco II
    
    January, 2007
    
    
    48.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140
    
    
    
    68Estreito
    
    
    2009

    
    
    30.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    6Foz do Chapecó (a)
    
    
    
    
    
    40.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    2
  
 (a)
    
    On February 10, 2006 we sold our interest to Furnas Centrais Elétricas S.A. for
US$ 4. F - 19




---



##### Table of Contents



13
    
    Investments in affiliated companies and joint ventures
 2005
    
    
    Investments
    
    
    Equity Adjustments
    
    
    Dividends receivedQuoted marketYear ended December 31,
    
    
    Year ended December 31,
    
    
    valueNet incomeParticipation in
    
    
    Net
    
    
    (loss) for the
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Decembercapital (%)
    
    
    equity
    
    
    period
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    31,2005voting
    
    
    totalFerrousCaemi Mineração e Metalurgia (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Companhia Nipo-Brasileira de Pelotização  NIBRASCO (2)
    
    
    51,11
    
    
    
    51,00
    
    
    
    118
    
    
    
    77
    
    
    
    60
    
    
    
    30
    
    
    
    39
    
    
    
    13
    
    
    
    3
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    Companhia Hispano-Brasileira de Pelotização  HISPANOBRÁS (2)
    
    
    51,00
    
    
    
    50,89
    
    
    
    73
    
    
    
    55
    
    
    
    37
    
    
    
    26
    
    
    
    28
    
    
    
    9
    
    
    
    3
    
    
    
    20
    
    
    
    1
    
    
    
    2
    
    
    
    Companhia Coreano-Brasileira de Pelotização  KOBRASCO
    
    
    50,00
    
    
    
    50,00
    
    
    
    82
    
    
    
    53
    
    
    
    41
    
    
    
    13
    
    
    
    26
    
    
    
    11
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Companhia
Ítalo-Brasileira de Pelotização  ITABRASCO (2)
    
    
    51,00
    
    
    
    50,90
    
    
    
    65
    
    
    
    42
    
    
    
    33
    
    
    
    18
    
    
    
    21
    
    
    
    6
    
    
    
    3
    
    
    
    10
    
    
    
    
    
    
    
    1
    
    
    
    Gulf Industrial Investment Company  GIIC
    
    
    50,00
    
    
    
    50,00
    
    
    
    123
    
    
    
    134
    
    
    
    62
    
    
    
    45
    
    
    
    67
    
    
    
    16
    
    
    
    12
    
    
    
    51
    
    
    
    11
    
    
    
    9
    
    
    
    SAMARCO Mineração S.A.  SAMARCO (3)
    
    
    50,00
    
    
    
    50,00
    
    
    
    576
    
    
    
    514
    
    
    
    335
    
    
    
    2 6 1
    
    
    
    257
    
    
    
    117
    
    
    
    70
    
    
    
    225
    
    
    
    100
    
    
    
    78
    
    
    
    Minas da Serra Geral S.A.  MSG
    
    
    50,00
    
    
    
    50,00
    
    
    
    42
    
    
    
    (3
    )
    
    
    21
    
    
    
    18
    
    
    
    (2
    )
    
    
    (3
    )
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Others
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    24
    
    
    
    (1
    )
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    614
    
    
    
    435
    
    
    
    435
    
    
    
    170
    
    
    
    133
    
    
    
    322
    
    
    
    112
    
    
    
    91
    
    
    
    LogisticsFerrovia Centro-Atlântica S.A.  FCA  change in provision for losses (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (93
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MRS Logística S.A
    
    
    37,23
    
    
    
    29,35
    
    
    
    352
    
    
    
    167
    
    
    
    109
    
    
    
    78
    
    
    
    54
    
    
    
    33
    
    
    
    45
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    Sepetiba Tecon S.A.  change in provision for losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Others
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    79
    
    
    
    54
    
    
    
    33
    
    
    
    (52
    )
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    HoldingsSteelUsinas Siderúrgicas de Minas Gerais S.A.  USIMINAS
    
    
    22,99
    
    
    
    11,46
    
    
    
    2.441
    
    
    
    1.533
    
    
    
    281
    
    
    
    140
    
    
    
    176
    
    
    
    114
    
    
    
    34
    
    
    
    62
    
    
    
    13
    
    
    
    3
    
    
    
    566Companhia Siderúrgica de Tubarão  CST (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102
    
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    52
    
    
    
    California Steel Industries Inc.  CSI
    
    
    50,00
    
    
    
    50,00
    
    
    
    320
    
    
    
    43
    
    
    
    161
    
    
    
    149
    
    
    
    21
    
    
    
    55
    
    
    
    2
    
    
    
    28
    
    
    
    9
    
    
    
    5
    
    
    
    SIDERAR (cost $15)  available for sale investments
    
    
    4,85
    
    
    
    4,85
    
    
    
    
    
    
    
    
    
    
    
    142
    
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    142584
    
    
    
    399
    
    
    
    197
    
    
    
    271
    
    
    
    81
    
    
    
    90
    
    
    
    22
    
    
    
    60
    
    
    
    708Aluminum and bauxiteMineração Rio do Norte S.A.  MRN
    
    
    40.00
    
    
    
    40.00
    
    
    
    442
    
    
    
    160
    
    
    
    178
    
    
    
    171
    
    
    
    64
    
    
    
    57
    
    
    
    33
    
    
    
    58
    
    
    
    54
    
    
    
    27
    
    
    
    Valesul Alumínio S.A.  VALESUL
    
    
    54.51
    
    
    
    54.51
    
    
    
    107
    
    
    
    
    
    
    
    58
    
    
    
    55
    
    
    
    1
    
    
    
    14
    
    
    
    10
    
    
    
    8
    
    
    
    12
    
    
    
    9
    
    
    
    Alumínio Brasileiro S.A.  ALBRAS
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    236
    
    
    
    226
    
    
    
    65
    
    
    
    71
    
    
    
    147
    
    
    
    66
    
    
    
    66
    
    
    
    36
    
    
    
    CoalHenan Longyu Resources Co. Ltd
    
    
    25.00
    
    
    
    25.00
    
    
    
    384
    
    
    
    45
    
    
    
    96
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shandong Yankuang International Company Ltd(4)
    
    
    25.00
    
    
    
    25.00
    
    
    
    87
    
    
    
    
    
    
    
    22
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    118
    
    
    
    10
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other affiliates and joint venturesOthers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    10
    
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    11
    
    
    
    10
    
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    949
    
    
    
    6 4 5
    
    
    
    271
    
    
    
    339
    
    
    
    225
    
    
    
    156
    
    
    
    88
    
    
    
    106
    
    
    
    708Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,672
    
    
    
    1,159
    
    
    
    760
    
    
    
    542
    
    
    
    306
    
    
    
    489
    
    
    
    200
    
    
    
    197
    
    
    
    708
 
 (1)
    
    During 2004 CVRD sold its interest in CST (Note 7(d));(2)
    
    CVRD held a majority of the voting power of several entities that were accounted for under
the equity method, in accordance with EITF 96-16, due to veto rights held by minority
shareholders under shareholders agreements;(3)
    
    Investment includes goodwill of US$46 and US$40 in 2005 and 2004, respectively;(4)
    
    Preoperating investment;(5)
    
    Consolidatd as from September 2003 after acquisition of control.
 F - 20




---



##### Table of Contents



14
    
    Short-term debtOur short-term borrowings are from commercial banks and relate to
export financing denominated in United States dollars.Average annual interest rates on short-term borrowings were 4.25%,
2.33% and 3.19% at December 31, 2005, 2004 and 2003, respectively.15
    
    Long-term debt
 As of December 31Current liabilities
    
    
    Long-Term liabilities2005
    
    
    2004
    
    
    2005
    
    
    2004Foreign debtLoans and financing denominated in the
following currencies:United States dollars
    
    
    825
    
    
    
    376
    
    
    
    1,617
    
    
    
    1,179Others
    
    
    4
    
    
    
    4
    
    
    
    15
    
    
    
    25Fixed Rate Notes  US$ denominated
    
    
    
    
    
    
    
    
    
    
    1,213
    
    
    
    913Securitization of export receivables  US$
denominated
    
    
    82
    
    
    
    55
    
    
    
    345
    
    
    
    425Perpetual notes
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    65Accrued charges
    
    
    97
    
    
    
    61
    
    
    
    
    
    
    
    1,008
    
    
    
    496
    
    
    
    3,265
    
    
    
    2,607Local debtDenominated in Long-Term Interest Rate
- TJLP
    
    
    23
    
    
    
    22
    
    
    
    79
    
    
    
    89Denominated
in General Price
in Index-Market (IGPM)
    
    
    29
    
    
    
    21
    
    
    
    3
    
    
    
    14Basket of currencies
    
    
    2
    
    
    
    7
    
    
    
    9
    
    
    
    17Non-convertible debentures
    
    
    
    
    
    
    
    
    
    
    141
    
    
    
    117Denominated by U.S. dollars
    
    
    132
    
    
    
    166
    
    
    
    216
    
    
    
    368Accrued charges
    
    
    24
    
    
    
    18
    
    
    
    1
    
    
    
    2210
    
    
    
    234
    
    
    
    449
    
    
    
    607Total
    
    
    1,218
    
    
    
    730
    
    
    
    3,714
    
    
    
    3,214
 The long-term portion at December 31, 2005 falls due in the following years:
 2007
    
    
    5202008
    
    
    3112009
    
    
    3132010 thereafter
    
    
    2,353No due date (Perpetual notes and non-convertible debentures)
    
    
    2173,714
 At December 31, 2005 annual interest rates on long-term debt were as follows:
 3.1% to 5%
    
    
    1,8415.1% to 7%
    
    
    1,1747.1% to 9%
    
    
    1,7409.1% to 11%
    
    
    24Over 11%
    
    
    69Variable (Perpetual notes)
    
    
    844,932
 F - 21




---



##### Table of Contents



The indices applied to debt and respective percentage variations in each year were as
follows (unaudited):
 %2005
    
    
    2004
    
    
    2003TJLP  Long-Term Interest Rate (effective rate)
    
    
    9.8
    
    
    
    9.8
    
    
    
    11.5IGP-M  General Price Index  Market
    
    
    1.2
    
    
    
