##### Table of Contents



As filed with the
Securities and Exchange Commission on June 2, 2005   UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 20-F ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 December 31, 2004
 001-15030
 COMPANHIA VALE DO RIO DOCE
(Exact name of Registrant as specified in its charter)
    
    VALE OVERSEAS LIMITED
(Exact name of Registrant as specified in its charter)Federative Republic of Brazil
    
    Cayman Islands
  Avenida Graça Aranha, No. 26
20030-900 Rio de Janeiro, RJ, Brazil
(Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act: Name of Each ExchangeTitle of Each Class
    
    on Which RegisteredPreferred class A shares of CVRD, no par value per share
    
    New York Stock Exchange*American Depositary Shares (as evidenced by American
depositary receipts) each representing one preferred class
A share of CVRD
    
    New York Stock ExchangeCommon shares of CVRD, no par value per share
    
    New York Stock Exchange*American Depositary Shares (as evidenced by American
depositary receipts) each representing one common share of
CVRD
    
    New York Stock Exchange
   *
    
    Shares are not listed for trading, but only in connection with the registration of American
Depositary Shares pursuant to the requirements of the New York Stock Exchange. Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None The number of outstanding shares of each class of stock of CVRD as of December 31, 2004 was: 735,803,919 common shares, no par value per share
415,715,785 preferred class A shares, no par value per share
3 golden shares, no par value per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days. Yes þ            No o Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 o            Item 18 þ




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TABLE OF CONTENTS PageGlossary
    
    
    1Presentation of Financial Information
    
    
    4Presentation of Information Concerning Reserves
    
    
    5Forward-Looking Statements
    
    
    5PART IItem 1.
    
    Identity of Directors, Senior Management and Advisers
    
    
    6Item 2.
    
    Offer Statistics and Expected Timetable
    
    
    6Item 3.
    
    Key Information
    
    
    7Selected Financial Data
    
    
    7Exchange Rates
    
    
    9Risk Factors
    
    
    9Item 4.
    
    Information on the Company
    
    
    19Business Overview
    
    
    19Lines of Business
    
    
    25Regulatory Matters
    
    
    54Patents And Trademarks
    
    
    59Insurance
    
    
    59Capital Expenditures
    
    
    59Item 5.
    
    Operating and Financial Review and Prospects
    
    
    61Overview
    
    
    61Key Factors Affecting Revenue and Results of Operations
    
    
    62Critical Accounting Policies and Estimates
    
    
    68Results of Operations2004 Compared to 2003
    
    
    72Results of Operations2003 Compared to 2002
    
    
    80Liquidity and Capital Resources
    
    
    87Shareholder Debentures
    
    
    90Contractual Obligations
    
    
    90Off-balance Sheet Arrangements
    
    
    90Recent Accounting Pronouncements
    
    
    90Item 6.
    
    Directors, Senior Management and Employees
    
    
    91Board Of Directors
    
    
    91Executive Officers
    
    
    95Fiscal Council
    
    
    98Advisory Committees
    
    
    99Compensation of Directors, Executive Officers, Fiscal Council Members and Advisory Committees
    
    
    100Employees
    
    
    101Item 7.
    
    Major Shareholders and Related Party Transactions
    
    
    102Major Shareholders
    
    
    102Related Party Transactions
    
    
    105Item 8.
    
    Financial Information
    
    
    106Legal Proceedings
    
    
    106Dividends and Interest on Shareholders Equity
    
    
    107Item 9.
    
    The Offer and Listing
    
    
    109Share Price History
    
    
    109Trading Markets
    
    
    109Item 10.
    
    Additional Information
    
    
    110Memorandum and Articles of Association
    
    
    110Common Shares and Preferred Shares
    
    
    111Material Contracts
    
    
    117Exchange Controls and Other Limitations Affecting Security Holders
    
    
    117
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TABLE OF CONTENTS
(contd.) PageTaxation
    
    
    119Documents on Display
    
    
    123Item 11.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    123Interest Rate and Exchange Rate Risk
    
    
    124Products Price Risk
    
    
    127Credit Risk
    
    
    129Item 12.
    
    Description of Securities Other than Equity Securities
    
    
    129PART IIItem 13.
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    129Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    129Item 15.
    
    Controls and Procedures
    
    
    129Evaluation of Disclosure Controls and Procedures
    
    
    129Changes in Internal Controls
    
    
    130Item 16A.
    
    Audit Committee Financial Expert
    
    
    130Item 16B.
    
    Code of Ethics
    
    
    130Item 16C.
    
    Principal Accountant Fees and Services
    
    
    130Principal Accountant Fees
    
    
    130Audit Committee Pre-Approval Policies and Procedures
    
    
    131Item 16D.
    
    Exemptions from the Listing Standards for Audit Committees
    
    
    131Item 16E.
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    131PART IIIItem 17.
    
    Financial Statements
    
    
    131Item 18.
    
    Financial Statements
    
    
    131Item 19.
    
    Exhibits
    
    
    131Signatures
    
    
    133Index 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 DELOITTE TOUCHE TOHMATSUEX-14.4: CONSENT OF TREVISANEX-14.5: CONSENT OF DELOITTE TOUCHE TOHMATSUEX-14.6: CONSENT OF KPMG LLPEX-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 DELOITTE TOUCHE TOHMATSUEX-14.14: CONSENT OF KPMG AUDITORES INDEPENDENTESEX-14.15: CONSENT OF DELOITTE TOUCHE TOHMATSUEX-14.16: CONSENT OF DELOITTE TOUCHE TOHMATSUEX-14.17: CONSENT OF PINCOCK, ALLEN & HOLT
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GLOSSARY Alumina
    
    Aluminum oxide. It is extracted from
bauxite in a chemical refining process
and is the principal raw material in the
electro-chemical process from which
aluminum is produced.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.Bauxite
    
    A rock composed primarily of hydrated
aluminum oxides. It is the principal ore
of alumina, the raw material from which
aluminum is made.Beneficiation
    
    The process of separating, concentrating
and classifying ore by particle size or
some other characteristic (e.g., specific
gravity, magnetic susceptibility, surface
chemistry, etc.) in order to obtain the
mineral or metal of interest.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
    
    It is a coking coal beneficiation product
essential in transforming iron ore into
pig iron.Coking Coal
    
    A bituminous hard coal with a quality
that allows the production of coke
suitable to support a blast furnace
charge. Normally used in coke ovens for
metallurgical purposes (production of pig
iron).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%.DRI
    
    Direct Reduced Iron. Iron ore (lump or
pellets) converted by the Direct
Reduction process, used mainly as a scrap
substitute in electric furnace steel
making.




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DWT
    
    Deadweight ton. The measurement unit of
a vessels capacity for cargo, fuel oil,
stores and crew, measured in metric tons
of 1,000 kg. A vessels total deadweight
is the total weight the vessel can carry
when loaded to a particular load line.Fe unit
    
    A measure of the iron content in the iron
ore that is equivalent to 1% iron content
in 1 ton of iron ore.Ferroalloys
    
    Ferroalloys are alloys of iron that
contain one or more other chemical
elements. These alloys are used to add
these other elements into molten metal,
usually in steel making. The principal
ferroalloys are those of chromium,
manganese, and silicon. Manganese is
essential to the production of virtually
all steels and is important in the
production of cast iron.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 ore
    
    A hard brittle metallic element found
primarily in the minerals pyrolusite,
hausmannite and manganate.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.
The mineral deposit does not qualify as
an ore body until it can be legally and
economically extracted at the time of ore
reserve determination.
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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 tons (the weight of the goods being
transported excluding the weight of the
wagon) per kilometer.Open pit mining
    
    The extraction method by which surface or
barren rock is removed so that ore may be
removed using power shovels, front-end
loaders, hydraulic excavators, draglines,
etc.Oxides
    
    Compounds of oxygen with another element.
For example, magnetite is an oxide
mineral formed by the chemical union of
iron with oxygen.Pellet feed (Ultra-fine)
    
    Ultra-fine (less than 0.15 mm) iron ore
particles generated by the mining,
grading, handling and transporting of
iron ore. 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
    
    Melted iron produced 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 (indicated) reserves
    
    Reserves for which quantity and grade
and/or quality are computed from
information similar to that used for
proven (measured) reserves, but the sites
for inspection, sampling and measurement
are farther apart or are otherwise less
adequately spaced. The degree of
assurance, although lower than that for
proven (measured) reserves, is high
enough to assume continuity between
points of observation.Proven (measured) reserves
    
    Reserves for which (1) quantity is
computed from dimensions revealed in
outcrops, trenches, workings or drill
holes; (2) grade and/or quality are
computed from the results of detailed
sampling; and (3) the sites for
inspection, sampling and measurement are
spaced so closely and the geologic
character is so well defined that size,
shape, depth and mineral content of
reserves are well-established.Reserve
    
    Refers to that part of a mineral deposit
that could be economically and legally
extracted or produced at the time of the
reserve determination.Run-of-mine
    
    Ore in its natural (unprocessed) state,
as mined, without having been crushed.
 3




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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 We have prepared our financial statements appearing in this annual report in accordance with
generally accepted accounting principles in the United States (U.S. GAAP), which differ in certain
respects from accounting practices adopted in Brazil (defined as Brazilian GAAP). Brazilian GAAP
is determined by the requirements of Law No. 6,404, dated December 15, 1976, as amended (the
Brazilian Corporate Law), and the rules and regulations of the Comissão de Valores Mobiliários, or
CVM, the Brazilian Securities Commission. We also publish Brazilian GAAP financial statements in
Brazil, which we refer to as our Brazilian Corporate Law financial statements. We use our
Brazilian Corporate Law financial statements for:  
    reports to Brazilian shareholders;
    filings with the CVM;
    determination of dividend payments; and
    determination of tax liability. Our financial statements and the other financial information appearing in this annual report
have been translated from Brazilian reaisinto U.S. dollars on the basis explained in Note 3 to our
financial statements unless we indicate otherwise.    References to real, reaisor R$ are to Brazilian reais(plural) and to the Brazilian
real(singular), the official currency of Brazil. References to U.S. dollars, dollars or US$
are to United States dollars. Unless otherwise specified, metric units have been used, e.g., tons refer to metric tons. 4




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References to CVRD are to Companhia Vale do Rio Doce. References to Vale Overseas are to
Vale Overseas Limited. References to us or we are to CVRD, its consolidated subsidiaries and
its joint ventures and other affiliated companies. References to affiliated companies are to
companies in which Companhia Vale do Rio Doce has a minority investment, and exclude controlled
affiliates that are consolidated for financial reporting purposes. References to ANEEL are to Agência Nacional de Energia Elétrica, the Brazilian energy
regulatory agency. References to ANTT are to Agência Nacional de Transportes Terrestres, the Brazilian
regulatory agency for the transportation sector. References to our ADSs or American Depositary Shares include both our common American
Depositary Shares (our common ADSs), each of which represents one common share of CVRD, and our
preferred American Depositary Shares (our preferred ADSs), each of which represents one preferred
class A share of CVRD. American Depositary Shares are represented by American depositary receipts
(ADRs) issued by JPMorgan Chase Bank, as depositary. Reference to BNDES are to Banco Nacional de Desenvolvimento Econômico e Social, the
Brazilian National Development Bank. 
 PRESENTATION OF INFORMATION CONCERNING RESERVES The estimates of the proven and probable reserves at our mines and the estimates of mine life,
as of December 31, 2004, included in this annual report have been calculated according to the
technical definitions required by the U.S. Securities and Exchange Commission, or the SEC. We
derived estimates of mine life described in this annual report from such reserve estimates. We
have adjusted ore reserve estimates for extraction losses and metallurgical recoveries during
extraction for manganese ore and bauxite deposits. Our reserve estimates of iron ore, kaolin,
copper and potash are reported as in situtons with adjustments for dilution and mining losses.
See Item 3. Key InformationRisk FactorsRisks Relating to Our Businessfor a description of risks
relating to reserves and reserves estimates. We have retained Pincock, Allen & Holt to audit and
verify most of our estimates of proven and probable reserves as of December 31, 2004. 
 FORWARD-LOOKING STATEMENTS This annual report contains statements that constitute forward-looking statements within the
meaning of the U.S. Private Securities Litigation Reform Act of 1995. Many of the forward-looking
statements contained in this annual report can be identified by the use of forward-looking words
such as anticipate, believe, could, expect, should, plan, intend, estimate and
potential, among others. Those statements appear in a number of places in this annual report and
include statements regarding our intent, belief or current expectations with respect to:  
    our direction and future operation;
    the implementation of our principal operating strategies, including our potential
participation in privatization, acquisition or joint venture transactions or other
investment opportunities;
    our acquisition or divestiture plans;
    the implementation of our financing strategy and capital expenditure plans;
    the exploration of mineral reserves and development of mining facilities;
    the depletion and exhaustion of mines and mineral reserves;
    the declaration or payment of dividends;
    industry trends, including the direction of prices and expected levels of supply and demand; 5




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
    other factors or trends affecting our financial condition or results of operations; and
    the factors discussed under Item 3. Key InformationRisk Factors. We caution you that forward-looking statements are not guarantees of future performance and
involve risks and uncertainties. Actual results may differ materially from those in the
forward-looking statements as a result of various factors, including those identified under Item 3.
Key InformationRisk Factors. These risks and uncertainties include factors relating to the
Brazilian economy and securities markets, which exhibit volatility and can be adversely affected by
developments in other countries, factors relating to the iron ore business and its dependence on
the global steel industry, which is cyclical in nature, and factors relating to the highly
competitive industries in which we operate. For additional information on factors that could cause
our actual results to differ from expectations reflected in forward-looking statements, please see
Item 3. Key InformationRisk Factors, and our reports filed with the SEC. Forward-looking
statements speak only as of the date they are made, and we do not undertake any obligation to
update them in light of new information or future developments. 
 PART I 
 Item 1. Identity of Directors, Senior Management and Advisers Not applicable. 
 Item 2. Offer Statistics and Expected Timetable Not applicable. 6




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Item 3. Key Information 
 SELECTED FINANCIAL DATA The table below presents selected consolidated financial information as of and for the periods
indicated. You should read this information together with our consolidated financial statements
appearing in this annual report. For the year ended December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004(in millions of US$)Statement of Income DataNet operating revenues
    
    US$
    3,935
    
    
    US$
    3,935
    
    
    US$
    4,123
    
    
    US$
    5,350
    
    
    US$
    8,066Cost of products and services
    
    
    (2,429
    )
    
    
    (2,272
    )
    
    
    (2,263
    )
    
    
    (3,128
    )
    
    
    (4,081
    )Selling, general and administrative expenses
    
    
    (225
    )
    
    
    (241
    )
    
    
    (224
    )
    
    
    (265
    )
    
    
    (452
    )Research and development
    
    
    (48
    )
    
    
    (43
    )
    
    
    (50
    )
    
    
    (82
    )
    
    
    (153
    )Employee profit sharing plan
    
    
    (29
    )
    
    
    (38
    )
    
    
    (38
    )
    
    
    (32
    )
    
    
    (69
    )Other expenses
    
    
    (180
    )
    
    
    (379
    )
    
    
    (119
    )
    
    
    (199
    )
    
    
    (188
    )Operating income
    
    
    1,024
    
    
    
    962
    
    
    
    1,429
    
    
    
    1,644
    
    
    
    3,123Non-operating income (expenses):Financial income (expenses)
    
    
    (107
    )
    
    
    (200
    )
    
    
    (248
    )
    
    
    (249
    )
    
    
    (589
    )Foreign exchange and monetary losses, net
    
    
    (240
    )
    
    
    (426
    )
    
    
    (580
    )
    
    
    242
    
    
    
    65Gain on sale of investments
    
    
    54
    
    
    
    784
    
    
    
    
    
    
    
    17
    
    
    
    404Subtotal
    
    
    (293
    )
    
    
    158
    
    
    
    (828
    )
    
    
    10
    
    
    
    (120
    )Income before income taxes, equity results
and minority interests
    
    
    731
    
    
    
    1,120
    
    
    
    601
    
    
    
    1,654
    
    
    
    3,003Income taxes benefit (charge)
    
    
    32
    
    
    
    218
    
    
    
    149
    
    
    
    (297
    )
    
    
    (749
    )Equity in results of affiliates and joint
ventures and change in provision for losses
on equity
investments
    
    
    322
    
    
    
    (53
    )
    
    
    (87
    )
    
    
    306
    
    
    
    542Minority interests
    
    
    1
    
    
    
    2
    
    
    
    17
    
    
    
    (105
    )
    
    
    (223
    )Change in accounting practice for asset
retirement obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    Net income
    
    US$
    1,086
    
    
    US$
    1,287
    
    
    US$
    680
    
    
    US$
    1,548
    
    
    US$
    2,573Total cash paid to shareholders(1)
    
    US$
    246
    
    
    US$
    1,066
    
    
    US$
    602
    
    
    US$
    675
    
    
    US$
    787
   (1)
    
    Total cash paid to shareholders consists of cash paid during the period in respect to
interest on shareholders equity and dividends. For the year ended December 31,2000 (1)
    
    
    2001 (1)
    
    
    2002 (1)
    
    
    2003 (1)
    
    
    2004(in US$ except recorded dividends and interest on shareholdersequity per share in Brazilianreaisand share numbers)Per Share Data  Earnings and DividendsBasic earnings per Common and Preferred Class
A
Share(2)
    
    US$
    0.94
    
    
    US$
    1.11
    
    
    US$
    0.59
    
    
    US$
    1.34
    
    
    US$
    2.23Diluted Earnings per Common and Preferred
Class A Share (2)
    
    US$
    0.94
    
    
    US$
    1.11
    
    
    US$
    0.59
    
    
    US$
    1.34
    
    
    US$
    2.23Distributions on shareholders equity per
share in US$(3)
    
    US$
    0.22
    
    
    US$
    0.88
    
    
    US$
    0.56
    
    
    US$
    0.59
    
    
    US$
    0.68Distributions on shareholders equity per
share in Brazilian reais(3)
    
    
    R$0.39
    
    
    
    R$1.88
    
    
    
    R$1.66
    
    
    
    R$1.68
    
    
    
    R$1.95Weighted average number of shares outstanding
(in thousands):Common shares(2)
    
    
    749,949
    
    
    
    749,592
    
    
    
    749,592
    
    
    
    734,804
    
    
    
    735,804Preferred class A shares(2)
    
    
    404,751
    
    
    
    405,126
    
    
    
    405,126
    
    
    
    415,713
    
    
    
    415,716Total
    
    
    1,154,700
    
    
    
    1,154,718
    
    
    
    1,154,718
    
    
    
    1,151,517
    
    
    
    1,151,520
   (1)
    
    In August 2004, a three for one stock split was carried out. Share and per-share
amounts are provided after giving effect to the stock split.(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. In 2004, 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. 7




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At December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004(in millions of US$)Balance Sheet DataCurrent assets
    
    US$
    2,502
    
    
    US$
    2,638
    
    
    US$
    2,589
    
    
    US$
    2,474
    
    
    US$
    3,890Property, plant and equipment, net
    
    
    3,955
    
    
    
    3,813
    
    
    
    3,297
    
    
    
    6,484
    
    
    
    9,063Investments in affiliated companies and joint
ventures and other investments
    
    
    1,795
    
    
    
    1,218
    
    
    
    732
    
    
    
    1,034
    
    
    
    1,159Other assets
    
    
    1,543
    
    
    
    1,839
    
    
    
    1,337
    
    
    
    1,442
    
    
    
    1,603Total assets
    
    US$
    9,795
    
    
    US$
    9,508
    
    
    US$
    7,955
    
    
    US$
    11,434
    
    
    US$
    15,715Current liabilities
    
    
    2,136
    
    
    
    1,921
    
    
    
    1,508
    
    
    
    2,253
    
    
    
    2,455Long-term liabilities (1)
    
    
    1,061
    
    
    
    772
    
    
    
    774
    
    
    
    1,201
    
    
    
    1,867Long-term debt (2)
    
    
    2,020
    
    
    
    2,170
    
    
    
    2,359
    
    
    
    2,767
    
    
    
    3,214Total liabilities
    
    
    5,217
    
    
    
    4,863
    
    
    
    4,641
    
    
    
    6,221
    
    
    
    7,536Minority interest
    
    
    9
    
    
    
    5
    
    
    
    27
    
    
    
    329
    
    
    
    788Shareholders equity:Capital stock
    
    
    1,927
    
    
    
    2,211
    
    
    
    2,446
    
    
    
    2,869
    
    
    
    3,209Additional paid-in capital
    
    
    498
    
    
    
    498
    
    
    
    498
    
    
    
    498
    
    
    
    498Reserves and retained earnings
    
    
    2,144
    
    
    
    1,931
    
    
    
    343
    
    
    
    1,517
    
    
    
    3,684Total shareholders equity
    
    
    4,569
    
    
    
    4,640
    
    
    
    3,287
    
    
    
    4,884
    
    
    
    7,391Total liabilities and shareholders equity
    
    US$
    9,795
    
    
    US$
    9,508
    
    
    US$
    7,955
    
    
    US$
    11,434
    
    
    US$
    15,715
   (1)
    
    Excludes long-term debt.(2)
    
    Excludes current portion and long-term loans from related parties. At December 31,
2004, we had extended guarantees for borrowings of joint ventures and affiliated companies
in an aggregate amount of US$ 7 million. These contingent liabilities do not appear on the
face of our consolidated balance sheets, but are disclosed in Note 18 to our consolidated
financial statements. 8




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##### Table of Contents



EXCHANGE RATES The Central Bank of Brazil (the Central Bank) allows the real/U.S. dollar exchange rate to
float freely, and it has intervened occasionally to control unstable movements in foreign exchange
rates. We cannot predict whether the Central Bank or the Brazilian government will continue to let
the realfloat freely or will intervene in the exchange rate market through a currency band system
or otherwise. The realmay depreciate or appreciate against the U.S. dollar substantially in the
future. For more information on these risks, see Item 3. Key InformationRisk FactorsRisks
Relating to Brazil. The following table provides information on the selling exchange rate, expressed in reaisper
U.S. dollar (R$/US$), for the periods indicated. Prior to March 14, 2005, under Brazilian
regulations, foreign exchange transactions were carried out on either the commercial rate exchange
market or the floating rate exchange market. Rates in the two markets were generally the same.
The table uses the commercial selling rate prior to March 14, 2005. The following table sets forth the selling exchange rate, expressed in reaisper U.S. dollar
(R$/US$), for the periods indicated. Average forYear ended December 31,
    
    Period-end
    
    Period (1)
    
    Low
    
    High2000
    
    R$
    1.955
    
    R$
    1.835
    
    R$
    1.723
    
    R$
    1.9852001
    
    
    2.320
    
    
    2.353
    
    
    1.936
    
    
    2.8012002
    
    
    3.533
    
    
    2.998
    
    
    2.271
    
    
    3.9552003
    
    
    2.889
    
    
    3.060
    
    
    2.822
    
    
    3.6622004
    
    
    2.654
    
    
    2.917
    
    
    2.654
    
    
    3.205MonthDecember 2004
    
    R$
    2.654
    
    
    
    
    R$
    2.654
    
    R$
    2.787January 2005
    
    
    2.625
    
    
    
    
    
    2.625
    
    
    2.722February 2005
    
    
    2.595
    
    
    
    
    
    2.562
    
    
    2.632March 2005
    
    
    2.666
    
    
    
    
    
    2.601
    
    
    2.762April 2005
    
    
    2.531
    
    
    
    
    
    2.520
    
    
    2.660May 2005
    
    
    2.394
    
    
    
    
    
    2.378
    
    
    2.515
   (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. On May 31, 2005, the selling rate was R $2.4038 per US$ 1.00. 
 RISK FACTORS Risks Relating to Our Business Due to our dependence on the global steel industry, fluctuations in the demand for steel could
adversely affect our business. Sales prices and volumes in the seaborne iron ore mining industry depend on the prevailing and
expected level of demand for iron ore in the world steel industry. The world steel industry is
cyclical. A number of factors, the most significant of these being the prevailing level of
worldwide demand for steel products, influence the world steel industry. During periods of
sluggish or declining regional or world economic growth, demand for steel products generally
decreases, which usually leads to corresponding reductions in demand for iron ore. Driven primarily by strong demand from Chinese steel makers, together with a modest expansion
in other markets, the global seaborne iron ore market experienced high demand and rising iron ore
and pellet prices in 2004. We cannot guarantee the length of time that demand will remain at
current high levels or the direction of future prices. Sustained declines in world contract prices
or sales volumes for iron ore could have a material adverse effect on our revenues. 9




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The mining industry is an intensely competitive industry, and we may have difficulty effectively
competing with other mining companies in the future. Intense competition characterizes the worldwide iron ore industry. We compete with a number
of large international mining companies. Some of these competitors possess substantial iron ore
mineral deposits at locations closer to our principal Asian and European customers. Competition
from foreign or Brazilian iron ore producers may result in our losing market share and revenues.
Our aluminum, manganese ore, copper concentrate and other activities are also subject to intense
competition and are subject to similar risks. Demand for iron ore and pellets in peak periods may outstrip our production capacity, rendering
us unable to satisfy customer demand. Our ability to rapidly increase production capacity to satisfy increases in demand for iron
ore is limited. In periods when customer demand exceeds our production capacity, we generally
satisfy excess customer demand by reselling iron ore and pellets purchased from joint ventures or
third parties. If we are unable to satisfy excess customer demand by purchasing from joint
ventures or third parties, we may lose customers. Similarly, because it takes time to increase
production capacity, we may fail to complete our iron ore expansion projects in time to take
advantage of the current high levels of worldwide demand for iron ore. In addition, operating at
or above full capacity may expose us to higher costs, including demurrage fees due to capacity
restraints in our mines, railroads and ports. Aluminum and copper are actively traded on world commodity exchanges and their prices are
subject to significant fluctuations. Aluminum and copper are sold in an active world market and traded on commodity exchanges, such
as the London Metals Exchange and the Commodity Exchange, Inc. Prices for these metals are subject
to wide fluctuations and are affected by many factors, including actual and expected international
economic and political conditions, levels of supply and demand, the availability and cost of
substitutes, inventory levels maintained by producers and others, and actions of participants in
the commodity markets. Prices for these metals are more volatile than iron ore and pellet prices
because they respond more quickly to actual and expected changes in market conditions. Commencement of our copper operations will expose us to new risks. In 2004, we began producing and marketing copper concentrate from our Sossego mine in Carajás.
Copper is a new business for CVRD. Risks involved with our entrance into the copper business
include, but are not limited to:  
    copper concentrate is sold at prices determined by reference to copper prices on the
London Metals Exchange, which are more volatile than prices in our iron ore and pellet
businesses;
    we may experience higher than expected treating and refining costs that decrease our
margins;
    due to our lack of experience in the copper industry, we may face operational
difficulties leading to high operating costs;
    capacity increases by other copper producers may place downward pressure on copper
prices; and
    we may encounter unexpected setbacks in expanding our copper operations due to
construction delays or difficulties obtaining required environmental licenses. Brazilian export products (e.g., grain and steel) could lose their international
competitiveness, reducing the internal demand for logistics services. The Brazilian agriculture and steel industries are currently the primary drivers of demand for
our logistics services. In 2004, approximately 78.8% of our logistics revenues were attributable
to these markets. A reduction in world demand for Brazilian steel or agriculture exports could
reduce demand for our logistics services and harm the profitability of our logistics business. 10




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Adverse economic developments in our principal markets, especially China, could reduce demand
for our products, leading to lower revenues and profitability. The world economy is the primary driver of demand in the global seaborne market for iron ore
and pellets. In recent years, China has been the main driver of our sales increases. In 2004,
16.0% of our iron ore and pellet gross revenues were attributable to customers in China, and
customers in China accounted for 11.7% of our total consolidated gross operating revenues. During
the same period, 14.1% of our consolidated gross revenues were attributable to customers from Asian
countries other than China and 30.1% were attributable to sales to European customers. A weakened
global economy or a weakened economy in specific markets where we sell our products, such as China,
could reduce demand, leading to lower revenues and profitability. Our reserve estimates may be materially different from mineral quantities that we may actually
recover, our estimates of mine life may prove inaccurate and market price fluctuations and
changes in operating and capital costs may render certain ore reserves or mineral deposits
uneconomical to mine. Our reported ore reserves and mineral deposits are estimated quantities of ore and minerals
that have the potential to be economically mined and processed under present and anticipated
conditions to extract their mineral content. There are numerous uncertainties inherent in
estimating quantities of reserves and in projecting potential future rates of mineral production,
including many factors beyond our control. Reserve engineering is a subjective process of
estimating underground deposits of minerals that cannot be measured in an exact manner, and the
accuracy of any reserve estimate is a function of the quality of available data and engineering and
geological interpretation and judgment. Estimates of different engineers may vary, and results of
our mining and production subsequent to the date of an estimate may lead to revision of estimates.
Reserve estimates and estimates of mine life may require revision based on actual production
experience and other factors. For example, fluctuations in the market price of metals, reduced
recovery rates or increased production costs due to inflation or other factors may render proven
and probable reserves containing relatively lower grades of mineralization uneconomic to exploit
and may ultimately result in a restatement of reserves. We may not be able to replenish our reserves, which could adversely affect our mining prospects. We engage in mineral exploration, which is highly speculative in nature, involves many risks
and frequently is nonproductive. Our exploration programs, which involve significant capital
expenditures, may fail to result in the expansion or replacement of reserves depleted by current
production. If we do not develop new reserves, we will not be able to sustain our current level of
production beyond the remaining life of our existing mines. Even if we discover mineral deposits, we remain subject to drilling and production risks, which
could adversely affect the mining process. Once we discover mineral deposits, it can take us a number of years from the initial phases of
drilling until production is possible, during which the economic feasibility of production may
change. It takes substantial time and expenditures to:  
    establish ore reserves through drilling;
    determine appropriate mining and metallurgical processes for optimizing the recovery of
metal contained in ore;
    obtain environmental and other licenses;
    construct mining and processing facilities for greenfield properties; and
    obtain the ore or extract the metals from the ore. If a project proves not to be economically feasible by the time we are able to exploit it, we
may incur substantial write-offs. In addition, potential changes or complications involving
metallurgical and other technological processes arising during the life of a project may result in
cost overruns that may render the project not economically feasible. 11




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We face rising extraction costs over time as reserves deplete. Reserves are gradually depleted in the ordinary course of a given mining operation. As mining
progresses, distances to the primary crusher and to waste deposits become longer and pits become
steeper. As a result, over time, we usually experience rising unit extraction costs with respect
to each mine. Several of our mines have operated for long periods, and we will likely experience
rising extraction costs per unit in the future at these operations. An increase in fuel costs may adversely affect our business. Our operations rely heavily on fuel sources. Fuel and gas represented 11% of our cost of
goods sold in 2004. Fuel costs are a major component of our total costs in our logistics and
pellets businesses, and indirectly affect numerous other areas of our business, including our
mining and aluminum-related businesses. An increase in oil and gas prices may lead to lower
margins in our logistics, mining and aluminum-related businesses. We are involved in ongoing antitrust proceedings that could result in divestitures, fines or
other restrictions that could harm our business. We are currently involved in 14 proceedings before the Conselho Administrativo de Defesa
Econômica, or CADE, which is the primary Brazilian antitrust regulator. 11 of these proceedings
involve post-transaction review of acquisition or joint venture transactions, which is required for
nearly all of our acquisitions and joint ventures. The remaining 3 proceedings are administrative
proceedings alleging that we have engaged in illegal anticompetitive conduct in connection with our
iron ore, logistics and aluminum businesses. We intend to defend these claims vigorously, but
cannot predict their outcome. If CADE were to find that we have engaged in anticompetitive
conduct, it could order us to cease the conduct and/or to pay fines, which could be substantial. Our principal pending post-transaction review proceedings involve CVRDs acquisitions of
Socoimex, Samitri, Ferteco, Belém and CAEMI, and the agreement to unwind the cross-shareholdings
between CVRD and Companhia Siderúrgica Nacional, or CSN. CADE may decline to approve these
transactions or may place conditions on its approval that would have a material adverse effect on
our business. In connection with CADEs review, the Brazilian Economic Law Secretariat of the
Ministry of Justice, or SDE, and the Brazilian Secretariat for Economic Monitoring, or SEAE, have
each issued reports to CADE recommending that CADE condition its approval of these transactions on
actions that could have an adverse effect on our business, including maintenance of certain pricing
policies, divestiture of certain of our mines, the termination of our rights regarding the Casa de
Pedra iron ore mine and the sale and restructuring of certain of our logistics interests. Prior to
rendering its decision, CADE must also receive and consider the recommendations of the Ministerio
Publico Federal. CADE may adopt some, all or none of the recommendations made by such bodies, or
choose to impose other conditions pursuant to its approval that would be harmful to our business. For more information, see Item 8. Financial InformationLegal Proceedings. Our principal shareholder could have significant influence over our company. Valepar, our principal shareholder, currently owns 53.3% of our outstanding common stock and
34.1% of our total outstanding capital. For a description of the ownership of our shares, see Item
7. Major Shareholders and Related Party TransactionsPrincipal Shareholder. As a result of its
share ownership, Valepar can control the outcome of any action requiring shareholder approval,
except for the appointment of certain directors and certain members of our conselho fiscal, or
fiscal council. Further, the Brazilian government owns three golden shares of CVRD that give it
limited veto powers over certain actions that we could otherwise take. For a detailed description
of the veto powers granted to the Brazilian government by virtue of its ownership of these golden
shares, see Item 10. Additional InformationCommon Shares and Preferred SharesGeneral. Many of our operations depend on joint ventures; our business could be adversely affected if our
joint venture partners do not observe their commitments. We currently operate important parts of our pelletizing, electric energy, aluminum, bauxite
and steel businesses through joint ventures with other companies. Our forecasts and plans for
these joint ventures assume that our joint venture partners will observe their obligations to make
capital contributions, purchase products and, in some cases, 12




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provide managerial talent. If any of our joint venture partners fails to observe its
commitments, the affected joint venture may not be able to operate in accordance with its business
plans or we may have to increase the level of our investment to give effect to these plans. For
more information on our joint ventures, see Item 4. Information on the CompanyLines of Business. Our market risk management strategy may not be effective. We are exposed to traditional market risks such as fluctuations in interest rates, exchange
rates and commodity prices. In order to partially protect ourselves against market volatility, we
enter into hedging transactions to manage some of these risks. See Item 11. Quantitative and
Qualitative Disclosures About Market Risk.Our hedging strategy may not be successful in
minimizing our cash flow exposure to these fluctuations and we may fail to identify correlations
between the various market risks to which we are subject. In addition, to the extent we partially
hedge our commodity price exposure, we may limit the upside benefits that we would otherwise
experience if commodities prices were to increase. We do not currently hedge risks relating to
fluctuations in iron ore, manganese, ferroalloys, copper and oil prices. 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. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our Annual Report on
Form 20-F for the fiscal year ending December 31, 2006, we will be required to furnish a report by
our management on our internal control over financial reporting. Such report will contain, among
other matters, an assessment of the effectiveness of our internal control over financial reporting
as of the end of the fiscal year, including a statement as to whether or not our internal control
over financial reporting is effective. This assessment must include disclosure of any material
weaknesses in our internal control over financial reporting identified by management. Such report
will also contain a statement that our auditors have issued an attestation report on managements
assessment of such internal controls. If we identify material weaknesses in our internal control over financial reporting and we are
unable to correct them in a timely manner, our management may be unable to conclude in its internal
control report that our internal control over financial reporting is effective, which could cause
investor confidence in the integrity of our financial reporting to suffer, lead to a decline in the
trading price of our securities or limit our ability to access the capital markets. Similar
adverse effects could result if our auditors express an adverse opinion or disclaim or qualify an
opinion on managements assessment or on the effectiveness of our internal control over financial
reporting. We may not have adequate, if any, insurance coverage for some business risks that could lead to
economically harmful consequences to us. Our businesses are generally subject to a number of risks and hazards, including:
  
    industrial accidents;
    railroad accidents;
    labor disputes;
    slope failures;
    environmental hazards;
    electricity stoppages;
    equipment or vessel failures; and
    severe weather and other natural phenomena. 13