    12.4
    
    
    
    8.7Devaluation of United States Dollar against Real
    
    
    (11.8
    )
    
    
    (8.1
    )
    
    
    (18.2
    )
 On October 26, 2005, we issued US$ 300 notes due 2034, bearing interest of 7.65% per
year in the same form as the US$ 500, 8.25% guaranteed notes issued on January 15, 2004.On December 31, 2005 the US dollar denominated Fixed Rate Notes of US$1,256 (2004 -
US$913) and other debt of US$2,661 (2004  US$1,834) are unsecured. The export
securitization of US$427 (2004  US$480) is secured by existing and future accounts
receivable of our subsidiary CVRD Overseas Ltd. Loans from international lenders of US$135
(2004- US$170) are guaranteed by the Brazilian Federal Government, to which we have given
counter-guarantees in the same amounts secured by our own shares and accounts receivable
of a subsidiary. We also have loans from local and international institutions secured by
property, plant and equipment in the amount of US$123 (2004  US$251). The remaining
long-term debt of US$330 (2004  US$296) is secured mainly by assets of subsidiaries.16
    
    Stockholders equityEach 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 three preferred special share which confers
to it permanent veto rights over certain matters.A three for one stock split proposal was approved by the Extraordinary
General Shareholders  ́ Meeting on August 18, 2004. Therefore, CVRD  ́s
capital is composed of 1,165,677,168 shares, with 749,949,429 common
shares and 415,727,739 preferred class A shares. All numbers of
share and per share amounts included herein reflect retroactive
application of the stock split.As of December 31, 2005, we had acquired 14,156,968 shares to be held
in treasury for subsequent disposal or cancellation at an average
weighted unit cost of US$6.17 (minimum cost of US$2.67 and maximum of
US$7.84).Both common and preferred stockholders are entitled to receive a
dividend of at least 25% of annual adjusted net income based on the
statutory accounting records, 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 stated in
the statutory accounting records or, if greater, 3% of the statutory
book equity value per share. For each of the years 2005, 2004 and
2003 we distributed dividends to preferred stockholders in excess of
this limit. Interest attributed to stockholders equity 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, 2005 , we had no
undistributed retained earnings. In addition, appropriated retained
earnings at December 31, 2005 includes US$3,722, 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.
 F - 22




---



##### Table of Contents



No withholding tax is payable on distribution of profits earned except for distributions
in the form of interest attributed to stockholders (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 312005
    
    
    2004
    
    
    2003Appropriated retained earningsUnrealized income reserveBeginning of the period
    
    
    130
    
    
    
    193
    
    
    
    211Transfer (to) from retained earnings
    
    
    (29
    )
    
    
    (63
    )
    
    
    (18
    )End of the period
    
    
    101
    
    
    
    130
    
    
    
    193Expansion reserveBeginning of the period
    
    
    3,091
    
    
    
    2,090
    
    
    
    1,494Transfer to capital stock
    
    
    (2,036
    )
    
    
    (309
    )
    
    
    (423
    )Transfer from retained earnings
    
    
    2,566
    
    
    
    1,310
    
    
    
    1,019End of the period
    
    
    3,621
    
    
    
    3,091
    
    
    
    2,090Legal reserveBeginning of the period
    
    
    529
    
    
    
    374
    
    
    
    241Transfer to capital stock
    
    
    (209
    )
    
    
    
    
    
    
    Transfer from retained earnings
    
    
    279
    
    
    
    155
    
    
    
    133End of the period
    
    
    599
    
    
    
    529
    
    
    
    374Fiscal incentive depletion reserveBeginning of the period
    
    
    378
    
    
    
    347
    
    
    
    284Transfer to capital stock
    
    
    (398
    )
    
    
    
    
    
    
    Transfer from retained earnings
    
    
    20
    
    
    
    31
    
    
    
    63End of the period
    
    
    
    
    
    
    378
    
    
    
    347Fiscal incentive investment reserveBeginning of the period
    
    
    15
    
    
    
    31
    
    
    
    Transfer to capital stock
    
    
    (16
    )
    
    
    (31
    )
    
    
    Transfer from retained earnings
    
    
    37
    
    
    
    15
    
    
    
    31End of the period
    
    
    36
    
    
    
    15
    
    
    
    31Total appropriated retained earnings
    
    
    4,357
    
    
    
    4,143
    
    
    
    3,035
 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 basically contemplates income tax incentives (Note 8).
 F - 23




---



##### Table of Contents



Basic and diluted earnings per shareBasic and diluted earnings per share amounts have been calculated as follows:
 Basic anddiluted perWeighted
    
    
    shareIncome
    
    
    average
    
    
    amount(Numerator)
    
    
    (Thousands)
    
    
    (US$ per(US$ million)
    
    
    (Denominator)
    
    
    share)Net income for the year ended December 31, 2005
    
    
    4,841Income available to preferred stockholders
    
    
    1,748
    
    
    
    415,716
    
    
    
    4.20Income available to common stockholders
    
    
    3,093
    
    
    
    735,804
    
    
    
    4.20Net income for the year ended December 31, 2004
    
    
    2,573Income available to preferred stockholders
    
    
    929
    
    
    
    415,716
    
    
    
    2.23Income available to common stockholders
    
    
    1,644
    
    
    
    735,804
    
    
    
    2.23Net income for the year ended December 31, 2003
    
    
    1,548Income available to preferred stockholders
    
    
    559
    
    
    
    415,714
    
    
    
    1.34Income available to common stockholders
    
    
    989
    
    
    
    735,804
    
    
    
    1.34
 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.Additionally we provide employees with supplementary pension payments
through the Abono Complementação or supplemented pension plan (SPP).The following information details the status of the defined benefit
elements of the Old Plan and SPP in accordance with SFAS 132 -
Employers Disclosure about Pensions and Other Post-retirement
Benefits, as amended.
 F - 24




---



##### Table of Contents



(a)
    
    Change in benefit obligation
 As of December 312005
    
    
    2004Benefit obligation at beginning of year
    
    
    1,719
    
    
    
    1,485Service cost
    
    
    2
    
    
    
    2Interest cost
    
    
    240
    
    
    
    188Benefits paid
    
    
    (169
    )
    
    
    (133
    )Effect of exchange rate changes
    
    
    234
    
    
    
    137Actuarial loss
    
    
    7
    
    
    
    40Benefit obligation at end of year
    
    
    2,033
    
    
    
    1,719
 We use a measurement date of December 31 for our pension and post-retirement benefit
plans.(b)
    
    Change in plan assets
 As of December 312005
    
    
    2004Fair value of plan assets at beginning of year
    
    
    2,108
    
    
    
    1,657Actual return on plan assets
    
    
    562
    
    
    
    410Employer contributions
    
    
    64
    
    
    
    37Benefits paid
    
    
    (169
    )
    
    
    (133
    )Effect of exchange rate changes
    
    
    279
    
    
    
    137Fair value of plan assets at end of year
    
    
    2,844
    
    
    
    2,108
 Old plan assets at December 31, 2005 include US$409 of portfolio investments in our
own shares (US$274 at December 31, 2004) and US$42 of shares of related parties (US$37 at
December 31, 2004), as well as US$455 of Federal Government Securities (US$303 at December
31, 2004).(c)
    
    Accrued pension cost liability (prepaid pension cost)
 As of December 312005
    
    
    2004Funded status, excess of benefit obligation over plan assets
    
    
    (811
    )
    
    
    (389
    )Unrecognized net transitory obligation
    
    
    (46
    )
    
    
    (51
    )Unrecognized net actuarial loss
    
    
    726
    
    
    
    459Accrued pension cost liability (prepaid pension cost)
    
    
    (131
    )
    
    
    19
 (d)
    
    Assumptions used in each year (expressed in nominal terms)
 2005
    
    
    2004Discount rate
    
    
    13.40% p.a
    
    
    
    13.40% p.aExpected return on plan assets
    
    
    13.40% p.a
    
    
    
    13.40% p.aRate of compensation increase  up to 47 years
    
    
    8.15% p.a
    
    
    
    6.91% p.aInflation
    
    
    5.00% p.a
    
    
    
    5.00% p.a
 F - 25




---



##### Table of Contents



(e)
    
    Investment targets and composition of plan assetsThe fair value of Old Plan assets for these plans is US$2,781 and US$2,079 at the end of
2005 and 2004, respectively. The asset allocation for the Companys Old Plan at the end of
2005 and 2004, and the target allocation for 2006, by asset category, follows:
 Target
    
    
    Percentage of plan assets atallocation
    
    
    December 31,for 2006
    
    
    2005
    
    
    2004(unaudited)Equity securities
    
    
    27
    %
    
    
    30
    %
    
    
    29
    %Real estate
    
    
    6
    %
    
    
    5
    %
    
    
    6
    %Loans
    
    
    4
    %
    
    
    4
    %
    
    
    3
    %Fixed Income
    
    
    63
    %
    
    
    61
    %
    
    
    62
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 The fixed income allocation target of 63% was established in order to match the asset
with the benefit payments. The proposal for 2006 is to re-establish the investments in
inflation-indexed funds up to 35%. The remaining investments in fixed income will be used
for the payment of short-term plan benefits.The target of 27% for equity securities reflects the expected appreciation of the
Brazilian stock markets as well as the decrease in Brazilian interest rates.(f)
    
    Pension costs
 Year ended December 312005
    
    
    2004
    
    
    2003Service cost
    
    
    2
    
    
    
    2
    
    
    
    2Interest cost
    
    
    240
    
    
    
    188
    
    
    
    151Estimated return on plan assets
    
    
    (299
    )
    
    
    (213
    )
    
    
    (158
    )Amortization of initial transitory obligation
    
    
    11
    
    
    
    9
    
    
    
    9Amortization of actuarial gain/loss
    
    
    (16
    )
    
    
    (24
    )
    
    
    Net periodic pension cost
    
    
    (62
    )
    
    
    (38
    )
    