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These occurrences could result in damage to, or destruction of, mineral properties, production
facilities, transportation facilities, equipment or vessels. They could also result in personal
injury or death, environmental damage, waste of resources or intermediate products, delays or
interruption in mining, production or transportation activities, monetary losses and possible legal
liability. The insurance we maintain against risks that are typical in our business may not
provide adequate coverage. Insurance against some risks (including liabilities for environmental
pollution or certain hazards or interruption of certain business activities) may not be available
at a reasonable cost or at all. As a result, accidents or other negative developments involving
our mining, production or transportation facilities could have a material adverse effect on our
operations. 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 operate in regions where tropical diseases are prevalent, and we are developing a potential
coal mining operation in Mozambique, where AIDS is a major public health issue. If we are unable
to adequately protect our employees from these diseases or are unable to ensure the health and
safety of our employees, our business may be adversely affected. Difficulties in implementing enterprise resource planning software may interfere with the normal
functioning of our business. We are in the process of implementing enterprise resource planning software. If we are unable
to replace, upgrade or modify our information technology systems to adapt to this new software in a
timely and cost effective manner, our ability to capture and process financial transactions may be
impacted. Implementing the software may prove more costly or take longer than expected, result in
the loss of data or lead to system malfunctions that interfere with the normal functioning of our
business. If we are unable to successfully manage the process of implementing the new software our
results of operations may be adversely affected. We may face a shortage in our supply of off-the-road tires and mining equipment due to increased
consumption by mining companies that exceeds suppliers capacity. Global demand for off-the-road (OTR) tires increased significantly in 2004. Although
manufacturers of mining and drilling equipment increased their capacity during 2004, capacity
increases were not sufficient to compensate for the significant increase in demand for mining
equipment. There are only five major tire factories worldwide and each is working at maximum
capacity. The three major suppliers have already sold their entire OTR tire production through
mid-year 2006. We expect that there will be very limited increases in large radial tire production
over the next two years and that delivery lead times will increase significantly. Further capacity
increases have been limited by bottlenecks in the distribution of parts and equipment from
suppliers to equipment manufacturers. If we are unable to secure sufficient OTR tires to maintain
our equipment, we may suffer temporary reductions in our production capacity. An increase in the prices of mining equipment may adversely affect our business. Due to the significant expansion of mining investments worldwide and the surge in steel
prices, mining equipment prices have increased significantly. Increases in the cost of mining
equipment may have a negative effect on the profitability margins of our mining business. Risks Relating to Brazil The Brazilian government has historically exercised, and continues to exercise, significant
influence over the Brazilian economy. Brazilian political and economic conditions have a direct
impact on our business and the market price of our securities. The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes
substantial changes in policy, as often occurs in other emerging economies. The Brazilian
governments actions to control inflation and carry out other policies have in the past involved
wage and price controls, currency devaluations, capital controls and limits on imports, among other
things. Our business, financial condition and results of operations may be adversely affected by
factors in Brazil including: 14




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##### 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. Brazil has in the past experienced extremely high rates of inflation, with annual rates of
inflation reaching as high as 2.567% in 1993 (as measured by the Índice Geral de Preços do Mercado
published by Fundação Getúlio Vargas, or IGP-M Index). More recently, Brazils rates of inflation
were 10.4% in 2001, 25.3% in 2002, 8.7% in 2003, 12.4% in 2004 and 2.4% in the four months ended
April 30, 2005 (as measured by the IGP-M Index). Inflation, governmental measures to combat
inflation and public speculation about possible future actions have in the past had significant
negative effects on the Brazilian economy, and have contributed to economic uncertainty in Brazil
and to heightened volatility in the Brazilian securities markets. If Brazil experiences
substantial inflation in the future, our costs may increase, our operating and net margins may
decrease and, if investor confidence declines, the price of our securities may fall. Inflationary
pressures may also curtail our ability to access foreign financial markets and may lead to further
government intervention in the economy, which could involve the introduction of government policies
that may adversely affect the overall performance of the Brazilian economy. Fluctuations in the value of therealagainst the U.S. dollar may result in uncertainty in the
Brazilian economy and the Brazilian securities market and could have a material adverse effect
on our net income and cash flow. The Brazilian currency has historically suffered frequent devaluation. In the past, the
Brazilian government has implemented various economic plans and exchange rate policies, including
sudden devaluations, periodic mini-devaluations during which the frequency of adjustments has
ranged from daily to monthly, floating exchange rate systems, exchange controls and dual exchange
rate markets. Although over long periods depreciation of the Brazilian currency generally is
correlated with the differential in the inflation rate in Brazil versus the inflation rate in the
U.S., depreciation over shorter periods has resulted in significant fluctuations in the exchange
rate between the Brazilian currency and the U.S. dollar and other currencies. The realappreciated by 8.1% against the U.S. dollar in 2004, and appreciated by 4.6% during
the first four months of 2005. The exchange rate between the realand the U.S. dollar may continue
to fluctuate and may rise or decline substantially from current levels. Depreciation of the realagainst the U.S. dollar reduces the U.S. dollar value of
distributions and the dividends on our American Depositary Shares and may also reduce the market
value of our securities. In addition, exchange rate variations often have a significant effect on
our net income. Depreciation of the realrelative to the U.S. dollar may require us to record
substantial foreign exchange and monetary losses on our U.S. dollar-denominated debt, whereas
appreciation of the realagainst the U.S. dollar generally leads to the opposite effect. These
foreign exchange and monetary gains or losses can be substantial, which can make our earnings from
one period to the next more volatile. Exchange rate variations also have a substantial impact on
our revenues and costs, because most of our revenues are in U.S. dollars and most of our costs are
in reais.As a result, appreciation of the realagainst the U.S. dollar generally results in lower
revenues and higher costs, which can hurt our operating profitability. 15




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Exchange rate variations also influence the Brazilian economy and inflation rates, which may
lead the Brazilian government to adopt policies that may have an adverse impact on our business.
For additional information about historical exchange rates, see Item 3. Key InformationExchange
Rates. Access to and the cost of borrowing in international capital markets for Brazilian companies are
influenced by investor perceptions of risk in Brazil and other emerging economies, which may
hurt our ability to finance our operations at an acceptable cost or reduce the trading price of
our securities. International investors generally consider Brazil to be an emerging market. As a result,
economic and market conditions in other emerging market countries, especially those in Latin
America, influence the market for securities issued by Brazilian companies. Economic crises in one
or more emerging market countries may reduce overall investor appetite for securities of emerging
market issuers. Past economic crises in emerging markets, such as in Southeast Asia, Russia and
Argentina, have resulted in significant outflows of U.S. dollars from Brazil and caused Brazilian
companies to face higher costs for raising funds, both domestically and abroad, and have
effectively impeded the access to international capital markets for extended periods. We cannot
assure you that international capital markets will remain open to Brazilian companies or that
prevailing interest rates in these markets will be advantageous to us. In addition, future
financial crises in emerging market countries may have a negative impact on the Brazilian markets,
which could adversely affect the trading price of our securities. Brazilian government policies in the energy sector may have an adverse impact on the cost or
supply of electricity for our aluminum-related and ferroalloy operations. We are a significant consumer of Brazils electricity production, and accounted for
approximately 4.5% of total consumption in Brazil in 2004. Electricity costs are a significant
component of the cost of producing aluminum and ferroalloys and represented 7.7% of our cost of
goods sold in 2004. Brazil faced a shortage of energy during the second half of 2001, which led to an
energy-rationing program that required a decrease in energy consumption by at least 20%. As a
result of this program, we experienced a temporary reduction in our aluminum and ferroalloy
production, both of which use significant amounts of electricity. Although the energy shortages
ended in late 2001, and energy-use restrictions were lifted in March 2002, we cannot assure you
that Brazil will not experience future energy shortages. Future shortages and government policies
to respond to or prevent shortages may have an adverse impact on the cost or supply of electricity
for our aluminum and ferroalloy operations. The Brazilian power generation business depends on concessions granted by the government and
is regulated and supervised by ANEEL. A new law for the electricity sector was approved by the
Brazilian Congress in March 2004 and established two public auctions in order to trade excess
energy available in the market. The first auction occurred in December 2004 and the second in
April 2005. The prices established in these auctions were low and may contribute to a decline in
investments in future generation projects that could lead to energy shortages in the future.
Changes in the laws, regulations or governmental policies regarding the power sector or concession
requirements could lower the returns we are expecting from our investments in power generation.
For more information on the regulations governing our energy production, see Item 4. Information
on the CompanyRegulatory Matters. Our mining and logistics activities depend on authorizations of regulatory agencies, and changes
in regulations could have an adverse effect on our business. Our mining and logistics activities in Brazil depend on authorizations and concessions by
regulatory agencies of the Brazilian government. Our exploration, mining, mineral processing and
logistics activities are also subject to Brazilian laws and regulations, which can change at any
time. If these laws and regulations change in the future, modifications to our technologies and
operations could be required, and we could be required to make unbudgeted capital expenditures.
For a more detailed discussion about the authorizations and concessions by regulatory agencies of
the Brazilian government upon which our mining and logistics activities depend, see Item 4.
Information on the CompanyRegulatory Matters. 16




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Brazilian environmental laws may adversely affect our mining and energy businesses. Our operations often involve using, handling, disposing and discharging hazardous materials
into the environment or the use of natural resources, and are therefore subject to the
environmental laws and regulations of Brazil. Environmental regulation in Brazil has become
stricter in recent years, and it is possible that more regulation or more aggressive enforcement of
existing regulations will adversely affect us by imposing restrictions on our activities, creating
new requirements for the issuance or renewal of environmental licenses, raising our costs or
requiring us to engage in expensive reclamation efforts. Our projects often require us to obtain or renew environmental licenses. Difficulties in
obtaining those licenses may lead to construction delays or cost increases and in some cases may
lead us to abandon a project. We are also subject to Brazilian environmental legislation that requires companies undertaking
projects with significant environmental impact to pay an environmental compensation fee in the
amount of at least 0.5% of the total investment in the venture. There are numerous uncertainties
about how this law will be applied in practice. If the level of the fees actually charged were
increased above 0.5%, it would significantly increase our costs and, depending on the magnitude of
the fees involved, could have a material adverse effect on our liquidity. Uncertainties regarding
calculation and payment of these fees may strain our relations with the Brazilian environmental
authorities or lead to delays in obtaining necessary environmental permits. Brazilian laws restricting development in the Amazon region for legal reserve purposes may
place limits on our ability to expand certain of our copper or other operations and to fully
exploit our mineral rights in those regions. See Item 4. Information on the CompanyRegulatory
MattersEnvironmental Matters. Several Brazilian states in which we operate are currently considering implementing water
usage fees under the National Hydrological Resources Policy. This may require us to pay usage fees
in the future for water rights that we currently use for free, which could considerably increase
our costs in areas where water resources are scarce. In addition, we are currently a defendant in an action brought by the municipality of Itabira,
in the state of Minas Gerais, Brazil, which alleges that our Itabira iron ore mining operations
have caused environmental and social damages. If we do not prevail in this lawsuit, we could incur
a substantial expense. For more information on environmental laws and the legal challenges we
face, see Item 4. Information on the CompanyRegulatory MattersEnvironmental Mattersand Item 8.
Financial InformationLegal Proceedings. Risks Relating to the American Depositary Shares Restrictions on the movement of capital out of Brazil may hinder your ability to receive
dividends and distributions on American Depositary Shares and the proceeds from any sale of
American Depositary Shares. The Brazilian government may impose restrictions on capital outflows whenever there is a
serious imbalance in Brazils balance of payments or reason to foresee a serious imbalance. This
would hinder or prevent the custodian who acts on behalf of the depositary for the American
Depositary Shares from converting proceeds from the shares underlying the American Depositary
Shares into U.S. dollars and remitting those proceeds abroad. The Brazilian government imposed remittance restrictions for approximately six months in 1989
and early 1990. If enacted in the future, similar restrictions would hinder or prevent the
conversion of dividends, distributions or the proceeds from any sale of shares from reaisinto U.S.
dollars and the remittance of the U.S. dollars abroad. In that event, the custodian, acting on
behalf of the depositary, will hold the reaisit cannot convert for the account of the holders of
American depositary receipts who have not been paid. The depositary will not invest the reaisand
will not be liable for interest on those amounts. Furthermore, any reaisso held will be subject
to devaluation risk. If you exchange American Depositary Shares for the underlying shares, you risk losing the
ability to remit foreign currency abroad and Brazilian tax advantages. The Brazilian custodian for the shares underlying our American Depositary Shares will obtain
an electronic registration from the Central Bank to entitle it to remit U.S. dollars abroad for
payments of dividends and other distributions relating to the shares underlying our American
Depositary Shares or upon the disposition of the 17




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underlying shares. If you decide to exchange your American Depositary Shares for the
underlying shares, you will be entitled to continue to rely, for five business days from the date
of exchange, on the custodians electronic registration. Thereafter, you may not be able to obtain
and remit U.S. dollars abroad upon the disposition of, or distributions relating to, the underlying
shares unless you obtain your own electronic registration by registering your investment in the
underlying shares under Resolution No. 2,689 of the National Monetary Council, which entitles
foreign investors to buy and sell securities on the São Paulo stock exchange, or BOVESPA. For more
information regarding these exchange controls, see Item 10. Additional InformationExchange
Controls and Other Limitations Affecting Security Holders. If you attempt to obtain your own
electronic registration, you may incur expenses or suffer delays in the application process, which
could delay your ability to receive dividends or distributions relating to the underlying shares or
the return of your capital in a timely manner. We cannot assure you that the custodians
electronic registration or any certificate of foreign capital registration obtained by you will not
be affected by future legislative changes, or that additional restrictions applicable to you, the
disposition of the underlying shares or the repatriation of the proceeds from disposition will not
be imposed in the future. Because we are not obligated to file a registration statement with respect to preemptive rights
relating to our shares, you may be unable to exercise those preemptive rights. Holders of American depositary receipts that are residents of the United States may not be
able to exercise preemptive rights, or exercise other types of rights, with respect to the
underlying shares. Your ability to exercise preemptive rights is not assured unless a registration
statement is effective with respect to those rights or an exemption from the registration
requirements of the Securities Act is available. We are not obligated to file a registration
statement relating to preemptive rights with respect to the underlying shares or to undertake steps
that may be needed to make exemptions from registration available, and we cannot assure you that we
will file any registration statement or take such steps. If a registration statement is not filed
and an exemption from registration does not exist, JPMorgan Chase Bank, as depositary, will attempt
to sell the preemptive rights, and you will be entitled to receive the proceeds of the sale.
However, the preemptive rights will expire if the depositary cannot sell them. For a more complete
description of preemptive rights with respect to the underlying shares, see Item 10. Additional
InformationCommon Shares and Preferred SharesPreemptive Rights. Holders of our American Depositary Shares may encounter difficulties in the exercise of voting
rights. Holders of our common and preferred class A shares are entitled to vote on shareholder
matters. You may encounter difficulties in the exercise of some of your rights as a shareholder if
you hold our American Depositary Shares rather than the underlying shares. For example, if we fail
to provide the depositary with voting materials on a timely basis, you may not be able to vote by
giving instructions to the depositary on how to vote for you. Our corporate affairs are governed by our bylaws and the Brazilian Corporate Law, which differ
from the legal principles that would apply if we were incorporated in a jurisdiction in the United
States or elsewhere outside Brazil. Under the Brazilian Corporate Law, holders of our common and
preferred class A shares may have fewer and less well-defined rights to protect their interests
relative to actions taken by our Board of Directors or by Valepar than under the laws of some
jurisdictions outside Brazil. Although Brazilian law imposes restrictions on insider trading and price manipulation, the
Brazilian securities markets are not as highly regulated and supervised as the U.S. securities
markets or markets in certain other jurisdictions. In addition, rules and policies against
self-dealing and regarding the preservation of minority shareholder interests may be less
well-developed and enforced in Brazil than in the United States, which could potentially
disadvantage you as a holder of the underlying shares and American Depositary Shares. For example,
when compared to Delaware general corporation law, Brazilian corporate law and practice has less
detailed and well-established rules and judicial precedents relating to the review of management
decisions against duty of care and duty of loyalty standards in the context of corporate
restructurings, transactions with related parties, and sale-of-business transactions. In addition,
shareholders in Brazilian companies ordinarily do not have standing to bring a class action. In addition, as a foreign private issuer, we are not required to follow many of the corporate
governance rules that apply to U.S. domestic issuers with securities listed on the New York Stock
Exchange, or the NYSE. For more information concerning our corporate governance policies, see Item
6. Directors, Senior Management and Employees. 18




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Item 4. Information on the Company 
 BUSINESS OVERVIEW General We are the worlds largest producer and exporter of iron ore and pellets, the largest metals
and mining company in the Americas and one of the largest private sector companies in Latin America
by market capitalization. We hold exploration claims that cover 12.0 million hectares (29.6
million acres) in Brazil, and 3.8 million hectares (9.4 million acres) in Gabon, Chile, Mozambique,
Mongolia, Argentina and Peru. We operate large logistics systems, including railroads and ports
that are integrated with our mining operations. Directly and through affiliates and joint
ventures, we have major investments in the aluminum-related, energy and steel businesses. We are
investing heavily in copper and coal exploration, and our first copper mine began operations in
June 2004. Our main lines of business are:  
    Ferrous minerals (68.9% of 2004 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 CAEMIs mines and port facilities.
At December 31, 2004, we had a total of 6,869 million tons of proven and probable iron ore
reserves in our three systems in Brazil, with an average grade of 51.7% iron in our
Southern System, 66.7% in our Northern System and 65.8% in CAEMI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 (5.8% of 2004 consolidated gross operating revenues).We are the
worlds third largest producer of kaolin and Brazils largest 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. Our non-ferrous
minerals business also includes our exploration efforts related to copper, gold and nickel.
    Logistics (10.3% of 2004 consolidated gross operating revenues).We are a leading
provider of logistics services in Brazil, with operations in the railroad, coastal shipping
and port handling industries. Each of the iron ore complexes of our Northern and Southern
Systems incorporates an integrated railroad network linked to automated port and terminal
facilities, and is designed to provide our mining products, general cargo and passenger
rail transportation, bulk terminal storage and ship loading services to us and third
parties. In 2004, our railroads transported approximately 65.6% of the total freight
tonnage transported by Brazilian railroads, or approximately 139.0 billion ntk of cargo, of
which 110.1 billion ntk were our iron ore and pellets.
    Aluminum-related operations (14.7% of 2004 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 16.7 million
tons of bauxite in 2004. We are developing a wholly owned bauxite mine in the
Paragominas region, in the state of Pará.o
    Alumina refining, which we conduct via our alumina refining subsidiary,
Alunorte-Alumina do Norte do Brasil S.A., or Alunorte, which currently has a nominal
production capacity of 2.4 million tons of alumina per year. In July 2003, Alunorte
began work on a capacity expansion designed to increase its annual capacity to 4.2
million tons per year. We are also negotiating the terms of a potential joint venture
with the Aluminum Corporation of China Limited (Chalco) to construct a new alumina
refinery in the state of Pará. 19




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°
    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 541,000
tons of aluminum per year.  
    Other investments.In addition to our core mining activities, we currently have
investments in three steel companies, and 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), Posco, Dongkuk, Danieli, BNDES and
ThyssenKrupp Stahl A.G. to construct and operate steel slab plants in São Luís, in the
state of Maranhão, Rio de Janeiro, in the state of Rio de Janeiro and Fortaleza, in the
state of Ceará, Brazil. We also hold stakes in nine hydroelectric power generation
projects with a total projected capacity of 3,364 MW (of which our share is 1,333.5 MW),
four of which have already begun operations, and the remainder of which are scheduled to
start operations within the next five years. Negotiations are currently underway to return
the concession for the Santa Isabel hydroelectric project to the Brazilian government. Through our mineral prospecting and development activities in Brazil, we have acquired
extensive experience in exploration techniques and processes, and maintain an active mineral
exploration program in Brazil and overseas. In 2004, our mineral exploration efforts were focused
on copper, gold, nickel, manganese ore, kaolin, bauxite, diamond and platinum group metals. Incorporation of CVRD and Vale Overseas CVRD CVRDs legal and commercial name is Companhia Vale do Rio Doce. CVRD is a stock corporation,
or sociedade por ações, duly organized on January 11, 1943, and existing under the laws of the
Federative Republic of Brazil. CVRD was privatized in three stages between 1997 and 2002, beginning with the sale by the
Brazilian government of a controlling stake in CVRD to Valepar in 1997. The last stage of the
privatization took place in 2002, when the Brazilian government sold a remaining minority stake of
common shares through a global equity offering. It is organized for an unlimited period of time.
CVRDs principal executive offices are located at Avenida Graça Aranha, No. 26, 20030-900 Rio de
Janeiro, RJ, Brazil, and our telephone number is 55-21-3814-4540. Vale Overseas Vale Overseas is a finance company wholly owned by CVRD. It was registered and incorporated
as a Cayman Islands exempted company with limited liability on April 3, 2001. Vale Overseas is
incorporated for an indefinite period of time. Its registered office is at Walker House, P.O. Box
908 GT, Mary Street, Georgetown, Grand Cayman, Cayman Islands. Vale Overseas business is to issue debt securities to finance CVRDs activities. It has no
other operations or employees. Vale Overseas has issued three series of debt securities, including
its US$ 300 million 8.625% Enhanced Guaranteed Notes due 2007, issued in March 2002, its US$ 300
million 9.0% Notes due 2013, issued in August 2003 and its US$ 500 million 8.25% Notes due 2034,
issued in January 2004. We used the proceeds of these securities for general corporate purposes. On December 17, 2004, Vale Overseas completed a cash tender offer and repurchased US$ 187
million of its 8.625% Enhanced Guaranteed Notes due 2007. US$ 113 million of these Notes remains
outstanding. Business Strategy Our goal is to strengthen our competitiveness among the worlds leading mining companies by
focusing on diversified growth in mining operations, principally by organic growth and developing
our logistics business. We are pursuing disciplined capital management in order to maximize return
on invested capital and total return to 20




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shareholders. Although we are emphasizing organic growth in our core businesses, we may
pursue strategic acquisitions in order to create value for our shareholders. Over the past several years, we have developed a robust long-term strategic planning process.
We are building on these changes with ambitious long-range plans in each of our principal business
areas, including substantial capital expenditures for organic growth through 2012. The following paragraphs provide some highlights of our major strategies. Maintaining Our Leadership Position in the Seaborne Iron Ore Market In 2004, we consolidated our leadership in the seaborne iron ore trade market, with an
estimated 32.1% of the total 602 million tons traded in the year. We are committed to maintaining
our position in the world iron ore market by strengthening relationships with clients, focusing our
product line to capture industry trends, increasing our production capacity in line with demand
growth and controlling costs. We believe that our strong relationships with major customers
(reinforced through long-term contracts), tailored product line and high quality products will
likely enable us to achieve this goal. We are taking steps to encourage several steel makers to develop export-oriented slab plants
in Brazil in order to create additional demand for our iron ore. Growing Our Logistics
Business We believe that the quality of our railway assets and our many years of experience as a
railroad and port operator, together with the lack of efficient transportation for general cargo in
Brazil, position us as a leader in the logistics business in Brazil. We are also expanding the
capacity of our railroads through the purchase of additional locomotives and wagons. Increasing Our Aluminum-Related Activities We plan to develop and increase production capacity in our aluminum-related operations,
focusing on the first steps of the production chain, developing low-cost bauxite and alumina
projects. We have large undeveloped high quality bauxite reserves and opportunities for low-cost
expansions in our alumina refinery. We are working on the development of these opportunities. We
are also investing in mineral exploration to increase our bauxite reserves. We may pursue
acquisitions and/or partnerships in the production of primary aluminum to guarantee demand for our
alumina. Developing Our Copper
Resources We believe that our copper projects, which are all situated in the Carajás region, in the
state of Pará, can be among the most competitive in the world in terms of investment cost per ton
of ore. Our copper mines will benefit from our transportation facilities serving the Northern
System. Investing in Coal We are pursuing several efforts to become a large global participant in the coal business. As
an important supplier of raw materials to the steel industry, metallurgical coal will complement
our portfolio of products. Globalization of Multi-Commodity Exploration Efforts We are engaged in an active mineral exploration program, with efforts in several countries
around the globe, including Brazil, Peru, Chile, Argentina, Mongolia, Gabon, Angola and Mozambique.
We are mainly seeking new deposits of copper, gold, manganese ore, nickel, kaolin, bauxite, coal,
diamond and platinum group metals. Mineral exploration is an important part of our organic growth
strategy. 21




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Developing Power Generation Projects Energy management and efficient supply have become a priority for us. Driven both by
structural changes in the industry and regulatory uncertainties, which could increase the risk of
rising electricity prices and energy shortages, such as Brazil experienced in the second half of
2001, we have invested in nine projects to develop hydroelectric power generation plants and we
plan to use the electricity from these projects for our internal needs. As a large consumer of
electricity, we expect that investing in power projects will help protect us against volatility in
the price of energy. Acquisitions, Asset Sales and Significant Changes in 2004 and 2005 Iron Ore and Pellets Carajás expansion. In 2004, we completed a major capacity expansion in our wholly owned
Northern System, including a new pier at the local port, Ponta da Madeira and expansion at our
Carajás iron ore mine operations. As a result, the annual nominal capacity of Carajás is now 70
million tons per year, an increase of 14 million tons. We are currently in the process of further
expansions to reach 85 million tons per year in 2006 and 100 million tons per year by 2007. Leasing of Andrade mine.In 2004, we entered into an agreement to lease the Andrade iron ore
mine and explore it for the remaining useful life of the mine. It is located in the state of Minas
Gerais, 80 km from the Itabira iron ore mines and connected to the Vitória a Minas railroad. Our
project is to expand the current mine capacity of 1.4 million tons to 9.4 million tons by 2008. Start up of Capão Xavier mine.In June 2004, we started operations at our Capão Xavier iron
ore mine in the CAEMI system. The proximity of the Capão Xavier mine to the Mutuca mine, which has
been operating in the region for over 40 years, allows the usage of the ore processing and
transportation infrastructure that already exists at the location. In 2004, Capão Xavier produced
4.2 million tons of iron ore and it is expected to produce 8 million tons in 2005. Long-term contracts.During 2004, we signed new long-term contracts for the supply of more
than 1.1 billion tons of iron ore with an average maturity of ten years. Maquiné deposit acquisition. On March 18, 2005, we acquired Sociedade de Mineração Estrela de
Apolo, or Estrela de Apolo, for US$ 9.3 million. Estrela de Apolo is a mining company that has
iron ore and bauxite mineral rights in the state of Minas Gerais. We will develop feasibility
studies to estimate the annual production capacity of the deposit. Logistics Cabotage liner service.In May 2003, we agreed with Mitsui & Co. to create DCNDB, a joint
venture organized to develop a cabotage liner service. In November 2004, Mitsui acquired 21% of
the shares of the joint venture, and we own the remaining 79% interest. We expect this joint
venture will allow us to be the first major carrier to offer cabotage service between the ports of
Fortaleza, in the state of Ceará, Brazil and Buenos Aires, Argentina. We believe this joint
venture will help us increase our share in the cabotage market and enable us to attract additional
domestic and international customers. Ponta da Madeira Pier III. In the first half of 2004, Pier III at Ponta da Madeira Terminal,
in the state of Maranhão, began operations. Pier III can accommodate vessels up to 220,000 DWT and
has a maximum loading rate of 8,000 tons per hour. The pier is being used for the shipment of iron
ore and pellets, supporting the expansion of production capacity at Carajás. Phase II of the Pier
III expansion is now underway to install a new ship loader. This phase is expected to be completed
by July 2005, see Item 4. Information on the CompanyCapital Expenditures. CPBS maritime terminal expansion. We plan to expand the capacity of CPBS maritime terminal,
in Sepetiba Bay, in the state of Rio de Janeiro, from 16 million tons to 19 million tons by 2005,
and to 21 million tons by 2007. 22




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Aluminum-Related
Operations Alunorte capacity expansion.In July 2003, Alunorte began work on a new capacity expansion
for its alumina refinery. This brownfield project, estimated to start up by 2006, involves the
construction of stages 4 and 5 of the plant, and is expected to increase its annual capacity from
2.4 million to 4.2 million tons of alumina per year. Paragominas project.We are developing a new wholly owned bauxite mine located in
Paragominas, in the state of Pará, which is expected to begin commercial production in the first
half of 2007 to supply Alunortes new expansion with 4.5 million tons per year of wet 12% moisture
bauxite. The bauxite quality will be similar to MRNs, and the project will use the strip mining
method of extraction and have a beneficiation plant including milling and a 244-kilometer long
slurry pipeline. ABC refinery project. In May 2004, we signed a framework agreement with Chalco that sets
forth a general outline of some of the principal terms for a potential joint investment in an
alumina refinery in Brazil (ABC refinery). Under the agreement, we have agreed with Chalco to
develop a joint study for the construction of a greenfield refinery in the state of Pará, near the
existing facilities of Alunorte. The alumina refinery is expected to have an initial capacity of
1.8 million tons per year and will require investments currently estimated to be approximately US$
810 million. The refinery project would form part of a series of related transactions involving
mining, transportation, shipping and port development in Brazil. The framework agreement
contemplates that bauxite for the project would be supplied from our Paragominas bauxite mine. If
the project proceeds, the first stage of the refinery would be expected to be completed and
operational in 2008. Since May 2004, two memoranda of understanding have been signed to define the
main guidelines for the project. However, the project remains subject to the negotiation of final
documentation and receipt of approvals from the boards of both companies and from the Brazilian
government. Pitinga bauxite deposit. In November 2004, CVRD won an international bid from Paranapanema
S.A. for US$ 20 million to research, evaluate and explore a bauxite deposit in the Pitinga region,
in the state of Amazonas, Brazil. Copper Sossego.In the first half of 2004, our Sossego copper mine began operations. Sossego
produced 73 thousand tons of copper contained in concentrate in 2004, generating gross revenues of
US$ 201 million. Our second copper project, 118, is subject to Board of Directors approval. If
such approval is obtained, the construction of 118 is expected to start in the first half of 2005. Steel and Metallics Ferro Gusa pig iron joint venture. In April 2003, we signed an investment agreement with
Nucor Corporation, a North American steel maker, in order to form a joint venture in Brazil, Ferro
Gusa Carajás S.A., or Ferro Gusa, in which 78% and 22% of the voting shares will be held by CVRD
and Nucor Corporation (or one of its affiliates), respectively. The main purpose of Ferro Gusa is
the production and sale of pig iron. In September 2003, we contributed to Ferro Gusa the forest
assets once held by Celmar, a wholly owned subsidiary of CVRD which was merged into CVRD in August
2003. The cultivated forest assets, now owned by Ferro Gusa, will be used as an energy source for
its pig iron production. On May 3, 2004 and March 15, 2005, Nucor Brasil Participações Ltda.
(Nucor) an affiliate of Nucor Corporation, invested US$ 10 million in the capital of Ferro Gusa
(as contemplated in the investment agreement). As a result, CVRD currently has approximately 78%
and Nucor currently has approximately 22% of the voting shares of Ferro Gusa. We expect the plant
to start up in the third quarter of 2005. Steel slab plant feasibility studies. We are taking steps to encourage several
steel makers to develop export-oriented slab plants in Brazil in order to create additional demand
for our iron ore.  
    Baosteel. In February 2004, we agreed with Baosteel, Chinas largest steel maker, to
commence a study to assess the feasibility of implementing a joint venture to build and
operate an integrated steel plant in São Luís, in the state of Maranhão. An Engineering
Service Agreement has been signed authorizing the basic engineering and formal feasibility
study for the project. The feasibility report is currently under revision and the final
version is expected to be issued shortly. As currently planned, the plant is expected to
produce approximately 4.1 million tons of steel slabs per year, with a possible future
capacity expansion to 23




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7.5 million tons per year. Arcelor has also participated in the feasibility study, but no
agreement has been reached regarding its potential participation in the project.  
    Dongkuk, Danieli and BNDES.In March 2004, we signed a memorandum of understanding with
Dongkuk, a Korean steel maker, Danieli, an Italian supplier of equipment and BNDES to carry
out a feasibility study for the construction and implementation of a steel slab plant. The
plant would be based on DRI and an electric arc furnace and would be located in Fortaleza,
in the state of Ceará. The study contemplates one module of 1.5 million tons per year of
slabs and the financial structure for the project is expected to be defined by July 2005.
    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 work is currently in
progress and the pre-feasibility report is expected to be issued in the second half of
2005.
    ThyssenKrupp  Companhia Siderúrgica do Atlântico. 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 an integrated slab plant in Brazil. Companhia Siderúrgica
do Atlântico will be created as a joint venture to conclude the joint feasibility study and
implement the project. If the project proceeds, the slab plant is expected to be located
in the state of Rio de Janeiro and to start production in 2008 with an annual capacity of
4.4 million tons. Coal and Coke We are pursuing several efforts to become a large global participant in the coal business.  
    Mozambique coal mine feasibility study. In November 2004, CVRD won an international bid
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 estimated 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
by June 2006. If the project proceeds, the total investment is estimated to be US$ 1
billion, which includes mine development costs, the construction of a maritime terminal for
ship loading, related investments and social projects.
    Longyu anthracite (coal) project. At the end of 2004 and in the beginning of 2005, we
entered into agreements with Yongcheng Coal & Electricity Group and Shanghai Baosteel
International Economic & Trading Co., Ltd to acquire a 25% stake in the Chinese anthracite
producer Henan Longyu Energy Resources Co. Ltd, or Longyu, for US$ 86 million. Longyu is
engaged in the development, operation and maintenance of coal mines and sales of coal and
related products in China. The partnership contemplates that we will have guaranteed
off-take rights to a portion of the coal production of the mines, which we intend to
consume at our pelletizing plants and to sell to clients in the Brazilian and international
markets. If the project proceeds, the mines are expected to produce 1.7 million tons of
coal in 2005. The transaction remains subject to the negotiation of final documentation,
as well as to the approval of the Chinese government and is expected to close in July 2005.
    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 2.0 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 an indirect 25% participation
interest, Yankuang holds a 70% equity interest and Itochu holds the remaining 5%. As
currently planned, the plant would begin operations in 2006 and approximately 25% of the
plants production would 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 24




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##### Table of Contents



approximately 3.0 million tons of coal per year, and if the project proceeds, the mine is
expected to start operations in 2007. Other Minerals Potash. In November 2004, we won the concession to research and evaluate a potash deposit in
the Neuquen Province, on the banks of the Colorado river in Argentina. Phosphates. In March 2005, CVRD won an international bid to explore the Bayóvar phosphate
deposit located in the Piura region in Peru. CVRD will have the right to evaluate and develop a
multimodal maritime terminal in the Piura region to ship phosphate and leverage other projects in
northern Peru. The feasibility study must be completed within two years, after which, the project
must be implemented within a 36-month period. Nickel. We recently concluded the feasibility studies for our Vermelho nickel project. Board
of Directors approval to begin its construction is expected in June 2005. If the project
proceeds, the construction of the mine, with an estimated capacity of 45,000 tons of nickel cathode
and 2,000 tons of cobalt per year, is expected to be completed in 2008. Electricity Start up of Candonga hydroelectric power plant. In September 2004, the Candonga hydroelectric
power plant began operations with the start up of its first turbine. Candongas other two turbines
began operations in October and December 2004. We hold a 50% stake in Consorcio Candonga, which
owns the Candonga plant. Candonga has an installed capacity of 140 MW and a generation capacity of
64.5 average MW, equivalent to 565.020 megawatt hour (MWh) per year. We will use our share of the
power from Candonga in our iron ore mining, pelletizing, port operations and other facilities in
the states of Minas Gerais and Espírito Santo, Brazil. Dispositions and Asset Sales In line with our focus on mining and logistics, we have continued to pare down our holdings of
non-strategic assets. We summarize below our key dispositions and asset sales since the beginning
of 2004. Companhia Siderúrgica Tubarão.In July 2004, we sold to Arcelor, the worlds largest steel
maker, 4.42% of the voting capital and 29.96% of the non-voting capital of Companhia Siderúrgica de
Tubarão, or CST for US$ 415 million. In December 2004, we sold our remaining stake in CST to
Arcelor for US$ 164 million. This was possible due to the waiver given by the other parties to CST
shareholders agreement. This resulted in the total divestment of our interest in CST. Santa Isabel hydroelectric power project.Negotiations are currently underway with ANEEL to
return the concession for the Santa Isabel hydroelectric project due to difficulties related to
environmental issues. 
 LINES OF BUSINESS Our principal lines of business consist of mining and logistics. We also invest in energy to
supply part of our consumption. For internal management purposes, we group our aluminum-related
operations together with our other significant equity participations in other companies. Mining Ferrous Minerals Our ferrous minerals business segment includes iron ore mining, pellet production, manganese
ore mining and ferroalloy production. 25




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##### Table of Contents



The table below sets forth our ferrous minerals gross revenues by geographic market and by
category for the periods indicated as reflected in our consolidated financial statements. For the Year ended December 31,2002
    
    
    2003(1)
    
    
    2004(in millions of US$)Gross revenues classified by
geographic destinationAmericas, except Brazil and United States
    
    US$
    392
    
    
    US$
    526
    
    
    US$
    735Brazil
    
    
    996
    
    
    
    1,142
    
    
    
    1,424United States
    
    
    340
    
    
    
    337
    
    
    
    533Europe
    
    
    1,799
    
    
    
    2,213
    
    
    
    3,223Middle East/Africa/Oceania
    
    
    239
    
    
    
    292
    
    
    
    412Japan
    
    
    488
    
    
    
    569
    
    
    
    683China
    
    
    574
    
    
    
    897
    
    
    
    1,392Asia, other than Japan and China
    
    
    368
    
    
    
    422
    
    
    
    611Subtotal
    
    
    5,196
    
    
    
    6,398
    
    
    
    9,013Eliminations(2)
    
    
    (2,093
    )
    
    
    (2,549
    )
    
    
    (3,169
    )Total
    
    US$
    3,103
    
    
    US$
    3,849
    
    
    US$
    5,844Gross revenues classified by categoryIron ore
    
    
    2,147
    
    
    
    2,662
    
    
    
    3,995Pellets
    
    
    673
    
    
    
    838
    
    
    
    1,148Manganese ore and ferroalloys
    
    
    283
    
    
    
    349
    
    
    
    701Total
    
    US$
    3,103
    
    
    US$
    3,849
    
    
    US$
    5,844
   (1)
    
    The operations of CAEMI are reflected in the above table as of September 2003, the
date on which we acquired and began consolidating its operations.(2)
    
    Eliminations of transactions between consolidated figures. Iron Ore We conduct our iron ore business primarily at the parent company level and through our
subsidiaries Urucum Mineração S.A., or Urucum, and CAEMI. Reserves The table below sets forth information regarding our proven and probable iron ore reserves and
projected exhaustion dates as of December 31, 2004. The estimates of mineral reserves have been
audited and verified by Pincock Allen & Holt, experts in mineral engineering. The projected
exhaustion dates are estimated based on our estimates of future production levels. 26




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##### Table of Contents



Proven and ProbableBegan
    
    Projected/Actual
    
    Production For the Year Ended
    
    
    Reserves atMine(1)
    
    Operations
    
    Exhaustion Date
    
    December 31,
    
    
    December 31, 20042002
    
    
    2003
    
    
    2004
    
    
    Ore Tonnage
    
    
    Grade(in millions of tons)
    
    
    (in millions of tons)
    
    
    (% Fe)Southern SystemItabira:Cauê(2)
    
    1942
    
    2004
    
    
    20.7
    
    
    
    22.3
    
    
    
    22.0
    
    
    
    
    
    
    
    Conceição(3)
    
    1957
    
    2023
    
    
    20.0
    
    
    
    20.8
    
    
    
    21.6
    
    
    
    425.7
    
    
    
    54.5Minas do Meio(4)
    
    1976
    
    2020
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    587.9
    
    
    
    53.3Minas CentraisÁgua Limpa / Cururu(5)
    
    2000
    
    2013
    
    
    3.2
    
    
    
    4.0
    
    
    
    4.1
    
    
    
    70.9
    
    
    
    45.0Gongo Soco (6)
    
    2000
    
    2009
    
    
    6.8
    
    
    
    3.2
    
    
    
    5.4
    
    
    
    108.1
    
    
    
    59.2Brucutu(7)
    
    1994
    
    2027
    
    
    0.1
    
    
    
    1.6
    
    
    
    6.0
    
    
    
    745.6
    
    
    
    51.9Baú(8)
    
    2005
    
    2020
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37.1
    
    
    
    55.7Maquiné(9)
    
    2006
    
    2027
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    278.7
    
    
    
    58.3Córrego do Meio (10)
    
    2000
    
    2005
    
    
    1.2
    
    
    
    1.2
    
    
    
    1.9
    
    
    
    
    
    
    
    MarianaAlegria(11)
    
    2000
    
    2024
    
    
    9.9
    
    
    
    9.9
    
    
    
    12.2
    
    
    
    212.9
    
    
    
    53.5Fábrica Nova(11)
    
    2005
    
    2034
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1046.5
    
    
    
    47.1Fazendão(12)
    
    1976
    
    2032
    
    
    0.8
    
    
    
    0.3
    
    
    
    0.6
    
    
    
    353.7
    
    
    
    50.1Timbopeba(13)
    
    1984
    
    2008
    
    
    5.2
    
    
    
    5.8
    
    
    
    6.2
    
    
    
    88.1
    
    
    
    55.3Capanema/Ouro Fino(14)
    
    1982
    
    2003
    
    
    4.0
    
    
    
    6.4
    
    
    
    
    
    
    
    
    
    
    
    Minas do OesteCórrego do Feijão(15)
    
    2003
    
    2012
    
    
    6.3
    
    
    
    7.2
    
    
    
    7.7
    
    
    
    20.5
    
    
    
    67.0João Pereira(16)
    
    2003
    
    2025
    
    
    5.2
    
    
    
    9.9
    
    
    
    11.1
    
    
    
    404.6
    
    
    
    49.0Área 10, Segredo,
Ponto 2 and 3(16)
    
    2005
    
    2025
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    118.7
    
    
    
    57.3Total Southern System
    
    
    
    
    
    
    83.4
    
    
    
    92.6
    
    
    
    98.8
    
    
    
    4,499.0
    
    
    
    51.7Urucum(17)
    
    1993
    
    n.a.
    