    
    4
 In addition to benefits provided under the SPP and Old Plan, accruals have been made
relative to supplementary health care benefits extended in previous periods as part of
early-retirement programs. Such accruals included in long-term liabilities totaled US$68
and US$59, at December 31, 2005 and 2004, respectively, in addition to US$5 and US$5,
respectively, in current liabilities.The cost recognized 2005, 2004 and 2003 relative to the defined contribution element of
the New Plan was US$10, US$7 and US$5, respectively.(g)
    
    Expected contributions and benefitsEmployer contributions expected for 2006 are US$ 59 (unaudited).The benefit payments, which reflect future service, as appropriate, are expected to be
paid as follows (unaudited):
 Old Plan
    
    
    SPP
    
    
    Total2006
    
    
    166
    
    
    
    30
    
    
    
    1962007
    
    
    166
    
    
    
    29
    
    
    
    1952008
    
    
    165
    
    
    
    28
    
    
    
    1932009
    
    
    164
    
    
    
    27
    
    
    
    1912010
    
    
    164
    
    
    
    26
    
    
    
    1902011 to 2015
    
    
    805
    
    
    
    118
    
    
    
    923
 F - 26




---



##### Table of Contents



18
    
    Commitments and contingencies(a)
    
    At December 31, 2005, we had extended guarantees for borrowings obtained by affiliates and
joint ventures in the amount of US$5, as follows:
 Amount of
    
    
    Denominated
    
    
    
    
    
    
    Final
    
    
    CounterAffiliate or Joint Venture
    
    guarantee
    
    
    currency
    
    
    Purpose
    
    maturity
    
    
    guaranteesSAMARCO
    
    
    4
    
    
    US$
    
    
    Debt guarantee
    
    
    2008
    
    
    NoneVALESUL
    
    
    1
    
    
    R$
    
    
    Debt guarantee
    
    
    2007
    
    
    None5
 We expect no losses to arise as a result of the above guarantees. We charge
commission for extending these guarantees in the case of 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 for
contingent losses is sufficient to cover probable losses in connection with such actions.The provision for contingencies and the related judicial deposits are composed as follows:
 December 31, 2005
    
    
    December 31, 2004Provision for
    
    
    Judicial
    
    
    Provision for
    
    
    Judicialcontingencies
    
    
    deposits
    
    
    contingencies
    
    
    depositsLabor claims
    
    
    229
    
    
    
    138
    
    
    
    221
    
    
    
    109Civil claims
    
    
    210
    
    
    
    98
    
    
    
    185
    
    
    
    72Tax  related actions
    
    
    816
    
    
    
    329
    
    
    
    502
    
    
    
    344Others
    
    
    31
    
    
    
    3
    
    
    
    6
    
    
    
    61,286
    
    
    
    568
    
    
    
    914
    
    
    
    531
 Labor  related actions principally comprise employee claims for (i) payment of time spent
traveling from their residences to the work-place, (ii) additional health and safety
related payments 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, value
added tax and income tax.We continue to vigorously pursue our interests in all the above actions but recognize that
we probably 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.Contingencies settled in 2005, 2004 and 2003 aggregated US$114, US$67 and US$182,
respectively, and additional provisions aggregated US$141, US$157 and US$146,
respectively, classified in other operating expenses.In addition to the contingencies for which we have made provisions we are defending
claims which in our opinion, and based on the advice of our legal counsel, the likelihood
of loss is possible, which total US$1,033 at December 31, 2005, for which no provision has
been made.
 F - 27




---



##### Table of Contents



(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 purchase approximately 33,733 thousand
metric tons of bauxite from Mineração Rio do Norte S.A.  MRN at a formula price, calculated
based on the current London Metal Exchange (LME) quotation for aluminum. Based on a market
price of US$ 23.01 per metric ton as of December 31, 2005, this arrangement represents the
following total commitment:
 2006
    
    
    1452007
    
    
    1452008
    
    
    1452009
    
    
    1452010
    
    
    1452011 and thereafter
    
    
    51776
 (e)
    
    We and Banco Nacional de Desenvolvimento Econômico e Social  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.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. 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, 2005, the remaining
contributions towards exploration and development activities totaled US$ 17 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
Securities Commission (CVM) in order to permit trading.
 F - 28




---



##### Table of Contents



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 of Brazilian Central Bank.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 began payments relating to copper
resources in 2004 and expect to start payments relating to iron ore resources from
approximately 2020 for the Northern System and 2030 for the Southern System, and payments
related to other mineral resources at the end of the current 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.
 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.1.8% of net revenue, after total sales from MayNorthern System
    
    Iron ore
    
    1997 exceeds 1.2 billion tons.Pojuca, Andorinhas,
Liberdade and Sossego
    
    Gold and copper
    
    2.5% of net revenue from the beginning of
commercialization.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.
 On March 22 and September 27, 2005 we declared a distribution on these debentures in the
amount of US$3 and US$2, paid as from April 1 and October 3, 2005, respectively.(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.
 F - 29




---



##### Table of Contents



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:
 Year ended December 312005
    
    
    2004
    
    
    2003Environmental liabilities beginning of year
    
    
    134
    
    
    
    81
    
    
    
    15Initial recognition of SFAS 143 as at January 1, 2003
    
    
    
    
    
    
    
    
    
    
    26Increase due to new subsidiaries acquired
    
    
    
    
    
    
    
    
    
    
    11Accretion expense
    
    
    14
    
    
    
    13
    
    
    
    6Liabilities settled in the current year
    
    
    (9
    )
    
    
    (3
    )
    
    
    Revisions in estimated cash flows
    
    
    67
    
    
    
    31
    
    
    
    15Cumulative translation adjustment
    
    
    19
    
    
    
    12
    
    
    
    8Environmental liabilities end of year
    
    
    225
    
    
    
    134
    
    
    
    81
 (h)
    
    Description of Leasing ArrangementsWe conduct part of our railroad operation from leased facilities. The lease, which is for
30 years expiring in August, 2026, is classified as an operating lease and can be
renewable for a further 30 years. At the end of the lease term, we are required to return
the concession and the lease assets. In most cases, management expects that in the normal
course of business, leases will be renewed.Operating LeasesThe following is a schedule by years of future minimum rental payments required under
operating leases that have initial or remaining non-cancelable lease terms in excess of
one year as of December 31, 2005:Year ending December 31:
 2006
    
    
    422007
    
    
    422008
    
    
    422009
    
    
    42Later years
    
    
    775Total minimum payments required
    
    
    943
 The total expenses of operating leases in 2005, 2004 and 2003 was US$42, US$37 and
US$39, respectively.
 F - 30




---



##### Table of Contents



19
    
    Segment and geographical informationWe 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. We analyze our segment information on
aggregated and disaggregated basis 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, including
potash, kaolin and copper.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:
 
    
    Aluminum  comprises aluminum trading activities, alumina refining and investments
in joint ventures and affiliates engaged in bauxite mining and aluminum metal
smelting.
    
    Others  comprises our investments in joint ventures and affiliates engaged in
other businesses.
 Information presented to senior management with respect to the performance of each segment
is generally derived directly from the accounting records maintained in accordance with
accounting practices adopted in Brazil together with certain minor inter-segment
allocations.Consolidated net income and principal assets in accordance with US GAAP are
reconciled as follows:
 F - 31




---



##### Table of Contents



Results by segment  before eliminations
 As of and for the year ended December 31,2005
    
    
    2004
    
    
    2003Holdings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Holdings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    HoldingsNon
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NonFerrous
    
    
    ferrous
    
    
    Logistics
    
    
    Aluminum
    
    
    Others
    
    
    Eliminations
    
    
    Consolidated
    
    
    Ferrous
    
    
    ferrous
    
    
    Logistics
    
    
    Aluminum
    
    
    Others
    
    
    Eliminations
    
    
    Consolidated
    
    
    Ferrous
    
    
    ferrous
    
    
    Logistics
    
    
    Aluminum
    
    
    Others
    
    
    Eliminations
    
    
    ConsolidatedRESULTSGross revenues  Export
    
    
    12,655
    
    
    
    787
    
    
    
    75
    
    
    
    1,784
    
    
    
    
    
    
    
    (5,461
    )
    
    
    9,840
    
    
    
    7,589
    
    
    
    521
    
    
    
    92
    
    
    
    1,635
    
    
    
    
    
    
    
    (3,725
    )
    
    
    6,112
    
    
    
    5,256
    
    
    
    105
    
    
    
    75
    
    
    
    758
    
    
    
    
    
    
    
    (2,354
    )
    
    
    3,840Gross revenues  Domestic
    
    
    2,197
    
    
    
    213
    
    
    
    1,215
    
    
    
    345
    
    
    
    
    
    
    
    (405
    )
    
    
    3,565
    
    
    
    1,424
    
    
    
    163
    
    
    
    871
    
    
    
    227
    
    
    
    
    
    
    
    (318
    )
    
    
    2,367
    
    
    
    1,142
    
    
    
    107
    
    
    
    472
    
    
    
    165
    
    
    
    
    
    
    
    (181
    )
    
    
    1,705Cost and expenses
    
    
    (9,646
    )
    
    
    (762
    )
    
    
    (886
    )
    
    
    (1,639
    )
    
    
    (10
    )
    
    
    5,866
    
    
    
    (7,077
    )
    
    
    (6,459
    )
    
    
    (443
    )
    
    
    (622
    )
    
    
    (1,322
    )
    
    
    (1
    )
    
    
    4,043
    
    
    
    (4,804
    )
    
    
    (4,862
    )
    
    
    (130
    )
    
    
    (367
    )
    
    
    (760
    )
    
    
    3
    
    
    
    2,535
    
    
    
    (3,581
    )Research and development
    
    
    (87
    )
    
    
    (73
    )
    
    
    (4
    )
    
    
    (5
    )
    
    
    (108
    )
    
    
    
    
    
    
    (277
    )
    
    
    (40
    )
    
    
    (113
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (153
    )
    
    
    (20
    )
    
    
    (62
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82
    )Depreciation, depletion and amortization
    
    
    (458
    )
    
    
    (65
    )
    
    
    (45
    )
    
    
    (51
    )
    
    
    
    
    
    
    
    
    
    
    (619
    )
    
    
    (301
    )
    
    
    (35
    )
    
    
    (29
    )
    
    
    (34
    )
    
    
    
    
    
    
    
    
    
    
    (399
    )
    
    
    (191
    )
    