    
    0.8
    
    
    
    0.8
    
    
    
    0.7
    
    
    
    n.a.
    
    
    
    n.a.Northern System(18)N4W
    
    1994
    
    2025
    
    
    12.8
    
    
    
    13.2
    
    
    
    19.4
    
    
    
    634.5
    
    
    
    66.5N4E
    
    1984
    
    2018
    
    
    17.8
    
    
    
    21.4
    
    
    
    21.9
    
    
    
    407.1
    
    
    
    66.8N5W
    
    1998
    
    2020
    
    
    6.3
    
    
    
    6.1
    
    
    
    5.0
    
    
    
    289.4
    
    
    
    66.0N5E
    
    1998
    
    2008
    
    
    17.0
    
    
    
    17.9
    
    
    
    21.7
    
    
    
    50.2
    
    
    
    67.4N5EN
    
    2003
    
    2016
    
    
    
    
    
    
    0.3
    
    
    
    1.4
    
    
    
    22.2
    
    
    
    65.5N5S
    
    2006
    
    2017
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    371.3
    
    
    
    67.3Total Northern System
    
    
    
    
    
    
    53.9
    
    
    
    58.9
    
    
    
    69.4
    
    
    
    1,774.7
    
    
    
    66.7CAEMI System(19)Pico:Pico / Sapecado
    
    1942
    
    2009
    
    
    11.6
    
    
    
    12.6
    
    
    
    13.1
    
    
    
    60.2
    
    
    
    63.1Abóboras
    
    2004
    
    2024
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    32.8
    
    
    
    66.0Tamanduá:Tamanduá
    
    1993
    
    2016
    
    
    8.5
    
    
    
    10.2
    
    
    
    10.5
    
    
    
    106.2
    
    
    
    66.4Capitão do Mato
    
    1997
    
    2016
    
    
    6.4
    
    
    
    10.2
    
    
    
    10.8
    
    
    
    161.2
    
    
    
    66.2Single mines:Jangada
    
    2001
    
    2017
    
    
    2.5
    
    
    
    3.0
    
    
    
    3.6
    
    
    
    68.3
    
    
    
    66.2Capão Xavier
    
    2004
    
    2021
    
    
    
    
    
    
    
    
    
    
    4.2
    
    
    
    166.7
    
    
    
    65.9Águas Claras
    
    1973
    
    2002
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total CAEMI System
    
    
    
    
    
    
    30.5
    
    
    
    35.9
    
    
    
    42.4
    
    
    
    595.4
    
    
    
    65.8Total CVRD
    
    
    
    
    
    
    167.8
    
    
    
    188.3
    
    
    
    211.3
    
    
    
    6,869.1
    
    
    
    56.8
   (1)
    
    CVRDs equity interest in mines is 100% unless otherwise noted.(2)
    
    Reserves were not reported for 2004 due to the mines depleted state. The plant
beneficiates iron ore from Minas do Meio.(3)
    
    Average product recovery after beneficiation is 76%. The plant beneficiates iron ore from
Conceição mine and Minas do Meio.(4)
    
    Average product recovery after beneficiation is 74%. The run-of-mine is sent to Cauê
Concentration Plant and Conceição Concentration Plant. The production is declared in Cauê
and Conceição.(5)
    
    Average product recovery after beneficiation is 49%. 27




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##### Table of Contents



(6)
    
    Average product recovery after beneficiation is 69%.(7)
    
    Average product recovery is 100% (direct shipping).(8)
    
    Average product recovery is 84%.(9)
    
    Average product recovery is 84%.(10)
    
    Average product recovery is 100% (direct shipping). Reserves were not reported for 2004
due to the mines depleted state.(11)
    
    Average product recovery after beneficiation is 72%.(12)
    
    Average product recovery is 100% (direct shipping). It produces lump ore only.(13)
    
    Average product recovery after beneficiation is 74%.(14)
    
    CVRDs ownership interest is 51%. Average product recovery after beneficiation is 84%.
Reserves were not reported for 2004 due to the mines depleted state.(15)
    
    Average product recovery after beneficiation is 80%.(16)
    
    Average product recovery is 60%. The run-of-mine is sent to Fábrica Concentration Plant.(17)
    
    There are no proven and probable iron ore reserves at Urucum.(18)
    
    Average product recovery after beneficiation is 85%.(19)
    
    Average product recovery after beneficiation is 77.2%. 28




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##### Table of Contents



Integrated Systems The following map shows the location of our current principal operations. (MAP) 29




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##### Table of Contents



Our iron ore mining and related operations are concentrated in three systems in Brazil, the
Southern System, the Northern System and the CAEMI System. The Southern System is located in the
states of Minas Gerais, Espírito Santo and Rio de Janeiro, and the Northern System is located in
the states of Pará and Maranhão. Each of our Northern and Southern Systems includes iron ore
reserves and other mineral deposits, mines, ore processing facilities and integrated railroad and
terminal transportation facilities. Our railroads connect the Northern System mines to the Ponta
da Madeira Maritime Terminal Complex and the Southern System mines to the Tubarão Maritime Terminal
Complex. A small part of the iron ore produced in our Southern System is transported via MRS, a
railway company in which we have a 37.2% direct and indirect participation interest, to our wholly
owned CPBS maritime terminal. The operation of these separate systems, each with its own
transportation capability, enhances the reliability of service to our customers. We also operate
the CAEMI System which similarly contracts freight services from MRS to transport all of its
products from its mines in the Iron Quadrangle region in the state of Minas Gerais, to the Guaiba
maritime terminal in the state of Rio de Janeiro. Southern System (MAP) The Southern System is an integrated system consisting of iron ore mines, the Vitória a Minas
railroad, and the Tubarão Maritime Terminal (located in Vitória, in the state of Espírito Santo).
The iron ore mines of the Southern System are divided in four mining areas (Itabira, Minas
Centrais, Mariana and Minas do Oeste) and located in a region called the Iron Quadrangle in the
state of Minas Gerais, in the southeast of Brazil. The Southern System is accessible by road or by
spur tracks of the Vitória a Minas railroad. A small portion of the iron ore produced in the
Southern System mines is transported through the MRS railroad to our CPBS maritime terminal at the
Sepetiba Port, in the state of Rio de Janeiro. Transportation of the iron ore produced in the
Southern System is discussed below in Item 4. Information on the Company-Line of
Business-Logistics. Iron ore in the Southern System is mined by open pit methods. These ore reserves have high
ratios of itabirite ore relative to hematite ore. Itabirite is a quartz-hematite rock with an
average iron content ranging from 35% to 60% requiring concentration to achieve shipping grade,
which is above a 64% average iron content. Hematite is a high-grade ore with an average iron
content of approximately 66%. Mines in the Southern System generally process their run-of-mine by
means of standard crushing, classification and concentration steps, producing sinter feed, lump ore
and pellet feed in the beneficiation plants located at the mining sites. In 2004, we produced 57.5% of the energy consumed in the Southern System at our Igarapava,
Porto Estrela, Funil and Candonga hydroelectric power plants. 30




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##### Table of Contents



Northern System (MAP) The Northern System is an integrated system, including open pit mines and an ore processing
complex in the Carajás region, in the state of Pará, the Carajás railroad and the Ponta da Madeira
Maritime Terminal, in the state of Maranhão. The mines are located in the north of Brazil (in the
Amazon river basin), on public lands for which we hold mining concessions. The Northern Systems
reserves are among the largest iron ore deposits in the world. These reserves are divided into two
main ranges (north and south), situated approximately 35 kilometers apart. Iron ore mining
activities in the Northern System are currently being conducted in the northern range, which is
divided into five main mining bodies (N4E, N4W, N5W, N5E and N5EN). Industrial scale mining
operations began in 1985. Because of the high iron content (66.7% on average) in the Northern System, we do not have to
operate a concentration plant at Carajás. The beneficiation process consists simply of sizing
operations, including screening, hydrocycloning, crushing and filtration. This allows us to
produce marketable iron ore in the Northern System at a lower cost than in the Southern System.
Output from the beneficiation process consists of sinter feed, pellet feed, special fines for
direct reduction processes and lump ore. After the beneficiation process, our Carajás railroad
transports Northern System iron ore to the Ponta da Madeira Maritime Terminal. Our complex in Carajás is accessible by road, air and rail. It obtains electrical power at
market rates from regional utilities. To support our Carajás operations we have housing and other
facilities in a nearby township. 31




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##### Table of Contents



CAEMI System (MAP) CAEMI operates its iron ore activities through its subsidiary MBR. MBR operates mines in the
Iron Quadrangle in the state of Minas Gerais and ships through its own maritime terminal on Guaiba
Island in Sepetiba Bay, in the state of Rio de Janeiro. MBR presently operates two main mining areas, Pico and Tamanduá, and two other single mines,
Jangada and Capão Xavier, which have an average iron content of 65.9%. Iron ore is mined by the
open pit method in each of the mines. Lump ore, sinter feed fines and pellet feed fines are
produced from iron ore extracted from each mine after beneficiation. Each of Jangada, Pico and
Tamanduá has its own beneficiation plant. MBR transports its iron ore to the Guaiba Island maritime terminal at market rates via the MRS
railway. 32




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##### Table of Contents



Pellets The table below sets forth information regarding our share ownership and joint venture
partners as of May 31, 2005 and total pellet production by our joint ventures and us for the

periods indicated. Our Direct or
    
    
    
    Total Pellet Production(1)Indirect Share of
    
    
    
    for the Year Ended
    
    NominalSystem
    
    Capital
    
    Partners
    
    December 31,
    
    CapacityVoting
    
    Total
    
    
    
    2002
    
    2003
    
    2004%
    
    
    
    (in millions of tons)CVRD(2)
    
    Northern/ Southern
    
    
    n.a.
    
    
    
    n.a.
    
    
    
    
    
    10.3
    
    
    
    13.0
    
    
    
    16.3
    
    
    
    15.7GIIC
    
    Bahrain
    
    
    50.0
    
    
    
    50.0
    
    
    GIC
    
    
    3.1
    
    
    
    3.7
    
    
    
    3.7
    
    
    
    4.0Hispanobras
    
    Southern
    
    
    51.0
    
    
    
    50.9
    
    
    Arcelor
    
    
    3.7
    
    
    
    3.6
    
    
    
    4.0
    
    
    
    3.8Itabrasco
    
    Southern
    
    
    51.0
    
    
    
    50.9
    
    
    Ilva
    
    
    3.3
    
    
    
    3.3
    
    
    
    3.5
    
    
    
    3.3Kobrasco
    
    Southern
    
    
    50.0
    
    
    
    50.0
    
    
    Posco
    
    
    4.1
    
    
    
    4.4
    
    
    
    4.5
    
    
    
    4.3Nibrasco
    
    Southern
    
    
    51.1
    
    
    
    51.0
    
    
    Nippon Steel
Sumitomo
JFE Steel
Kobe Steel
Nisshin Steel
SOJITZ Corp.
    
    
    7.1
    
    
    
    7.7
    
    
    
    8.3
    
    
    
    8.4Samarco
    
    Ponta do Ubú
    
    
    50.0
    
    
    
    50.0
    
    
    BHP Billiton
    
    
    11.6
    
    
    
    13.3
    
    
    
    13.8
    
    
    
    14.0Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43.2
    
    
    
    49.0
    
    
    
    54.1
    
    
    
    51.5
   (1)
    
    Total production by joint venture entity.(2)
    
    Production and capacity figures include CVRD I and II in Tubarão, the São Luís
pelletizing plant and the Fábrica pelletizing plant.
 We sell pellet feed to our pellet joint ventures at market-based prices. Historically,
we have supplied all of the iron ore requirements of our wholly owned pelletizing plants and joint
ventures, except for Samarco and GIIC to whom we supply a portion of their needs. Besides blast
furnace pellets, some of the pellets we and our pelletizing joint ventures produce are direct
reduction pellets, which are used in steel mills that use the direct reduction process rather than
blast furnace technology. We operate our pelletizing joint ventures located in the Tubarão Port area. In 2004, we
received US$ 53 million in fees for operating these joint ventures. The table below sets forth information regarding iron ore shipments to our pellet joint
ventures for the periods indicated. For the Year EndedDecember 31,2002
    
    
    2003
    
    
    2004(in millions of tons)GIIC
    
    
    2.6
    
    
    
    2.7
    
    
    
    3.5Hispanobras
    
    
    3.7
    
    
    
    3.8
    
    
    
    4.2Itabrasco
    
    
    3.6
    
    
    
    3.5
    
    
    
    3.7Kobrasco
    
    
    4.4
    
    
    
    4.7
    
    
    
    4.8Nibrasco
    
    
    7.3
    
    
    
    7.1
    
    
    
    7.1Samarco
    
    
    2.0
    
    
    
    2.0
    
    
    
    2.0Total
    
    
    23.6
    
    
    
    23.9
    
    
    
    25.3
 33




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##### Table of Contents



Customers, Sales and Marketing (Iron Ore and Pellets) We use all of our iron ore and pellets (including our share of joint venture pellet
production) to supply the steel making industry. Prevailing and expected levels of demand for
steel products affect demand for our iron ore and pellets. Demand for steel products is influenced
by many factors, such as expected rates of economic growth. Most of our iron ore and pellets are shipped to Asia and Europe, with customers in China,
Japan, South Korea, France and Germany accounting for approximately 46.5% of our total iron ore and
pellets shipments in 2004. Historically, we have sold to the Brazilian market one-third of our
iron ore shipments. In 2004, 36% of the iron ore sold in Brazil was directed to our pelletizing
joint ventures, whose pellets are primarily sold to other markets. Our 10 largest customers
collectively purchased 89 million tons of iron ore and pellets from us, representing 38.7% of our
2004 iron ore and pellet shipments and 33.6% of our total iron ore and pellets revenues. With the
exception of Arcelor which accounted for 11% of our sales of iron ore and pellets in 2004, no
individual customer accounted for more than 10% of our sales of iron ore and pellets for any of the
three years ended December 31, 2004. We strongly emphasize customer service in order to improve our competitiveness. We work with
our customers to understand their principal objectives and to provide them with iron ore solutions
to meet specific customer needs. To provide tailored solutions, we take advantage of our large
number of iron ore mines and pellet plants to produce multiple iron ore products with different
grades of iron, silica and alumina, and varying physical properties. We believe that our ability
to provide our customers with a total iron ore solution, and the quality of our products are very
important advantages helping us to improve our competitiveness in relation to competitors who may
be more conveniently located geographically. In addition to offering technical assistance to our
customers, CVRD operates sales support offices in Tokyo, Brussels, New York and Shanghai. These
offices allow us to stay in close contact with our customers, monitor their requirements and our
contract performance, and ensure that our customers receive timely deliveries. Our central sales
office in Rio de Janeiro coordinates the activities of these offices. CAEMIs sales support
offices are located in Westport, Connecticut (United States), The Hague (The Netherlands), Hong
Kong and Shanghai (China). Distribution (Iron Ore and Pellets) Our ownership and operation of transportation systems designed for the efficient
transportation of iron ore products complement our iron ore mining business in the Northern and
Southern Systems. We operate an integrated railroad and terminal network in each of our Northern
and Southern Systems. These networks transport our iron ore products from interior mining
locations to maritime terminals and domestic customers. For a more detailed description of the
networks see  Logisticsbelow. We do not own or operate an integrated transportation system for our CAEMI System. Instead we
enter into freight contracts with MRS to transport our iron ore products at market rates from MBRs
mines to its maritime terminal on Guaiba Island and to its domestic customers. Competition (Iron Ore and Pellets) In general, the international iron ore market is highly competitive. Several large producers
operate in this market. The principal factors affecting competition are price, quality, range of
products offered, reliability, operating costs and transportation costs. In 2004, the European
market and the Asian market (primarily China, Japan and South Korea) were the primary markets for
our iron ore. Our biggest competitors in the Asian market are located in Australia and include subsidiaries
and affiliates of BHP Billiton PLC and Rio Tinto Ltd. Although the transportation costs of
delivering iron ore from Australia to Asian customers are generally lower than ours as a result of
Australias geographical proximity, we believe we are able to remain competitive in the Asian
market for two principal reasons. First, steel producers generally seek to obtain the types (or
blends) of iron ore, which can produce the intended final product in the most economic and
efficient manner. Our iron ore has low impurity levels and other properties that generally lead to
lower processing costs. For example, the alumina content of our iron ore is very low compared to
Australian ore. Our ore also has high iron grade, which improves productivity in blast furnaces,
which is important during periods of high demand. Second, steel mills often develop sales
relationships based on a reliable supply of a specific mix of iron ore. We have a
customer-oriented marketing policy and place specialized personnel in direct contact with our
clients to determine the blend that best suits each particular client. We sell most of our
products FOB from our ports, which 34




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##### Table of Contents



means that the invoice price includes delivery at our expense to our ports and no further. In
general, in the Northern and Southern Systems, our ownership of the process of producing and
transporting iron ore to our ports makes it easier for us to ensure that our products get to our
ports on schedule and at competitive costs. We are competitive in the European market for the reasons we described above, as well as the
proximity of the Ponta da Madeira and Tubarão ports facilities to European customers. Our
principal competitors in Europe are:  
    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 affiliates. The Brazilian iron ore market is competitive with a wide range of smaller producers and
integrated steel producers such as CSN and Mannesmann. Although pricing is relevant, quality and
reliability are important competitive factors as well. We believe that our integrated
transportation systems, high-quality ore and technical services make us a strong competitor in
Brazilian sales. Prices to Brazilian customers are based on global reference prices discounted by
the lower transportation costs to their facilities. Therefore, prices to these clients are lower
than to clients located outside Brazil. Manganese Ore and Ferroalloys We conduct our manganese ore and ferroalloy businesses primarily through the following
subsidiaries and joint ventures, as of May 31, 2005: Our Direct or IndirectShare of CapitalVoting
    
    
    Total
    
    
    Partners(%)Nova Era Silicon S.A. (NES)
    
    
    49.0
    %
    
    
    49.0
    %
    
    Mitsubishi JFE SteelRio Doce Manganèse Europe (RDME)
    
    
    100.0
    
    
    
    100.0Rio Doce Manganese Norway AS (RDMN)
    
    
    100.0
    
    
    
    100.0Rio Doce Manganês S.A. (RDM)
    
    
    100.0
    
    
    
    100.0Urucum Mineração S.A. (Urucum)
    
    
    100.0
    
    
    
    100.0
 In 2004, we were the largest manganese ore producer in the Americas and one of the
largest players in the global seaborne market, with total shipments of approximately 1,002 thousand
tons of manganese ore and 616 thousand tons of ferroalloys. We had US$ 701 million in revenues in
2004 from manganese ore and ferroalloy sales. We produce manganese ore products from the Azul mine in the Carajás region in the state of
Pará and from the Urucum mine in the Pantanal region in the state of Mato Grosso do Sul, Brazil.
We operate on-site beneficiation plants at both the Azul and Urucum mines. Both mines are
accessible by road and obtain electrical power at market rates from regional electric utilities.
We also operate five minor mines, Morro da Mina, Coribe, Barnabé, Cobra and São Desidério, in the
states of Minas Gerais and Bahia. Our manganese ore mines produce three types of manganese ore products:  
    metallurgical ore used primarily for the production of ferroalloys; 35




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
    natural manganese dioxide suitable for the manufacture of electrolytic batteries;
and
    chemical ore used in several industries for the production of fertilizer, pesticides and
animal food, and used as a pigment in the ceramics industry. The production of ferroalloys consumes significant amounts of electricity. For information on
the risks associated with potential energy shortages, see Item 3. Key InformationRisk Factors. The table below sets forth information regarding our manganese ore mines and recent manganese
ore production for the periods indicated. The estimates of mineral reserves of Urucum and Azul
have been audited and verified by Pincock, Allen & Holt. We own 100% of all mines. Projected
    
    
    ProductionBegan
    
    
    Exhaustion
    
    
    For the Year Ended
    
    
    Proven and Probable ReservesOperations
    
    
    Date
    
    
    December 31,
    
    
    
    
    
    
    Ore Tonnage2002
    
    
    2003
    
    
    2004
    
    
    Type
    
    
    (1)
    
    
    Grade(2)Azul
    
    
    1985
    
    
    
    2013
    
    
    
    1.8
    
    
    
    1.5
    
    
    
    2.0
    
    
    Open Pit
    
    
    36.8
    
    
    
    36.0Urucum(3)
    
    
    1976
    
    
    
    2022
    
    
    
    0.3
    
    
    
    0.4
    
    
    
    0.4
    
    
    Underground
    
    
    10.0
    
    
    
    45.5Morro da Mina(4)
    
    
    1902
    
    
    
    n.a.
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.2
    
    
    Open Pit
    
    
    n.a.
    
    
    
    n.a.Coribe, Barnabé, Cobra and São Desidério(4)
    
    
    1972
    
    
    
    n.a.
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.1
    
    
    Open Pit
    
    
    n.a.
    
    
    
    n.a.Total
    
    
    
    
    
    
    
    
    
    
    2.3
    
    
    
    2.2
    
    
    
    2.7
    
    
    
    
    
    
    
    46.8
    
    
    
    38.0
  
 (1)
    
    Reserves reported as run-of-mine wet tons, in millions of tons.(2)
    
    Reported as run-of-mine Mn% grade.(3)
    
    Based on the information gathered during the current drilling process as well as the
expansion/erosion method of calculation.(4)
    
    There are no proven and probable manganese reserves at Morro da Mina, Coribe, Barnabé,
Cobra or São Desidério.
 We currently operate eight mills that produce ferroalloys and special alloys  Santa Rita,
Barbacena, Ouro Preto, São João del Rey (all located in the state of Minas Gerais), Simões Filho
(in the state of Bahia), Corumbá (in the state of Mato Grosso do Sul), RDME (in Dunkerque, France)
and RDMN (in Mo I Rana, Norway). The table below sets forth information regarding our production
in 2004: Production
    
    
    Production inCapacity
    
    
    2004(In thousands of
    
    
    (In thousandstons per year)
    
    
    of tons)Rio Doce Manganèse Europe (RDME) (1)(2)
    
    
    136
    
    
    
    106Rio Doce Manganese Norway (RDMN)
    
    
    110
    
    
    
    106Rio Doce Manganês S.A. (RDM) (3)
    
    
    340
    
    
    
    338Urucum Mineração S.A.
    
    
    20
    
    
    
    19Nova Era Silicon S.A. (NES)
    
    
    45
    
    
    
    40Total
    
    
    651
    
    
    
    609
  
 (1)
    
    Production at RDME was interrupted for three months during 2004 to allow the plant
furnace to be relined.(2)
    
    Includes production of 4 thousand tons of special alloys (cored wire).(3)
    
    Includes production of 26 thousand tons of special alloys (cored wire).
 Competition (Manganese Ore and Ferroalloys) The markets for manganese ore and ferroalloys are highly competitive. Competition in the
manganese ore market takes place in two sectors. High-grade (40% Mn or more) manganese ore
competes on a seaborne basis, while low grade ore competes on a regional basis. For some
ferroalloys high-grade ore is mandatory, while for some others high and low grade ores are
complementary. Besides manganese ore content, cost and physical-chemical features play an
important role in competition (e.g.moisture, impurities). The main suppliers of high-grade (HG)
ores are South Africa, Gabon and Australia. The main producers of low-grade (LG) ores are Ukraine, 36




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China, Ghana, Kazakhstan, India and Mexico. CVRD is the second largest worldwide supplier of
manganese ores, with HG ores in Carajás and Urucum mines, and LG ores in the smaller mines in the
states of Minas Gerais and Bahia. The ferroalloy market is characterized by a large number of
market participants who compete primarily on the basis of price (which is a function of lower
costs). CVRD produces several types of ferroalloys, such as manganese ferro-silicon alloys
(SiMnFe), ferro-manganese high-carbon alloys (HCFeMn), ferro-manganese mediumcarbon alloys (MCFeMn)
and cored wire (special alloys). The principal competitive factors in this market are costs of
manganese ore, electricity, logistics and carbon. We compete both with standalone producers and
integrated producers that also mine their own ore. Our competitors are located principally in
manganese ore or steel producing countries. Non-Ferrous Minerals Our non-ferrous minerals business segment includes the production of non-ferrous minerals,
such as kaolin, potash, copper and gold. The table below sets forth information regarding our
non-ferrous minerals gross revenues and sales by geographic market for the periods indicated. For the Year Ended December 31,2002
    
    
    2003(2)
    
    
    2004(in millions of US$)Gross revenues classified by geographic destinationAmericas, except Brazil
    
    US$
    35
    
    
    US$
    8
    
    
    US$
    1Brazil
    
    
    96
    
    
    
    106
    
    
    
    163Europe/Middle East/Africa/Oceania
    
    
    100
    
    
    
    76
    
    
    
    301China
    
    
    4
    
    
    
    7
    
    
    
    81Japan
    
    
    3
    
    
    
    13
    
    
    
    31Asia, other than Japan and China
    
    
    1
    
    
    
    1
    
    
    
    107Subtotal
    
    US$
    239
    
    
    US$
    211
    
    
    US$
    684Eliminations(1)
    
    
    
    
    
    
    
    
    
    
    (195
    )Total
    
    US$
    239
    
    
    US$
    211
    
    
    US$
    489Gross revenues classified by categoryGold
    
    US$
    103
    
    
    US$
    21
    
    
    US$
    Potash
    
    
    91
    
    
    
    94
    
    
    
    124Copper
    
    
    
    
    
    
    
    
    
    
    201Kaolin
    
    
    45
    
    

    
    96
    
    
    
    164Total
    
    US$
    239
    
    
    US$
    211
    
    
    US$
    489
   (1)
    
    Eliminations of transactions between consolidated entities.(2)
    
    The operations of CAEMI are reflected in the above table as of September 2003, the date
on which we acquired and began consolidating its operations. Kaolin We conduct our kaolin business through CAEMI, which controls CADAM S.A. (CADAM), which began
operations in 1976, and Pará Pigmentos S.A. (PPSA), which began operations in August 1996. PPSA
and CADAM produce kaolin for paper coating. They also conduct research and development in other
uses for kaolin products to create a more diversified portfolio. Our Direct or IndirectShare of CapitalVoting
    
    
    Total
    
    
    Partners(%)CADAM S.A.
    
    
    100.00
    %
    
    
    37.03
    %
    
    Banco do Brasil S.A. BNDESPará Pigmentos S.A.
    
    
    85.57
    %
    
    
    82.05
    %
    
    Mitsubishi Corporation International Finance Corporation
 37




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##### Table of Contents



In December 2004, we sold our interest in PPSA to CAEMI, consolidating the management of
our kaolin business in CAEMI. Projected
    
    
    ProductionBegan
    
    
    Exhaustion
    
    
    For the Year EndedOperations
    
    
    Date
    
    
    December 31,
    
    
    Proven and Probable Reserves(in tons per year)
    
    
    
    
    
    
    Ore
    
    
    Grade2002
    
    
    2003
    
    
    2004
    
    
    Type
    
    
    Tonnage
    
    
    Brightness
    
    
    Grit
    
    
    PSDMorro do Felipe
    
    
    1976
    
    
    
    2013
    
    
    
    710.7
    
    
    
    711.2
    
    
    
    750.0
    
    
    Open Pit
    
    
    16.3
    
    
    
    87.0
    
    
    
    7
    
    
    
    n.a.Rio Capim (1)
    
    
    1996
    
    
    
    2008
    
    
    
    330.0
    
    
    
    423.0
    
    
    
    460.1
    
    
    Open Pit
    
    
    36.7
    
    
    
    82.9
    
    
    
    34
    
    
    
    66.3Total
    
    
    
    
    
    
    
    
    
    
    1,040.7
    
    
    
    1,134.2
    
    
    
    1,210.1
    
    
    
    
    
    
    
    53.0
    
    
    
    84.2
    
    
    
    26
    
    
    
    n.a.
   (1)
    
    Recovery is 37%. PPSA sold approximately 463 thousand tons of kaolin in 2004, generating revenues of US$ 72
million. PPSAs open pit Rio Capim mine and beneficiation plant are located in Ipixuna, in the
state of Pará. These operations are linked to the dry and port facilities in Barcarena, also in
the state of Pará, via a 180km pipeline. The beneficiated kaolin is pumped through the slurry
pipeline, which helps preserve the environment, guarantee the product quality and meet delivery
schedules, besides being very cost efficient. PPSA is currently expanding its production and sales, aiming at operating at its full capacity
of 600,000 tons per year. In July 2004, it signed a contract with International Paper, the worlds
largest paper producer, for the supply of 110,000 tons of kaolin per year between 2005 and 2009.
This agreement will allow PPSA to operate at a high level of capacity utilization from 2005
onwards. PPSA produces three products: Century HC, Century S and Paraprint, which are sold mainly
in the European and Asian markets. CADAM sold approximately 744 thousand tons of kaolin in 2004, generating revenues of US$ 92
million. CADAM is located on the border of the states of Pará and Amapá, in the Amazon area in
Northern Brazil. Due to the quality and logistics of its products, it has gained a solid
competitive global position in its market segment. CADAMs reserves are principally
concentrated in the Felipe mine, in Mazagão, in the state of Amapá. The beneficiation plant
and private port are situated on the west bank of the Jari river, in Munguba, in the state of Pará.
CADAM extracts kaolin from its open pit mine. CADAMs production process can be summarized as follows: the raw ore (run-of-mine) is
extracted and mixed with water and chemicals to create a liquid (kaolin dispersed in water). This
liquid is then pumped to a degritting station where natural impurities are removed. The kaolin in
liquid form, or slurry, is transported by gravity through a 6-km pipeline to the beneficiation
plant on the opposite side of the Jari river. The slurry is then processed by centrifuging,
removing iron by magnetic separation and chemical bleaching, and the resulting material is
filtered, evaporated and dried to produce lump or spray-dried kaolin. The kaolin is then shipped
from CADAMs private port, situated near the beneficiation plant on the west bank of the Jari
river. The kaolin can also be shipped in its liquid form, slurry, just before the drying
operations. Coating kaolin is loaded onto ships at CADAMs port in Munguba. Some of the lump production
is also processed into slurry form by CADAMs subsidiary located in Antwerp, Belgium. In Holland,
an advanced Technical Assistance Center is constantly researching the use of kaolin, offering
technical and commercial support to European and Asian customers. Potash We conduct our potash operations at the parent company level. We lease a potash mine (Taquari
 Vassouras mine) in Rosario do Catete, in the state of Sergipe, Brazil, from Petrobras  Petróleo
Brasileiro S.A. (Petrobras), the Brazilian oil company. The lease was signed in 1991 for a period
of 25 years, and is renewable for another 25 years. The mine is the only potash mine in Brazil and
has a current nominal capacity of 600,000 tons per year. Taquari  Vassouras is an underground
mine with a depth that varies from 430 to 640 meters. In 2004, we produced 638 38




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##### Table of Contents



thousand tons of
potash with total shipments of 630 thousand tons, and we had gross revenues of US$ 124 million.
All sales from Taquari  Vassouras mine are destined for the domestic market. We have budgeted US$ 78 million in capital expenditures to expand the mine capacity to 850,000
tons per year. Expansion is scheduled to be completed by 2005. Our proven and probable reserves
should be sufficient to ensure the estimated production for the next five years. Projected
    
    
    
    
    
    
    ProductionLeased
    
    
    Exhaustion
    
    
    
    
    
    
    For the Year EndedSince
    
    
    Date
    
    
    December 31,
    
    
    Proven and Probable Reserves(in thousands of tons per year)
    
    
    
    
    
    
    Ore2002
    
    
    2003
    
    
    2004
    
    
    Type
    
    
    Tonnage
    
    
    GradeTaquari  Vassouras(1)
    
    
    1992
    (2)
    
    
    2010
    
    
    
    627
    
    
    
    658
    
    
    
    638
    
    
    Underground
    
    
    19.2
    
    
    
    31.0Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.2
    
    
    
    31.0
    (1)
    
    Drill spacing is on nominal 200-meter intersections from vertical and sub horizontal
drilling. Tons are expressed as ROM dry metric tons. Recovery is 90%.(2)
    
    The mine began operations in 1986. In November 2004, we won a concession to research and evaluate a potash deposit in the
Neuquen Province, on the banks of the Colorado river, in Argentina. Gold Our gold operations currently consist of gold produced as a by-product of our iron ore
operations at Itabira, which we sell to third parties. In 2004, we produced 0.97 thousand troy
ounces of gold as a by-product of iron ore production at our Itabira mine. The copper concentrate
we produce at our Sossego copper mine also includes gold, but we do not sell the gold separately
from the concentrate. The copper concentrate produced at our Sossego mine contained 56.76 thousand
troy ounces of gold. Revenues related to gold contained in the copper concentrate are included in
our copper revenues. We also continue to invest in mineral exploration aimed at the discovery of
gold reserves. Gold sales generated less than US$ 1 million of revenues in 2004. The table below
sets forth information regarding our gold mines and recent gold production for the periods
indicated. The projected exhaustion date is based on 2004 production levels. Began
    
    
    Exhaustion
    
    
    ProductionOperations
    
    
    Date
    
    
    For the Year Ended December 31,2002
    
    
    2003
    
    
    2004(thousands of troy ounces)Fazenda Brasileiro (1)
    
    
    1984
    
    
    
    n.a.
    
    
    
    153.0
    
    
    
    51.3
    (2)
    
    
    Igarapé Bahia
    
    
    1991
    
    
    
    2002
    
    
    
    148.2
    
    
    
    
    
    
    
    Itabira (3)
    
    
    1984
    
    
    
    n.a.
    
    
    
    13.1
    
    
    
    2.3
    
    
    
    0.97Total
    
    
    
    
    
    
    
    
    
    
    314.5
    
    
    
    53.6
    (1)
    
    
    0.97
   (1)
    
    Fazenda Brasileiro was sold in August 2003.(2)
    
    Includes production prior to the sale of Fazenda Brasileiro.(3)
    
    Gold in Itabira mine is produced together with iron ore. These are small gold bodies
and their production depends on the level of iron ore production. Copper Sossego. Sossego is our first copper mine and began commercial production of copper
concentrate in June 2004. The Sossego copper mine is located in Carajás, in the state of Pará, in
northern Brazil. We conduct our Sossego operation at the parent company level. The Sossego copper mine has two main ore bodies (Sossego and Sequeirinho). The copper ore is
mined by open pit method and the run-of-mine is processed by means of standard primary crushing and
conveying, SAG (a semi-autogenous grinding mill which uses a large rotating drum filled with ore,
water and steel grinding balls which transforms the ore into a fine slurry), ball milling, copper
concentrate flotation, tailings disposal, concentrate 39




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##### Table of Contents



thickening, filtration and load out.
Projected annual operating capacity is 15 million tons of run-of-mine, to produce an average of
140,000 tons of copper contained in concentrate (30% grade). The concentrate is trucked to a
storage terminal in Parauapebas and then transported via the Carajás railroad to the Ponta da
Madeira Maritime Terminal in São Luís, in the state of Maranhão. Proven and Probable ReservesProjected
    
    
    Production 2004
    
    
    
    
    
    
    OreBegan Operations
    
    
    Exhaustion Date
    
    
    (tons)
    
    
    Type
    
    
    Tonnage
    
    
    GradeSossego(1)
    
    
    2004
    
    
    
    2021
    
    
    
    73,000
    
    
    Open pit
    
    
    250.3
    
    
    0.95% Cu and 0.27 Au (GPT)
   (1)
    
    Recovery for Sossego copper reserves is 92% of metal in concentrate. Drill spacing is
on nominal 80-meter centers. We have constructed an 85-kilometer road to link Sossego to the Carajás air and rail
facilities and a power line that allows us to purchase electrical power at market rates. We have a
long-term energy supply contract with Eletronorte, which sells us energy from the Tucuruí
hydroelectric power plant located on the Tocantins river. Copper exploration projects The table below sets forth information, at May 31, 2005, regarding our joint ventures and the
status and potential productivity of our principal copper prospects, all but one of which features
a gold by-product. Our Direct orIndirect Share
    
    
    
    
    
    
    Total
    
    
    Totalof Capital
    
    
    
    
    
    
    Expected
    
    
    Expected(Voting and
    
    
    
    
    
    
    Mineral
    
    
    Capital
    
    
    AnticipatedTotal) (1)
    
    
    Status
    
    
    Deposits
    
    
    Expenditures
    
    
    Start up Date(Millions of
    
    
    (In millions of(%)
    
    
    
    
    
    
    tons)
    
    
    US$)118
    
    
    50.0
    
    
    Feasibility concluded
    
    64 at 0.95% Cu
    
    
    218
    
    
    
    2007Salobo
    
    
    100.0
    
    
    Feasibility in progress
    
    700 at 0.86% Cu and 0.52 g/t Au
    
    
    n.a.
    
    
    
    n.a.Cristalino
    
    
    50.0
    
    
    Pre-feasibility in progress
    
    375 at 0.64% Cu and 0.12 g/t Au
    
    
    n.a.
    
    
    
    n.a.Alemão
    
    
    67.0
    
    
    Pre-feasibility in progress
    
    161 at 1.3% Cu and 0.87 g/t Au
    
    
    n.a.
    
    
    
    n.a.
   (1)
    
    Where the project is not wholly owned, our partner in the project is BNDES. In addition, we and BNDES are prospecting the Carajás region for new copper exploration
projects. See Item 4. Information on the CompanyLines of BusinessMiningMineral Risk Contract. We will build a semi-industrial plant to process copper using the hydrometallurgical route.
The objective of this plant, which will have capacity to produce 10,000 tons of copper cathodes per
year, is to test a new technological route to produce the metal from copper sulphide concentrates. We will use copper concentrate from the Sossego mine to feed the plant, which is expected to
start up by the second quarter of 2007 and be productive for two years. We estimate that this
period will be sufficient to prove the feasibility of industrial production through the
hydrometallurgical route, supporting the construction of a larger plant to process copper ore from
other deposits owned by CVRD, including the Salobo project. The capital expenditures estimated for
the construction of this semi-industrial plant amount to US$ 58 million. 40




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##### Table of Contents



Exploration As part of our mineral prospecting and development activities in Brazil, we have acquired
extensive experience in exploration techniques and processes specifically designed for use in
tropical areas of the world. Our current mineral exploration efforts are mainly in Brazil, Peru,
Chile, Mongolia, Gabon, Mozambique, Angola and Argentina and focus primarily on copper, gold,
nickel, manganese ore, kaolin, bauxite, coal, potash, diamond and platinum group metals.
Exploration costs are recorded as expenses until viability of mining activities is established (see
Note 3 to our financial statements). The capital expenditures budget for research and development
for 2005 is US$ 375 million. Mineral Risk Contract We and BNDES entered into a Mineral Risk Contract in March 1997, relating to prospecting
authorizations for mining regions where drilling and exploration are still in their early stages.
The Mineral Risk Contract provides for the joint development of certain unexplored mineral deposits
in approximately two million identified hectares of land in the Carajás region, which is part of
the Northern System, as well as proportional participation in any financial benefits earned from
the development of such resources. Iron ore and manganese ore deposits already identified and
subject to development were specifically excluded from the Mineral Risk Contract. Pursuant to the Mineral Risk Contract, we and BNDES each agreed to provide US$ 205 million,
which represents half of the US$ 410 million in expenditures estimated as necessary to complete
geological exploration and mineral resource development projects in the region. In April 2004, the
Mineral Risk Contract was renewed for an additional period of five years or until the total value
of US$ 410 million is spent (including disbursements already made, which amounted to US$ 357.6
million in December 31, 2004) whichever occurs first. 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, 2004, the remaining contributions
towards exploration and development activities totaled US$ 52.4 million. The contract provides
that each party may choose not to contribute and have its financial interest proportionally
diluted. If a partys participation in the Mineral Risk Contract is diluted to an amount lower
than 40% of the amount invested in connection with exploration and development projects, then it
provides that the diluted party will lose all the rights and benefits provided for in the Mineral
Risk Contract and any amounts previously contributed to the project. Under the Mineral Risk Contract, BNDES has agreed to compensate us for our contribution of
existing development and ownership rights in the Carajás region through a finders fee production
royalty on mineral resources that are discovered and placed into production. This finders fee is
equal to 3.5% of the revenues derived from the sale of gold, silver and platinum group metals and
1.5% of the revenues derived from the sale of other minerals, including copper, except for gold and
other minerals discovered in the Serra Leste region, for which the finders fee is equal to 6.5% of
revenues. 41




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##### Table of Contents



Logistics We operate our logistics business, which is comprised of the transportation of third-party
products and passengers, through the following subsidiaries and joint ventures as of May 31, 2005: Principal
    
    Our Direct or IndirectActivity
    
    Share of Capital

    
    PartnersVoting
    
    Total(%)Cia. Portuária Baía de Sepetiba (CPBS)
    
    Ports and Terminals
    
    100.00
    %
    100.00
    %DCNDB Overseas S.A. (DCNDB)
    
    Shipping
    
    79.00
    
    79.0
    
    MitsuiNavegação Vale do Rio Doce S.A- Docenave (Docenave)
    
    Shipping
    
    100.00
    
    100.00Ferrovia Centro-Atlântica S.A. (FCA)
    
    Railroad
    
    99.99
    
    99.99
    
    Employees OthersTerminal de Vila Velha S.A. (TVV)
    
    Ports and Terminals
    
    99.89
    
    99.89
    
    EmployeesMRS Logística S.A. (MRS) (Includes CVRD and MBR stakes)
    
    Railroad
    
    37.2
    
    29.35
    
    CSN Usiminas Gerdau Employees OthersFerroban-Ferrovias Bandeirantes S.A. (Ferroban)
    
    Railroad
    
    0.00
    
    3.75
    
    Nova Ferroban Others
 42




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##### Table of Contents



The table below sets forth information regarding our third-party logistics gross revenues
and sales by geographic market for the periods indicated. For the Year Ended December 31,2002
    
    
    2003(2)
    
    
    2004(in millions of US$)Gross Revenues classified by geographic destination:Americas, except Brazil and United States
    
    US$
    25
    
    
    US$
    38
    
    
    US$
    65Brazil
    
    
    374
    
    
    
    472
    
    
    
    871United States
    
    
    3
    
    
    
    
    
    
    
    15Europe
    
    
    9
    
    
    
    30
    
    
    
    12Middle East
    
    
    
    
    
    
    4
    
    
    
    Japan
    
    
    1
    
    
    
    
    
    
    
    Asia, other than Japan
    
    
    3
    
    
    
    3
    
    
    
    Subtotal
    
    
    415
    
    
    
    547
    
    
    
    963Eliminations(1)
    
    
    43
    
    
    
    57
    
    
    
    (86
    )Total
    
    US$
    458
    
    
    US$
    604
    
    
    US$
    877Revenues classified by categoryRailroads
    
    
    286
    
    
    
    373
    
    
    
    612Ports
    
    
    107
    
    
    
    144
    
    
    
    173Ships
    
    
    65
    
    
    
    87
    
    
    
    92Total
    
    US$
    458
    
    
    US$
    604
    
    
    US$
    877
   (1)
    
    Eliminations of transactions between consolidated entities.(2)
    
    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.The Vitória a Minas railroad links our Southern System mines in the
Iron Quadrangle in the state of Minas Gerais with the Tubarão Port, in Vitória, in the state of
Espírito Santo. We operate this 905 kilometer railroad under a 30-year renewable concession, which
expires in 2027. The Vitória a Minas railroad consists of two lines of track extending for a
distance of 601 kilometers to permit continuous railroad travel in opposite directions, and
single-track branches of 304 kilometers. Industrial manufacturers are located near this area and
major agricultural regions are adjacent and accessible to the Vitória a Minas railroad. The
Vitória a Minas has a daily capacity of 310,000 tons of iron ore. In 2004, the Vitória a Minas
railroad carried a total of 64.8 billion ntk of iron ore and other cargo (of which 18.5 billion
ntk, or 28%, consisted of cargo transported for third parties). The Vitória a Minas railroad also
carried approximately 1.1 million passengers in 2004. The principal cargo of the Vitória a Minas railroad consists of:  
    iron ore and pellets, carried for us and third parties;
    steel, coal, pig iron, limestone and other raw material carried for steel manufacturers located along the railroad;
    agricultural products, such as soybean and soybean meal; and
    other general cargo, such as building materials, pulp, fuel and chemical products. We charge market rates (which are limited by the tariffs fixed by ANTT) for third-party
freight, including pellets originating from joint ventures and other enterprises in which we do not
own 100% of the equity interest. Market rates vary based upon the distance traveled, the kind of
product and the weight of the freight in question. Carajás railroad.We operate the Carajás railroad under a 30-year renewable concession, which
expires in 2027. This railroad, located in the Northern System, starts at our Carajás iron ore
mine in the state of Pará, and extends 892 kilometers to our Ponta da Madeira Maritime Terminal
Complex facilities located near the São Luís Port in the state of Maranhão. The Carajás railroad
consists of one line of track, with spur tracks and turnouts to permit the passage of trains in
opposite directions. The Carajás railroad has a daily capacity of 200,000 tons of iron ore. In
2004, the Carajás railroad carried a total of 63.5 billion ntk of iron ore and other cargo (of
which 6.5 billion 43




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ntk, or 10.2%, consisted of cargo transported for third parties). The Carajás
railroad also carried approximately 347,000 passengers in 2004. The principal cargo of the Carajás
railroad consists of iron ore, principally carried for us. Ferrovia Centro-Atlântica.Our subsidiary FCA operates the central east regional railway
network of the Brazilian national railway system under a 30-year renewable concession granted in
1996. The central east network contains approximately 7,000 kilometers of track extending into the
states of Sergipe, Bahia, Espírito Santo, Minas Gerais, Rio de Janeiro, Goiás and Distrito Federal,
Brazil. It connects with our Vitória a Minas railroad near the cities of Belo Horizonte, in the
state of Minas Gerais and Vitória, in the state of Espírito Santo. FCA operates on the same track
gauge as our Vitória a Minas railroad. The section of the
network of Ferroban-Ferrovias Bandeirantes S.A. (Ferroban) between Araguari and Vale Fértil
rail station, near the city of Uberaba, in the state of Minas Gerais, has been operated by FCA
since 1998 and in January 2002, FCA began operating the section between Vale Fértil in the state of
Minas Gerais and Boa Vista in the state of São Paulo, Brazil. This connection allows FCA to reach
the Santos Port, in the state of São Paulo. In 2004, the FCA railroad transported a total of 10.5
billion ntk of cargo for third parties. Other investments.We currently hold 3.8% of the total capital and none of the voting capital
of Ferroban. Ferroban operates a 4,236-kilometer railroad linking the states of São Paulo, Minas
Gerais, Mato Grosso do Sul and Paraná, Brazil. In 2004, Ferroban reported net revenues of US$ 57
million and a net loss of US$ 37 million. As a result of our acquisition of CAEMI and incorporation of Ferteco, we own, directly and
indirectly, 37.2% of the voting capital and 29.4% of the total capital in MRS. MRS is a
1,674-kilometer railroad, which links the states of Rio de Janeiro, São Paulo and Minas Gerais with
a capacity to transport 110 million tons per year. MRS operates under a 30-year renewable
concession granted in 1996. Under the terms of the concession bid rules, no person may, directly
or indirectly, own more than 20% of the voting capital of MRS, unless approved by the ANTT. We are
currently discussing the shareholding structure with ANTT and our partners in MRS in order to
comply with the applicable requirements. We are also engaged in discussions with CADE regarding
our shareholding in MRS. Ports and
Terminals We operate ports and terminals principally as a means to complete the distribution of our iron
ore and pellets to seaborne vessels serving the export market. See Item 4. Information on the
CompanyLines of BusinessMiningFerrous MineralsPelletsDistribution (Iron Ore and Pellets). We
also use our ports and terminals to handle third-party cargo. In 2004, 22% of the cargo handled by
our ports and terminals represented cargo handled for third parties. Tubarão Port.The Tubarão Port, which covers an area of approximately 18 square kilometers,
is located near the Vitória Port in the state of Espírito Santo. The iron ore maritime terminal
located in this area has two piers. Pier I can accommodate two vessels at a time, one of up to
170,000 DWT on the southern side and one of up to 200,000 DWT on the northern side. Pier II can
accommodate one vessel of up to 360,000 DWT at a time, limited at 20 meters draft plus tide. In
Pier I there are two ship loaders, which can load up to a combined total of 14,000 tons per hour.
In Pier II there are two ship loaders that work alternately and can each load up to 16,000 tons per
hour. In 2004, 77.7 million tons of iron ore and pellets were shipped through the terminal for us.
Praia Mole Terminal, also located in the Tubarão Port, is principally a coal terminal and shipped
13.1 million tons in 2004. We operate a grain terminal called Terminal de Produtos Diversos, in
the Tubarão area, which shipped 5.2 million tons of grains and fertilizers in 2004. We also
operate a bulk liquid terminal that shipped 0.8 million tons in 2004. Until August 2005, CVRD is
authorized to operate the Paul Terminal, which specializes in pig iron handling and is located near
the Vitória Port, in the state of Espírito Santo. This terminal has one pier that can accommodate
one vessel of up to 75,000 DWT, which can load up to 900 tons per hour. The Paul Terminal shipped
2.5 million tons of pig iron in 2004. Ponta da Madeira maritime terminal.The Ponta da Madeira maritime terminal is located near
the São Luís Port in the state of Maranhão. The terminal facilities can accommodate three vessels.
Pier I can accommodate vessels displacing up to 420,000 DWT. Pier II can accommodate vessels of
up to 155,000 DWT. The two berths have a maximum loading rate of 16,000 tons per hour at Pier I
and 8,000 tons per hour at Pier II. In February 2004, Pier III began operations. Pier III can
accommodate vessels of up to 220,000 DWT and has a maximum loading rate of 8,000 tons per hour. 44




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Cargo shipped through our Ponta da Madeira maritime terminal consists principally of our own
iron ore production. Other cargo includes manganese ore and copper concentrate produced by us and
pig iron and soybeans for third parties. In 2004, 63.1 million tons were shipped through the
terminal for us and 3.5 million tons for third parties. Other investments.Since November 1994, CVRD has operated the Inácio Barbosa maritime
terminal located in the state of Sergipe. This terminal was built by Petrobras and transferred to
Sergiportos, a state-owned company. In December 2002, Petrobras took over control of Inácio
Barbosa maritime terminal in exchange for the cancellation of a liability of the state of Sergipe.
CVRD and Petrobras entered into an agreement in 2002, which will allow CVRD to run this terminal
for a period of ten years ending on December 30, 2012. In May 1998, we entered into a 25-year lease for the Capuaba maritime terminal in Vitória, in
the state of Espírito Santo. To run this terminal CVRD established Terminal de Vila Velha S.A.
(TVV). TVV is a port for loading and unloading of containers, in addition to being an alternative
for general cargo (import and export operations) and automobile operations in Southeast and Midwest
Brazil. It is connected to the Vitória a Minas railroad and with easy access to the BR101 and
BR262 highways. The terminal is formed by berths 203 and 204 at the Capuaba Quay, has a 450-meter
berth area and retro-area measuring nearly 100 thousand square meters. It has a covered storage
area measuring 13,300 square meters and a yard with capacity for 3,300 containers. TVV is equipped
with two quays cranes, two portainers and four transtainers. In 2004, TVV shipped over 144.4
thousand containers and approximately 725.3 thousand tons of general cargo. Cia. Portuária Baía de Sepetiba (CPBS), a company created to operate a terminal in the
Sepetiba Port, in the state of Rio de Janeiro, is one of our subsidiaries. CPBSs maritime
terminal has a pier that allows the loading of ships of up to 18.1 meters and up to 230,000 DWT.
In 2004, the terminal uploaded approximately 16.8 million tons of iron ore, of which only 3.4 tons
were uploaded for companies unrelated to CVRD. MBR has its own maritime terminal on Guaiba Island, also in the Sepetiba Port. The iron ore
terminal has a pier that allows the loading of ships of up to 300,000 DWT. In 2004, the terminal
uploaded approximately 34 million tons of iron ore. Shipping We operate in three distinct shipping areas: seaborne dry bulk services, cabotage liner
service and tug boat services. In seaborne dry bulk service, we carried 6.7 million tons of dry bulk, generating a revenue of
US$ 84 million in 2004. The table below sets forth information on the volume of cargo that our
seaborne dry bulk shipping service carried for the periods indicated. For the Year Ended December 31,2002
    
    
    2003
    
    
    2004(thousands of tons)Iron ore:CVRD
    
    
    4,287
    
    
    
    4,386
    
    
    
    5,291Third party
    
    
    1,888
    
    
    
    1,860
    
    
    
    312Coal
    
    
    437
    
    
    
    256
    
    
    
    306Other
    
    
    1,294
    
    
    
    2,819
    
    
    
    830Total
    
    
    7,906
    
    
    
    9,321
    
    
    
    6,739
 For the transportation of the cargo shown above for 2004, we operated a fleet of bulk
vessels which is comprised of three capesize vessels owned by us, one panamax and one capesize
vessel that we operate on a chartered basis. Furthermore, we have also contracted for the
transportation of steel slabs from Brazil to the United States and for the transportation of iron
ore from Ponta da Madeira maritime terminal to Praia Mole terminal, in the Tubarão Port. To
perform these contracts, other vessels have been chartered either for short or long periods. We
intend to sell our three capesize vessels in the near future. 45




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The cabotage liner service is operated by five vessels, chartered on a bare boat basis from
Frota Oceânica S/A, and generated revenues of US$ 62 million with 98,687 twenty equivalent units
(teus) transported in 2004. The container business services ports of Brazil and Argentina, from
the city of Fortaleza to Buenos Aires. We also operate a fleet of sixteen tug boats (seven owned and nine chartered) in the ports of
Vitória in the state of Espírito Santo, Trombetas in the state of Pará, São Luís in the state of
Maranhão and Aracaju in the state of Sergipe. The services in Vitória and Trombetas generated
revenue of US$ 16 million corresponding to 4,568 operations (maneuvers) in 2004, compared to US$ 18
million corresponding to 4,892 operations (maneuvers) in 2003. In São Luís and Aracaju we operate
through a tug boat consortium with 50% participation in each operation, generating revenue of US$ 5
million in 2004, which corresponds to 4,274 operations (maneuvers), compared to revenue of US$ 3
million in 2003, which corresponds to 3,710 operations (maneuvers). Competition in the logistics industry.Our railroads compete with road transport, including
trucks, with the main factors being cost, safety and shipping time. We also have many
international competitors in the cabotage liner service. Aluminum-Related Operations The table below sets forth information regarding our consolidated bauxite, alumina and
aluminum revenues and sales by geographic market for the periods indicated. These figures do not
include the revenues of our unconsolidated joint ventures. For the Year Ended December 31,(in millions of US$)2002
    
    
    2003
    
    
    2004Revenues classified by geographic destinationAmericas, except Brazil and United States
    
    US$
    27
    
    
    US$
    156
    
    
    US$
    221Brazil
    
    
    75
    
    
    
    165
    
    
    
    227Europe/Middle East/Africa/Oceania
    
    
    318
    
    
    
    378
    
    
    
    738Japan
    
    
    11
    
    
    
    96
    
    
    
    361United States
    
    
    10
    
    
    
    32
    
    
    
    186Asia, other than Japan
    
    
    21
    
    
    
    96
    
    
    
    129Subtotal
    
    
    462
    
    
    
    923
    
    
    
    1,862Eliminations(1)
    
    
    
    
    
    
    (71
    )
    
    
    (612
    )Total
    
    US$
    462
    
    
    US$
    852
    
    
    US$
    1,250Revenues classified by categoryBauxite
    
    
    23
    
    
    
    37
    
    
    
    53Alumina
    
    
    159
    
    
    
    495
    
    
    
    458Aluminum
    
    
    280
    
    
    
    320
    
    
    
    739Total
    
    US$
    462
    
    
    US$
    852
    
    
    US$
    1,250
   (1)
    
    Eliminations of transactions between consolidated entities. 46




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We operate our aluminum-related businesses through the following subsidiaries and joint
ventures, as of May 31, 2005: Our Direct or IndirectShare of CapitalBusiness
    
    
    (Voting, Total)
    
    
    PartnersVoting
    
    
    Total(%)Albras-Alumínio Brasileiro S.A. (Albras)
    
    Aluminum
    
    
    51.00
    %
    
    
    51.00
    %
    
    Nippon AmazonAlunorte-Alumina
do Norte do Brasil S.A. (Alunorte)
    
    Alumina
    
    
    60.12
    
    
    
    57.03
    
    
    Companhia Brasileira de Aluminio - CBA JAIC Mitsui Mitsubishi Nippon Amazon Norsk HydroMineração Rio do Norte S.A. (MRN)
    
    Bauxite
    
    
    40.00
    
    
    
    40.00
    
    
    Abalco Alcoa Alcan BHP
Billiton Metais Companhia Brasileira de Aluminio  CBA Norsk HydroValesul Alumínio S.A. (Valesul)
    
    Aluminum
    
    
    54.50
    
    
    
    54.50
    
    
    BHP Billiton Metais
 These subsidiaries and joint ventures engage in:  
    mining bauxite,
    refining bauxite into alumina, and
    smelting alumina to produce primary aluminum and aluminum alloys. In 2004, net revenues from aluminum-related products totaled US$ 1,229 million. Bauxite MRN.MRN, one of the largest bauxite producers in the world, produces bauxite for sale to our
joint venture partners and us. Excess production may be sold to third parties. MRN operates three
open pit bauxite mines, which produce high quality bauxite. In addition, MRN controls substantial
additional high quality bauxite resources that it believes can be produced economically in the
future. MRN had net revenues of US$ 325 million and net income of US$ 142 million in 2004. MRNs
mines are located in the northern region of the state of Pará. 47




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The table below sets forth information regarding MRNs bauxite reserves as of December 31,
2004. The estimates of mineral reserves have been audited and verified by Pincock Allen & Holt. Projected
    
    
    Proven and Probable Reserves(1)Exhaustion Date
    
    
    Type
    
    
    Ore Tonnage
    
    
    Grade(2)(millions of tons)
    
    
    (% Al203)Mineração Rio do Norte S.A.Almeidas
    
    
    2009
    
    
    Open pit
    
    
    19.8
    
    
    
    51.2Aviso
    
    
    2011
    
    
    Open pit
    
    
    63.8
    
    
    
    51.1Saraca V
    
    
    2009
    
    
    Open pit
    
    
    7.4
    
    
    
    47.6Total
    
    
    
    
    
    
    
    
    
    
    91.0
    
    
    
    50.8
    (3)
   (1)
    
    Reported as recoverable product, with moisture content of approximately 12% at a wet
basis. CVRDs ownership of MRNs bauxite reserves is 40%.(2)
    
    Expressed as extractable Al203.(3)
    
    Average grade for the three mines. Operations at MRNs mines commenced in 1979. For 2002, 2003 and 2004 production equaled
9.9, 14.4, and 16.7 million tons, respectively. MRN operates ore beneficiation facilities at its mines, which are connected by rail to a
loading terminal and port facilities on the Trombetas river. The Trombetas river is a tributary of
the Amazon river and MRNs port facilities can handle vessels of up to 60,000 DWT. MRN owns and
operates the rail and the port facilities serving its mines. The MRN bauxite mines are accessible
by road from the port area and obtain electricity from their own thermoelectric power station. MRN
completed the expansion of its capacity from 11.0 million tons to 16.3 million tons in 2003. Our MRN bauxite joint venture produces bauxite for sale on a take-or-pay basis to us and our
joint venture partners at a price that is determined by a formula linked to the prevailing world
prices of aluminum and alumina. Our Alunorte alumina subsidiary, which we began consolidating in
July 2002, purchases all of its bauxite requirements from MRN. Our annual purchase commitment for
2004 was approximately US$ 60 million. Paragominas project.In July 2002, we acquired the remaining outstanding capital of Mineração
Vera Cruz, or MVC, which increased our interest to 100% of MVCs total capital. MVC was
subsequently merged into CVRD. Through the acquisition of MVCs assets, we hold active mining
rights in the Paragominas region in the state of Pará. A new wholly owned bauxite mine located in
Paragominas, is expected to begin commercial production in the first half of 2007 to supply
Alunortes new expansion with 4.5 million tons per year of wet 12% moisture bauxite. The bauxite
quality will be similar to MRNs, and the project will use the strip mining method of extraction,
and have a beneficiation plant including milling and a 244-kilometer long slurry pipeline. We
expect that total capital expenditures on this project will be approximately US$ 352 million. The table below sets forth information regarding the Paragominas bauxite reserves as of
December 31, 2004. The estimates of mineral reserves have been audited and verified by Pincock
Allen & Holt. Proven and Probable ReservesOre Tonnage
    
    
    Grade(millions of tons)
    
    
    (% Al203)Miltonia III
    
    
    68.0
    
    
    
    49.6
 Alumina Alunorte began operations in July 1995 and produces alumina by refining bauxite that MRN
supplies. The Alunorte plant concluded an expansion of capacity in 2003 and now has a nominal
production capacity of 2.4 million tons of alumina per year. In 2004, Alunorte produced 2.5
million tons. Alunorte sells the major portion of its production to Albras, Valesul and
third-party aluminum companies for the production of aluminum. The Alunorte plant is located near
Belém, in the state of Pará, next to Albras aluminum production facilities. This 48




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allows Alunorte
and its principal customer, Albras, to share infrastructure and other resources. Alunorte had net
revenues of US$ 545 million and net income of US$ 166 million in 2004. This refinery has one of
the lowest conversion costs in the world (US$ 67.70 per ton in 2004). Each Alunorte joint venture partner must purchase on a take-or-pay basis all alumina produced
by Alunorte in proportion to its respective interest. The joint ventures each pay the same price,
which is determined by a formula based on prevailing world market prices of aluminum. The table below sets forth information regarding Alunortes alumina production for the periods
indicated. For the Year Ended December 31,2002
    
    
    2003
    
    
    2004(millions of tons)Alunorte production
    
    
    1.656
    
    
    
    2.323
    
    
    
    2.548
 Alunorte capacity expansions.In April 2003, Alunorte inaugurated its third production
line, which has a capacity of 825,000 tons per year. With this third line, Alunorte increased its
production capacity to 2.4 million tons of alumina per year. In July 2003, Alunorte began work on a new capacity expansion for its alumina refinery. This
brownfield project, estimated to start up by 2006, involves the construction of stages 4 and 5 of
the plant, and is expected to increase its annual capacity from 2.4 million to 4.2 million tons of
alumina per year. Alunortes total investment in this project is expected to be approximately US$
583 million of which US$ 310 million was financed in July 2004. Aluminum Albras and Valesul each produce aluminum using alumina provided by Alunorte. Alunorte
supplied all of Albras alumina requirements and 54.5% of Valesuls alumina requirements from
October 1995 through December 2004. Albras produces aluminum ingots and Valesul produces aluminum
ingots, slabs, bars, billets and alloys. Aluminum is produced from alumina by means of a
continuous electro-chemical process, which requires substantial amounts of electricity. Albras. The Albras plant is one of the largest aluminum plants in Latin America, with a
capacity of approximately 430,000 tons per year. Albras started its operations in 1985 at a plant
located near Belém in the state of Pará. Albras had net revenues of US$ 705 million and net income
of US$ 145 million in 2004. The Albras joint venture partners must purchase on a take-or-pay basis all aluminum produced
by Albras in proportion to their ownership interests. We generally market our aluminum in
international export markets to third-party aluminum processing companies. The table below sets forth information regarding Albras recent aluminum production. For the Year Ended December 31,2002
    
    
    2003
    
    
    2004(thousands of tons)Albras production
    
    
    407.7
    
    
    
    432.1
    
    
    
    435.0
 The production of aluminum requires a continuous flow of substantial amounts of
electricity. Albras purchases electrical power from Eletronorte, a state-owned electric power
utility. Eletronorte generates electricity at the Tucuruí hydroelectric power plant located on the
Tocantins river. This plant is the sole source of electrical power in the region in the quantities
required for Albras operations. Albras consumes approximately one-quarter of the non-peak period
output of the Eletronorte plant. 49




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In May 2004, Albras successfully executed an auction to purchase electricity for a 20-year
period. This agreement became effective beginning June 2004. The basic purchase price is R$ 53.00
per MWh, indexed to the general market price index, IGP-M, as calculated by Fundação Getúlio
Vargas. In addition to the basic price, a premium is paid that is linked to the amount by which
the price of primary aluminum exceeds US$ 1,450.00 per ton, as registered at the London Metal
Exchange (LME). See Item 4. Information on the CompanyRegulatory MattersEnergy. Valesul.Valesul started its operations in 1982 and operates a plant located in the state of
Rio de Janeiro. Valesul produces primary aluminum and aluminum alloys in the form of ingots and
billets. Valesuls aluminum is sold primarily in the domestic Brazilian market on a spot basis.
Valesul had net revenues of US$ 185 million and net income of US$ 26 million in 2004. Valesul
sells directly to its own clients. The table below sets forth information regarding Valesuls recent production and third-party
scrap recycled by it. For the Year Ended December 31,2002
    
    
    2003
    
    
    2004(thousands of tons)Valesul production
    
    
    92.9
    
    
    
    94.0
    
    
    
    95.8Third-party scrap recycled
    
    
    19.6
    
    
    
    16.7
    
    
    
    14.4
 Valesul currently obtains a portion of its electrical energy requirements from four wholly
owned small hydroelectric power plants located in the state of Minas Gerais, a portion from the
Machadinho hydroelectric power plant, in the state of Santa Catarina, in which Valesul has a share
of 7%, and the remainder from a third-party power company at market rates. Valesul is able to
supply 40% of its own energy requirements. Valesul is currently engaged in litigation regarding
the rates that Light charges Valesul for the transmission of electricity. See Item 8. Financial
InformationLegal Proceedings. Competition in Bauxite, Alumina and Aluminum The global aluminum market is highly competitive. The largest producers are Alcoa, Rusal,
Alcan, Norsk Hydro, BHP Billiton and Chalco. The alumina and bauxite markets are also competitive,
but are much smaller, because many of the major aluminum-producing companies have integrated
bauxite, alumina and aluminum operations. Bauxite.Most of global bauxite production is not traded, as it is dedicated to integrated
alumina refineries. Competition in the bauxite export market is based primarily on two key
factors: quality of bauxite and reliability of supply. We believe that MRN remains competitive in
this market because of the high quality of Brazilian bauxite, and our aluminum production system,
which ensures internal use of our bauxite production. We use a major part of our take of MRNs
bauxite production to supply Alunorte. Alumina.Competition in the alumina market is based primarily on quality, reliability of
supply and price, which is directly related to lower costs. We believe that Alunorte is
competitive in the alumina market because of the high quality of its alumina, its advantages in
scale and technology, low conversion cost, its efficient port facilities, and the ongoing
commitment of its owners to purchase a substantial portion of its annual production. We use a
substantial portion of our share of Alunortes alumina production to supply the domestic market
(Albras and Valesul), and sell the remainder on the foreign market. In 2004, the main foreign
markets where we sold alumina to were Argentina, China and Canada. Aluminum.As primary aluminum is a commodity, competition in the aluminum market is based
primarily on the economics of transportation and the costs of production. We believe that Albras
is competitive in the aluminum market because of its relatively efficient and accessible port
facilities, and its generally prevailing lower costs of production. We generally market aluminum
to third-party aluminum processing companies in Asia and Europe. 50




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Steel Investments We have investments in the following joint ventures in the steel business, as of May 31, 2005: Our Direct or IndirectShare of Capital
    
    
    
    2004 Net
    
    Principal(VotingTotal)
    
    Partners
    
    Revenues
    
    ProductsVoting
    
    Total
    
    (in millions of US$)(%)CSI (California, United
States)
    
    
    50.0
    %
    
    
    50.0
    %
    
    JFE Steel
    
    US$
    1,257
    
    
    Hot-rolled steel;
cold-rolled steel;
galvanized steel;
steel tubesSiderar (Argentina)
    
    
    4.85
    
    
    
    4.9
    
    
    Techint Group
Employees
Usiminas
Others
    
    
    1,205
    
    
    Steel slabs;
hot-rolled steel;
cold-rolled steel;
galvanized steel;
tin platesUsiminas (Brazil)
    
    
    23.0
    
    
    
    11.5
    
    
    Nippon Usiminas
Previ
Caixa
dos
Empregados
da Usiminas
Others
    
    
    4,180
    
    
    Hot-rolled steel;
cold-rolled steel;
heavy steel
plates; electro
galvanized steel
 The market value of our investments in Usiminas and Siderar, both of which are publicly
traded companies, was US$ 483 million and US$ 110 million, respectively, at December 31, 2004. The
aggregate net book value of these investments was US$ 250 million at December 31, 2004. The
aggregate net book value of our total investments in steel producing companies (including CSI, a
privately held company) was US$ 399 million at December 31, 2004. We earned US$ 22 million in
dividends from these investments in 2004. In line with our strategy to consolidate and focus on mining and logistics, in March 2001, we
unwound our cross-holding relationships with CSN. As part of the unwinding transaction, CSN
granted us the following rights of first refusal relating to CSNs Casa de Pedra iron ore mine,
each of which lasts for a period of 30 years:  
    the right to purchase at market prices any iron ore produced by the mine beyond CSNs internal requirements,
    the right to purchase or lease the mine should CSN decide to sell or lease it, and
    the right to become a joint venture partner should CSN decide to form a pelletizing
joint venture with a third party with iron ore produced by the mine. In return, we have granted CSN a right of first refusal to participate with us in the
construction of any new steel producing facilities undertaken prior to March 2006 relating to
slabs, coils and rolled products over which projects we will have direct or indirect control. The unwinding transaction with CSN, as a whole, is subject to post-notification review by
CADE. See Item 8. Financial InformationLegal Proceedings. CVRD and Nucor Corporation signed an agreement to construct and operate an environmentally
friendly pig iron project in Northern Brazil in April 2003. The project will utilize two
conventional mini-blast furnaces to produce approximately 380,000 metric tons of pig iron per year
in its initial phase, using iron ore from our Carajás mines in Northern Brazil. The charcoal
source will be exclusively from eucalyptus trees grown in a cultivated forest of 82,000 acres with
the total project encompassing approximately 200,000 acres. We and Nucor own a joint venture
company, Ferro Gusa, to operate the facility. It is anticipated that Nucor Corporation will
purchase all of the production of the plant, which is estimated to start-up by the third quarter of
2005. 51




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Approximately 78% and 22% of the voting shares are held by CVRD and Nucor, respectively, see
Item 4. Information on the CompanyAcquisitions, Asset Sales and Significant Changes in 2003 and
2004Steel. In 2004, we sold our entire participation in CST, see Item 4. Information on the
CompanyAcquisitions, Assets Sales and Significant Changes in 2003 and 2004Dispositions and Asset
Sales. Energy Investments In 2004, we consumed 16.7 TWh of electricity. Energy management and efficient supply have
become priorities for us, driven by the uncertainties associated with changes in the regulatory
framework, which increased the risk of rising electricity prices and energy shortages, such as the
one Brazil experienced in the second half of 2001. We perceived favorable investment opportunities
in the Brazilian electricity sector and took advantage of them by investing in the nine
hydroelectric power generation projects set forth in the table below. We plan to use the
electricity produced by these projects for our internal needs. We could experience construction
delays in certain generation projects due to environmental and regulatory issues, which could
consequently, lead to higher costs. Analysis of each projects feasibility and investments will
depend on the new laws and regulations applicable to the electricity sector, which are currently
under review by the Brazilian Federal government, and their impact on electricity prices and
supply. As a large consumer of electricity, we expect that investing in power projects will help
to reduce costs and protect us against energy price volatility. Currently we have four hydroelectric power plants under operation and three under
construction. 52




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The following table sets forth information regarding our power generation projects as of May
31, 2005: OurOwnership
    
    
    
    Begins/Began
    
    ProjectedLocation
    
    Interest
    
    Partners
    
    Operations
    
    Capacity
    
    Our InvestmentAs ofDecember
    
    Projected(%)
    
    
    
    
    
    (in MW)
    
    31, 2004
    
    Total(in millions of US$)Aimorés
    
    Rio Doce basin, in
the state of Minas
Gerais.
    