    
    (18
    )
    
    
    (14
    )
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    (238
    )Operating income
    
    
    4,661
    
    
    
    100
    
    
    
    355
    
    
    
    434
    
    
    
    (118
    )
    
    
    
    
    
    
    5,432
    
    
    
    2,213
    
    
    
    93
    
    
    
    312
    
    
    
    506
    
    
    
    (1
    )
    
    
    
    
    
    
    3,123
    
    
    
    1,325
    
    
    
    2
    
    
    
    166
    
    
    
    148
    
    
    
    3
    
    
    
    
    
    
    
    1,644Financial income
    
    
    439
    
    
    
    1
    
    
    
    34
    
    
    
    9
    
    
    
    2
    
    
    
    (362
    )
    
    
    123
    
    
    
    251
    
    
    
    2
    
    
    
    15
    
    
    
    16
    
    
    
    3
    
    
    
    (205
    )
    
    
    82
    
    
    
    195
    
    
    
    1
    
    
    
    14
    
    
    
    10
    
    
    
    4
    
    
    
    (122
    )
    
    
    102Financial expenses
    
    
    (751
    )
    
    
    (6
    )
    
    
    (19
    )
    
    
    (154
    )
    
    
    8
    
    
    
    362
    
    
    
    (560
    )
    
    
    (637
    )
    
    
    (6
    )
    
    
    (15
    )
    
    
    (218
    )
    
    
    
    
    
    
    205
    
    
    
    (671
    )
    
    
    (406
    )
    
    
    (4
    )
    
    
    (9
    )
    
    
    (49
    )
    
    
    (5
    )
    
    
    122
    
    
    
    (351
    )Foreign exchange and monetary gains (losses), net
    
    
    259
    
    
    
    (44
    )
    
    
    (13
    )
    
    
    98
    
    
    
    (1
    )
    
    
    
    
    
    
    299
    
    
    
    20
    
    
    
    5
    
    
    
    (1
    )
    
    
    39
    
    
    
    2
    
    
    
    
    
    
    
    65
    
    
    
    150
    
    
    
    16
    
    
    
    (14
    )
    
    
    93
    
    
    
    (3
    )
    
    
    
    
    
    
    242Gain on sale of investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    126
    
    
    
    
    
    
    
    126
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    396
    
    
    
    
    
    
    
    404
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17Equity in results of affiliates and joint ventures and
change in provision for losses on equity investments
    
    
    435
    
    
    
    
    
    
    
    54
    
    
    
    65
    
    
    
    206
    
    
    
    
    
    
    
    760
    
    
    
    170
    
    
    
    
    
    
    
    33
    
    
    
    71
    
    
    
    268
    
    
    
    
    
    
    
    542
    
    
    
    133
    
    
    
    
    
    
    
    (52
    )
    
    
    147
    
    
    
    78
    
    
    
    
    
    
    
    306Income taxes
    
    
    (808
    )
    
    
    (1
    )
    
    
    (17
    )
    
    
    (55
    )
    
    
    1
    
    
    
    
    
    
    
    (880
    )
    
    
    (726
    )
    
    
    (7
    )
    
    
    (9
    )
    
    
    (4
    )
    
    
    (3
    )
    
    
    
    
    
    
    (749
    )
    
    
    (266
    )
    
    
    (3
    )
    
    
    (2
    )
    
    
    (27
    )
    
    
    1
    
    
    
    
    
    
    
    (297
    )Minority interests
    
    
    (337
    )
    
    
    
    
    
    
    (1
    )
    
    
    (121
    )
    
    
    
    
    
    
    
    
    
    
    (459
    )
    
    
    (101
    )
    
    
    (2
    )
    
    
    
    
    
    
    (120
    )
    
    
    
    
    
    
    
    
    
    
    (223
    )
    
    
    (44
    )
    
    
    (3
    )
    
    
    
    
    
    
    (58
    )
    
    
    
    
    
    
    
    
    
    
    (105
    )Income from continuing operations
    
    
    3,898
    
    
    
    50
    
    
    
    393
    
    
    
    276
    
    
    
    224
    
    
    
    
    
    
    
    4,841
    
    
    
    1,190
    
    
    
    85
    
    
    
    343
    
    
    
    290
    
    
    
    665
    
    
    
    
    
    
    
    2,573
    
    
    
    1,104
    
    
    
    9
    
    
    
    103
    
    
    
    264
    
    
    
    78
    
    
    
    
    
    
    
    1,558Change in accounting pratice for asset retirement
obligations (note 4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Net income
    
    
    3,898
    
    
    
    50
    
    
    
    393
    
    
    
    276
    
    
    
    224
    
    
    
    
    
    
    
    4,841
    
    
    
    1,190
    
    
    
    85
    
    
    
    343
    
    
    
    290
    
    
    
    665
    
    
    
    
    
    
    
    2,573
    
    
    
    1,094
    
    
    
    9
    
    
    
    103
    
    
    
    264
    
    
    
    78
    
    
    
    
    
    
    
    1,548Sales classified by geographic destination:Export marketAmerica, except United States
    
    
    1,313
    
    
    
    
    
    
    
    45
    
    
    
    320
    
    
    
    
    
    
    
    (762
    )
    
    
    916
    
    
    
    735
    
    
    
    1
    
    
    
    65
    
    
    
    221
    
    
    
    
    
    
    
    (426
    )
    
    
    596
    
    
    
    526
    
    
    
    
    
    
    
    38
    
    
    
    156
    
    
    
    
    
    
    
    (329
    )
    
    
    391United States
    
    
    464
    
    
    
    7
    
    
    
    3
    
    
    
    211
    
    
    
    
    
    
    
    (268
    )
    
    
    417
    
    
    
    533
    
    
    
    
    
    
    
    15
    
    
    
    186
    
    
    
    
    
    
    
    (345
    )
    
    
    389
    
    
    
    337
    
    
    
    8
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    (188
    )
    
    
    189Europe
    
    
    4,847
    
    
    
    449
    
    
    
    23
    
    
    
    750
    
    
    
    
    
    
    
    (2,256
    )
    
    
    3,813
    
    
    
    3,223
    
    
    
    194
    
    
    
    12
    
    
    
    730
    
    
    
    
    
    
    
    (1,607
    )
    
    
    2,552
    
    
    
    2,213
    
    
    
    76
    
    
    
    30
    
    
    
    378
    
    
    
    
    
    
    
    (913
    )
    
    
    1,784Middle East/Africa/Oceania
    
    
    775
    
    
    
    108
    
    
    
    
    
    
    
    42
    
    
    
    
    
    
    
    (148
    )
    
    
    777
    
    
    
    412
    
    
    
    107
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    (141
    )
    
    
    386
    
    
    
    292
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    (70
    )
    
    
    226Japan
    
    
    1,261
    
    
    
    44
    
    
    
    
    
    
    
    395
    
    
    
    
    
    
    
    (469
    )
    
    
    1,231
    
    
    
    683
    
    
    
    31
    
    
    
    
    
    
    
    361
    
    
    
    
    
    
    
    (287
    )
    
    
    788
    
    
    
    569
    
    
    
    13
    
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    (259
    )
    
    
    419China
    
    
    3,018
    
    
    
    79
    
    
    
    4
    
    
    
    50
    
    
    
    
    
    
    
    (1,135
    )
    
    
    2,016
    
    
    
    1,392
    
    
    
    81
    
    
    
    
    
    
    
    129
    
    
    
    
    
    
    
    (606
    )
    
    
    996
    
    
    
    897
    
    
    
    7
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    (401
    )
    
    
    580Asia, other than Japan and China
    
    
    977
    
    
    
    100
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    (423
    )
    
    
    670
    
    
    
    611
    
    
    
    107
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (313
    )
    
    
    405
    
    
    
    422
    
    
    
    1
    
    
    
    3
    
    
    
    19
    
    
    
    
    
    
    
    (194
    )
    
    
    25112,655
    
    
    
    787
    
    
    
    75
    
    
    
    1,784
    
    
    
    
    
    
    
    (5,461
    )
    
    
    9,840
    
    
    
    7,589
    
    
    
    521
    
    
    
    92
    
    
    
    1,635
    
    
    
    
    
    
    
    (3,725
    )
    
    
    6,112
    
    
    
    5,256
    
    
    
    105
    
    
    
    75
    
    
    
    758
    
    
    
    
    
    
    
    (2,354
    )
    
    
    3,840Domestic market
    
    
    2,197
    
    
    
    213
    
    
    
    1,215
    
    
    
    345
    
    
    
    
    
    
    
    (405
    )
    
    
    3,565
    
    
    
    1,424
    
    
    
    163
    
    
    
    871
    
    
    
    227
    
    
    
    
    
    
    
    (318
    )
    
    
    2,367
    
    
    
    1,142
    
    
    
    107
    
    
    
    472
    
    
    
    165
    
    
    
    
    
    
    
    (181
    )
    
    
    1,70514,852
    
    
    
    1,000
    
    
    
    1,290
    
    
    
    2,129
    
    
    
    
    
    
    
    (5,866
    )
    
    
    13,405
    
    
    
    9,013
    
    
    
    684
    
    
    
    963
    
    
    
    1,862
    
    
    
    
    
    
    
    (4,043
    )
    
    
    8,479
    
    
    
    6,398
    
    
    
    212
    
    
    
    547
    
    
    
    923
    
    
    
    
    
    
    
    (2,535
    )
    
    
    5,545Assets:Property, plant and equipment, net
    
    
    8,738
    
    
    
    2,271
    
    
    
    999
    
    
    
    1,930
    
    
    
    228
    
    
    
    
    
    
    
    14,166
    
    
    
    5,838
    
    
    
    1,448
    
    
    
    674
    
    
    
    1,102
    
    
    
    1
    
    
    
    
    
    
    
    9,063
    
    
    
    4,495
    
    
    
    1,000
    
    
    
    424
    
    
    
    564
    
    
    
    1
    
    
    
    
    
    
    
    6,484Additions to Property, plant and equipment
    
    
    2,877
    
    
    
    175
    
    
    
    271
    
    
    
    625
    
    
    
    29
    
    
    
    
    
    
    
    3,977
    
    
    
    860
    
    
    