    
    51.00
    %
    
    Cemig G/T
    
    July 2005(1)
    
    
    330MW
    
    
    US$
    119
    
    
    US$
    144Candonga
    
    Rio Doce basin, in
the state of Minas
Gerais.
    
    
    50.00
    
    
    Novelís
    
    September 2004
    
    
    140
    
    
    
    45
    
    
    
    48Capim Branco I
    
    Araguari river, in
the state of Minas
Gerais.
    
    
    48.42
    
    
    Cemig-Capim
Branco
Paineiras
CMM
    
    February 2006(1)
    
    
    240
    
    
    
    40
    
    
    
    90Capim Branco II
    
    Araguari river, in
the state of Minas
Gerais.
    
    
    48.42
    
    
    Cemig-Capim
Branco
Paineiras
CMM
    
    December 2006(1)
    
    
    210
    
    
    
    20
    
    
    
    90Estreito
    
    Tocantins river, on
the border of the
states of Maranhão
and Tocantins.
    
    
    30.00
    
    
    Tractebel
Alcoa
BHP Billiton
Camargo
Energia S.A.
    
    August 2009(1)
    
    
    1,087
    
    
    
    1
    
    
    
    258Foz do Chapecó
    
    Uruguai river, on
the border of the
states of Santa
Catarina and Rio
Grande do Sul.
    
    
    40.00
    
    
    CPFLG
CEEE
    
    June 2009(1)
    
    
    855
    
    
    
    2
    
    
    
    247Funil
    
    Rio Grande river,
in the state of
Minas Gerais.
    
    
    51.00
    
    
    Cemig G/T
    
    December 2002
    
    
    180
    
    
    
    49
    
    
    
    53Igarapava
    
    Rio Grande, on the
border of the
states of São Paulo
and Minas Gerais.
    
    
    38.15
    
    
    CMM
CSN
Cemig G/T
Anglogold
    
    January 1999
    
    
    210
    
    
    
    88
    
    
    
    88Porto Estrela
    
    Santo Antonio
river, in the state
of Minas Gerais.
    
    
    33.33
    
    
    Cemig G/T
Coteminas
    
    September 2001
    
    
    112
    
    
    
    20
    
    
    
    20Total (2)
    
    
    
    
    
    
    
    
    
    
    
    
    3,364MW
    
    
    US$
    384
    
    
    US$
    1,038
   (1)
    
    Projected date for commencement of the first unit of the project.(2)
    
    We also hold 43.85% of a consortium that has the concession right to build the Santa
Isabel hydroelectric power plant at the Araguaia river, which would have a projected
capacity of 1,087 MW. In view of difficulties in obtaining the necessary environmental
license to begin its construction, we are currently negotiating with ANEEL to return this
concession Our partners in our energy investments include:  
    Cemig Geração e Transmissão S.A., known as Cemig G/T, a subsidiary of Cemig, which is a state owned company;
    Cemig Capim Branco Energia S.A., known as Cemig-Capim Branco, a subsidiary of Cemig;
    Comercial e Agrícola Paineiras Ltda., known as Paineiras, which is an affiliate of Suzano Participações S.A.; 53




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##### Table of Contents




    BHP Billiton Metais S.A., a wholly owned subsidiary of BHP Billiton;
    Companhia Mineira de Metais, known as CMM, which is an affiliate of Votorantim Participações S.A.;
    Alcoa Alumínio S.A., known as Alcoa, which is an affiliate of Alcoa Inc.;
    Mineração Anglogold Ltda., known as Anglogold, which is an affiliate of Anglo American
Brasil Ltda., which in turn is affiliated with Anglo American Plc.;
    Companhia de Tecidos do Norte de Minas, known as Coteminas, which is an affiliate of
Coteminas International Ltd.;
    Tractebel Egi South America Ltda., known as Tractebel, which is a subsidiary of
Tractebel S.A., a SUEZ group energy division;
    CPFL Geração de Energia S.A., known as CPFLs-G, a subsidiary of CPFL Energia, a
subsidiary of VBC Participações;
    Companhia Estadual de Energia Elétrica, known as CEEE, is a state-owned power company;
    Novelís do Brasil Ltda., known as Novelís, which is an affiliate of Novelís, Inc.;
    Companhia Siderúrgica Nacional, known as CSN, a subsidiary of Vicunha Siderurgia; and
    Camargo Corrêa Energia S.A., known as Camargo Energia S.A., a subsidiary of Camargo Corrêa S.A. Our total projected investment in these hydroelectric projects is estimated at approximately
US$ 1 billion. We cannot assure you that the aggregate cost will not escalate or that the projects
will be completed on schedule. In the second half of 2004, Candonga began operations with the start up of three turbines.
CVRD has a 50% stake in the Candonga hydroelectric power plant Consortium. The plant is located on
the Doce river, in the state of Minas Gerais. It has an installed capacity of 140 MW and
generation capacity of 64.5 average MW, equivalent to 565,020 MWh per annum. In addition to the above, some of our affiliates generate part of their own energy. 
 REGULATORY MATTERS Mining Under the Brazilian Constitution, all mineral resources in Brazil belong to the Brazilian
government. The Brazilian Constitution requires that mining companies incorporate in accordance
with Brazilian law. The Brazilian Constitution and Mining Code impose on mining companies various regulatory
restrictions relating to, among other things:  
    the manner in which mineral deposits are exploited,
    the health and safety of workers,
    the protection and restoration of the environment,
    the prevention of pollution, and
    the promotion of local communities where mines are located. 54




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Mining companies in Brazil can only prospect and mine for mineral resources pursuant to
prospecting authorizations or mining concessions granted by the National Mineral Production
Department, Departamento Nacional de Produção Mineral, or DNPM, an agency of the Ministry of Mines
and Energy of the Brazilian government. DNPM grants prospecting authorizations to a requesting
party for an initial period of three years. These authorizations are renewable at DNPMs
discretion for another period of one to three years, provided that the requesting party is able to
show that the renewal is necessary for proper conclusion of prospecting activities. On-site
prospecting activities must start within 60 days of official publication of the issuance of a
prospecting authorization. Upon completion of prospecting activities and geological exploration at
the site, the grantee must submit a final report to DNPM. If the geological exploration reveals
the existence of a mineral deposit that is economically exploitable, the grantee will have one year
(which DNPM may extend) from approval of the report by DNPM to apply for a mining concession or to
transfer its right to apply for a mining concession to a third party. When a mining concession is
granted, the holder of the concession must begin on-site mining activities within six months. DNPM
grants mining concessions for an indeterminate period of time lasting until the exhaustion of the
mineral deposit. Extracted minerals that are specified in the concession belong to the holder of
the concession. With the prior approval of DNPM, the holder of a mining concession can transfer it
to a third party that is qualified to own concessions. In some cases, mining concessions are
challenged by third parties. Pursuant to Article 20 of the Brazilian Constitution of 1988, as implemented by Law No.
8001/1990, the Brazilian government charges us a royalty, known as Compensação Financeira pela
Exploração de Recursos Minerais(CFEM), on the
revenues from the sale of minerals we extract, net of taxes, insurance costs and costs of
transportation. The annual rates paid on our products are:  
    iron ore and potash fertilizer, 2%;
    bauxite and manganese ore, 3%;
    kaolin, 2%;
    copper, 2%; and
    gold, 1%. It also imposes other financial obligations. For example, mining companies must compensate
landowners for the damages and loss of income caused by the use and occupation of the land (either
for exploitation or exploration) and must also share with the landowners the results of the
exploration based on 50% of the CFEM. Mining companies must also compensate the government for
damages caused to public lands. A substantial majority of our mines and mining concessions are on
lands owned by us or on public lands for which we hold mining concessions. Railroads The Brazilian government, acting through the Ministry of Transportation and the ANTT,
regulates and supervises the policies for the railroad transportation sector. The Federal
government may grant private companies concessions for the construction, operation or commercial
exploration of railroads. Railroad concession contracts granted by the Federal government impose
certain shareholder ownership limitations. For FCA and MRS, the concession contracts provide that
each shareholder can only own up to 20% of the voting capital of the concessionaire, unless
otherwise permitted by ANTT. We are in compliance with the requirements imposed by the concession
contracts for our railroad operations. We have received an authorization from the ANTT for our
current 99.99% ownership stake in FCA. As part of our acquisition of CAEMI in September 2003, we
increased our stake in MRS to 37.2% of the voting capital and 29.4% of the total capital. We are
currently discussing the shareholding structure with ANTT, CADE and our partners in MRS in order to
comply with the applicable requirements. See Item 4. Information on the CompanyLines of
BusinessLogisticsand Item 8. Financial InformationLegal Proceedings. The ownership limitation
does not apply in the cases of Vitória a Minas and Carajás railroads. The ANTT also sets different tariff limits for railroad services for each of the
concessionaires and each of the different products transported. So long as these limits are
respected, the actual prices charged can be negotiated directly with the users of such services. 55




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Electric Energy The power industry in Brazil is regulated by the Brazilian government, acting through the
Ministry of Mines and Energy and ANEEL. The role of ANEEL is to implement and enforce policies and
regulations designated by the Ministry of Mines and Energy and aimed at organizing and regulating
the electricity sector and power companies. ANEEL should ensure consumers an efficient and
economical energy supply through regulation enforcement and the monitoring of prices and the
operational efficiency of power companies. Under the law governing the electricity sector, concessions grant exclusive rights to generate
and transmit or to distribute electricity in a particular area for a period of time that should be
sufficient for the concessionaire to recover its investment. The concessions for power generation
are granted for up to 35 years and may be renewed at the Federal governments discretion for an
additional period of up to 35 years. Concessionaires are required to supply electricity for public
services, on a continuing basis, in sufficient quantity and within approved standards of quality,
provided, however, that concessionaires may be allowed to supply to themselves or sell electricity
to non-public third party consumers under certain circumstances. Given the hydrologic and integrated nature of the Brazilian electricity generation matrix,
ANEEL has implemented regulations that created the Mecanismo de Realocação de Energia (Energy
Reallocation Mechanism), known as MRE, a mechanism for sharing hydrological risk, and consequently
reducing generation volatility among all generators. In order to implement the MRE, ANEEL
designates a level of energy production, known as Assured Energy, for each generator, every five
years. Assured Energy is calculated in accordance with a statistical model based on average
rainfalls in the relevant region, water flows of rivers and water levels in each plants reservoir
over a multi-year time frame. Each generator is allowed to enter into contracts to sell up to 100%
of its Assured Energy. To the extent a generator has signed contracts for the sale of its Assured
Energy, and as long as MRE members as a whole are able to meet MRE Assured Energy levels, it
receives payments based on these contractual terms, regardless of its level of actual generation.
If all MRE members meet their contracted energy and there is a surplus of energy remaining, the net
regional surplus generation is allocated among generators in different regions and this energy
surplus may be sold in the wholesale market. All contracts for wholesale energy purchases and sales are currently recorded in the wholesale
market, Câmara de Comercialização de Energia Elétrica, or CCEE. The CCEE is a nonprofit private
entity subject to the authorization, regulation and supervision of ANEEL, and is responsible for
operating the wholesale energy market and for ensuring that energy transactions in the short-term
market are settled and cleared in an efficient manner. The CCEE is primarily designed to effect
the settlement of differences between the amount of energy contracted under bilateral contracts of
the several market agents (generators, distributors, traders and large consumers), and the amount
of energy actually consumed and produced. The settlement is done in accordance with the CCEE spot
prices, which are expressed in R$/MWh and are calculated for each settlement period for each
sub-market. In March 2004, the Brazilian government approved a new law, Law No. 10848/2004, for the
electricity sector. Although the full regulations under the law have not yet been enacted, we
believe that this new law will create an even tighter regulated sector, especially in the
generation segment. The new law transfers jurisdiction of some regulatory areas from ANEEL to the
Ministry of Mines and Energy. Under this new law, all consumers of electricity, including large
consumers, such as CVRD, must contract the totality of their energy needs through contracts and
penalties may apply for errors above 5% of consumed energy. This new law creates two parallel
markets for energy: a regulated market, in which a consumidor cativo, or regulated consumer, will
enter into contracts subject to regulated prices, and an unregulated market, in which a consumidor
livre,or free consumer, will enter contracts with independent power producers at prevailing market
prices. Consumers may migrate from one market to another. However, consumers must wait until the
termination of their long-term contracts and, under pending regulations, may have to notify the
Ministry of Mines and Energy that they intend to switch markets one, two, three or even five years
in advance, depending on the circumstances. The new energy trading commission, CCEE, also called pool, created by the new law in
substitution to MAE, will be responsible for settling all energy transactions between distributors
and generators. Besides CCEE replaced MAE as the wholesale energy market, we do not expect
significant changes in the settlement procedures regarding short-term transactions.
Self-generators of energy, such as CVRD, may be required to provide a certain percentage of their
generated energy from new concessions acquired after 2004 to the pool. The exact percentage, in
addition to any tax on the amount of energy used by self-generators, has not yet been determined.
Other factors which have not yet been determined and are the subject of pending regulation include
sectorial contributions, included into the 56




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regulated prices that ANEEL will charge self-generators
for the use of transmission lines, and the way in which energy projects will be auctioned. Because the regulation for the sector is recent and not yet fully implemented, we cannot be
certain of all the material impacts that this new law could have on our energy business. Changes
in the regulatory environment could negatively affect our energy investments. Valesul is currently
engaged in litigation regarding the rates that Light charges Valesul for the transmission of
electricity. See Item 8. Financial InformationLegal Proceedings. Environmental Matters Federal, state and municipal legislation contain provisions for the control and protection of
the environment in Brazil. These laws govern the use of natural resources, the reclamation and
restoration of mined areas, the control of atmospheric emissions, the treatment of industrial
effluents, as well as the use, handling and final disposal of hazardous materials, and the control
of water resources under the National Hydrological Resources Policy, which establishes hydrologic
use rights and the fees applicable to that use. It is possible that environmental regulations will
become stricter in the future. Any strengthening of these laws may lead to greater costs for
environmental compliance. In order to conduct our mining, energy generation and industrial activities, we must prepare
environmental impact assessments and submit them to authorities that oversee the granting of
environmental permits. We seek to comply with all legal requirements and to achieve good
relationships with interested parties, especially communities located near our operations. Our
environmental management system is designed to provide a systematic approach to environmental
issues. Under Brazilian Federal Law No. 9,605/1998, non-compliance with environmental laws and
regulations can result in criminal penalties, such as imprisonment and other restrictions for
individuals (including directors, officers and managers of companies), and fines and the mandatory
rendering of public services by companies. Administrative penalties range from warnings and fines
to the suspension of corporate activities, and may also include the loss or reduction of
incentives, or the cancellation or interruption of credit facilities granted by governmental
institutions. Issuance of Environmental Licenses.We must obtain environmental licenses in order to build,
develop, expand and operate facilities that use natural resources or may pollute the environment.
We seek to obtain the legally required licenses for each of our facilities and activities. In some
cases, this process requires a significant amount of time for the preparation of comprehensive
environmental reports and their evaluation, as well as for the establishment of appropriate
programs for environmental education of communities residing in areas affected by the proposed
projects. We have entered into agreements with the appropriate federal and state governmental
environmental authorities with respect to facilities where environmental non-compliance has been
detected in order to make these facilities compliant. Environmental Compensation.Environmental Law No. 9,985/2000 requires us to pay
environmental compensation to state and federal authorities, in order to create and maintain
protected sites, in the amount of at least 0.5% of the total investment of each venture with a
material environmental impact. There are a number of uncertainties regarding the scope and
application of this law, including what rate will be applied by the federal or state governments
environmental agencies, how such a rate will be applied and under what basis an investment will be
valued. Legal Reserve.Under the Brazilian Forest Code, as amended, the exploration of economic
activities in the Amazon basin can only reach 20% of a projects land. We have a number of
projects in the Amazônia Legal region (comprised by the states of Acre, Amazonas, Amapá, Pará,
Rondônia, Roraima and Tocantins, Brazil, as well as part of the states of Mato Grosso and
Maranhão), such as the mining sites of MRN, PPSA, Paragominas and CADAM. We are currently below
the exploitation threshold in all of these projects. However, some of our mines may approach this
threshold as we expand our operations. There are a number of uncertainties regarding the scope and
application of the Brazilian Forest Code, as amended, in particular where a company has
pre-existing operations, as is the case with our current mining operations. Prevention and Environmental Control Measures.Our environmental policies also aim to
prevent, control and reduce the environmental impact caused by our business operations. To that
end, we have made significant 57




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environment-related investments in our facilities and in employee training programs
(approximately US$ 29.2 million in 2004). We are also investing to develop environmental projects
directed at the communities located near our facilities (approximately US$ 6.5 million in 2004). Water Use.We are intensive water users in eleven states with hydrological resources that
vary from very high water availability in the Amazon region to the scarcity in the northeast of
Brazil. The Hydrological Resources Management System that is being implemented throughout CVRD
includes evaluation of the availability of water in the areas where we operate and programs to
rationalize and control water use. We continually monitor new water legislation and regulations
and take particular interest in requirements adopted under the National Policy of Hydrological
Resources, established by Law No. 9433/1997, which defines the conditions for obtaining water use
grants and for effluents disposal. CVRD also participates in the National Council of Hydrological
Resources and the Local River Basin Committees, which provides the strategic approach and taxation
criteria for each basin. Water use taxation has been discussed since 2002. Valesul, which is
located in the Paraíba river basin, is the first of our affiliates to be requested to pay a fee for
water use and began paying nominal fees in 2004. No decision has yet been made in any other region
where CVRD operates. ISO Certifications. Our environmental management system is based on International
Organization for Standardization (ISO) standard 14001. We have obtained 14 certificates covering
iron ore, manganese ore and ferroalloys production, pelletizing plants, port operations and our
research center. All of the operations of the aluminum production cycle (bauxite, alumina and
aluminum) and kaolin production facilities from our subsidiaries and affiliated companies, are also
certified by this standard. Environmental Control Systems:As a mining company, air emissions control is one of our main
objectives, including in our pelletizing plants. Control equipment and systems, such as stockpiles
and road water aspersion and use of chemical dust suppressants or installation of filters and
electrostatic precipitators at our facilities are complemented by comprehensive monitoring systems
and control software. Besides achievement of legal compliance, air quality in the installations
and its effects in the communities in the vicinities is continuously evaluated and the necessary
investments for air quality improvement are made whenever needed. With respect to improvements in water quality, we strive to treat and control the pollutants
disposed into the sea and local rivers or other water sources and also use extensive water
recycling in our operations. We are researching new processes and technologies for the improvement
of water use and recycling and treatment. Through our comprehensive waste management system, we aim to achieve greater control of the
generation and disposal of our waste, to develop opportunities to reuse, recycle and to reduce
waste. In 2003, our mine decommissioning manual was developed, which described a complete set of
directives, including technical practices and procedures to be followed during mine closures. The
manual outlines procedures for the rehabilitation and monitoring of degraded areas, the main steps
and sequence to be followed during closure, and any liabilities that may result after mine closure.
The manual also provides standardized basic criteria and procedures, based on the directives of
the CVM and the SEC (FAS 143), for cost evaluation, the establishment of current budgets, future
decommissioning and reclamation (see Note 4 to our consolidated financial statements). Our environmental program also includes reforestation projects, which are intended to protect
the soil against erosion and to create buffers between our activities and communities in the
surrounding areas. We partner with universities and governmental research entities to conduct
extensive research to develop procedures for reforestation, soil protection using native species of
the managed regions and for the improvement of the growth and growth rate of seedlings.
Comprehensive fauna and flora
investigations are performed, mainly in the Carajás region, to comprehend and avoid the
environmental risks involved in investing in potentially sensitive areas. In 2004, we spent US$ 14.4 million on these activities. We also participate in the
maintenance and preservation of approximately 1.3 million hectares of Brazilian forests, including
the National Carajás Forest in the Amazon, and we own and preserve the Vale do Rio Doce Natural
Reserve, one of the remaining areas of the Atlantic Forest in the state of Espírito Santo. In
2004, US$ 0.7 million were spent in this activity. In the last twenty years we have provided
support to the indigenous communities in the areas of education, health, infrastructure development
and technical assistance with the aim of enhancing life quality and self-sustainability of these
communities. Expenditures on these programs amounted to US$ 6.5 million in 2004. 58




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PATENTS AND TRADEMARKS We hold, or have applied for, a significant number of patents with legal intellectual property
agencies in 38 countries and in Brazils Instituto Nacional de Propriedade Industrial(INPI), the
governmental agency responsible for granting patents and registering trademarks. Most of our
patents relate to proprietary rights over iron ore dressing. One of our most successful patents
relates to lower grade iron ore concentration, generally known as itabirite, which is widely used
by other iron ore mining companies the world over. We are currently conducting technological
research to investigate commercial exploration of our hard itabirites. We also hold registration
certificates of our marks, including both trademark (logotype) and brand names, filed with INPI and
61 other countries. These registrations are systematically renewed every ten years in Brazil and
abroad in accordance with each countrys current legislation. 
 INSURANCE We carry insurance covering various types of risks, such as property, liability, vehicles,
liability of maritime terminals and transportation, as well as a group life insurance policy for
our employees. We believe that our policies are in such amounts and cover such risks as are
usually carried by companies in our industry. In 2002, we established SRV Insurance Company
Limited, a captive reinsurance subsidiary incorporated in the Cayman Islands to enable us to
obtain insurance and reinsurance at more competitive rates by assuming a portion of the risk under
our insurance policies. 
 CAPITAL EXPENDITURES The table below sets forth our historical capital expenditures by business area for the
periods indicated. Our capital expenditures have historically been more intensive in the second
half of the year. See Item 5. OverviewKey Factors Affecting Revenues and Results of
OperationsDivestitures and Asset Sales, for a description of our divestitures. For the Year Ended December 31,2002
    
    
    2003
    
    
    2004(in millions of US$)Ferrous Minerals
    
    US$
    435
    
    
    US$
    698
    
    
    US$
    636Non-ferrous Minerals
    
    
    132
    
    
    
    332
    
    
    
    302Logistics
    
    
    33
    
    
    
    274
    
    
    
    484Aluminum
    
    
    63
    
    
    
    79
    
    
    
    224Coal
    
    
    
    
    
    
    
    
    
    
    10Energy
    
    
    72
    
    
    
    40
    
    
    
    79Corporate center
    
    
    31
    
    
    
    120
    
    
    
    178Acquisitions and other investments
    
    
    46
    
    
    
    448
    
    
    
    143Total
    
    US$
    812
    
    
    US$
    1,991
    
    
    US$
    2,056
 2004 Capital Expenditures and Budgeted Capital Expenditures for 2005 During the year 2004, CVRD made capital expenditures and other investments of US$ 2,056
million. In 2004, CVRD concluded five important projects: the Sossego copper mine, the expansion of
iron ore production capacity at Carajás to 70 million tons per year, Pier III at the Ponta de
Madeira Maritime Terminal, the Candonga hydroelectric power plant and the start up of Capão Xavier
iron ore mine. We have budgeted US$ 3,332 million for capital expenditures in 2005. Of this total, 77.9%, or
US$ 2,596 million, will be capital expenditures on items for promoting growth (growth capital
expenditures) and the remaining US$ 736 million will be capital expenditures on items for
maintaining existing operations (stay-in-business capital expenditures). 59




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The following table describes our expenditures for our main investment projects in 2004 and
our budgeted expenditures for projects in 2005, together with estimated total expenditures for each
project: Actual
    
    Budgeted2004
    
    2005
    
    TotalArea
    
    Project
    
    (in millions of US$)
    
    StatusFerrous Minerals
    
    Expansion of
Carajás iron ore
mines (Northern
System)
    
    
    104
    
    
    
    140
    
    
    
    296
    
    
    We expect to
complete Carajás
expansion in 2006
with a resulting
increase of 15
million tons per
year in capacity,
bringing total
capacity to 85
million tons per
year.Brucutu iron ore
mine (Southern
System)
    
    
    39
    
    
    
    205
    
    
    
    448
    
    
    We expect the new
installation in
Brucutu to begin
production and to
produce 15 million
tons of iron ore in
2006. Phase II is
expected to be
concluded in 2007,
resulting in an
increase in
capacity to 24
million tons of
iron ore per year.Fábrica Nova iron
ore mine (Southern
System)
    
    
    35
    
    
    
    37
    
    
    
    106
    
    
    Fábrica Nova
started its
operations in April
2005. The Samarco
pipeline is
currently being
moved to increase
the mining
area. We
expect to complete
this project by the
end of 2005.Timbopeba iron ore
mine
    
    
    
    
    
    
    25
    
    
    
    25
    
    
    Project to extend
the useful life of
Timbopeba mine to
2008 with an
estimated annual
production of 2.7
million tons per
year.Expansion and
modernization of
Itabira iron ore
mines (Southern
System)
    
    
    17
    
    
    
    16
    
    
    
    75
    
    
    Mine leveling is in
progress and work
on the processing
plant is scheduled
to begin in the
first half of 2005.
This project is
expected to
increase the
production capacity
of Itabira from the
current 43 million
tons per year to 46
million tons per
year, and is
expected to be
completed in 2006.Expansion of
Fazendão iron ore
mine (Southern
System)
    
    
    
    
    
    
    52
    
    
    
    100
    
    
    Work is scheduled
to begin in the
first half of 2005
on the
implementation of
the Fazendão mine
and be completed in
2006. Fazendão is
expected to have a
production capacity
of 14 million tons
per year of ROM
(run-of-mine).Expansion of
Fábrica iron ore
mine (Southern
System)
    
    
    
    
    
    
    38
    
    
    
    144
    
    
    The expansion of
the Fábrica mine is
expected to begin
operations in early
2007, with an
estimated capacity
increase of 5
million tons per
year, from 12
million tons per
year to 17 million
tons per year.Expansion of the
Tubarão Port
(Southern System)
    
    
    9
    
    
    
    22
    
    
    
    65
    
    
    The expansion of
the conveyor belt
system and loading
machinery and the
construction of new
stockyards are
expected to be
completed in 2006.Expansion of the
São Luís
pelletizing plant
(Northern System)
    
    
    
    
    
    
    18
    
    
    
    18
    
    
    We expect the
expansion of the
plants capacity to
7 million tons per
year to be
completed in the
second half of
2005.Coal
    
    Longyu anthracite
mine
    
    
    
    
    
    
    86
    
    
    
    86
    
    
    We have agreed to
acquire 25% of the
Chinese anthracite
producer Henan
Longyu Energy
Resources Ltd., in
partnership with
Yongcheng and
Baosteel. We
expect this mine to
produce 1.7 million
tons in 2005.Shandong Yankuang
metallurgical coke
plant
    
    
    10
    
    
    
    16
    
    
    
    26
    
    
    We own 25% of the
joint venture
Shandong Yankuang
International
Coking Ltd. to
produce
metallurgical coke.
The plant is
expected to begin
production in 2006
with an estimated
capacity of 2
million tons per
year of coke and
200,000 tons per
year of methanol.Non-ferrous Minerals
    
    Expansion of the
Taquari-Vassouras
potash mine
    
    
    29
    
    
    
    9
    
    
    
    78
    
    
    Our project to
expand the nominal
production from
600,000 to 850,000
tons per year is
approximately 90%
complete. We
expect the complete
the expansion in
the second half of
2005.118 copper mine
    
    
    6
    
    
    
    32
    
    
    
    218
    
    
    Construction will
begin in the second
half of 2005 with
projected
completion in 2007.
The mine is
expected to have an
annual production
capacity of 36,000
tons of copper
cathodes.
 60




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Vermelho nickel mine
    
    
    
    
    
    
    34
    
    
    
    875
    
    
    Construction of the
mine, with an
estimated capacity
of 45,000 tons of
nickel cathode and
2,000 tons of
cobalt per year is
expected to be
completed in 2007.Aluminum
    
    Expansion of
Alunorte: stages 4
and 5alumina
    
    
    187
    
    
    
    306
    
    
    
    583
    
    
    Stages 4 and 5 will
increase the
alumina refinerys
capacity to 4.2
million tons per
year from the
current 2.4 million
tons per year and
are expected to be
completed in 2006.Paragominas I
bauxite mine
    
    
    29
    
    
    
    154
    
    
    
    352
    
    
    Our construction of
a mine with
estimated
production capacity
of 4.5 million tons
per year is
scheduled to be
completed in 2006.Logistics
    
    EFVM, EFC, FCA:
acquisition of
locomotives and
wagons
    
    
    284
    
    
    
    559
    
    
    
    559
    
    
    In 2004, we
purchased 109
locomotives (79 for
general cargo and
30 for iron ore)
and 4,276 wagons
(2,212 for general
cargo and 2,064 for
iron ore). We
expect to purchase
123 locomotives (82
for iron ore and 41
for general cargo)
and 5,606 wagons
(4,742 for iron ore
and 864 for general
cargo) in 2005.Power Generation
    
    Aimorés
hydroelectric power
plant
    
    
    27
    
    
    
    12
    
    
    
    144
    
    
    We expect the 330MW
plant on the Doce
river, in the state
of Minas Gerais, to
begin operations in
the third quarter
of 2005. We have a
51% stake in this
project.Capim Branco I and
II hydroelectric
power plants
    
    
    45
    
    
    
    73
    
    
    
    181
    
    
    Both plants are
scheduled to begin
operation in 2006,
with a generation
capacity of 240 MW
and 210 MW,
respectively.
 In addition to these projects, CVRD has budgeted US$ 375 million for research and
development. Of the total budgeted, 36% is expected to be spent in the Carajás mineral province
and 27% in other areas of Brazil. The remaining 37% is budgeted for exploration overseas. 
 Item 5. Operating and Financial Review and Prospects 
 Overview The year 2004 was another record year for CVRD. We generated net income of US$ 2,573 million
in 2004, a 66.2% increase over the amount recorded in 2003. This performance was driven primarily by a sharp increase in operating income, which rose by
90.0% to US$ 3,123 million in 2004. The increase in net operating income reflected improved
operating margins, which increased from 30.7% in 2003 to 38.7% in 2004, caused by a 50.8% increase
in net revenues with costs and expenses decreasing from 69.3% of net revenue in 2003 to 61.3% in
2004. The improved overall margins reflected improvements in our iron ore, pellets and ferroalloy
businesses due primarily to higher prices and an increase in our aluminum operating margins due to
the consolidation of Albras. These improvements were partially offset by margin declines in our
alumina business, as a result of the consolidation of Albras, and in our logistics business, due
primarily to the consolidation of FCA. The increase in revenues reflected strong demand and rising
prices for our principal products driven principally by continued strong demand from China and
expanded demand from our other markets in Asia and Europe, as well as production increases and the
impact of consolidating a full years results from CAEMI, Albras and FCA in 2004. Our higher operating income was partially offset by net non-operating expenses of US$ 120
million in 2004, compared with a gain of US$ 10 million in 2003, resulting primarily from the
appreciation of the realagainst the US dollar and higher income taxes of US$ 749 million in 2004
compared to US$ 297 million in 2003 due to higher operating income. Other highlights of 2004 include:  
    Start up of copper mining operations.The Sossego mine, our first copper project, began
shipping copper concentrate in June 2004. In its first seven months of operations,
Sossego, which is still in the initial ramp-up phase, contributed US$ 201 million to our
gross revenues and US$ 92 million to our operating income. 61




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
    Exchange rate effects.Changes in exchange rates had a negative effect on our operating
income in 2004. The average R$/US$ exchange rate was R$ 3.0722 during 2003 and R$ 2.9257
during 2004, representing a 5.0% appreciation of the real. This appreciation had a
negative effect on our operating income, because most of our revenues are denominated in
U.S. dollars and most of our costs are denominated in reais. The U.S. dollar depreciated
by 8.1% from year-end 2003 to year-end 2004, compared to 18.2% from year-end 2002 to
year-end 2003 resulting in lower foreign exchange and monetary gains in 2004 than in 2003.
    Consolidation of Albras.Effective January 1, 2004, we began consolidating Albras, a
primary aluminum producer in which we hold 51% of the voting capital, in accordance with
Financial Accounting Standards Board (FASB) Interpretation No. 46R. For more information,
see Note 4 to our financial statements. Albras accounted for US$ 388 million of our
aluminum gross revenues and US$ 250 million of our aluminum operating income during 2004,
and led to a reduction in alumina volumes reflecting the elimination by consolidation of
the alumina sales by Alunorte to Albras.
    Consolidation of FCA and CAEMI.Our results of operations in 2004 also reflect the
consolidation of a full year of FCA and CAEMIs results, compared to only four months in
2003. In 2004, CAEMI contributed US$ 840 million to our iron ore revenue, US$ 288 million
to our iron ore operating income and US$ 92 million to our kaolin revenues and US$ 33
million to our kaolin operating income. FCA contributed US$ 217 million to our railroad
revenues and US$ 29 million in railroad operating losses.
    Sale of CST.In 2004, we sold our stake in CST for US$ 579 million. The resultant gain
was US$ 404 million. 
 Key Factors Affecting Revenue and Results of Operations Demand Demand for iron ore and pellets In recent years, we have experienced a significant increase in demand from China and, in 2004,
we continued to see a recovery of demand in Europe and Japan. Demand for our iron ore products is
a function of worldwide demand for steel, which is, in turn, heavily influenced by worldwide
economic activity. A slowdown in global economic activity will generally affect demand for our
iron ore products. Worldwide demand for steel has been growing since 2002. Global seaborne demand
for iron ore grew at a rate of approximately 12.1% in 2004. In 2005, we expect demand to continue
to grow, albeit at a lower growth rate than in 2004. Demand for iron ore and pellets exceeded our production capacity throughout 2004, and we
expect that demand will continue to exceed our production capacity in 2005. We plan to invest US$
1,266 million in 2005 in the ferrous minerals division. This amount includes expenditures on seven
iron ore projects that will add approximately 90 million tons to our iron ore production capacity,
in addition to expanding the capacity of our ports and one of our pelletizing plants. Although our
programmed iron ore production for this year is 10% greater than 2004, we still face excess demand.
To the extent demand exceeds our production capacity, we expect to purchase and resell iron ore
and pellets from third parties to attempt to meet any shortfall. In 2004, we purchased 15.9
million tons of iron ore and pellets from third parties. We expect our purchases from third
parties to remain at similar levels in 2005. Demand for aluminum-related products Demand for aluminum-related products is driven primarily by world economic conditions. In
recent years, China has been the primary driver of demand in the aluminum sector. World demand for
bauxite, alumina and aluminum currently exceeds supply, and we expect this trend to continue
throughout 2005. Demand for third-party transportation services Demand for our third-party transportation services in Brazil is primarily driven by the lack
of efficient logistics services and by growth in the Brazilian economy. Demand for third-party
transportation services in Brazil continued to exceed supply in 2004 and we expect this trend to
continue in 2005 as the Brazilian economy continues to expand. We believe our ability to increase
our revenues will be largely dependent on our ability to increase our wagon and locomotive fleets
and other equipment to service the excess demand. 62