    381
    
    
    
    579
    
    
    
    202
    
    
    
    
    
    
    
    
    
    
    
    2,022
    
    
    
    822
    
    
    
    440
    
    
    
    186
    
    
    
    95
    
    
    
    
    
    
    
    
    
    
    
    1,543Investments in affiliated companies and joint ventures and
other investments, net of provision for losses
    
    
    614
    
    
    
    
    
    
    
    109
    
    
    
    236
    
    
    
    713
    
    
    
    
    
    
    
    1,672
    
    
    
    435
    
    
    
    
    
    
    
    79
    
    
    
    226
    
    
    
    419
    
    
    
    
    
    
    
    1,159
    
    
    
    344
    
    
    
    
    
    
    
    44
    
    
    
    329
    
    
    
    317
    
    
    
    
    
    
    
    1,034Capital employed
    
    
    7,582
    
    
    
    1,118
    
    
    
    990
    
    
    
    1,039
    
    
    
    85
    
    
    
    
    
    
    
    10,814
    
    
    
    4,544
    
    
    
    1,099
    
    
    
    680
    
    
    
    976
    
    
    
    27
    
    
    
    
    
    
    
    7,326
    
    
    
    4,137
    
    
    
    266
    
    
    
    429
    
    
    
    498
    
    
    
    20
    
    
    
    
    
    
    
    5,350
 F-32




---



##### Table of Contents



Operating segment  after eliminations
 Year ended December 31,2005
    
    
    2004
    
    
    2003Depreciation,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment/
    
    
    Depreciation,Revenues
    
    
    Value
    
    
    Net
    
    
    Cost and
    
    
    
    
    
    
    depletion and
    
    
    Operating
    
    
    Revenues
    
    
    Value
    
    
    Net
    
    
    Cost and
    
    
    Value
    
    
    depletion and
    
    
    Operating
    
    
    Revenues
    
    
    added
    
    
    Net
    
    
    Cost and
    
    
    
    
    
    
    Gain on sale
    
    
    depletion and
    
    
    OperatingExport
    
    
    Domestic
    
    
    Total
    
    
    added tax
    
    
    revenues
    
    
    expenses
    
    
    Net
    
    
    amortization
    
    
    income
    
    
    Export
    
    
    Domestic
    
    
    Total
    
    

added tax
    
    
    revenues
    
    
    expenses
    
    
    Net
    
    
    amortization
    
    
    income
    
    
    Export
    
    
    Domestic
    
    
    Total
    
    
    tax
    
    
    revenues
    
    
    expenses
    
    
    Net
    
    
    of property,
    
    
    amortization
    
    
    incomeFerrousIron ore
    
    
    5,890
    
    
    
    1,506
    
    
    
    7,396
    
    
    
    (234
    )
    
    
    7,162
    
    
    
    (2,658
    )
    
    
    4,504
    
    
    
    (419
    )
    
    
    4,085
    
    
    
    3,146
    
    
    
    849
    
    
    
    3,995
    
    
    
    (128
    )
    
    
    3,867
    
    
    
    (1,761
    )
    
    
    2,106
    
    
    
    (270
    )
    
    
    1,836
    
    
    
    2,108
    
    
    
    554
    
    
    
    2,662
    
    
    
    (65
    )
    
    
    2,597
    
    
    
    (1,318
    )
    
    
    1,279
    
    
    
    (10
    )
    
    
    (166
    )
    
    
    1,103Pellets
    
    
    1,722
    
    
    
    361
    
    
    
    2,083
    
    
    
    (78
    )
    
    
    2,005
    
    
    
    (1,321
    )
    
    
    684
    
    
    
    (23
    )
    
    
    661
    
    
    
    893
    
    
    
    255
    
    
    
    1,148
    
    
    
    (44
    )
    
    
    1,104
    
    
    
    (824
    )
    
    
    280
    
    
    
    (12
    )
    
    
    268
    
    
    
    627
    
    
    
    211
    
    
    
    838
    
    
    
    (19
    )
    
    
    819
    
    
    
    (627
    )
    
    
    192
    
    
    
    (12
    )
    
    
    (11
    )
    
    
    169Manganese
    
    
    56
    
    
    
    21
    
    
    
    77
    
    
    
    (6
    )
    
    
    71
    
    
    
    (81
    )
    
    
    (10
    )
    
    
    (1
    )
    
    
    (11
    )
    
    
    61
    
    
    
    15
    
    
    
    76
    
    
    
    (4
    )
    
    
    72
    
    
    
    (46
    )
    
    
    26
    
    
    
    
    
    
    
    26
    
    
    
    38
    
    
    
    11
    
    
    
    49
    
    
    
    (5
    )
    
    
    44
    
    
    
    (35
    )
    
    
    9
    
    
    
    
    
    
    
    (2
    )
    
    
    7Ferroalloys
    
    
    318
    
    
    
    176
    
    
    
    494
    
    
    
    (47
    )
    
    
    447
    
    
    
    (344
    )
    
    
    103
    
    
    
    (20
    )
    
    
    83
    
    
    
    423
    
    
    
    202
    
    
    
    625
    
    
    
    (52
    )
    
    
    573
    
    
    
    (315
    )
    
    
    258
    
    
    
    (15
    )
    
    
    243
    
    
    
    201
    
    
    
    99
    
    
    
    300
    
    
    
    (21
    )
    
    
    279
    
    
    
    (218
    )
    
    
    61
    
    
    
    (17
    )
    
    
    (10
    )
    
    
    347,986
    
    
    
    2,064
    
    
    
    10,050
    
    
    
    (365
    )
    
    
    9,685
    
    
    
    (4,404
    )
    
    
    5,281
    
    
    
    (463
    )
    
    
    4,818
    
    
    
    4,523
    
    
    
    1,321
    
    
    
    5,844
    
    
    
    (228
    )
    
    
    5,616
    
    
    
    (2,946
    )
    
    
    2,670
    
    
    
    (297
    )
    
    
    2,373
    
    
    
    2,974
    
    
    
    875
    
    
    
    3,849
    
    
    
    (110
    )
    
    
    3,739
    
    
    
    (2,198
    )
    
    
    1,541
    
    
    
    (39
    )
    
    
    (189
    )
    
    
    1,313Non ferrousGold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )
    
    
    21
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    21
    
    
    
    (2
    )
    
    
    19
    
    
    
    
    
    
    
    (2
    )
    
    
    17Potash
    
    
    
    
    
    
    149
    
    
    
    149
    
    
    
    (11
    )
    
    
    138
    
    
    
    (86
    )
    
    
    52
    
    
    
    (8
    )
    
    
    44
    
    
    
    
    
    
    
    124
    
    
    
    124
    
    
    
    (15
    )
    
    
    109
    
    
    
    (51
    )
    
    
    58
    
    
    
    (5
    )
    
    
    53
    
    
    
    
    
    
    
    94
    
    
    
    94
    
    
    
    (12
    )
    
    
    82
    
    
    
    (40
    )
    
    
    42
    
    
    
    
    
    
    
    (7
    )
    
    
    35Kaolin
    
    
    150
    
    
    
    27
    
    
    
    177
    
    
    
    (7
    )
    
    
    170
    
    
    
    (176
    )
    
    
    (6
    )
    
    
    (20
    )
    
    
    (26
    )
    
    
    142
    
    
    
    22
    
    
    
    164
    
    
    
    (6
    )
    
    
    158
    
    
    
    (93
    )
    
    
    65
    
    
    
    (14
    )
    
    
    51
    
    
    
    83
    
    
    
    13
    
    
    
    96
    
    
    
    (3
    )
    
    
    93
    
    
    
    (70
    )
    
    
    23
    
    
    
    (12
    )
    
    
    (7
    )
    
    
    4Copper
    
    
    354
    
    
    
    37
    
    
    
    391
    
    
    
    (8
    )
    
    
    383
    
    
    
    (203
    )
    
    
    180
    
    
    
    (34
    )
    
    
    146
    
    
    
    184
    
    
    
    17
    
    
    
    201
    
    
    
    (3
    )
    
    
    198
    
    
    
    (90
    )
    
    
    108
    
    
    
    (16
    )
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    504
    
    
    
    213
    
    
    
    717
    
    
    
    (26
    )
    
    
    691
    
    
    
    (465
    )
    
    
    226
    
    
    
    (62
    )
    
    
    164
    
    
    
    326
    
    
    
    163
    
    
    
    489
    
    
    
    (24
    )
    
    
    465
    
    
    
    (236
    )
    
    
    229
    
    
    
    (35
    )
    
    
    194
    
    
    
    104
    
    
    
    107
    
    
    
    211
    
    
    
    (15
    )
    
    
    196
    
    
    
    (112
    )
    
    
    84
    
    
    
    (12
    )
    
    
    (16
    )
    
    
    56AluminumAlumina
    
    
    455
    
    
    
    76
    
    
    
    531
    
    
    
    (24
    )
    
    
    507
    
    
    
    (445
    )
    
    
    62
    
    
    
    (25
    )
    
    
    37
    
    
    
    439
    
    
    
    19
    
    
    
    458
    
    
    
    (18
    )
    
    
    440
    
    
    
    (350
    )
    
    
    90
    
    
    
    (19
    )
    
    
    71
    
    
    
    342
    
    
    
    153
    
    
    
    495
    
    
    
    (8
    )
    
    
    487
    
    
    
    (363
    )
    
    
    124
    
    
    
    
    
    
    
    (15
    )
    
    
    109Aluminum
    
    
    784
    
    
    
    39
    
    
    
    823
    
    
    
    (5
    )
    
    
    818
    
    
    
    (397
    )
    
    
    421
    
    
    
    (26
    )
    
    
    395
    
    
    
    710
    
    
    
    29
    
    
    
    739
    
    
    
    (3
    )
    
    
    736
    
    
    
    (286
    )
    
    
    450
    
    
    
    (15
    )
    
    
    435
    
    
    
    312
    
    
    
    8
    
    
    
    320
    
    
    
    
    
    
    
    320
    
    
    
    (295
    )
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    25Bauxite
    
    
    54
    
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    54
    
    
    
    (49
    )
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    53
    
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    53
    
    
    
    (48
    )
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    34
    
    
    