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Production Capacity Capacity expansions are a key factor influencing our revenues. In 2004, we completed the
following main capacity expansions:  
    Expansion of Carajás annual production capacity to 70 million tons per year from 56
million tons per year. This capacity expansion offset the closure of our Capanema mine,
which produced 6.4 million tons of iron ore in 2003 prior to ceasing operations in December
2003;
    Launch of copper concentrate production at our Sossego mine in June 2004; and
    Purchase of 109 locomotives and 4,276 wagons in 2004 to expand the general cargo and
iron ore transportation capacity of our railroads. The principal capacity expansions we expect to complete in 2005 include:  
    Capacity expansion of our São Luís pelletizing plant from 6 million tons per year to 7
million tons per year;
    In the first half of 2005, the construction of a greenfield iron ore project at Fábrica
Nova, which is expected to have an annual production capacity of 15 million tons per year
and to produce approximately 10 million tons in 2005;
    Capacity expansion project at the Taquari-Vassouras potash mine from 600,000 tons per
year to 850,000 tons per year;
    Installation of a new ship loader at Pier III at Ponta da Madeira Maritime Terminal;
    Expansion of Guaiba Island Maritime Terminals capacity to 19 million tons from 16 million tons; and
    Purchase of 123 locomotives and 5,606 wagons in 2005 to expand the general cargo and
iron ore transportation capacity of our railroads. See Item 4. Information on the CompanyCapital Expendituresfor more details concerning our
2005 capital expenditures budget. Prices Ores and metals Iron ore.Our iron ore export sales are made pursuant to long-term supply contracts, which
provide for annual price adjustments. Cyclical changes in the world demand for steel products
affect sales prices and volumes in the world iron ore market. Different factors, such as the iron
content of specific ore deposits, the various beneficiation and purifying processes required to
produce the desired final product, particle size, moisture content and the type and concentration
of contaminants (such as phosphorus, alumina and manganese ore) in the ore, influence prices for
iron ore. Fines, lump ore and pellets typically command different prices. We generally conduct
annual price negotiations beginning in November of each year and ending early in the following
year. Due to the wide variety of iron ore and pellet quality and physical characteristics, iron
ore and pellets are not considered commodities. This factor combined with the structure of the
market has prevented the development of an iron ore futures market. We do not hedge our exposure
to iron ore price volatility and there is no iron ore futures market. Reference Prices for Europe in US$ cents/metric ton Fe unitYear
    
    Carajás fines
    
    Standard sinter feed
    
    Blast furnace pellets2002
    
    
    
    29.31
    
    
    
    28.62
    
    
    
    47.362003
    
    
    
    31.95
    
    
    
    31.04
    
    
    
    52.002004
    
    
    
    37.90
    
    
    
    36.45
    
    
    
    61.882005
    
    
    
    65.00
    
    
    
    62.51
    
    
    
    115.51
 63




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Our reference prices per Fe unit for Carajás iron ore fines increased across-the-board in
2004 by 18.6% from 2003 levels, after increasing by 9% in 2003 from 2002 levels. We experienced
similar trends in the market for pellets, where reference prices increased by 19% in 2004, after
increasing by 9.8% in 2003. We have reached agreements with major steelmakers under which our iron
ore prices for 2005 will increase by an average of 71.5% and our pellet prices will increase by an
average of 86.6%. Prices for lump ore will increase by an average of 79.0%. Aluminum-related operations.We operate our aluminum operations through a combination of
subsidiaries and unconsolidated joint ventures. We consolidate the revenues of (i) Alunorte, which
refines and sells alumina, (ii) Albras, which produces and sells aluminum and (iii) our wholly
owned trading subsidiary Itabira Rio Doce Company Ltd., which we refer to as Itaco, which resells
bauxite, alumina and aluminum. Our remaining bauxite and aluminum operations are reflected in the
line item Equity in results of affiliates and joint ventures and change in provision for losses on
equity investments in our consolidated income statement. Through Itaco, we sell our aluminum in an active world market where prices are determined by
reference to prices prevailing on terminal markets, such as the London Metals Exchange and the
Commodity Exchange, Inc., or COMEX, at the time of delivery. The following table sets forth the
three-month average market prices for aluminum on the London Metals Exchange for the periods
indicated. Aluminum($ per ton)1Q02
    
    
    1,394.482Q02
    
    
    1,377.173Q02
    
    
    1,330.354Q02
    
    
    1,356.921Q03
    
    
    1,392.042Q03
    
    
    1,379.553Q03
    
    
    1,419.944Q03
    
    
    1,519.801Q04
    
    
    1,667.372Q04
    
    
    1,687.603Q04
    
    
    1,716.604Q04
    
    
    1,813.801Q05
    
    
    1,888.60
   Source:
    
    Bloomberg. Albras and Alunorte seek to manage the risks associated with changes in aluminum prices
by hedging. For more information about aluminum-related hedging, see Item 11. Quantitative and
Qualitative Disclosures About Market Risk. During the first quarter of 2005, average market prices
for aluminum on the London Metals Exchange rose by 4.1% compared to the previous quarter. Alumina
prices remained at high levels during the first quarter of 2005, and we believe that the current
structural imbalance between supply and demand in the alumina market will continue to have a
positive impact on alumina prices in the near term. Our unconsolidated joint venture MRN sells a substantial proportion of its bauxite to our
consolidated subsidiary Alunorte, which in turn sells a portion of its alumina production to our
unconsolidated joint venture Valesul. The basic arrangements under which these sales are made are
as follows:  
    Our MRN bauxite joint venture produces bauxite for sale on a take-or-pay basis to us and
our joint venture partners at a price that is determined by a formula based on prevailing
world prices of aluminum and alumina. Our Alunorte alumina subsidiary purchases all of its
bauxite requirements from MRN. Our annual purchase commitment for 2004 was approximately
US$ 60 million.
    Each Alunorte partner must purchase on a take-or-pay basis all alumina produced by
Alunorte in proportion to its respective interest. Each partner pays the same price, which
is determined by a formula linked to the prevailing world prices of aluminum. On June 30,
2002, we increased our stake in and acquired control of Alunorte and began consolidating it
in our financial statements. As a result, since that date, payments we make to Alunorte
under our take-or-pay commitment are eliminated in preparing our consolidated financial
statements. In 2004, we used 51% of our share of Alunortes production at Albras, sold 47%
to the foreign market and sold the remainder in our aluminum operations to Valesul. 64




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##### Table of Contents




    Each Albras aluminum joint venture partner must purchase on a take-or-pay basis all
aluminum produced by Albras in proportion to its ownership interest. In 2004, we began
consolidating Albras in our financial statements. As a result, we include 100% of Albras
results in our financial statements, and payments made by Itaco to Albras under our
take-or-pay commitment are eliminated in preparing our consolidated financial statements
for 2004. Prior to 2004, our aluminum sales consisted of the resale by Itaco of our share
of Albras production. We do not have a take-or-pay commitment to Valesul, which sells
aluminum products directly to its customers. Manganese ore and ferroalloys.Manganese ore and ferroalloy prices are strongly influenced by
trends in the steel market. Manganese ore prices are generally negotiated on an annual basis using
a benchmark established in the Japanese market based on the reference price for the related
ferroalloys. Ferroalloy prices are negotiated in open bids, quarterly contracts (particularly in
Europe) or on a spot basis. They are influenced by a number of factors and are more volatile than
prices for manganese ore. Among the principal factors are the price of manganese ore, the
inventories held by producers or traders, occasional interruptions in production and anti-dumping
tariffs in the principal markets (U.S., Europe, Japan and South Korea). Average manganese ore
prices increased 36.8%, rising from US$ 55.4 per ton in 2003 to US$ 75.8 per ton in 2004. Average
ferroalloy prices increased 74.7%, from US$ 547.8 per ton in 2003 to US$ 957.1 per ton in 2004,
reflecting the general increase in the price of raw materials for steel. Ferroalloys are not a
standardized product since we sell several kinds of alloys with various prices. Potash and kaolin.Potash prices increased 41.1%, from US$ 139.5 per ton in 2003 to US$ 196.8
per ton in 2004, primarily reflecting increased demand for fertilizers. Our average kaolin prices
decreased 3.9% from US$ 142.2 per ton in 2003 to US$ 136.7 per ton in 2004, primarily reflecting
higher international freight costs. Copper.We sell our copper in an active world market where prices are determined by reference
to prices prevailing on terminal markets, such as the London Metals Exchange and the COMEX, at the
time of delivery. Copper prices increased 57.0% in 2004, relative to 2003. These high prices
reflect increased global demand, primarily from China, the weakness of the US dollar and the low
level of inventories. Our copper operations began in 2004 and we sold 269 thousand tons,
generating revenue of US $201 million. Logistics We earn our logistics revenues primarily from fees charged to customers for the transportation
of cargo via our railroads, ports and ships. Most of these revenues are earned by our railways,
and nearly all of our logistics revenues are denominated in reais.Prices in the Brazilian
railroad market are subject to maximum levels set by the Brazilian regulatory authorities but, in
practice, have historically fallen well below the maximum levels permitted by law, primarily
reflecting railroads need to remain competitive with the trucking industry. Prices vary depending
on the type of cargo and the distances shipped. Currency Volatility Most of our revenues are dollar-denominated, while most of our costs (other than debt
expenses) are denominated in reais. As a result, when the realis relatively strong against the
dollar, this tends to have a negative effect on our reported financial results from operations, and
vice versa. On the other hand, because most of our debt (and debt at the joint venture and
affiliate level) is dollar-denominated, a decline in the value of the realcauses us to record
foreign exchange losses. Changes in exchange rates had a negative effect on our operating income in 2004. The average
R$/US$ exchange rate was R$ 3.0722 during 2003 and R$ 2.9257 during 2004, representing a 5.0%
appreciation of the real. This appreciation had a negative effect on our operating income, because
most of our revenues are denominated in U.S. dollars and most of our costs are denominated in
reais. The U.S. dollar depreciated by 8.1% from year-end 2003 to year-end 2004, compared to 18.2%
from year-end 2002 to year-end 2003, resulting in lower foreign exchange and monetary gains in 2004
than in 2003. 65




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Acquisitions We completed several significant acquisitions in 2003, 2004 and the first months of 2005.  
    In February 2003, we acquired for US$ 17.6 million 100% of Elkem Rana AS, a Norwegian
ferrochrome producer, which we subsequently renamed RDMN. We invested US$ 16.7 million to
convert RDMNs plant to allow production of ferro manganese alloys. The plant started
operations with one furnace in June 2003 and brought its second furnace online in November
2003.
    In September 2003, we completed the acquisition of Mitsuis interest in CAEMI, and now
own 100% of CAEMIs common shares and 40% of its preferred shares, totaling 60.2% of
CAEMIs share capital. We began consolidating CAEMI as from that date. CAEMI contributed
US$ 840 million to our gross revenues from iron ore for 2004 and US$ 288 million to our
total operating income for iron ore. CAEMI contributed US$ 92 million to our gross
revenues from kaolin for 2004 and US$ 33 million to our total operating income for kaolin.
    Our acquisition of CAEMI has increased our iron ore revenues, but has had a negative
impact on our operating margins. The lower margins at CAEMI result primarily from the fact
that unlike our Northern and Southern systems, which include their own railroads, MBR uses
the services of a third-party railway operator, MRS, to transport iron ore from its mines
to its ports.
    In September 2003, we began consolidating FCA. FCA has lower operating margins than
our other railways, principally due to higher concession costs and older infrastructure.
    At the end of 2004 and in the beginning of 2005, we entered into agreements with
Yongcheng Coal & Electricity Group and Shanghai Baosteel International Economic & Trading
Co., Ltd to acquire a 25% stake in the Chinese anthracite producer Henan Longyu Energy
Resources Co. Ltd, or Longyu, for US$ 86 million. Longyu is engaged in the development,
operation and maintenance of coal mines and sales of coal and related products in China.
The partnership contemplates that we will have guaranteed off-take rights to a portion of
the production of the mines, which we intend to consume at our pelletizing plants and to
sell to clients in the Brazilian market. The transaction remains subject to the
negotiation of final documentation, as well as to the approval of the Chinese government
and is expected to close in July 2005.
    In July 2004, we agreed to acquire for US$ 26 million a 25% stake in a joint venture
with the Yankuang Group (Yankuang), one of the largest coal producers in China, and with
Itochu Corporation. We made the initial US$ 10.6 million of the US$ 26 million investment
in December 2004 upon the incorporation of the joint venture. The joint venture, named
Shandong Yankuang International Coking Company Limited, has an estimated production
capacity of two million tons of coke and 200,000 tons of methanol per year and is expected
to begin operations in 2006. We are also exploring with Yankuang the possibility of
participating in a joint venture to develop a new coal mine in the Shandong province in
China which would be expected to begin operations in 2007 and have a production capacity of
approximately three million tons of coal per year.
    On March 18, 2005, we acquired Estrela de Apolo for US$ 9.3 million. Estrela de Apolo
is a mining company that has iron ore and bauxite mineral rights in the state of Minas
Gerais. We will develop feasibility studies to estimate the annual production capacity of
the deposit.
    We obtained mineral exploration rights in several countries, including:  o
    Coal in the Moatize region of Mozambique;o
    Potash in Argentina;o
    Phosphates in Peru; ando
    Bauxite in the state of Amazonas, Brazil. 66




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Divestitures and Asset
Sales We completed the following principal divestitures and asset sales in 2003 and 2004.  
    In August 2003, we sold our last remaining gold mine, Fazenda Brasileiro, to Yamana
Resources Inc., for US$ 21 million.
    In November 2003, we sold our interest in Sepetiba Tecon S.A. to CSN and our interest
in Companhia CFN to CSN and Taquari Participações S.A. These sales were made in connection
with the purchase of FCA described above.
    In October 2003, we sold our interest in Fosfértil to Bunge Fertilizantes S.A. for US$84 million.
    In 2004, we sold our stake in CST for US$579 million. The resultant gain was US$404 million. Effects of Certain
Equity Method Affiliates and Investments Carried at Cost The financial condition and results of operations of our joint ventures, affiliated companies
and investments can have a significant effect on our results of operations and financial condition.
See Note 13 to our consolidated financial statements for information on these effects. Rising Unit Extraction
Costs Several of our mines have operated for long periods and will likely experience rising
extraction costs per unit in the future. Increases in extraction costs at each of these mines have
not materially affected our results of operations as such increases were offset by productivity
gains. Electricity Costs In May 2004, Albras successfully executed an auction, resulting in a contract to purchase
electricity for a 20-year period, effective June 2004. The basic purchase price is R$ 53.00 MWh,
indexed to the general market price index, IGP-M, as calculated by Fundação Getúlio Vargas. In
addition to the basic price, the electricity seller will have the right to participate in earnings
from our sale of primary aluminum when the price exceeds US$ 1,450.00 per ton, as registered at the
London Metal Exchange (LME). As noted above, to date, the LME price has exceeded the threshold LME
price during the entire contract so far. Inflation Rates in
Brazil As measured by the IGP-M Index, the Brazilian inflation rate was approximately 25.3% in 2002,
8.7% in 2003 and 12.4% in 2004. In the first four months of 2005, the Brazilian inflation rate was
approximately 2.4%. Most of our costs are incurred in Brazil in reais,while most of our revenues
are earned outside of Brazil in U.S. dollars.Inflation has a negative impact on our operating
margins, although it may be offset by devaluation of the realagainst the U.S. dollar. Operating
expenses Our principal operating expenses consist of cost of goods sold, selling, general and
administrative expenses and research and development expenses.  
    Cost of goods sold.Our cost of goods sold consists principally of costs for raw
materials, bauxite purchased under take-or-pay arrangements from MRN, iron ore and pellets
purchased from third parties, logistics services purchased from third parties, labor costs,
fuel costs, energy costs, and depreciation and exhaustion. Our cost of goods sold declined
as a percentage of net operating revenues in 2004, driven principally by higher prices and
the consolidation of Albras.
    Selling, general and administrative expenses.Our selling, general and administrative
expenses consist principally of the expenses of our corporate headquarters. 67




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
    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 2005. Brazilian Taxes We are subject to a number of Brazilian taxes. The principal taxes we pay are:  
    Value-Added Tax and Revenue Taxes. Our gross revenues consist of total revenues from
sales, net of discounts, returns and allowances, together with amounts we collect in
respect of value-added tax (ICMS). Net operating revenues represent revenues less
value-added tax, which we collect on behalf of, and must remit to, state taxing
authorities. We also collect other revenue taxes for social programs (PIS and COFINS) that
are recorded under the line items value-added tax and other financial expenses in our
financial statements. Export sales are currently exempt from both the value-added tax and
the social taxes.
    Income Tax and Social Contribution on Profits.We pay income taxes, which include a tax
called the social contribution on profits. The social contribution on profits tax rate is
currently 9% and income tax rate is 25% representing a statutory composite rate of 34%. Brazilian tax legislation changes, which are frequent, can have a significant impact on our
results of operations. For example, in 2001, changes in Brazilian tax legislation were introduced,
including a requirement that earnings from foreign subsidiaries be included in the determination of
income taxes payable in Brazil. Based on the advice of legal counsel, we believe that the
possibility that we will have to pay certain taxes potentially covered by this legislation is
remote and accordingly have not recorded provisions for such taxes in our financial statements. 
 Critical Accounting Policies and Estimates We believe that the following are our critical accounting policies. We consider an accounting
policy to be critical if it is important to our financial condition and results of operations and
requires significant judgments and estimates on the part of our management. For a summary of all
of our significant accounting policies, see Note 3 to our consolidated financial statements. Translation Adjustments Our reporting currency is the U.S. dollar, but our functional currency for the majority of our
operations is the real. In accordance with Statement of Financial Accounting Standards (SFAS) 52 
Foreign Currency Translation, we translate statement of income items to reflect the approximate
results that would have occurred if each transaction had been translated using the exchange rate in
effect on the date that the transaction was recognized. Because the separate translation of every
transaction is impractical, an appropriate weighted average exchange rate for the period is used.
In most cases, we translate our statement of income accounts and those of subsidiaries that use the
realas their functional currency into U.S. dollars at weighted average monthly rates for the
relevant reporting period. In the case of material exceptional items, we translate the amounts
into U.S. dollars using the exchange rate on the date of the transaction. Additionally, during
periods of high exchange rate volatility, we use estimated daily rates to translate our foreign
exchange and monetary losses or gains, financial income and financial expenses. The determination
of the appropriate weighted average exchange rate requires significant management judgment and
estimates. From January 1 to December 31, 2004, the dollar depreciated by approximately 8.1%
against the realand generated a credit for the year recorded directly in the cumulative
translation adjustment account of US$ 580 million. Mineral Reserves and Life of Mines We regularly evaluate and update our estimates of proven and probable mineral reserves. Our
proven and probable mineral reserves are determined using generally accepted estimation techniques
and are audited by Pincock, Allen & Holt, an expert in mineral engineering. Calculating our
reserves requires us to make assumptions about future conditions that are highly uncertain,
including future ore prices, foreign currency exchange rates, inflation rates, mining technology,
availability of permits and production costs. Changes in some or all of these assumptions could
have a significant impact on our recorded proven and probable reserves. 68




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One of the ways we use our ore reserve estimates is to determine the mine closure dates used
in recording the fair value liability for our asset retirement obligations and the periods over
which we amortize our mining assets. Any change in our estimates of total expected future mine or
asset lives could have an impact on the depreciation, depletion and amortization charges recorded
in our consolidated financial statements under cost of goods sold. Changes in the estimated lives
of our mines could also significantly impact our estimates of environmental and site reclamation
costs, which are described in greater detail below. Environmental and Site Reclamation Costs Expenditures relating to ongoing compliance with environmental regulations are charged against
earnings or capitalized as appropriate. These ongoing programs are designed to minimize the
environmental impact of our activities. Until December 31, 2002, we provided only for environmental liabilities relating to site
restoration at mines already closed or which were expected to close in the next two years. The
estimation of environmental costs was based on projections limited to the next two years and was
not discounted to present value. Effective January 1, 2003, we adopted SFAS 143  Accounting for Asset Retirement
Obligations. SFAS 143 requires that we recognize a liability for the fair value of our estimated
asset retirement obligations in the period in which they are incurred, if a reasonable estimate can
be made. We consider the accounting estimates related to reclamation and closure costs to be
critical accounting estimates because:  
    we will not incur most of these costs for a number of years, requiring us to make
estimates over a long period;
    reclamation and closure laws and regulations could change in the future or circumstances
affecting our operations could change, either of which could result in significant changes
to our current plans;
    calculating the fair value of our asset retirement obligations in accordance with SFAS
143 requires us to assign probabilities to projected cash flows, to make long-term
assumptions about inflation rates, to determine our credit-adjusted risk-free interest
rates and to determine market risk premiums that are appropriate for our operations; and
    given the significance of these factors in the determination of our estimated
environmental and site reclamation costs, changes in any or all of these estimates could
have a material impact on net income. In particular, given the long periods over which
many of these charges are discounted to present value, changes in our assumptions about
credit-adjusted risk-free interest rates could have a significant impact on the size of our
provision. To evaluate our asset retirement obligations, our Environmental Department developed a guide
which defines the rules and procedures that should be used to evaluate such obligations. The
future costs of retirement of all of our mines and sites are estimated annually, considering the
actual stage of exhaustion and the projected exhaustion date of each mine and site. The future
estimated retirement costs are discounted to present value using a credit-adjusted risk-free
interest rate. At December 31, 2004, we estimated the fair value of our aggregate total asset
retirement obligations to be approximately US$ 134 million. Impairment of Long-Lived Assets and Goodwill We evaluate our investments and long-lived assets, which primarily include identifiable
property, plant and equipment, for impairment whenever events or changes in circumstances indicate
that the balance sheet carrying value of the asset may not be recoverable. If the asset is
determined to be impaired, we record an impairment loss, and write down the asset, based upon the
amount by which the carrying amount of the asset exceeds the higher of net realizable value and
value in use. We generally determine value in use by discounting expected future cash flows using
a risk-adjusted pre-tax discount rate that we believe is appropriate to the risks inherent in the
asset. In order to estimate future cash flows, we must make various assumptions about matters
that are highly uncertain, including future production and sales, product prices (which we estimate
based on current and historical prices, price trends and related factors), recoverable reserves,
operating costs, environmental and site reclamation costs and planned capital costs. Arriving at
assumptions and estimates concerning these matters is a complex and often 69




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subjective process. These assumptions and estimates can be affected by a variety of matters,
including external factors such as industry and economic trends, and internal factors such as
changes in our business strategy and our internal forecasts. Although we believe the assumptions
and estimates we have made in the past have been reasonable and appropriate, different assumptions
and estimates could materially impact our reported financial results. More conservative
assumptions of the anticipated future benefits from these businesses would result in greater
impairment charges, which would decrease net income and result in lower asset values on our balance
sheet. Conversely, less conservative assumptions would result in smaller impairment charges,
higher net income and higher asset values. In assessing potential impairment of our equity investments, we evaluate the carrying value of
our listed equity investments relative to publicly available quoted market prices. If the quoted
market price is below carrying value, and we consider the decline to be other than temporary, we
write down our equity investments to quoted market value. For investments for which quoted market
prices are not readily available, we evaluate the investments for impairment whenever the
performance of the underlying entity indicates that impairment may exist. In such cases, the fair
value of the investments is estimated principally based on discounted estimated cash flows using
assumptions similar to those described above. In relation to goodwill, each year on September 30, we use a two-step process to test for the
recoverability of goodwill for each of our reporting units. Step one requires a comparison of the
fair value of the reporting unit to the book value of its net assets. The fair value of the net
assets is based on discounted cash flows using assumptions similar to those used in the process
described above. Step two requires an estimate of the fair value of the individual assets and
liabilities within the reporting unit. In the year ended December 31, 2004, after conducting
impairment tests, we concluded that no write-down was necessary. Derivatives and Hedging
Activity As of January 1, 2001, we adopted SFAS 133  Accounting for Derivative Financial Instruments
and Hedging Activities, as amended by SFAS 137, SFAS 138 and SFAS 149. Those standards require
that we recognize all derivative financial instruments as either assets or liabilities on our
balance sheet and measure such instruments at fair value. Changes in the fair value of derivatives
are recorded in each period in current earnings or in other comprehensive income (outside net
income), in the latter case depending on whether a transaction is designated as an effective hedge.
In 2003 and 2004, we did not designate any derivative financial instruments as hedges and the fair
value adjustments to our derivatives were thus recorded in current net income. Had we designated
our hedging instruments as permitted under SFAS 133, there would have been corresponding fair value
adjustments, for certain of our hedging instruments, to the related hedged items in the case of
fair value hedges or directly to shareholders equity in the case of cash flow hedges. During the
year ended December 31, 2004, we recorded a charge of US$ 83 million in relation to fair value
adjustments on derivative instruments. Income Taxes In accordance with SFAS 109  Accounting for Income Taxes, we recognize deferred tax effects
of tax loss carryforwards and temporary differences in our consolidated financial statements. We
record a valuation allowance when we believe that it is more likely than not that tax assets will
not be fully recoverable in the future. When we prepare our consolidated financial statements, we estimate our income taxes based on
regulations in the various jurisdictions where we conduct business. This requires us to estimate
our actual current tax exposure and to assess temporary differences that result from differing
treatment of certain items for tax and accounting purposes. These differences result in deferred
tax assets and liabilities, which we show on our consolidated balance sheet. We must then assess

the likelihood that our deferred tax assets will be recovered from future taxable income. To the
extent we believe that recovery is not likely, we establish a valuation allowance. When we
establish a valuation allowance or increase this allowance in an accounting period, we record a tax
expense in our statement of income. When we reduce the valuation allowance, as occurred in 2003
and in 2004, we record a tax benefit in our statement of income. Determining our provision for income taxes, our deferred tax assets and liabilities and any
valuation allowance to be recorded against our net deferred tax assets requires significant
management judgment and estimates and assumptions about matters that are highly uncertain. For
each income tax asset, we evaluate the likelihood of whether some portion or all of the asset will
not be realized. The valuation allowance made in relation to 70




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accumulated income tax losses depends on our assessment of the probability of generation of
future taxable profits within the legal entity in which the related deferred tax asset is recorded
based on our production and sales plans, selling prices, operating costs, environmental costs,
group restructuring plans for subsidiaries and site reclamation costs and planned capital costs. Contingencies We disclose material contingent liabilities unless the possibility of any loss arising is
considered remote, and material contingent assets where the inflow of economic benefits is
probable. We discuss our material contingencies in Note 18 to our financial statements. We account for contingencies in accordance with SFAS 5  Accounting for Contingencies, which
requires that we record an estimated loss from a loss contingency when information available prior
to issuance of our financial statements indicates that it is probable that a future event will
confirm that an asset has been impaired or a liability has been incurred at the date of the
financial statements, and the amount of the loss can be reasonably estimated. In particular, given
the uncertain nature of Brazilian tax legislation, the assessment of potential tax liabilities
requires significant management judgment. By their nature contingencies will only be resolved when
one or more future events occur or fail to occur  and typically those events will occur a number
of years in the future. Assessing such liabilities, particularly in the uncertain Brazilian legal
environment, inherently involves the exercise of significant management judgment and estimates of
the outcome of future events. The provision for contingencies at December 31, 2004, totaling US$ 914 million, consists of
provisions of US$ 221 million, US$ 185 million, US$ 502 million and US$ 6 million for labor, civil,
tax and other claims, respectively. Employee Post-retirement Benefits We sponsor a defined benefit pension plan covering substantially all of our employees. We
account for these benefits in accordance with SFAS No. 87 Employers Accounting for Pensions. The determination of the amount of our obligations for pension benefits depends on certain
actuarial assumptions. These assumptions are described in Note 17 to our consolidated financial
statements and include, among others, the expected long-term rate of return on plan assets and
increases in salaries. In accordance with U.S. GAAP, actual results that differ from our
assumptions are accumulated and amortized over future periods and generally affect our recognized
expenses and recorded obligations in such future periods. Consolidation of Variable Interest Entities We perform evaluations of each of our equity affiliates and joint ventures to determine
if they constitute variable interest entities, or VIEs, as defined under Interpretation No. 46R,
Consolidation of Variable Interest Entities, or FIN 46R. Applying FIN 46R, we determined that
Albras is a VIE and that we are its primary beneficiary. We accordingly have consolidated Albras
with effect from January 1, 2005. FIN 46R requires the primary beneficiary of a variable interest entity to consolidate
that entity. A variable interest entity is created when (i) the equity investment at risk is not
sufficient to permit the entity from financing its activities without additional subordinated
financial support from other parties or (ii) equity holders either (a) lack direct or indirect
ability to make decisions about the entity, (b) are not obligated to absorb expected losses of the
entity or (c) do not have the right to receive expected residual returns of the entity if they
occur. The primary beneficiary of a variable interest entity is the party that absorbs a majority
of the variable interest entitys expected losses, receives a majority of the entitys expected
residual returns, or both, as a result of ownership, contractual or other financial interests in
the entity. Expected losses are the expected negative variability of an entitys net assets
exclusive of its variable interests, and expected residual returns are the expected positive
variability in the fair value of an entitys assets, exclusive of variable interests. Prior to the
issuance of FIN 46R, an enterprise generally consolidated an entity when the enterprise had a
controlling financial interest in the entity through ownership of a majority voting interest. Quantifying the variability of VIEs is complex and subjective, requiring consideration
and estimates of a significant number of possible future outcomes as well as the probability of
each outcome occurring. The results of 71




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each possible outcome are allocated to the parties holding interests in the VIE and, based on
the allocation, a calculation is performed to determine which party, if any, has a majority of the
potential negative outcomes (expected losses) or a majority of the potential positive outcomes
(expected residual returns). Calculating expected losses and expected residual returns requires
modeling potential future results of the entity, assigning probabilities to each potential outcome,
and allocating those potential outcomes to the VIEs interest holders. If our estimates of possible
outcomes and probabilities are incorrect, it could result in the inappropriate consolidation or
deconsolidation of the VIE. 
 Results of Operations2004 Compared to 2003 Revenues Our gross operating revenues rose to US$ 8,479 million in 2004, a 52.9% increase over 2003.
Our net operating revenues increased 50.8% to US$ 8,066 million in 2004. The following table
summarizes our gross revenues by product and our net operating revenues for the periods indicated: 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
    %
 Iron ore and pellets In 2004, the global seaborne iron ore market continued to experience high levels of demand.
Reflecting these global market conditions, customer demand for iron ore and pellets continued to
exceed CVRDs production capacity. We increased our shipments of iron ore by 40.9 million tons, or
25.1%, compared to the prior year and our shipments of pellets by 3.9 million tons, or 16.4%.
These increases reflect higher production at our existing mines, the effect of consolidating CAEMI
for a full year in 2004, compared to only four months in 2003, and higher purchases from third
parties. Our gross revenues for 2004 were also positively affected by price increases. We reached
agreements with major steelmakers in January 2004 under which our reference prices for iron ore and
pellets increased by an average of 18% and 19% respectively. Reflecting these positive volume and
pricing trends, our gross revenues from iron ore and pellets increased 46.9%, from US$ 3,500
million in 2003 to US$ 5,143 million in 2004. Iron ore.Gross revenues from iron ore increased by 50.1% from US$ 2,662 million in 2003 to
US$ 3,995 million in 2004, driven primarily by a 25.1% increase in shipments of iron ore and a
19.9% increase in average selling prices. The increase in shipments was driven primarily by the
consolidation of CAEMI for the entire year in 2004 compared to only four months in 2003. CAEMI
accounted for 42.7 million tons of shipments and gross revenues of US$ 840 million in 2004,
compared with 13.9 million tons of shipments and gross revenues of (US$ 240 million) in 2003. The
remaining increase in shipments resulted from higher production at our existing mines (primarily
Carajás) and an increase in purchases from third parties from 9.2 million tons to 15.9 million
tons. The prices reflect the iron ore price increases agreed with major steelmakers in January
2004. 72




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Pellets.Gross revenues from pellets increased by 37.0%, from US$ 838 million in 2003 to US$
1,148 million in 2004. The increase was driven by an 16.4% increase in volume shipped, reflecting
the demand for our pellets as well as the full operation of our pelletizing plant in São Luís,
which contributed 2.4 million tons, and an 18.7% increase in average selling prices. The price
increases reflect the pellet prices agreed with major steelmakers in January 2004. Manganese ore and ferroalloys Gross revenues of manganese ore and ferroalloys increased by 100.9%, from US$ 349 million in
2003 to US$ 701 million in 2004. This increase resulted from:  
    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 Gross revenues from sales of potash increased by 31.9%, from US$ 94 million in 2003 to US$ 124
million in 2004, driven by a 41.1% increase in average selling prices, reflecting strong demand.
The higher average selling prices were partially offset by lower sales volume, which decreased 6.5%
in 2004. Shipments were lower in 2004 because the production was limited as a result of the
expansion project at our Taquari-Vassouras potash mine, which is designed to increase its annual
production capacity from 600,000 tons to 850,000 tons. Kaolin Gross revenues from sales of kaolin increased by 70.8%, from US$ 96 million in 2003 to US$ 164
million in 2004. US$ 92 million of our kaolin revenues derives of the consolidation of CADAM
through CAEMI, for a full year in 2004, as opposed to US$ 31 million over four months in 2003.
Total volume shipped increased by 84.6%, driven primarily by the CAEMI acquisition. The volume
growth was partially offset by a 3.9% decrease in average selling prices, reflecting higher
international freight costs. Copper We began selling copper concentrate from our Sossego copper mine in June 2004. During the
period from June 2004 to the end of 2004, gross revenues from sales of copper concentrate amounted
to US$ 201 million. Logistic services Gross revenues from logistic services increased by 45.2% from US$ 604 million in 2003 to US$
877 million in 2004. The improved performance in logistics revenues reflects our efforts to add
railroad capacity to exploit opportunities provided by agricultural production, especially grains,
and increased shipments due to higher Brazilian steel production in 2004. Our gross revenues were
also positively affected by the consolidation of FCA beginning September 2003. In particular, the
increase in gross revenues from logistic services reflects:  
    A 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. 73




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
    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 Gross revenues from aluminum-related products increased 46.7%, from US$ 852 million in 2003 to
US$ 1,250 million in 2004. The main drivers were:  
    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 Our gold production declined significantly effective August 15, 2003, with the selling of our
Fazenda Brasileiro mine. Our gold production now consists solely of gold produced as a by-product
of our iron ore operations at Itabira. The copper concentrate we produce in our Sossego mine
contains gold. We record all revenues received in respect of the copper concentrate under copper
revenues. Other products and services Gross revenues from other products and services decreased 34.5%, from US$ 29 million in 2003
to US$ 19 million in 2004, primarily reflecting the sale, in 2003, by RDMN of excess energy to
third parties in the Norwegian market during the conversion of its plants in 2003. 74




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Operating costs and expenses The following table summarizes our operating costs and expenses for the periods indicated. 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.Total cost of goods sold increased 30.5%, from US$ 3,128 million in 2003 to US$
4,081 million in 2004. This increase resulted, in part, from the consolidation of Albras, CAEMI
and FCA for the full year in 2004, compared with only four months for CAEMI and FCA in 2003 and no
consolidation of Albras in 2003. CAEMI and FCA accounted for US$ 236 million of our cost of goods
sold in 2003 and Albras, CAEMI and FCA accounted for US$ 708 million in 2004. The other major
factors behind the increase in cost of goods sold during 2004 were:  
    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. 75




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Cost of ores and metals.Cost of ores and metals sold increased by 39.4% to US$ 2,881 million
in 2004 from US$ 2,066 million in 2003, primarily due to increased sales volumes of iron ore and
pellets, copper and manganese and ferroalloys. A portion of the increase in the cost of ores and
metals sold also reflects the higher costs associated with purchases of iron ore from third parties
to meet excess demand. We purchased 15.9 million tons in 2004, up from 9.2 million tons in 2003.
The cost of ores and metals during 2004 also includes US$ 484 million in costs generated by the
full consolidation of CAEMI, compared with four months in 2003, and the beginning of copper
operations. Cost of logistic services.Cost of logistic services increased by 38.6%, from US$ 370 million
in 2003 to US$ 513 million in 2004. Of the US$ 143 million increase, US$ 125 million relates to
the consolidation of FCA for the full 2004 compared with four months in 2003. Cost of aluminum-related products.Cost of aluminum-related products remained stable, from
US$ 678 million in 2003 to US$ 674 million in 2004. Cost of other products and services.Cost of other products and services remained stable,
from US$ 14 million in 2003 to US$ 13 million in 2004. Selling, general and administrative expenses Selling, general and administrative expenses increased 70.6%, from US$ 265 million in 2003 to
US$ 452 million in 2004. This increase resulted primarily from the full consolidation of CAEMI,
FCA and Albras over the full year in 2004, compared to four months of results from CAEMI and FCA
and no results for Albras for 2003. Taken together, CAEMI, FCA and Albras accounted for US$ 88
million of the US$ 187 million increase. The remainder primarily reflects increase in sales
expenses due to the increase in revenues sales and increase in salaries as well as the monetary
exchange variation. Research and development Research and development expenses increased 86.6%, from US$ 82 million in 2003 to US$ 153
million in 2004. This increase is in line with CVRDs expansion plans intended to diversify its
production and expand production of existing products to meet world demand. Other costs and expenses Other costs and expenses decreased by US$ 199 million in 2003 to US$ 188 million in 2004.
These costs and expenses primarily reflect provisions for contingencies. 76




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Operating Income by Segment The following table provides information concerning our operating income by segment and as a
percentage of revenues for the periods indicated. Year ended December 31,2004
    