    3
    
    
    
    37
    
    
    
    (1
    )
    
    
    36
    
    
    
    (33
    )
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    31,293
    
    
    
    115
    
    
    
    1,408
    
    
    
    (29
    )
    
    
    1,379
    
    
    
    (891
    )
    
    
    488
    
    
    
    (51
    )
    
    
    437
    
    
    
    1,202
    
    
    
    48
    
    
    
    1,250
    
    
    
    (21
    )
    
    
    1,229
    
    
    
    (684
    )
    
    
    545
    
    
    
    (34
    )
    
    
    511
    
    
    
    688
    
    
    
    164
    
    
    
    852
    
    
    
    (9
    )
    
    
    843
    
    
    
    (691
    )
    
    
    152
    
    
    
    
    
    
    
    (15
    )
    
    
    137LogisticsRailroads
    
    
    
    
    
    
    881
    
    
    
    881
    
    
    
    (145
    )
    
    
    736
    
    
    
    (528
    )
    
    
    208
    
    
    
    (35
    )
    
    
    173
    
    
    
    
    
    
    
    612
    
    
    
    612
    
    
    
    (100
    )
    
    
    512
    
    
    
    (334
    )
    
    
    178
    
    
    
    (28
    )
    
    
    150
    
    
    
    
    
    
    
    373
    
    
    
    373
    
    
    
    (39
    )
    
    
    334
    
    
    
    (153
    )
    
    
    181
    
    
    
    
    
    
    
    (9
    )
    
    
    172Ports
    
    
    
    
    
    
    230
    
    
    
    230
    
    
    
    (34
    )
    
    
    196
    
    
    
    (126
    )
    
    
    70
    
    
    
    (5
    )
    
    
    65
    
    
    
    
    
    
    
    173
    
    
    
    173
    
    
    
    (29
    )
    
    
    144
    
    
    
    (89
    )
    
    
    55
    
    
    
    (4
    )
    
    
    51
    
    
    
    1
    
    
    
    143
    
    
    
    144
    
    
    
    (14
    )
    
    
    130
    
    
    
    (75
    )
    
    
    55
    
    
    
    
    
    
    
    (9
    )
    
    
    46Ships
    
    
    56
    
    
    
    49
    
    
    
    105
    
    
    
    (8
    )
    
    
    97
    
    
    
    (101
    )
    
    
    (4
    )
    
    
    (3
    )
    
    
    (7
    )
    
    
    52
    
    
    
    40
    
    
    
    92
    
    
    
    (7
    )
    
    
    85
    
    
    
    (123
    )
    
    
    (38
    )
    
    
    (1
    )
    
    
    (39
    )
    
    
    54
    
    
    
    33
    
    
    
    87
    
    
    
    (3
    )
    
    
    84
    
    
    
    (122
    )
    
    
    (38
    )
    
    
    
    
    
    
    
    
    
    
    (38
    )56
    
    
    
    1,160
    
    
    
    1,216
    
    
    
    (187
    )
    
    
    1,029
    
    
    
    (755
    )
    
    
    274
    
    
    
    (43
    )
    
    
    231
    
    
    
    52
    
    
    
    825
    
    
    
    877
    
    
    
    (136
    )
    
    
    741
    
    
    
    (546
    )
    
    
    195
    
    
    
    (33
    )
    
    
    162
    
    
    
    55
    
    
    
    549
    
    
    
    604
    
    
    
    (56
    )
    
    
    548
    
    
    
    (350
    )
    
    
    198
    
    
    
    
    
    
    
    (18
    )
    
    
    180Others
    
    
    1
    
    
    
    13
    
    
    
    14
    
    
    
    (6
    )
    
    
    8
    
    
    
    (226
    )
    
    
    (218
    )
    
    
    
    
    
    
    (218
    )
    
    
    10
    
    
    
    9
    
    
    
    19
    
    
    
    (4
    )
    
    
    15
    
    
    
    (132
    )
    
    
    (117
    )
    
    
    
    
    
    
    (117
    )
    
    
    19
    
    
    
    10
    
    
    
    29
    
    
    
    (5
    )
    
    
    24
    
    
    
    (66
    )
    
    
    (42
    )
    
    
    
    
    
    
    
    
    
    
    (42
    )9,840
    
    
    
    3,565
    
    
    
    13,405
    
    
    
    (613
    )
    
    
    12,792
    
    
    
    (6,741
    )
    
    
    6,051
    
    
    
    (619
    )
    
    
    5,432
    
    
    
    6,113
    
    
    
    2,366
    
    
    
    8,479
    
    
    
    (413
    )
    
    
    8,066
    
    
    
    (4,544
    )
    
    
    3,522
    
    
    
    (399
    )
    
    
    3,123
    
    
    
    3,840
    
    
    
    1,705
    
    
    
    5,545
    
    
    
    (195
    )
    
    
    5,350
    
    
    
    (3,417
    )
    
    
    1,933
    
    
    
    (51
    )
    
    
    (238
    )
    
    
    1,644
 F - 33




---



##### Table of Contents



20
    
    Related party transactionsTransactions with major related parties resulted in the following balances:
 As of December 312005
    
    
    2004Assets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesAFFILIATED COMPANIES AND JOINT VENTURESHISPANOBRAS
    
    
    24
    
    
    
    42
    
    
    
    25
    
    
    
    39ITABRASCO
    
    
    24
    
    
    
    17
    
    
    
    24
    
    
    
    28NIBRASCO
    
    
    47
    
    
    
    83
    
    
    
    32
    
    
    
    29KOBRASCO
    
    
    34
    
    
    
    26
    
    
    
    43
    
    
    
    18BAOVALE
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    13USIMINAS
    
    
    14
    
    
    
    
    
    
    
    7
    
    
    
    MSG
    
    
    3
    
    
    
    9
    
    
    
    
    
    
    
    MRS
    
    
    15
    
    
    
    11
    
    
    
    13
    
    
    
    19FERROBAN
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    8MRN
    
    
    
    
    
    
    34
    
    
    
    1
    
    
    
    20SAMARCO
    
    
    2
    
    
    
    
    
    
    
    22
    
    
    
    Others
    
    
    22
    
    
    
    13
    
    
    
    29
    
    
    
    18185
    
    
    
    253
    
    
    
    235
    
    
    
    192Current
    
    
    181
    
    
    
    252
    
    
    
    180
    
    
    
    174Long-term
    
    
    4
    
    
    
    1
    
    
    
    55
    
    
    
    18
 These balances are included in the following balance sheet classifications:
 As of December 312005
    
    
    2004Assets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesCurrent assetsAccounts receivable
    
    
    159
    
    
    
    
    
    
    
    124
    
    
    
    Loans and advances to related parties
    
    
    22
    
    
    
    
    
    
    
    56
    
    
    
    Other assetsLoans and advances to related parties
    
    
    4
    
    
    
    
    
    
    
    55
    
    
    
    Current liabilitiesSuppliers
    
    
    
    
    
    
    190
    
    
    
    
    
    
    
    122Loans from related parties
    
    
    
    
    
    
    62
    
    
    
    
    
    
    
    52Long-term liabilitiesLong-term debt
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    18185
    
    
    
    253
    
    
    
    235
    
    
    
    192
 F - 34




---



##### Table of Contents



The principal amounts of business and financial operations carried out with
major related parties are as follows:
 Year ended December 312005
    
    
    2004
    
    
    2003Income
    
    
    Expense
    
    
    Income
    
    
    Expense
    
    
    Income
    
    
    ExpenseAFFILIATED COMPANIES AND JOINT VENTURESCST
    
    
    
    
    
    
    
    
    
    
    251
    
    
    
    
    
    
    
    136
    
    
    
    NIBRASCO
    
    
    280
    
    
    
    310
    
    
    
    147
    
    
    
    80
    
    
    
    116
    
    
    
    133SAMARCO
    
    
    25
    
    
    
    1
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    SIDERAR
    
    
    11
    
    
    
    
    
    
    
    86
    
    
    
    
    
    
    
    53
    
    
    
    ITABRASCO
    
    
    158
    
    
    
    65
    
    
    
    84
    
    
    
    1
    
    
    
    61
    
    
    
    20HISPANOBRAS
    
    
    170
    
    
    
    185
    
    
    
    97
    
    
    
    
    
    
    
    66
    
    
    
    69KOBRASCO
    
    
    170
    
    
    
    113
    
    
    
    92
    
    
    
    2
    
    
    
    62
    
    
    
    57USIMINAS
    
    
    24
    
    
    
    
    
    
    
    109
    
    
    
    
    
    
    
    79
    
    
    
    ALBRAS (to December 2003)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149
    
    
    
    286VALESUL
    
    
    66
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    10
    
    
    
    MRN
    
    
    
    
    
    
    136
    
    
    
    
    
    
    
    154
    
    
    
    
    
    
    
    133GIIC
    
    
    157
    
    
    
    
    
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    MRS
    
    
    4
    
    
    
    385
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    Others
    
    
    19
    
    
    
    60
    
    
    
    15
    
    
    
    56
    
    
    
    55
    
    
    
    431,084
    
    
    
    1,255
    
    
    
    987
    
    
    
    373
    
    
    
    787
    
    
    
    741
 These amounts are included in the following statement of income line items:
 Year ended December 312005
    
    
    2004
    
    
    2003Income
    
    
    Expense
    
    
    Income
    
    
    Expense
    
    
    Income
    
    
    ExpenseSales / Cost of iron ore and pellets
    
    
    964
    
    
    
    694
    
    
    
    842
    
    
    
    108
    
    
    
    608
    
    
    
    317Revenues / expense from logistic services
    
    
    4
    
    
    
    387
    
    
    
    95
    
    
    
    80
    
    
    
    13
    
    
    
    Sales / Cost of aluminum products
    
    
    66
    
    
    
    136
    
    
    
    16
    
    
    
    144
    
    
    
    153
    
    
    
    421Financial income/expenses
    
    
    26
    
    
    
    36
    
    
    
    6
    
    
    
    10
    
    
    
    10
    
    
    
    2Others
    
    
    24
    
    
    
    2
    
    
    
    28
    
    
    
    31
    
    
    
    3
    
    
    
    11,084
    
    
    
    1,255
    
    
    
    987
    
    
    
    373
    
    
    
    787
    
    
    
    741
 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 our listed 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 (current portion not included) at December 31,
2005 and 2004 is estimated as follows:
 As of December 312005
    
    
    2004Fair market value
    
    
    4,076
    
    
    
    3,355Carrying value
    
    
    3,714
    
    
    
    3,214
 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.
 F - 35




---



##### Table of Contents



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 contract derivatives for
speculative 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 change in fair value of derivative financial
instruments are as follows:
 Interestrates
    
    
    Currencies
    
    
    Gold
    
    
    Alumina
    
    
    Aluminum
    
    
    Total(LIBOR)Unrealized gains (losses) at January 1, 2005
    
    
    (17
    )
    
    
    4
    
    
    
    (37
    )
    
    
    (55
    )
    
    
    (127
    )
    
    
    (232
    )Financial settlement
    
    
    9
    
    
    
    (1
    )
    
    
    11
    
    
    
    34
    
    
    
    36
    
    
    
    89Unrealized gains (losses) in the year
    
    
    6
    
    
    
    (2
    )
    
    
    (17
    )
    
    
    (28
    )
    
    
    (60
    )
    
    
    (101
    )Effect of exchange rate changes
    
    
    (2
    )
    
    
    
    
    
    
    (3
    )
    
    
    (4
    )
    
    
    (6
    )
    
    
    (15
    )Unrealized gains (losses) at December 31, 2005
    
    
    (4
    )
    
    
    1
    
    
    
    (46
    )
    
    
    (53
    )
    
    
    (157
    )
    
    
    (259
    )Unrealized gains (losses) at January 1, 2004
    
    
    (46
    )
    
    
    5
    
    
    
    (32
    )
    
    
    (18
    )
    
    
    
    
    
    
    (91
    )Loss recognized upon consolidation of Albras
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    (20
    )Financial settlement
    
    
    29
    
    
    
    (2
    )
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    31Unrealized gains (losses) in the year
    
    
    1
    
    
    
    1
    
    
    
    (5
    )
    
    
    (33
    )
    
    
    (98
    )
    
    
    (134
    )Effect of exchange rate changes
    
    
    (1
    )
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )
    
    
    (9
    )
    
    
    (18
    )Unrealized gains (losses) at December 31, 2004
    
    
    (17
    )
    
    
    4
    
    
    
    (37
    )
    
    
    (55
    )
    
    
    (127
    )
    
    
    (232
    )Unrealized gains (losses) at January 1, 2003
    
    
    (60
    )
    
    
    (1
    )
    
    
    (15
    )
    
    
    3
    
    
    
    
    
    
    
    (73
    )Financial settlement
    
    
    30
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    38Unrealized gains (losses) in the year
    
    
    (3
    )
    
    
    6
    
    
    
    (24
    )
    
    
    (22
    )
    
    
    
    
    
    
    (43
    )Effect of exchange rate changes
    
    
    (13
    )
    
    
    
    
    
    
    (1
    )
    
    
    1
    
    
    
    
    
    
    
    (13
    )Unrealized gains (losses) at December 31, 2003
    
    
    (46
    )
    
    
    5
    
    
    
    (32
    )
    
    
    (18
    )
    
    
    
    
    
    
    (91
    )
 Unrealized gains (losses) in the period are included in our income statement
financial expenses and foreign exchange and monetary gains (losses), net:Final maturity dates for the above instruments are as follows:
 Interest rates (LIBOR)
    
    Oct 2007Gold
    
    Dec 2008Currencies
    
    Dec 2011Alumina
    
    Dec 2008Aluminum
    
    Dec 2008
 (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 mitigate the volatility 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 __________________
 F - 36




---



##### Table of Contents



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 mitigate the volatility of exchange rate.From time to time we enter into cross-currency interest rate swap transactions seeking to
change the characteristics of our real-denominated cash investments for 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 gold and alumina production. However,
these 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.23
    
    Information about independent auditorsOur consolidated financial statements are audited by PricewaterhouseCoopers Auditores
Independentes, Brazil. The 2003 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 accordance with US GAAP which are
audited in accordance with the standards of the Public Company Accounting Oversight Board
(United States):
 Auditors
    
    
    City
    
    
    State
    
    
    CountryAlumina do Norte do Brasil S.A.  ALUNORTE
    
    Trevisan
    
    RJ
    
    RJ
    
    BrazilAlumínio Brasileiro S.A.  ALBRAS
    
    Trevisan
    
    RJ
    
    RJ
    
    BrazilCompanhia Nipo-Brasileira de Pelotização  NIBRASCO
    
    Deloitte
    
    RJ
    
    RJ
    
    BrazilCompanhia Coreano Brasileira de Pelotização  KOBRASCO
    
    Deloitte
    
    Vitória
    
    ES
    
    BrazilCompanhia Hispano-Brasileira de Pelotização  HISPANOBRAS
    
    Deloitte
    
    Vitória
    
    ES
    
    BrazilCompanhia
Ítalo-Brasileira de Pelotização  ITABRASCO
    
    Deloitte
    
    Vitória
    
    ES
    
    BrazilMineração Rio do Norte S.A.
    
    Deloitte
    
    RJ
    
    RJ
    
    BrazilNavegação Vale do Rio Doce S.A.  DOCENAVE
    
    Deloitte
    
    RJ
    
    RJ
    
    BrazilRio Doce Manganês S.A.
    
    Deloitte
    
    Salvador
    
    BA
    
    BrazilUrucum Mineração S.A.
    
    Deloitte
    
    Salvador
    
    BA
    
    BrazilValesul Alumínio S.A.
    
    Deloitte
    
    RJ
    
    RJ
    
    Brazil
 
 Deloitte  Deloitte Touche Tohmatsu Auditores Independentes
 
 Trevisan  Trevisan Auditores Independentes
 F - 37




---



##### Table of Contents



24
    
    Subsequent events
 1.
    
    On January 05, 2006 CVRD  ́s wholly owned Finance subsidiary Vale Overseas Limited
concluded a tender offer US$ 300 million 9.000% Guaranteed Notes due 2013.2.
    
    In January 2006, CVRD  ́s wholly owned Finance subsidiary Vale Overseas Limited issued
US$ 1 billion 10-year 6.250% notes, payable semi-annually due 2016, at a price of 99.97 %
of the principal amount.
 * * *
 F - 38




---



##### Table of Contents



BOARD OF DIRECTORS, FISCAL COUNCIL AND EXECUTIVE OFFICERS
 Board of Directors
    
    Fiscal CouncilSergio Ricardo Silva Rosa
Chairman
    
    Marcelo Amaral Moraes
ChairmanArlindo Magno de Oliveira
    
    Anibal Moreira dos SantosEduardo Fernando Jardim Pinto
    
    Joaquim Vieira Ferreira LevyErik Persson
    
    Jose Bernardo de Medeiros NetoJorge Luiz Pacheco
    
    Executive OfficersJaques Wagner
    
    Roger AgnelliChief Executive OfficerHiroshi TadaMurilo de Oliveira FerreiraMario da Silveira Teixeira Junior
    
    Executive Officer for Equity Holdings andBusiness DevelopmentOscar Augusto de Camargo FilhoJose Carlos MartinsRenato da Cruz Gomes
    
    Executive Officer for Ferrous MineralsFrancisco Augusto da Costa e Silva
    
    Carla GrassoExecutive Officer for Human Resources andAdvisory Committees of the Board of Directors
    
    Corporate ServicesAccounting Committee
Antonio Jose de Figueiredo Ferreira
Inacio Clemente da Silva
Paulo Roberto Ferreira de Medeiros
    
    Jose LancasterExecutive Officer for Non-ferrous Minerals Fabio de Oliveira BarbosaChief Financial Officer and Investor RelationExecutive Development CommitteeArlindo Magno de Oliveira
    
    Gabriel StoliarJoao Moises de Oliveira
    
    Executive Officer for PlanningOlga Nietta LoffrediOscar
Augusto de Camargo Filho
    
    Guilherme Rodolfo LaagerStrategic Committee
    
    Executive Officer for LogisticsRoger AgnelliGabriel StoliarCezar Manoel de MedeirosJose Roberto Mendonca de BarrosLuciano Coutinho
    
    Otto de Souza Marques JuniorChief Officer of Control DepartmentFinance CommitteeRoger AgnelliFabio de Oliveira Barbosa
    
    Marcus Vinicius Dias SeveriniRomulo de Mello Dias
    
    Chief AccountantWanderlei Vicoso Fagundes
    
    CRC-RJ 093982/O-3Ivan Luiz Modesto ScharaGovernance and Ethics CommitteeRenato da Cruz Gomes
Ricardo Simonsen
Ricardo Carvalho Giambroni




---



##### Table of Contents



Report of Independent Registered
Public Accounting Firm
 
  
 
 F- 40




---



##### Table of Contents



2005
    
    
    2004AssetsCurrent assetsCash and cash equivalents
    
    
    9
    
    
    
    2Advances to related partiesItabira Rio Doce Ltd.  ITACO
    
    
    824
    
    
    
    824Loans to related partiesItabira Rio Doce Ltd.  ITACO
    
    
    42,922
    
    
    
    31,790Deferred costs related to long term debt
    
    
    2,579
    
    
    
    2,49846,334
    
    
    
    35,114Other assetsLoans to related partiesItabira Rio
Doce Ltd.  ITACO
    
    
    1,211,446
    
    
    
    913,004Deferred costs related to long term debt
    
    
    31,613
    
    
    
    13,6921,243,059
    
    
    
    926,696TOTAL
    
    
    1,289,393
    
    
    
    961,810Liabilities and stockholders equityCurrent liabilitiesAdvances from related partiesRio Doce International Finance Ltd.
    