    
    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
 Our operating income increased as a percentage of net operating revenues from 30.7% in
2003 to 38.7% in 2004. This increase was driven primarily by higher operating margins in the iron
ore, pellets, manganese and ferroalloy businesses due to higher prices, higher operating margins in
the aluminum business due to the consolidation of Albras, and the start up of copper operations.
We also experienced a substantial improvement in the operating margins of our kaolin business,
reflecting an increase in volume sold and lower unit costs due to the consolidation of CADAM for a
full year in 2004, compared to only four months in 2003, which more than offset a decline in
average selling prices. The improvement in these businesses was partially offset by declines in
margins in the railroad segment reflecting the consolidation of FCA and declines in alumina segment
operating profitability due to the consolidation of Albras. Non-operating income (Expenses) The following table details our non-operating income (expenses) for the periods indicated. 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
 We had net non-operating expenses of US$ 120 million in 2004, compared to net
non-operating income of US$ 10 million in 2003. This change primarily reflects:  
    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%). 77




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
    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 In 2004, we recorded a net tax expense of US$ 749 million, compared to a net tax expense of
US$ 297 million in 2003. The difference resulted primarily from:  
    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 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 Our equity in the results of affiliates and joint ventures and provisions for losses on equity
investments resulted in a gain of US$ 542 million in 2004, compared to a gain of US$ 306 million in
2003. The following table summarizes the composition of our equity in results of affiliates and
joint ventures and provisions for losses on equity investments for the periods indicated. Year ended December 31,2004
    
    
    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
 78




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Ferrous.Our equity in the results of iron ore and pellet affiliates and joint ventures
and provisions for losses on equity investments amounted to a gain of US$ 170 million in 2004,
compared to a gain of US$ 133 million in 2003. The improvements at each of these affiliates were
due to strong demand in the market for iron ore and pellets. Samarco contributed US$ 117 million
in 2004 compared to US$ 70 million in 2003, reflecting higher prices and a write-off of value-added
tax credits due to agreements with the local government, which amounted to US$ 37 million which was
recorded in 2003. Logistics.In 2004, our equity in the results of logistics affiliates and joint ventures and
provisions for losses on equity investments amounted to a gain of US$ 33 million, compared with a
net loss of US$ 52 million in 2003. The net loss in 2003 primarily reflected a provision for
losses related to impairment of assets registered by FCA prior to its consolidation in September
2003. Aluminum-related.Our equity in the results of our aluminum-related affiliates and joint
ventures and provisions for losses on equity investments was US$ 71 million in 2004, compared to
US$ 147 million in 2003. This decrease is due to the consolidation of Albras in 2004, partially
offset by improvements in the performance of the other aluminum-related companies. In 2004, our aluminum-related affiliates recorded exchange gains due to the effects of the
appreciation of the realon their foreign currency denominated debt. In addition to exchange rate
effects, the operating results of Valesul and MRN in 2004 were influenced by the following factors:  
    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.In 2004, we recorded a net gain of US$ 271 million in respect of our equity in the
results of steel affiliates and joint ventures, compared to a net gain of US$ 81 million in 2003.
The improved performance at Usiminas, CST (during the period prior to the sale of our interest) and
CSI were due to strong demand in the market for steel, which drove an increase in sales volumes and
average selling prices. The improved performance at CST also reflects the reversal of US$ 23
million of provisions for contingencies and the final court decision in the Plano Verão lawsuit
(income tax deductibility of certain charges) for US$ 75 million. The improved performance at
Usiminas primarily reflects higher selling prices and sales volumes. CSIs net income increased in
2004 primarily due to an 11.7% increase in sales volume and a 47.7% increase in average selling
prices, reflecting better margins. 79




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Results of Operations2003 Compared to 2002 Revenues Our gross operating revenues increased from US$ 4,282 million in 2002 to US$ 5,545 million in
2003. Our net operating revenues increased 29.8% from US$ 4,123 million in 2002 to US$ 5,350
million in 2003. The following table summarizes our gross revenues by product and our net
operating revenues for the periods indicated: Year ended December 31,2003
    
    
    2002
    
    
    % Change(in millions of US$)Iron ore and pelletsIron ore
    
    US$
    2,662
    
    
    US$
    2,147
    
    
    
    24.0
    %Pellets
    
    
    838
    
    
    
    673
    
    
    
    24.5Subtotal
    
    
    3,500
    
    
    
    2,820
    
    
    
    24.1Gold
    
    
    21
    
    
    
    103
    
    
    
    (79.6
    )Manganese ore and ferroalloys
    
    
    349
    
    
    
    283
    
    
    
    23.3Potash
    
    
    94
    
    
    
    91
    
    
    
    3.3Kaolin
    
    
    96
    
    
    
    45
    
    
    
    113.3Revenues from logistic services
    
    
    604
    
    
    
    458
    
    
    
    31.9Aluminum-related products
    
    
    852
    
    
    
    462
    
    
    
    84.4Other products and services
    
    
    29
    
    
    
    20
    
    
    
    45.0Gross revenues
    
    
    5,545
    
    
    
    4,282
    
    
    
    29.5Value-added tax
    
    
    (195
    )
    
    
    (159
    )
    
    
    22.6Net operating revenues
    
    US$
    5,350
    
    
    US$
    4,123
    
    
    
    29.8
 Iron ore and pellets The global seaborne iron ore market is experiencing the highest demand pressure it has faced
in the past two decades. Reflecting these global market conditions, in 2003, customer demand for
iron ore and pellets exceeded CVRDs production capacity, continuing the trend experienced in the
second half of 2002. Our gross revenues for 2003 were also positively affected by price increases.
We reached agreements with major steelmakers in May and June 2003 (retroactive to January 2003 for
sales to Europe and April 2003 for sales to Asia), respectively, under which our reference prices
for iron ore and pellets increased by an average of 9% and 9.8% respectively. Reflecting these
positive volume and pricing trends, our gross revenues from iron ore and pellets increased 24.1%,
from US$ 2,820 million in 2002 to US$ 3,500 million in 2003. Iron ore.Gross revenues from iron ore increased by 24.0% from US$ 2,147 million in 2002 to
US$ 2,662 million in 2003, driven primarily by a 13.3% increase in shipments of iron ore from 143.6
million tons in 2002 to 162.7 million tons in 2003. The volume growth includes by continued growth
in shipments to China, which increased by 7.7 million tons compared to 2002. Shipments for 2003
also include four months worth of shipments, accounting for 13.9 million tons of iron ore, by
CAEMI, which we began consolidating in September 2003. Actual average selling prices for iron ore
were 9.4% higher in 2003 than in 2002, primarily reflecting price increases agreed with major
steelmakers in May 2003. Pellets.Gross revenues from pellets increased by 24.5%, from US$ 673 million in 2002 to US$
838 million in 2003. The increase was primarily driven by a 14.6% increase in volume shipped, from
20.6 million tons in 2002 to 23.6 million tons in 2003. The average selling price for pellets
increased by 8.4% in 2003 compared to the same period in 2002, reflecting the impact of the price
increases agreed with major steelmakers in June 2003. Gold Gross revenues from sales of gold decreased 79.6%, from US$ 103 million in 2002 to US$ 21
million in 2003, reflecting the closure of our Igarapé Bahia mine in 2002 and lower yields from our
Fazenda Brasileiro mine prior to its sale in August 2003. These developments led to an 81.4%
decrease in volume sold. The volume declines were partially offset by a 14.6% increase in average
selling prices in 2003, reflecting higher world gold prices due primarily to the devaluation of the
U.S. dollar relative to other currencies and the war in Iraq. 80




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On August 15, 2003, we sold Fazenda Brasileiro to Yamana Resources for US$ 21 million. After
completion of the sale, our gold operations now consist only of gold produced as a by-product of
our iron ore operations at Itabira and our copper operations in Carajás. Manganese ore and ferroalloys Gross revenues from sales of manganese ore and ferroalloys increased by 23.3%, from US$ 283
million in 2002 to US$ 349 million in 2003. This increase resulted from:  
    A 36.1% increase in sales of manganese ore, from US$ 36 million in 2002 to US$ 49
million in 2003. The sales increase was driven primarily by higher sales volume, which
rose by 33.1%, mainly reflecting higher shipments of manganese ore sinter feed from our
Carajás mine to China. Revenues were also positively affected by higher average selling
prices, which increased by 2.3% compared to the same period in 2002.
    A 21.5% increase in gross revenues from ferroalloys, from US$ 247 million in 2002 to US$
300 million in 2003. The increase was driven by strong demand for our principal ferroalloy
products from the steel industry, which experienced an 18.0% increase in average selling
prices and a 5.5% increase in volume. This increase was also impacted by the acquisition
of RDMN. The plant started operations with one furnace in June 2003 and bought its second
furnace in November 2003. Potash Gross revenues from sales of potash increased by 3.3%, from US$ 91 million in 2002 to US$ 94
million in 2003. The increase was driven by a 12.0% increase in average selling prices, reflecting
strong demand. The higher average selling prices were partially offset by lower sales volume,
which decreased 7.8% in 2003 due to inventory drawdowns. Shipments were higher in 2002 because we
sold inventories on hand in addition to volumes produced in that period. Demand for potash in 2003
exceeded production capacity, and we expect this trend to continue in 2004. Kaolin Gross revenues from sales of kaolin increased by 113.3%, from US$ 45 million in 2002 to US$ 96
million in 2003. Of the total US$ 51 million increase in kaolin revenues, US$ 31 million resulted
from the consolidation of CADAM, the kaolin subsidiary of CAEMI, beginning September 2003. Total
volume shipped increased by 98.2%, reflecting the CADAM acquisition as well as increased marketing
efforts by our PPSA subsidiary, and average selling prices rose by 7.7%. Logistic services Gross revenues from logistic services increased by 31.9% from US$ 458 million in 2002 to US$
604 million in 2003. The improved performance in logistics revenues reflects in large part our
efforts to exploit opportunities provided by agricultural production, especially grains, and by
increased shipments due to higher Brazilian steel production in 2003. Our gross revenues were also
positively affected by the consolidation of FCA beginning September 2003. In particular, the
increase in gross revenues from logistic services reflects:  
    A 30.4% increase in revenues from railroad transportation, from US$ 286 million in 2002
to US$ 373 million in 2003. Of the US$ 87 million increase, US$ 61 million resulted from
our consolidation of FCA beginning September 2003. The increase in revenues reflects an
11.2% increase in volume transported and 17.3% increase in average selling prices.
    A 34.6% increase in gross revenues from port operations, from US$ 107 million in 2002 to
US$ 144 million in 2003. The increase in port operations gross revenues was driven by a
29.8% increase in average selling prices and a 1.8% increase in volume.
    A 33.8% increase in gross revenues from shipping, from US$ 65 million in 2002 to US$ 87
million in 2003. 81




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Aluminum-related products Gross revenues from aluminum products increased 84.4%, from US$ 462 million in 2002 to US$ 852
million in 2003. This increase resulted from:  
    A US$ 336 million increase in gross revenues from sales of alumina, from US$ 159 million
in 2002 to US$ 495 million in 2003. The increased alumina gross revenues primarily reflect
the completion of a capacity expansion at Alunorte that went on-line in April 2003,
increasing Alunortes capacity from 1.6 million tons per year to 2.4 million tons per year.
Average selling prices for alumina were 16.1% higher in 2003, reflecting the increase in
worldwide demand for alumina. The inclusion of a full year of Alunortes results in 2003,
compared with only 6 months in 2002, also positively affected gross revenues in 2003.
    A 14.3% increase in gross revenues from sales of aluminum, from US$ 280 million in 2002
to US$ 320 million in 2003. The increase in gross revenues from aluminum resulted from
increased worldwide demand for aluminum, which led to a 7.1% increase in volume sold, and a
3.1% increase in average selling prices.
    A 60.9% increase in gross revenues from sales of bauxite, from US$ 23 million in 2002 to
US$ 37 million in 2003. The increase in gross revenues from bauxite resulted from a 30.8%
increase in volume sold and a 22.9% increase in average selling prices. The expansion of
MRNs capacity from 11 million tons per year to 16 million tons per year completed in 2003
was the primary driver behind the volume increase. The price increase reflected a general
rise in worldwide bauxite prices. Other products and services Gross revenues from other products and services increased 45.0%, from US$ 20 million in 2002
to US$ 29 million in 2003, primarily reflecting the sale by RDMN of excess energy to third parties
in the Norwegian market during the conversion of its plant, which more than offset the decline in
revenues due to the sale of our forestry assets, which was completed in 2002. Operating costs and expenses The following table summarizes our operating costs and expenses for the periods indicated. Year ended December 31,2003
    
    
    2002
    
    
    % change(in millions of US$)Cost of ores and metals
    
    US$
    2,066
    
    
    US$
    1,579
    
    
    
    30.8
    %Cost of logistic services
    
    
    370
    
    
    
    252
    
    
    
    46.8Cost of aluminum-related products
    
    
    678
    
    
    
    412
    
    
    
    64.6Others
    
    
    14
    
    
    
    20
    
    
    
    (30.0
    )Cost of goods sold
    
    
    3,128
    
    
    
    2,263
    
    
    
    38.2Selling, general and administrative expenses
    
    
    265
    
    
    
    224
    
    
    
    18.3Research and development
    
    
    82
    
    
    
    50
    
    
    
    64.0Employee profit sharing plan
    
    
    32
    
    
    
    38
    
    
    
    (15.8
    )Other costs and expense
    
    
    199
    
    
    
    119
    
    
    
    67.2Total operating costs and expenses
    
    US$
    3,706
    
    
    US$
    2,694
    
    
    
    37.6
 Cost of goods sold General.Total cost of goods sold increased 38.2%, from US$ 2,263 million in 2002 to US$
3,128 million in 2003. CVRDs costs, as expressed in U.S. dollars, were positively affected by the
depreciation of the realagainst the U.S. dollar because the majority of CVRDs costs and expenses
are denominated in reais. The average R$/US$ exchange was R$ 2.9286 during 2002 and R$ 3.0722
during 2003, representing a nominal depreciation of 4.9%. At the same time, inflation as measured
by the IGP-M, reached 8.7% in 2003, contributing to increases in our costs. 82




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The major factors behind the increase in cost of goods sold during 2003 were:  
    Material costs increased by US$ 283 million in 2003 due to the significant increase in
our total production, combined with a 43% increase in the price of fuel. Fuel and gas
expenses accounted for 46.1% of our total materials cost in 2003, compared with 40.5% in
2002.
    Cost of outsourced services increased by US$ 248 million in 2003. The principal
component of this line was an increase in costs for outsourced logistics services resulting
from our consolidation of CAEMI beginning in September 2003. Unlike our Northern and
Southern systems, where we use our own railroads, CAEMI uses a third-party logistics
providerMRSto transport its iron ore to the port. CAEMI accounted for US$ 94 million in
outsourced logistics costs in 2003. In 2003, our western mines in the Southern System also
transported a portion of their output via MRS, for a total freight cost of US$ 39 million
in 2003 compared with US$ 28 million in 2002.
    Expenditures on purchases of products other than iron ore and pellets increased from US$
422 million in 2002 to US$ 604 million in 2003. The 40.3% increase in alumina production
meant proportional growth in purchases of bauxite from MRN, accounting for US$ 115 million
in expenses. Similarly an increase in sales volume and prices of primary aluminum
translated into an increase of approximately US$ 39 million in our take-or-pay commitment
to Albras.
    We incurred US$ 46 million in demurrage expenses in 2003 due to congestion in our ports
resulting from excess demand for iron ore and the resulting pressure on our logistics
system. Cost of ores and metals.Cost of ores and metals sold increased by 30.8% to US$ 2,066 million
in 2003 from US$ 1,579 million in 2002, primarily due to increased production volumes required by
the 13.5% increase in sales of iron ore and pellets. A portion of the increase in the cost of ores
and metals sold also reflects the higher costs associated with purchases of iron ore from third
parties to meet excess demand. The cost of ores and metals during 2003 also includes US$ 147
million in costs generated by CAEMI after its consolidation beginning in September 2003. Cost of logistic services.Cost of logistic services increased by 46.8%, from US$ 252 million
in 2002 to US$ 370 million in 2003. Of the US$ 118 million increase, US$ 71 million relates to
costs generated by FCA after its consolidation beginning in September 2003. The remaining increase
in costs resulted primarily from an increase in the number of ships chartered by Docenave. Cost of aluminum-related products.Cost of aluminum-related products increased by 64.6%, from
US$ 412 million in 2002 to US$ 678 million in 2003. The increase is primarily due to the increase
in Alunortes production capacity and the consolidation of Alunorte beginning in June 2002, which
increased our consolidated costs by US$ 205 million during 2003 compared with 2002. Cost of other products and services.Cost of other products and services declined 30.0%, from
US$ 20 million in 2002 to US$ 14 million in 2003, primarily due to the end of pulp purchases
following our exit from the pulp and paper business. Selling, general and administrative expenses Selling, general and administrative expenses increased 18.3%, from US$ 224 million in 2002 to
US$ 265 million in 2003. We experienced higher real-denominated expenses in 2003 related to
increased sales volumes. As expressed in U.S. dollars, these expenses were partially offset by the
depreciation of the realagainst the U.S. dollar. Other costs and expenses Other costs and expenses increased from US$ 119 million in 2002 to US$ 199 million in 2003.
The US$ 80 million increase was primarily attributable to a US$ 31 million increase in provisions
for ICMS taxes, a US$ 12 million write-off of assets at the São Luís pelletizing plant and US$ 8
million of contingencies. In 2002, we recorded US$ 49 million of income due to the sale of certain
forestry assets of our subsidiary Florestas Rio Doce S.A. 83




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Operating Income by Segment The following table provides information concerning our operating income by segment and as a
percentage of revenues for the periods indicated. Year ended December 31,2003
    
    
    2002Operating income
    
    
    % of net operating
    
    
    Operating income
    
    
    % of net operating(loss)
    
    
    revenues
    
    
    (loss)
    
    
    revenues(in millions of US$)
    
    
    
    
    
    
    (in millions of US$)Ferrous mineralsIron ore
    
    US$
    1,164
    
    
    
    45
    %
    
    US$
    1,082
    
    
    
    52
    %Pellets
    
    
    169
    
    
    
    22
    
    
    
    101
    
    
    
    15Manganese ore
    
    
    7
    
    
    
    n.a.
    
    
    
    5
    
    
    
    16Ferroalloys
    
    
    34
    
    
    
    28
    
    
    
    59
    
    
    
    25Non-ferrous mineralsGold
    
    
    17
    
    
    
    81
    
    
    
    (33
    )
    
    
    n.a.Potash
    
    
    35
    
    
    
    43
    
    
    
    32
    
    
    
    41Kaolin
    
    
    4
    
    
    
    4
    
    
    
    15
    
    
    
    34Aluminum-relatedAlumina
    
    
    109
    
    
    
    24
    
    
    
    32
    
    
    
    21Aluminum
    
    
    25
    
    
    
    8
    
    
    
    26
    
    
    
    9Bauxite
    
    
    3
    
    
    
    8
    
    
    
    1
    
    
    
    4LogisticsRailroads
    
    
    111
    
    
    
    33
    
    
    
    128
    
    
    
    49Ports
    
    
    46
    
    
    
    35
    
    
    
    22
    
    
    
    23Ships
    
    
    (38
    )
    
    
    n.a.
    
    
    
    (20
    )
    
    
    n.a.Others
    
    
    (42
    )
    
    
    n.a.
    
    
    
    (21
    )
    
    
    n.a.Total
    
    US$
    1,644
    
    
    
    30.7
    
    
    US$
    1,429
    
    
    
    34.7
 Our operating income as a percentage of net operating revenues declined from 34.7% in
2002 to 30.7% in 2003. The decline was driven primarily by:  
    a decline in the operating profitability of our iron ore business due mainly to the
consolidation of CAEMI in September 2003. As described above, CAEMI uses a third-party
railroad to transport its iron ore from the mine to the port, resulting in higher costs for
outsourced services; and
    a decline in the operating profitability of our railroad business due principally to the
consolidation of FCA in September 2003. FCA is less profitable than our other railroads,
primarily as a result of a more expensive concession contract. Our margins in our kaolin business dropped sharply in 2003, driven both by a significant
increase in operating costs at PPSA in 2003 and by the recording of write-offs in 2003 relating to
value-added taxes which proved to be uncollectible at both CADAM and PPSA. Non-operating income (Expenses) The following table details our non-operating income (expenses) for the periods indicated. Year ended December 31,2003
    
    
    2002(millions of US$)Financial income
    
    US$
    102
    
    
    US$
    127Financial expenses
    
    
    (351
    )
    
    
    (375
    )Foreign exchange and monetary gains (losses) net
    
    
    242
    
    
    
    (580
    )Gain on sale of investments
    
    
    17
    
    
    
    3⁄4Non-operating income (expenses)
    
    US$
    10
    
    
    US$
    (828
    )
 84




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Net non-operating income in 2003 amounted to US$ 10 million, compared to net
non-operating expenses of US$ 828 million in 2002. This change primarily reflects:  
    The effect of exchange rate movements on our net U.S. dollar-denominated liabilities
(mainly short and long-term debt, less cash and cash equivalents), which generated a net
foreign exchange gain of US$ 222 million in 2003, compared to a loss of US$ 515 million in
2002.
    A decrease in financial income from US$ 127 million in 2002 to US$ 102 million in 2003
due to lower cash balances and reductions in interest rates.
    A decrease in financial expenses from US$ 375 million in 2002 to US$ 351 million in
2003, principally due to the recognition, in 2002, of US$ 60 million relative to losses on
interest rate derivatives against only US$ 3 million in 2003 and lower interest rates.
    A net gain of US$ 17 million, reflecting a gain of US$ 61 million on the sale of
Fosfértil in October 2003, less a loss of US$ 44 million on the sale of CFN in November
2003. Income Taxes In 2003, we recorded a net tax expense of US$ 297 million, compared to a net tax benefit of
US$ 149 million in 2002. The difference resulted primarily from:  
    An increase in tax expense at nominal statutory rates from US$ 204 million in 2002 to
US$ 562 million in 2003 due to higher pre-tax income.
    Accrual of a US$ 59 million expense in respect of exempt foreign income in 2003,
compared to a tax benefit of US$ 196 million in 2002. This change resulted primarily from
the effects of the foreign exchange variations on the foreign assets that are exempt for
tax purposes.
    Accrual of a US$ 56 million expense related to the difference on tax basis of equity
investees in 2003, compared to a tax benefit of US$ 20 million in 2002. This resulted
mainly from effect of the deductible amortization of goodwill for local tax purposes.
    An increase in tax incentives from US$ 4 million in 2002 to US$ 60 million in 2003 due
to the iron ore and alumina incentives on the higher income tax basis in 2003.
    The primary driver for our reversal of approximately US$ 53 million in tax valuation
allowances in fiscal year 2003 was a US$ 39 million reversal of tax valuation allowances at
Rio Doce Manganês S.A. (RDM), a subsidiary involved in the manganese business. In 2003,
after we had bought out significant minority interests in 2002, we planned and carried out
a restructuring of our manganese operations in which we centralized all of our manganese
operations in RDM. As a result of the restructuring, production at RDM increased, as did
RDMs profits. Under Brazilian tax law, each entity in the consolidated group is
considered an independent entity for tax purposes, and the increase in taxable income at
RDM made it more likely that RDM would be able to use its tax loss carryforwards. We
accordingly revised our estimates of RDMs ability to use its tax loss carryforwards and
reversed US$ 39 million in tax valuation allowances. For comparative purposes, RDMs
income before income tax increased to US$ 77 million in 2003 compared to $ 40 million in
2002. During the first nine months of 2004, RDMs income before income tax was US$ 116
million.
    The remaining US$ 14 million of the US$ 53 million tax valuation allowance not
attributable to RDM relates to reversals of tax valuation allowances by two other
subsidiaries as a result of the generation of taxable profits in these separate legal
entities, neither of which was individually greater than US$ 10 million. The above factors were partially offset by the tax benefit of tax-deductible dividends that we
pay in the form of interest on shareholders equity, which amounted to US$ 271 million in 2003, as
compared to US$ 99 million in 2002. 85




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




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in net income at Valesul was driven primarily by an increase in electricity costs, which
more than offset the improvement in net sales.
    MRN.In 2003, MRN generated net income of US$ 81 million on net sales of US$ 254
million, compared to net income of US$ 94 million in 2002 on net sales of US$ 173 million.
Our portion of the net income of MRN was US$ 33 million in 2003 and US$ 38 million in 2002.
The revenue increase was driven by a 42.2% increase in sales volume, due principally to a
capacity expansion completed in March 2003, and a 1.5% increase in average selling prices
for bauxite. Net income was lower in 2003 due to higher financial expenses related to the
financing of the capacity expansion, and the inclusion in MRNs 2002 results of a gain on
the sale by MRN of its shares of Alunorte. Steel.In 2003, we recorded a net gain of US$ 81 million in respect of our equity in the
results of steel affiliates and joint ventures, compared to a net gain of US$ 23 million in 2002.
The increase reflects improved performance at Usiminas and CST, which more than offset lower
returns at CSI. The improved performance at CST primarily reflects a 23.4% increase in average
selling prices, reflecting higher slab prices and the start up of sales of hot-rolled coils (HRC),
a higher value product. The improved performance at Usiminas primarily reflects the positive
impact of exchange rate variations on Usiminas U.S. dollar-denominated debt. CSIs net income
declined in 2003 primarily due to a sharp increase in the cost of steel slabs, an important raw
material for its operations, which reduced CSIs gross margins. 
 Liquidity and Capital Resources Overview Our principal uses of funds are for capital expenditures, dividend payments and repayment of
debt. We have historically met these requirements by using cash generated from operating
activities and through short-term and long-term debt. We believe these sources of funds, together
with our cash and cash equivalents on hand, will continue to be adequate to meet our currently
anticipated capital requirements. In addition, from time to time, we review acquisition and investment opportunities and will,
if a suitable opportunity arises, make selected acquisitions and investments to implement our
business strategy. We generally make investments directly or through subsidiaries, joint ventures
or affiliated companies, and fund these investments through internally generated funds, the
issuance of debt or a combination of these methods. We also may dispose of assets. Our sale of
our stake in CST in 2004 generated cash flows of US$ 579 million. In 2005, we expect our major cash needs to include repayment or refinancing of US$ 730 million
in long-term debt that matures by the end of 2005, as well as budgeted capital expenditures of US$
3.3 billion and announced minimum dividend payments for 2005 of US$ 1 billion. We expect to meet
these cash needs through a combination of operating cash flow, cash and cash equivalents on hand,
and new debt. Sources of Funds Our principal sources of liquidity are cash and cash equivalents on hand and cash flow from
operating activities. At December 31, 2004, we had cash and cash equivalents of US$ 1,249 million.
Our operating activities generated positive cash flows of US$ 3,471 million in 2004. In 2005, we
expect our cash flow from operations to increase due to the price increases discussed above, see
Item 5. Operating and Financial Review and ProspectsOverviewKey Factors Affecting Revenue and
Results of OperationsPricesOres and metals. In addition to the above sources of liquidity, CVRD has a committed credit line facility for
the purpose of improving the efficiency of its cash management and reducing debt refinancing risks
during moments of instability in financial markets. In April 2005, the program was increased to
US$ 750 million from US$ 500 million. This increase was accompanied by an extension in tenor and a
cost reduction. The changes result from the rollover of the US$ 400 million tranche which was
signed by CVRD in May 2004 and was due in May 2005. This tranche was increased to US$ 650 million
on a committed bank facility with a syndicate of 11 commercial banks from the United States, Europe
and Asia. The transaction was structured to prevent any restrictions related to sovereign risk on
the disbursement of committed funds. The new facility has a utilization term of two years, and a
payback period, if drawn down, of two years. Since the beginning of the program in May of 2004,
CVRD has never made use of the funds available under the facility. 87




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We believe we are well positioned to raise additional capital in the debt markets to the
extent needed. At December 31, 2004, under our shelf registration statement with the SEC, we had
remaining capacity of approximately US$ 1.5 billion. In addition, we are among the most highly
rated Brazilian corporate borrowers, which we believe enhances our ability to access the debt
markets. Currently, CVRD is rated Ba1 by Moodys Investors Service. Increasing our credit rating
is a major strategic objective. In July 2004, we, through our subsidiary Alunorte, obtained a loan of US$ 310 million for the
financing of stages 4 and 5 of the expansion of the refinery. This financing has a tenor of 10
years, grace period of four years, average life of 7.3 years and a cost of six-month LIBOR plus 2%
per year until the conclusion of the project, and six-month LIBOR plus 3% thereafter. The loan
carries political risk insurance provided by the German government (GKA) and the Norwegian
government (GIEK). The financing, underwritten by a syndicate of banks, will be disbursed in
several installments. In September 2004, we entered into a new tranche of a loan underwritten by a syndicate of
commercial banks with political risk insurance provided by the Japanese agency Nippon Export and
Investment Insurance (NEXI). This agreement was increased from US$ 300 million to US$ 400 million.
The term of this tranche is seven years, with an average life of 4.5 years. The cost is 6-month
LIBOR plus 0.5% per year. In March and April of 2005, we drew the remaining US$ 200 million under
this facility. Uses of Funds Capital Expenditures In 2004, our net cash flow used in investing activities was US$ 1,541 million. Capital
expenditures amounted to US$ 2,056 million. In 2005, we have budgeted US$ 3.3 billion for capital
expenditures. This amount includes expenditures on projects as well as expenditures for
maintenance and exploration. For more information about the specific projects for which we have
budgeted funds, see Item 4. Information on the CompanyCapital Expenditures. Dividends We paid total dividends and interest on shareholders equity of US$ 787 million in 2004. In accordance with our dividend policy, our Executive Officers will announce by January 31 of
each year, a proposal to be approved by the Board of Directors, of a minimum dividend to be paid to
CVRD shareholders during the year. The minimum value announced, expressed in US dollars (USD), will
be based on CVRDs expected performance in the year of distribution. The proposal will establish
payment in two semiannual installments, under the form of dividends and/or interest on shareholders
equity, to be paid respectively in April and October. If the proposal is approved, the value
established will be paid in Brazilian Reais (BRL). The amount will be obtained from the conversion of the USD amount to BRL using the USD/BRL
exchange rate bid value (Ptax  option 5) informed by the Central Bank of Brazil the day prior to
the Board meeting regarding the declaration and payment of dividends. During the year, our
Executive Officers may propose to our Board of Directors, based on their analysis of our cash flow,
the payment of an extra installment, in addition to the minimum dividend announced in January. If
approved by the Board of Directors, this extra installment can be paid together with either of the
other two installments previously established. The announced minimum dividend amount for 2005 is
US$ 1 billion. In April 2005, the first installment of this dividend was approved by our Board of
Directors in the amount of US$ 500 million and was paid on April 29, 2005. Debt At December 31, 2004, we had aggregate outstanding debt of US$ 4,088 million, consisting of
short-term debt (including US$ 730 million in current portion of long-term debt and US$ 52 million
of loans from related parties) of US$ 856 million, and long-term debt (excluding current portion)
of US$ 3,232 million (including US$ 18 million of loans from related parties). At December 31,
2004, approximately US$ 1,197 million of our debt was secured by liens on some of our assets. 88




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Our short-term debt consists primarily of U.S. dollar-denominated trade financing, mainly in
the form of export prepayments and export sales advances with foreign and Brazilian financial
institutions. Our major categories of long-term indebtedness (including the current portion of long-term
debt and excluding the accrued charges) are as follows:  
    U.S. dollar-denominated foreign loans and financing (US$ 1,555 million at December 31,
2004).These loans primarily include export financing lines, import finance from export
credit agencies, loans from commercial banks and multilateral organizations. The loans
generally bear floating rate interest at spreads over LIBOR. In April 2004, we drew US$
200 million under a syndicated loan facility.
    U.S. dollar-denominated fixed rate notes (US$ 913 million at December 31, 2004).We
have issued several series of fixed rate bonds through our finance subsidiary Vale Overseas
Limited with a CVRD guarantee. The US$ 913 million outstanding at December 31, 2004
includes US$ 500 million of 8.25% Notes due 2034 issued by Vale Overseas in January 2004,
US$ 300 million of 9.0% Notes due 2013 issued by Vale Overseas in August 2003 and the
remaining US$ 113 million of 8.625% Enhanced Guaranteed Notes due 2007 issued by Vale
Overseas in March 2002 that remain outstanding after the cash tender offer described below.
    U.S. dollar-denominated export securitizations (US$ 480 million outstanding at December
31, 2004).We have a US$ 550 million securitization program based on existing and future
receivables generated by our subsidiary CVRD Overseas Ltd that relates to exports of iron
ore and pellets to six of our customers in Europe, Asia and the United States. The
securitization transaction is divided into three fixed rate tranches and one floating rate
tranche.
    Perpetual notes (US$ 65 million at December 31, 2004).We have issued perpetual notes
that are exchangeable for 48,000 million preferred shares of MRN. Interest is payable on
the notes in an amount equal to dividends paid on the underlying preferred shares relating
to periods beginning with the 2000 fiscal year.
    Local debt (US$ 821 million at December 31, 2004).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. On December 15, 2004 Vale Overseas finalized the cash tender offer for its US$ 300 million
principal amount outstanding 8.625% Enhanced Guaranteed Notes due 2007. The US$ 186.9 million of
Notes were repurchased leaving US$ 113.1 million outstanding. Of the total amount of long-term debt outstanding at December 31, 2004:  
    US$ 193 million relates to debt obligations of CAEMI, which we began consolidating on
September 1, 2003;
    US$ 134 million relates to debt obligations of FCA, which we began consolidating on
September 1, 2003; and
    US$ 192 million relates to debt obligations of Albras, which we began consolidating on
January 1, 2004. Some of our long-term debt instruments contain financial covenants. Our principal covenants
require us to maintain certain ratios, such as debt to equity, net debt to EBITDA and interest
coverage. We were in full compliance with our financial covenants as of December 31, 2004, and we
believe that our existing covenants will not significantly restrict our ability to borrow
additional funds as needed to meet our capital requirements. We believe we will be able to operate
within the terms of our financial covenants for the foreseeable future. None of these covenants
directly restricts our ability to pay dividends on equity securities at the parent company level. For additional information about our debt, please see Notes 14 and 15 to our financial
statements. 89




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Shareholder debentures At the time of the first stage of our privatization in 1997, we issued debentures to our
shareholders. The terms of the debentures were established to ensure that our pre-privatization
shareholders, including the Brazilian government, would participate alongside us in potential
future financial benefits that we derive from exploiting certain mineral resources that were not
taken into account in determining the minimum purchase price of our shares in the privatization.
In accordance with the debentures deed, holders have the right to receive semiannual payments equal
to an agreed percentage of our net revenues (revenues less value-added tax, transport fee and
insurance expenses related to the trading of the products) from certain identified mineral
resources that we owned at the time of the privatization, to the extent that we exceed defined
thresholds of sales volume relating to certain mineral resources, and from the sale of mineral
rights that we owned at that time. Our obligation to make payments to the holders will cease when
the relevant mineral resources are exhausted. We made no payments under the shareholder
debentures in 2003. The total payments made under the shareholder debentures amounted to US$ 2
million in 2004, relating to 2003 results. We also made a payment of US$ 3 million in April 2005,
relating to 2004 results. See Note 18 to our consolidated financial statements for a description
of the terms of the debentures. 
 Contractual Obligations The following table summarizes our long-term debt, short-term debt, operating lease
obligations, purchase obligations and Alunorte take-or-pay obligations at December 31, 2004. This
table excludes other obligations that we may have, including pension obligations (discussed in Note
17 to our consolidated financial statements). Payments Due by PeriodTotal
    
    
    Less than 1 year
    
    
    2006-2007
    
    
    2008-2009
    
    
    Thereafter(in millions of US$)Long-term debt (1)
    
    US$
    3,962
    
    
    US$
    748
    
    
    US$
    1,201
    
    
    US$
    510
    
    
    US$
    1,503Short-term debt (2)
    
    
    126
    
    
    
    126
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Operating lease obligations
    
    
    1,025
    
    
    
    50
    
    
    
    99
    
    
    
    96
    
    
    
    780Purchase obligations (3)
    
    
    6,639
    
    
    
    2,016
    
    
    
    732
    
    
    
    339
    
    
    
    3,552Take-or-pay obligation (MRN)(4)
    
    
    853
    
    
    
    57
    
    
    
    114
    
    
    
    114
    
    
    
    568Total
    
    US$
    12,605
    
    
    US$
    2,979
    
    
    US$
    2,164
    
    
    US$
    1,059
    
    
    US$
    6,403
  
 (1)
    
    Includes US$ 18 million of long-term debt to related parties.(2)
    
    Includes US$ 52 million of short-term debt to related parties.(3)
    
    Amounts, including for purchases of iron ore, are based on 2005 prices.(4)
    