    
    832
    
    
    
    832CVRD Overseas
    
    
    2
    
    
    
    2Interest on long-term debt
    
    
    42,922
    
    
    
    31,790Deferred income related to loans to related parties
    
    
    2,579
    
    
    
    2,49846,335
    
    
    
    35,122Long-term liabilitiesLong-term debt
    
    
    1,211,446
    
    
    
    913,004Deferred income related to loans to related parties
    
    
    31,613
    
    
    
    13,6921,243,059
    
    
    
    926,696Stockholders equityPaid-in capital
    
    
    1
    
    
    
    1Additional paid-in capital
    
    
    21,942
    
    
    
    21,942Accumulated losses
    
    
    (21,878
    )
    
    
    (21,885
    )Other cumulative comprehensive incomeCumulative translation adjustments
    
    
    (66
    )
    
    
    (66
    )(1
    )
    
    
    (8
    )TOTAL
    
    
    1,289,393
    
    
    
    961,810
 F - 41




---



##### Table of Contents



2005
    
    
    2004
    
    
    2003Interest income
    
    
    84,122
    
    
    
    90,398
    
    
    
    37,674Interest expense
    
    
    (84,112
    )
    
    
    (90,399
    )
    
    
    (37,675
    )Loss on extinguishment of loan
    
    
    
    
    
    
    (21,942
    )Foreign exchange and monetary gains, net
    
    
    
    
    
    
    
    
    
    
    1General and administrative
    
    
    (3
    )
    
    
    (3
    )Net income (loss) for the year
    
    
    7
    
    
    
    (21,946
    )Retained earnings (accumulated losses):Beginning of year
    
    
    (21,885
    )
    
    
    61
    
    
    
    61Net income (loss) for the year
    
    
    7
    
    
    
    (21,946
    )End of year
    
    
    (21,878
    )
    
    
    (21,885
    )
    
    
    61
 See notes to financial statements.
 F - 42




---



##### Table of Contents



2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net income (loss) for the year
    
    
    7
    
    
    
    (21,946
    )Adjustments to reconcile net income for the year with
cash provided by (used in) operating activities:Loss on extinguishment of debt
    
    
    
    
    
    
    21,942Foreign exchange losses
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Decrease (increase) in assets:Advances to related parties
    
    
    
    
    
    
    (146
    )Increase (decrease) in liabilities:Advances from related parties
    
    
    
    
    
    
    152Net cash provided by operating activities
    
    
    6
    
    
    
    2
    
    
    
    (1
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    1Increase in cash and cash equivalents
    
    
    7
    
    
    
    2
    
    
    
    (1
    )Cash and cash equivalents, beginning of year
    
    
    2
    
    
    
    
    
    
    
    1Cash and cash equivalents, end of year
    
    
    9
    
    
    
    2Interest paid
    
    
    73,375
    
    
    
    100,632
    
    
    
    25,875Non-cash transactions:Long-term debt issued and passed through to related parties on the same date during 2005,
in the amount of US$ 326,400 (US$ 492,785 in 2004).Long-term debt repurchased and loss on extinguishment of debt via funds received on the
same date from related parties in 2004, in the amounts of US$ 186,996
and US$ 21,942,
respectively.
 See notes to financial statements.
 F - 43




---



##### Table of Contents



Vale
Overseas Limited
 
 Notes to the Financial Statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 1
    
    The Company and its operationsVale Overseas Limited (the Company or we), 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 policiesThe 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 translated all assets and liabilities from reais into U.S. dollars at
the current exchange rate at each balance sheet date (R$ 2.3370 and R$ 2.6544 to US$ 1.00
at December 31, or the first exchange rate available, if unavailable on December 31), 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 from taxes in the Cayman Islands.(d)
    
    Deferred cost related to long-term debtCosts related to long-term debt are expensed using the effective interest rate method, over
the period of the respective Notes.(e)
    
    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.3
    
    Cash and cash equivalentsCash and cash equivalents were all denominated in U.S. dollars and comprised short-term bank
deposits. Cash proceeds from issuance of long-term debt were passed through to Itabira
International Company (Itaco) immediately and are not presented in the cash flows from
financing activities.
 F - 44




---



##### Table of Contents



4
    
    Long-term debtLong-term debt consists of :
 a)
    
    US$ 111,446 (US$ 300,000 in 2003)  8.625% enhanced guaranteed notes due March 8,
2007, unconditionally guaranteed by CVRD.b)
    
    US$ 300,000 (US$ 300,000 in 2003)  9% enhanced guaranteed notes due August 8, 2013,
unconditionally guaranteed by CVRD.c)
    
    US$ 500,000  8.25% enhanced guaranteed notes in January 2004 due January 17, 2034,
unconditionally guaranteed by CVRD.d)
    
    US$ 300,000  7.65% enhanced guaranteed notes in October 2005 due October 27, 2034,
unconditionally guaranteed by CVRD.
 The loan contracts impose certain limitations on the Company with respect to the incurrence of
liens, indebtedness and mergers.In March 2002, the company issued and passed through to Itabira International Company (Itaco),
a subsidiary of CVRD, on the same date, a US$ 300,000 8,625% enhanced guaranteed notes due
March 8, 2007, unconditionally guaranteed by CVRD.In December 2004, the Company commenced a cash tender offer for any and all of our
US$ 300,000 aggregate principal amount outstanding 8.625% Enhanced Guaranteed Notes
due 2007. As a result, the Company repurchased a total of US$186,996 of Enhanced Guaranteed
Notes for which we paid of US$ 1,117.34 per US$ 1,000.00 principal amount plus accrued and
unpaid interest from the last interest payment date to, but excluding, the settlement date, for
the notes accepted pursuant to the offer on the settlement date, which was December 17, 2004.
The repurchase of these notes generated an extinguishment of debt loss of US$ 21,942 in 2004.Simultaneously, an equal amount of the loan receivable from Itaco was extinguished and the
resulting gain of US$ 21,942 was generated by this transaction under common control and
eliminated through the creation of a capital contribution in the same amount.On January 15, 2004, the Company issued a US$ 500 million bond maturing in 2034 raising
US$ 492,785, net of direct issuance costs. The bonds carry a coupon of 8.25% a year with
semiannual payment and a yield to maturity of 8.35%, at a spread of 336 basis points over
30-year US Treasuries. The bonds mature in January 2034. 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.On October 26, 2005, we issued notes of US$ 300 milion due 2034, bearing interest of 7.65% per
year, which form a single series with the Companys 8.25% Guaranteed Notes due 2034 (CVRD 2034)
that were issued on January 15, 2004. The notes are unsecured and unsubordinated obligations of
Company and are fully and unconditionally guaranteed by CVRD.5
    
    Other related party transactionsAt December 31, 2005 the long term loan receivable of US$ 1,211,446 (US$ 913,004 in 2003) from
Itaco has the same terms and maturities as the long-term debts obtained in the same amount.6
    
    Stockholders equityThe issued and authorized capital held exclusively by the immediate
parent company CVRD is US$1, composed of 1,000 shares of US$1.00 each.Additional paid-in capital is resulted from the elimination of the
gain on extinguishment of a loan receivable from Itaco during 2004.
  F - 45




---



##### Table of Contents



BOARD OF DIRECTORS
 
 
 
 
 
 F - 46




---



##### Table of Contents



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-2Report of Trevisan Auditores Independentes dated January 21, 2004
with respect to the financial statements of Alunorte for the year
ended December 31, 2003.
    
    
    B-3Report 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-4Report 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-5Report 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-6Report 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-7Report of Deloitte Touche Tohmatsu dated January 14, 2004 with
respect to the financial statements of MRN for the two years ended
December 31, 2003.
    
    
    B-8Report 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-9Report 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-10Report 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-11Report of Deloitte Touche Tohmatsu dated January 12, 2004 with
respect to the financial statements of Valesul for the year ended
December 31, 2003.
    
    
    B-12
 B-1




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 1.
    
    We have audited the accompanying balance sheet of ALBRASAluminio
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Aluminio 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 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 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  Aluminio 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.
  
 B-2




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 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 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 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.
  
 B-3




---



##### Table of Contents



INDEPENDENT AUDITORS REPORT
 Rio de Janeiro  RJ
 1.
    
    We have audited the accompanying consolidated balance sheets of
Navegaçâo 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.2.
    
    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 evaluating the overall financial statement
presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.3.
    
    In our opinion, the accompanying financial statements referred to
above presented fairly, in all material respects, the financial
position of Navegaçâo 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.
   B-4




---



##### Table of Contents



INDEPENDENT AUDITORS REPORT
 Vitória  Brazil
 1.
    
    We have audited the accompanying balance sheets of Companhia
Hispano-Brasileira de Pelotizaçâo  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 Pelotizaçâo  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 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 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 Pelotizaçâo 
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.
   B-5




---



##### Table of Contents



INDEPENDENT AUDITORS REPORT
 Vitória  Brazil
 1.
    
    We have audited the accompanying balance sheets of Companhia
Italo-Brasileira de Pelotizaçâo 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 Pelotizaçâo  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 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 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 Pelotizaçâo  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.
   B-6




---



##### Table of Contents



INDEPENDENT AUDITORS REPORT
 Vitória  Brazil
 1.
    
    We have audited the accompanying consolidated balance sheets of
Companhia Coreano Brasileira de Pelotizaçâo  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 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 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 Pelotizaçâo
 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.
   B-7




---



##### Table of Contents



INDEPENDENT AUDITORS REPORT
 
 1.
    
    We have audited the accompanying balance sheets of Mineraçâo 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 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 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 Mineraçâo 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.
   B-8




---



##### Table of Contents



INDEPENDENT AUDITORS REPORT
 Vitória  Brazil
 1.
    
    We have audited the accompanying balance sheets of Companhia
Nipo-Brasileira de Pelotizaçâo 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 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 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 Pelotizaçâo  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.
   B-9




---



##### Table of Contents



INDEPENDENT AUDITORS REPORT
 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 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 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 amount 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 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 Mineraçâo
S.A., Minérios Metalúrgicos do Nordeste S.A., Mineraçâo 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.
   B-10




---



##### Table of Contents



INDEPENDENT AUDITORS REPORT
 Corumbá  MS
 1.
    
    We have audited the accompanying balance sheets of URUCUM
MINERAÇÂO 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 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 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
MINERAÇÂO 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 MINERAÇÂO S.A. adopted Statement of
Financial Accounting Standards No. 143, Accounting for Asset
Retirement Obligations.
   B-11




---



##### Table of Contents



INDEPENDENT AUDITORS REPORT
 
 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 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 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.
   B-12