    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 At December 31, 2004, our off-balance sheet arrangements consisted solely of guarantees. At
December 31, 2004, we had extended guarantees for borrowings obtained by affiliates and joint
ventures in the amount of US$ 7 million, of which US$ 6 million is denominated in U.S. dollars and
the remaining US$ 1 million is denominated in reais. We expect no losses to arise as a result of
these guarantees. We have made charges for extending these guarantees in the case of Samarco. See
Note 18 to our consolidated financial statements for more information concerning these guarantees. 
 Recent Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment which sets accounting
requirements for share-based compensation to employees, including employee-stock-purchase-plans
(ESPPs) and provides guidance on accounting for awards to non-employees. This Statement will
require companies to recognize in the income statement the grant-date fair value of stock options
and other equity-based compensation issued to employees, but expresses no preference for a type of
valuation model. For public entities, this Statement is effective for the first interim period
beginning after June 15, 2005. We do not expect SFAS 123R to have any material impact on our
financial position, result of operations or cash flows. 90




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In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets an amendment
of APB No. 29. This Statement amends Opinion 29 to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. The Statement specifies that a
nonmonetary exchange has commercial substance if the future cash flows of the entity are expected
to change significantly as a result of the exchange. This Statement is effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is
permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date this
Statement is issued. Retroactive application is not permitted. We will apply this Statement in
the event exchanges of nonmonetary assets occur in fiscal periods beginning after June 15, 2005. In November 2004, the FASB issued SFAS No. 151, Inventory Costs an amendment of ARB No. 43,
Chapter 4, which amends Chapter 4 of ARB No. 43 that deals with inventory pricing. The Statement
clarifies the accounting for abnormal amounts of idle facility expenses, freight, handling costs,
and spoilage. Under previous guidance, paragraph 5 of ARB No. 43, chapter 4, items such as idle
facility expense, excessive spoilage, double freight, and rehandling costs might be considered to
be so abnormal, under certain circumstances, as to require treatment as current period charges.
This Statement eliminates the criterion of so abnormal and requires that the costs of conversion
be based on the normal capacity of the production facilities. The provisions of this Statement
shall be effective for 2005. Also, this Statement requires that allocation of fixed production
overheads to inventories by June 15, 2005. Earlier application is permitted for inventory costs
incurred during fiscal years beginning after the date this Statement is issued. The provisions of
this Statement shall be applied prospectively. We are analyzing the requirements of this new
Statement and believe that its adoption will not have any significant impact on the Companys
financial position, results of operations or cash flows. In September 2004, the FASB issued FSP EITF Issue 03-1-1, which delayed the effective date of
paragraphs 10-20 of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments. Paragraphs 10-20 of EITF Issue No. 03-1 give guidance on how
to evaluate and recognize an impairment loss that is other that temporary. Application of these
paragraphs has been deferred pending issuance, of proposed FSP EITF Issue 03-1a. We do not expect
EITF Issue No. 03-01 to have any impact on our financial position, results of operations or cash
flows. At its March 31, 2004 meeting, the Emerging Issues Task Force (EITF) reached final consensus
on EITF Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement No.
128, Earnings per Share. Typically, a participating security is entitled to share in a companys
earnings, often via a formula tied to dividends on the companys common stock. The issue clarifies
what is meant by the term participating security, as used in Statement 128. When an instrument is
deemed to be a participating security, it has the potential to significantly reduce basic earnings
per common share because the two-class method must be used to compute the instruments effect on
earnings per share. The consensus also covers other instruments whose terms include a
participation feature. The consensus also addresses the allocation of losses. If undistributed
earnings must be allocated to participating securities under the two-class method, losses should
also be allocated. However, EITF 03-6 limits this allocation only to situations when the security
has (1) the right to participate in the earnings of the company, and (2) an objectively
determinable contractual obligation to share in net losses of the company. The consensus reached
in EITF 03-6 is effective for fiscal periods beginning after March 31, 2004. EPS in prior periods
must be retroactively adjusted in order to comply with the consensus decisions reached in EITF
03-6. We do not expect that this consensus will have any impact on our calculation of Basic and
Diluted EPS. 
 Item 6. Directors, Senior Management and Employees 
 BOARD OF DIRECTORS Overview Our Conselho de Administração,or Board of Directors, sets general guidelines and policies for
our business and monitors the implementation of those guidelines and policies by our executive
officers. The Board of Directors holds regularly scheduled meetings on a monthly basis and holds
additional meetings when called by its chairman, vice-chairman or any two directors. Decisions of
the Board of Directors require a quorum of a majority of the directors and are taken by majority
vote. 91




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Under the Brazilian Corporate Law, the Board of Directors must have at least three members.
Each director and his or her respective alternate are elected at a general shareholders meeting
and are subject to removal at any time. Our bylaws state that the Board of Directors must consist
of eleven members and eleven alternates. Our current employees have the right to appoint one
director and an alternate. Under the Brazilian Corporate Law, members of the Board of Directors
must be shareholders of CVRD. Members of the Board of Directors are elected for two-year terms and
can be re-elected. Each alternate director serves on behalf of a specific board member. In the
absence of the director for whom an alternate director is acting, that alternate director may
attend and vote at meetings of the Board of Directors. Ten of our current directors and nine of our current alternate directors were appointed to
their positions directly by Valepar, our principal shareholder, pursuant to Valepars shareholders
agreement and the provisions of the Brazilian Corporate Law. For a description of the procedures
under which our directors are appointed, see Item 10. Additional InformationMemorandum and
Articles of IncorporationCommon Shares and Preferred SharesGeneral.For a description of
Valepars shareholders agreement, see Item 7. Major Shareholders and Related Party
TransactionsMajor ShareholdersPrincipal Shareholder. Directors of CVRD The table below lists the current members of the Board of Directors. All of our directors
were elected or re-elected, as the case may be, in 2005, and their terms will expire in 2007. YearFirstElected
    
    Position
    
    AgeSérgio Ricardo Silva Rosa (1)
    
    2003
    
    Chairman
    
    45Erik Persson (1)
    
    2001
    
    Director
    
    51Jorge Luiz Pacheco (1)
    
    2005
    
    Director
    
    50Arlindo Magno de Oliveira (1)
    
    2003
    
    Director
    
    54Jaques Wagner (1)
    
    2003
    
    Director
    
    55Renato da Cruz Gomes (1)
    
    2001
    
    Director
    
    52Mário da Silveira Teixeira Júnior (1)
    
    2003
    
    Vice-Chairman
    
    59Hiroshi Tada (1)
    
    2005
    
    Director
    
    60Oscar Augusto de Camargo Filho (1)
    
    2003
    
    Director
    
    67Francisco Augusto da Costa e Silva (1)
    
    2005
    
    Director
    
    56Eduardo Fernando Jardim Pinto (2)
    
    2005
    
    Director
    
    42
  
 (1)
    
    Appointed by Valepar and approved at the annual shareholders meeting.(2)
    
    Appointed by our employees and approved at the annual shareholders meeting.
 The table below lists the alternate members of the Board of Directors. YearFirstElected
    
    Position
    
    AgeGerardo Xavier Santiago (1)
    
    2003
    
    Director
    
    45Rita de Cássia Paz Andrade Robles (1)
    
    2005
    
    Director
    
    38Sérgio Ricardo Lopes de Farias (1)
    
    2005
    
    Director
    
    40José Mauro Guahyba de Almeida (1)
    
    2005
    
    Director
    
    60Luiz Antonio Santos Baptista (1)
    
    2004
    
    Director
    
    48Rômulo de Mello Dias (1)
    
    2003
    
    Director
    
    43João Moisés de Oliveira (1)
    
    2003
    
    Director
    
    60Hidehiro Takahashi (1)
    
    2005
    
    Director
    
    49Wanderlei Viçoso Fagundes (1)
    
    2003
    
    Director
    
    59VacantJosé Horta Mafra Costa (2)
    
    2005
    
    Director
    
    58
  
 (1)
    
    Appointed by Valepar and approved at the annual shareholders meeting.(2)
    
    Appointed by our employees and approved at the annual shareholders meeting.
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We have summarized below the business experience, areas of expertise, and principal
outside business interests of our current directors: Sérgio Ricardo Silva Rosa. Mr. Rosa joined our Board of Directors in April 2003 and
was designated as Chairman in May 2003. Mr. Rosa is currently the chief executive officer
of PREVI  Caixa de Previdêcia dos Funcionários do Banco do Brasil, or Previ, where he has
been an executive officer since 2000. He is also a director of Valepar S.A., or Valepar,
and chief executive officer of Litel Participações S.A., or Litel. Mr. Rosa has been a
director of Brasil Telecom Participações since December 2000, and of Sauípe S.A. since May
2001. Prior to joining Previ, Mr. Rosa served as President of the Confederação Nacional dos
Bancários from June 1994 to May 2000. From January 1995 to December 1996, Mr. Rosa was an
alderman of the municipality of São Paulo. He received his degree in journalism from
Universidade de São Paulo. Erik Persson. Mr. Persson joined our Board of Directors in April 2001. Mr. Persson
was a planning officer at Previ from June 2000 to May 2003 and has been serving as a pension
officer since June 2003. He has worked at Banco do Brasil S.A. since 1977. Mr. Persson has
also served as a director of Valepar and Previ since April 2001, and has held an officer
position in SEEB and FEEB, both in Rio Grande do Sul, since 1990. He received his degree in
economics from Universidade Federal do Rio Grande do Sul  UFRGS. Jorge Luiz Pacheco. Mr. Pacheco joined our Board of Directors in April 2002. Mr.
Pacheco has been manager of strategic investments at Previ since December 2000, and prior to
this time worked at Banco do Brasil S.A. since 1973. He has also served as a director of
Valepar and a director of Litel, and has held an officer position in the fiscal council of
Compania Siderúrgica Belgo-Mineira. He received his degree in economics from Faculdade de
Ciências Econômicas  FCPE  Cândido Mendes/RJ, and post-graduate degrees in finance and
business management from IBMEC/RJ. Arlindo Magno de Oliveira. Mr. Oliveira joined our Board of Directors in April 2003.
Since 1974, he has served in a variety of positions at Banco do Brasil S.A. such as customer
service manager. Mr. Oliveira also joined Previ in 1974, and since then, has served as
member of the fiscal council, officer for deliberations and executive officer for planning,
and currently he serves as Previs deliberative board member. From April to October 2002,
Mr. Oliveira was the executive officer in charge of finance and management at CEDAE 
Companhia Estadual de Água e Esgoto. He also acted as a director of several companies,
including Companhia de Eletricidade do Estado da Bahia  COELBA, Companhia Energética do Rio
Grande do Norte  COSERN, CPFL Energia S.A., CPFL Geração de Energia S.A. and ENERCAN -
Campos Novos Energia S.A. He received a degree on economics from Universidade Federal
Fluminense  UFF and his post-graduate degree in finance from IBMEC/RJ. Jaques Wagner. Mr. Wagner joined our Board of Directors in December 2003. As of
January 23, 2004, Mr. Wagner serves as Minister of the Council on Economic Development
Special Administrative Office. From 1999 to 2003, he was a member of the Parliament and
served as the Minister of Labor from 2003 to 2004. He received his degree in engineering
from Pontifícia Universidade Católica in Rio de Janeiro. Renato da Cruz Gomes. Mr. Gomes joined our Board of Directors in April 2001. Mr. Gomes
has been an executive officer of Bradespar S.A. since 2000. From 1976 through 2000, Mr.
Gomes held a variety of positions within BNDES and has participated on the boards of
directors of many companies, in the last 15 years, namely Aracruz, Iochpe Maxion, Bahia Sul,
Globo Cabo and Latasa. He was also a member of the advisory board of Fator Sinergia  Fundo
de Investimento de Valores Mobiliários em Ações and the investment committee of Bradesco
Templeton Value and Liquidity Fund. Mr. Gomes has been an executive officer of Valepar
since April 2001 and is an alternate member of Valepars Board of Directors. He received
his degree in engineering from Universidade Federal do Estado do Rio de Janeiro  UFRJ, and
his post-graduate degree in management development from SDE. Mário da Silveira Teixeira Júnior. Mr. Teixeira joined our Board of Directors in May
2003. In July 1971, Mr. Teixeira joined Bradesco S.A. Corretora de Títulos e Valores
Mobiliários, where he served as an executive officer from March 1983 to January 1984, when
he was appointed as chief department officer of Banco Bradesco S.A. In 1992 he became chief
managing officer, in 1998 vice-president and from March 93




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1999 until July 2001 he was a member of the Board of Directors. From July 2001 to
March 2002, Mr. Teixeira was CEO of Bradespar and, in March 2002, he returned to the Board
of Directors of Banco Bradesco S.A. In addition, he is a director of Valepar S.A., VBC
Participações S.A., VBC Energia S.A., Companhia Paulista de Força e Luz  CPFL, CPFL Energia
S.A., CPFL Geração de Energia S.A., Companhia Piratininga de Força e Luz, Vice-chairman of
the Board of Directors of Banco Bradesco S.A., non-voting member of the Managing Board of
Banco Espírito Santo S.A., located in Lisbon, Portugal, and Vice-chairman of the Board of
Directors of BES Investimento do Brasil S.A.  Banco de Investimento. He also served as
Vice-President of ANBID  Associação Nacional dos Bancos de Investimento, member of the
Management Board of ABRASCA  Associação Brasileira das Companhias Abertas, and director of
Companhia Siderúrgica Nacional  CSN, Latasa S.A., Globo
Cabo S.A., São Paulo Alpargatas S.A.
and Tigre S.A. Tubos e Conexões. Mr. Teixeira received a degree in civil engineering and
business administration from Mackenzie Presbyterian University. Hiroshi Tada.Mr. Tada joined our Board of Directors in April 2005. Since 1968, Mr.
Tada has served in a variety of positions at Mitsui & Co. Ltd., or Mitsui, where he is
currently the Senior Executive Managing Officer. He received his degree in engineering from
the University of Kyoto and an Advanced Management degree from Harvard. Oscar Augusto de Camargo Filho. Mr. Camargo Filho joined our Board of Directors in
September 2003. He is currently a partner of CWA Consultoria Empresarial. From 1999 to
2003, Mr. Camargo Filho served as Chairman of the Board of Directors of MRS Logística. From
1973 to 2003, he held various positions with CAEMI, including CEO and member of its Board of
Directors. From 1963 until 1973, he held a variety of positions within Motores Perkins
S.A., including commercial officer and sales and services manager. He received his law
degree from Faculdade de São Francisco at the Universidade de São Paulo. Francisco Augusto da Costa e Silva.Mr. Costa e Silva joined our Board of Directors in
April 2005. He is also a partner of Bocater, Camargo, Costa e Silva  Advogados Associados,
a law firm in Rio de Janeiro. Mr. Costa e Silva also serves as a director of Banco do Brasil
S.A., Comitê de Ética da Associação dos Analistas e Profissionais de Investimento do Mercado
de Capitais (APIMEC), and the development committee of Pontifícia Universidade Católica do
Rio de Janeiro (PUC/RJ). He started his career at Banco Nacional do Desenvolvimento
Econômico e Social  BNDES, where he held a variety of positions, including executive
officer. Previously, he served on the Board of Directors of several companies and entities
namely Solpart Participações S.A., Aracruz Celulose S.A., Pisa Papel de Imprensa S.A.,
Fundação de Assistência e Previdência Social do BNDES -FAPES and Rio de Janeiro Stock
Exchange  BVRJ. Mr. Costa e Silva also served as President of the CVM and of the Council
of Securities Regulators of the Americas  COSRA, joined Comissão da Moeda e do Crédito -
COMOC and the Supplemental Pension Plan Council and served on the executive committee of the
International Organization of Securities Commissions  IOSCO. Mr. Costa e Silva received
his law degree from Universidade do Estado da Guanabara, currently Universidade do Estado do
Rio de Janeiro  UERJ, and his MBA degree from COPPEAD, at Universidade Federal do Rio de
Janeiro  UFRJ. Eduardo Fernando Jardim Pinto.Mr. Jardim Pinto joined our Board of Directors in April
2005. Since 1983 he has held several positions with us and currently he serves as a
specialized train conductor and President of STEFEM, the railroad employees union in the
State of Maranhão. He received his degree in electronic engineering from CEFET, and is
currently pursuing a law degree at Faculdade São Luiz. Directors of Vale Overseas Vale Overseas directors are as follows: Position
    
    
    AgeFabio de Oliveira Barbosa
    
    Director
    
    
    44Fernando Ramos Nóbrega
    
    Director
    
    
    46Bernardeth Vieira de Souza
    
    Director
    
    
    53Leonardo Moretzsohn de Andrade
    
    Director
    
    
    47
 94




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Mr. Barbosa also serves as Vale Overseas principal executive officer and Mr. Moretzsohn
also serves as Vale Overseas principal financial officer. Mr. Barbosas experience is summarized
below under  ̄Executive Officers. Fernando Ramos Nóbrega.Mr. Nóbrega serves as the Executive Coordinator for Investment
Analysis. From 1999 to 2005, he served as the general manager  Finance of CVRD. He has
been a board member at Itabrasco, Nibrasco, Hispanobras and Kobrasco since 1998. During the
year 2000, Mr. Nóbrega was the financial and administrative director of FCA. Prior to that
he held a variety of positions at CVRD and Rio Doce America, Inc., New York. Mr. Nóbrega
obtained an engineering degree from Universidade Federal do Rio de Janeiro (UFRJ) and an
Executive MBA from New York University in 1997. Bernardeth Vieira de Souza.Mrs. Vieira de Souza is the general manager  Treasury for
CVRD. Mrs. Vieira de Souza obtained an Accounting and Business Administration degree from
Universidade do Estado do Rio de Janeiro  UERJ and a masters degree in Management and
Administration of Cash Flow from Fundação Getúlio Vargas(FGV-RJ). Leonardo Moretzsohn de Andrade.Mr. Moretzsohn joined Vale Overseass Board of
Directors in March 2005. Mr. Moretzsohn joined CVRD in 1983, and since then has held several
positions within CVRD. He is currently CVRDs internal controls officer. He is also a
member of the Board of Directors of Valesul, Nova Era Silicon, a member of the board of
trustees of Valia and a member of the Financial and Operational Committee of CSI. From 1998
until 2001, he worked at RDI as manager in the pulp department, and during that period he
was also a member of BENECEL  BENELUX Pulp and Paper Agents Association. He received his
degree in economics from Universidade de Brasilia and has a post-graduate degree in
engineering projects from COPPE/UFRJ and an MBA in Company Management from FGV. The business address of the Vale Overseas directors is Avenida Graça Aranha, 26, 17th floor,
20030-900 Rio de Janeiro, RJ, Brazil. 
 EXECUTIVE OFFICERS Overview The executive officers are our legal representatives and are responsible for day-to-day
operations and the implementation of the general policies and guidelines set forth by the Board of
Directors. Our bylaws provide for a minimum of six and a maximum of nine executive officers. The
Board of Directors appoints executive officers for two-year terms and may remove them at any time.
According to the Brazilian Corporate Law, executive officers must be Brazilian residents. The
executive officers hold regularly scheduled meetings on a weekly basis and hold additional meetings
when called by any executive officer. Executive Officers The table below lists our current executive officers. The term of each of our executive
officers expires in 2005. Year ofAppointment
    
    Position
    
    AgeRoger Agnelli
    
    2001
    
    Chief Executive Officer
    
    46José Carlos Martins
    
    2005
    
    Executive Officer (Ferrous Minerals)
    
    55Murilo Ferreira
    
    2005
    
    Executive Officer (Holdings, Energy and Business Development)
    
    51José Lancaster
    
    2004
    
    Executive Officer (Non-Ferrous Minerals)
    
    58Guilherme Rodolfo Laager
    
    2001
    
    Executive Officer (Logistics)
    
    48Fabio de Oliveira Barbosa
    
    2002
    
    Executive Officer (Finance and Investor Relations)
    
    44Gabriel Stoliar
    
    2001
    
    Executive Officer (Planning and Control)
    
    51Carla Grasso
    
    2001
    
    Executive Officer (Human Resources and Corporate Services)
    
    43
 95




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We have summarized below the experience, areas of expertise, and principal outside
business interests of our current executive officers. Roger Agnelli.Mr. Agnelli was appointed President and CEO of Companhia Vale do Rio
Doce in July 2001. He developed his professional career at the Bradesco financial group
from 1981 to 2001, where he reached the position of executive director of Banco Bradesco in
1998, remaining in that office until the year 2000; he also was President and CEO of
Bradespar S.A., from March 2000 to July 2001. Due to his activities in the areas of
investments, mergers and acquisitions, and asset management, he was a member of the board of
directors of several major companies in Brazil, such as Companhia Paulista de Força e Luz,
Companhia Siderúrgica Nacional, Latas de Alumínio S.A.  LATASA, VBC Energia S.A., Brasmotor
S.A., Mahle Metal Leve S.A., Rio Grande Energia S.A. and Serra da Mesa Energia S.A. Mr.
Agnelli was also a director of UGB Participações S.A. and Vice-President of ANBID 
Brazils National Association of Investment Banks. Mr. Agnelli was the Chairman of the
board of directors of Companhia Vale do Rio Doce, from May 2000 until July 2001 and is
presently a member of the board of directors of Asea Brown Boveri, Duke Energy Corporation
and Suzano Petroquímica S.A. Mr. Agnelli is a full member of the Economic and Social
Development Council (CDES), an advisory council to the President of Brazil. He is also
President of the Chinese-Brazilian Business Council, and a member of the International
Investments Council, formed to advise the President of South Africa, Dr. Thabo Mbeki. Mr.
Agnelli has a degree in economics from the Fundação Armando Álvares Penteado, in São Paulo. José Carlos Martins.Mr. Martins was appointed as an executive officer of our ferrous
minerals division in April 2005, and he was originally appointed as an executive officer of
holdings, energy and business development in April 2004. He has over 30 years of experience
in the metals industry. He was an officer and president of Aços Villares from 1986 to 1996
and chief managing officer of the steel area at CSN, from 1997 to 1999. In 1999, Mr.
Martins became President of Latasa, one of the largest aluminum can producers in Latin
America. Upon the purchase of Latasa by Rexam, a United Kingdom company, in 2003, he became
president and CEO of Rexams South American beverage can division, Rexam Beverage Can South
America. Mr. Martins has a B.A. degree in Economics from Pontifícia Universidade Católica
de São Paulo. Murilo Ferreira.Mr. Ferreira was appointed as an executive officer of our holdings,
energy and business development areas in April 2005. He joined us in 1977 and has vast
experience in several areas of CVRD, particularly Aluminum and Ferroalloys, and in 1998 he
was appointed executive officer of commerce and finance at Vale do Rio Doce Alumínio S.A. 
ALUVALE, a holding company of CVRD that was merged into CVRD in December 2003. Aside from
being the Director of the Department of Aluminum since December 2003, Mr. Ferreira is also
the CEO of ALBRAS  Alumínio Brasileiro S.A., and a member of the Board of Directors of MRN
  Mineração Rio do Norte S.A., Valesul Alumínio S.A. and ALUNORTE  Alumina do Norte do
Brasil S.A. Mr. Ferreira has a B.A. degree from Escola de Administração de Empresas,
Fundação Getulio Vargas (FGV), and an MBA from EBAP-FGV. José Lancaster.Mr. Lancaster was appointed as an executive officer of our non-ferrous
minerals division in September 2004. He is also a Chairman of the Board of Directors of
Cadam S.A. and Pará Pigmentos S.A., a member of the Board of Directors of Cordillera de Las
Minas S.A. and an officer of Compañia Minera Andino Brasileira Ltd., Compañia Minera Latino
Americana Ltda., Tethys Mining LLC and Vale do Rio Doce Kaolin S.A.  Valekao. Previously,
Mr. Lancaster served as CEO of Mineração Serra do Sossego S.A., and exploration manager of
the Brazilian subsidiary of British Petroleum. He graduated from the Federal University of
Minas Gerais, Brazil, with a degree in Geology and holds a Ph.D in Economic Geology by
Mackay School of Mines, from the University of Nevada, Reno (United States). Guilherme Rodolfo Laager.Mr. Laager was appointed as an executive officer of our
logistics division in September 2001. Mr. Laager served as logistics, procurement and
technology information director for Companhia de Bebidas das Américas  AMBEV from 1989
until August 2000. From 1982 until 1988, Mr. Laager worked for Andersen Consulting and,
from 1979 until 1981, for IESA, International de Engenharia S.A. Mr. Laager has a B.S.
degree in civil engineering from the Universidade Federal do Rio de Janeiro  UFRJ and
obtained an MBA from COPPEAD, also at UFRJ. 96




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Fabio de Oliveira Barbosa. Mr. Barbosa was appointed as our chief financial officer in
May 2002. He is also an officer of Docepar S.A. and Chairman of the Board of Directors of
CAEMI. Prior to that, Mr. Barbosa served as a member of our Board of Directors from April
2000 to March 2002. Previously, he served as chairman of the Board of Directors of BANESPA
 Banco do Estado de São Paulo S.A., and also served as a board member of the following
companies: Banco do Brasil S.A., Caixa Econômica Federal, CST and TELESPTelecomunicações de
São Paulo. Prior to joining us, Mr. Barbosa has served as secretary of the National
Treasury at the Ministry of Finance since July 1999, after serving as assistant secretary in
the previous four years. From 1992 to 1995, he served as adviser to the Executive Board of
the World Bank, in Washington D.C. From 1990 to 1992, he was Deputy and Head of the Fiscal
Policy Unit at the Ministry of Economy and Finance. From 1988 to 1990, he was economic
advisor and head of the Economic Analysis Unit, both at the Ministry of Planning. Prior to
that time, Mr. Barbosa held a variety of positions at the Ministry of Industry and Commerce,
the Paraná State Development Institute, the Ministry of Labor and the Institute for Applied
Economic Research. He has a B.A. degree in Economics from Universidade Federal de Minas
Gerais and a M.A. in Economics from the Universidade de Brasília (UnB). Gabriel Stoliar. Since October 2001, Mr. Stoliar has served as the chief planning and
control officer of CVRD. In September 1997, he was originally appointed as an executive
officer of the Corporate Center. He is also director of Usiminas, CAEMI and PPSA. In 1994,
he was appointed director of BNDESPAR. In 1991, Mr. Stoliar assumed the position of
superintendent of the operational division responsible for the areas of mining, metallurgy,
chemicals, petrochemicals, pulp and paper of BNDESPAR. He was appointed by BNDESPAR in 1988
as manager of operations in the area of capital, electronic and consumer goods. In 1982, he
was promoted to manager of BNDES for the project area of FINSOCIAL. In 1978, he was hired
by BNDES as an analyst in the area of pulp, paper and petrochemicals. Mr. Stoliar began his
career as a business organization consultant at the Institute of Economic and Management
Development of the Federation of Industries of Rio de Janeiro. Mr. Stoliar obtained an
engineering degree from Universidade Federal do Rio de Janeiro  UFRJ, a post-graduate
degree in production engineering and an MBA from PDG/EXE-SDE in Rio de Janeiro. Carla Grasso. Ms. Grasso was appointed as an executive officer of the human
resources and corporate services area in October 2001. From December 1997 to October 2001,
Ms. Grasso served as the personnel, management and IT officer to CVRDs Corporate Centre.
Before joining CVRD, she acted as secretary of the Brazilian supplementary social security
office, from January 1994 to November 1997; as advisor to the Ministry of Social Security,
from December 1992 to December 1993; as deputy coordinator of fiscal policy at the Ministry
of Finance, from October to December 1992; as finance advisor and coordinator of the
Macroeconomics and Social areas of the Brazilian Presidency office, from March 1990 to
October 1992; as advisor to the Ministry of Planning, from November 1988 to March 1990; and
as advisor to the Presidency of Sebrae  Serviço Brasileiro de Apoio à Pequena e Média
Empresa, from January to November 1988. In 1997, she was appointed as an executive officer
of Fundação Vale do Rio Doce de Habitação e Desenvolvimento Social. Ms. Grasso has both a
B.A. degree in Economics and a M.A. in Economics from UnB. 97




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FISCAL COUNCIL Under the Brazilian Corporate Law, we may appoint a fiscal council, as a corporate body
independent of our management and external auditors. The primary responsibility of the fiscal
council under the Brazilian Corporate Law is to review managements activities and the financial
statements, and to report its findings to the shareholders. We have established a permanent fiscal
council, which may have from three to five members. At present, our Board of Directors serves as our audit committee for purposes of the
Sarbanes-Oxley Act of 2002. Under the listed company audit committee rules of the NYSE and the
SEC, effective July 31, 2005, we must either establish an audit committee composed of members of
the Board of Directors that meets specified requirements or designate and empower our fiscal
council to perform the role of the audit committee in reliance on the exemption set forth in
Exchange Act Rule 10A-3(c)(3). We expect to take the steps necessary to designate our fiscal
council to perform this role and to give it the necessary powers on or before July 31, 2005. At
that time, we expect that at least one of the members of the fiscal council will be determined to
be a financial expert. On April 27, 2005, the shareholders appointed or re-appointed the current members of the
fiscal council and their respective alternates. Holders of preferred class A shares, including the
golden shares, may elect one member of the fiscal council and the respective alternate.
Non-controlling holders of common shares comprising at least 10% of the common shares outstanding
may also elect one member of the fiscal council and the respective alternate. The terms of the
members of the fiscal council expire at the next annual shareholders meeting following their
election. The table below lists the current members of the fiscal council. First Year ofAppointmentJosé Bernardo de Medeiros Neto (2)
    
    
    2005Marcelo Amaral Moraes (2)
    
    
    2004Oswaldo Mário Pêgo de Amorim (2)
    
    
    2004Joaquim Vieira Ferreira Levy (1)
    
    
    2005
   (1)
    
    Appointed by the preferred shareholders.(2)
    
    Appointed by Valepar. The table below lists the alternate members of the fiscal council. First Year ofAppointmentMilton Lourenço Cabral (2)
    
    
    2004Carlos Tsuyoshi Yamashita (2)
    
    
    2005Anibal Moreira dos Santos (2)
    
    
    2005Tarcísio José Massote de Godoy (1)
    
    
    2004
   (1)
    
    Appointed by the preferred shareholders.(2)
    
    Appointed by Valepar. 98




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ADVISORY COMMITTEES Advisory Committees Our bylaws establish five technical and advisory committees to the Board of Directors, as
follows: Executive Development, Strategic, Finance, Audit, and Governance and Ethics. Some
committee members are not members of the Board of Directors.  
    The Executive Development Committeeis responsible for reporting on general human
resources policies; recommending compensation levels for our executive officers; and
establishing guidelines for evaluating the performance of our executive officers. The
members of the executive development committee are: Francisco Valadares Póvoa, João Moisés
de Oliveira, Arlindo Magno de Oliveira, Olga Loffredi and Oscar Augusto de Camargo Filho.
    The Strategic Committeeis responsible for reviewing and making recommendations to the
Board of Directors concerning the strategic guidelines and strategic plan submitted
annually to the board by our executive officers; the companys annual and multi-annual
investment budgets; investment and/or divestiture opportunities submitted by executive
officers; and mergers and acquisitions. The members of the strategic committee are: Roger
Agnelli, Gabriel Stoliar, Luciano Coutinho, José Roberto Mendonça de Barros and Cezar
Manoel de Medeiros.
    The Finance Committeeis responsible for reviewing and making recommendations to the
Board of Directors concerning: the financial policies and the internal financial control
systems of the company; compatibility between the level of distributions to shareholders
and the parameters established in the annual budget; and consistency with the general
policy on dividends and the capital structure of the company. The members of the finance
committee are: Roger Agnelli, Fabio de Oliveira Barbosa, Rômulo de Mello Dias, Wanderley
Rezende de Souza and Wanderlei Viçoso Fagundes.
    The Audit Committeeis responsible for recommending the appointment of the independent
auditors and the employee responsible for internal auditing of the company to the Board of
Directors; reporting on the policies and the companys annual auditing plan submitted by
the employee responsible for internal auditing, and on its execution; tracking the results
of the companys internal auditing, and identifying, prioritizing, and submitting actions
to be accompanied by the executive officers; and analyzing the annual report, as well as
the financial statements of the company and making recommendations to the Board of
Directors. The members of the audit committee are: Inácio Clemente da Silva, Antonio José
de Figueiredo Ferreira, Heitor Ribeiro Filho and Paulo Roberto Ferreira de Medeiros. None
of the members of our audit committee is a member of the Board of Directors. Accordingly,
the entire Board of Directors is serving as the audit committee for purposes of our
obligations under the Sarbanes-Oxley Act of 2002, seeFiscal Council.
    The Governance and Ethics Committeeis responsible for evaluating our corporate
governance practices and the workings of the Board of Directors, and recommending
improvements to the code of ethics and our system of management in order to avoid conflicts
of interests between the company and its shareholders or administrators; issuing reports on
policies relating to corporate responsibility, such as the environment, health, safety and
social responsibility of the company submitted by the executive officers; and issuing
reports on potential conflicts of interest between the company and its shareholders or
administrators. The members of the governance and ethics committee are: Renato da Cruz
Gomes, Ricardo Carvalho Giambroni and Ricardo Simonsen. Significant Corporate Governance Differences Pursuant to Section 303A.11 of the New York Stock Exchange Listed Company manual, we have
prepared a chart summarizing the ways in which our corporate governance practices differ from those
of U.S. domestic companies under the New York Stock Exchanges corporate governance rules. This
chart can be accessed on our web site at
http://www.cvrd.com.br/cvrd_us/media/0311NYSEDifferencesChartRevisedi.pdf. 99




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COMPENSATION OF DIRECTORS, EXECUTIVE OFFICERS, FISCAL COUNCIL MEMBERS AND ADVISORY COMMITTEES General Under our bylaws, our shareholders are responsible for establishing the aggregate compensation
we pay to the members of our Board of Directors and our executive officers. Our shareholders
determine this annual aggregate compensation at the general shareholders meeting each year. In
order to establish aggregate director and officer compensation, our shareholders usually take into
account various factors, which range from attributes, experience and skills of our directors and
executive officers to the recent performance of our operations. Once aggregate compensation is
established, the members of our Board of Directors are then responsible for distributing such
aggregate compensation in compliance with our bylaws among the directors and executive officers, in
the latter case, at the recommendation of the Chief Executive Officer. The executive development
committee of our Board of Directors makes recommendations to the board concerning the annual
aggregate compensation of the executive officers. For the year ended December 31, 2004, we paid approximately US$ 7.2 million in aggregate
(including fixed and variable remuneration and benefits in kind granted) to the executive officers
and US$ 533 thousand in aggregate (including fixed and variable remuneration and benefits in kind
granted) to the members of our Board of Directors for services in all capacities. For the year
ended December 31, 2004, none of our board members and executive officers had any financial or
other interests in transactions involving us, which was not in the ordinary course of business. The total number of common shares owned by our directors and executive officers as of April
30, 2005, was 77,762. The total number of preferred class A shares owned by our directors and
executive officers as of April 30, 2005, was 174,517. None of our directors or executive officers
beneficially owns one percent or more of any class of our shares. Incentive Compensation In addition to fixed compensation, our executive officers are also eligible for bonuses and
incentive payments which are recorded as an expense when incurred. Each executive officer may
receive a bonus based on his or her individual performance and our performance during the fiscal
year. The Board of Directors determines the maximum annual amount of compensation for that year
and such amount is approved at the shareholders meeting. Incentive payments are then calculated
with respect to a portion of the bonuses determined at the end of each year. Whereas bonuses are
distributed at the beginning of the following year, the incentive payments, which are tied to a
number of preferred shares at that time, are made approximately one year after the number of
preferred shares has been determined. The executive officers are entitled, however, to any
dividends paid on those shares during such time period. The executive officers are required to use
the incentive payments to acquire preferred shares based on the market price at the time of
payment. As the executive officers are not required to remain with the company to benefit from
such incentive payments after their calculation, the incentive payments are not considered to be
share-based entitlement during this period. Fiscal Council During 2004, the monthly amount we paid to the members of the fiscal council was US$ 1,606 to
each member, excluding benefits. We paid an aggregate of US$ 61,645 to members of the fiscal
council in 2004. In addition, the members of the fiscal council are reimbursed for travel expenses
related to the performance of their functions. Advisory Committees We paid an aggregate of US$ 233,291 to members of CVRDs advisory committees in 2004. In
addition, the members of CVRDs advisory committees are reimbursed for travel expenses related to
the performance of their functions. 100




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EMPLOYEES General The table below sets forth the number of our employees by category as of the dates indicated. At December 31,2002
    
    
    2003
    
    
    2004Ferrous Minerals
    
    
    10,622
    
    
    
    13,107
    
    
    
    14,845Logistics
    
    
    7,613
    
    
    
    8,820
    
    
    
    9,842Non-Ferrous Minerals
    
    
    1,104
    
    
    
    1,332
    
    
    
    1,957Aluminum, Steel and Business Development
    
    
    733
    
    
    
    810
    
    
    
    979Administrative
    
    
    7,503
    
    
    
    5,563
    
    
    
    2,915Total
    
    
    27,575
    
    
    
    29,632
    
    
    
    30,538
 Wages and Benefits Wages and benefits for CVRD and its subsidiaries are generally established on a
company-by-company basis. CVRD establishes its annual wage and benefits programs in July of each
year following negotiations with its unions. In July 2004, CVRD reached an agreement with the
unions for a 4.5% salary increase and maintenance of current benefits, which is valid until June
2005. The provisions of CVRDs collective bargaining agreements with its unions also apply to
CVRDs non-union employees. CVRD has never suffered any material economic loss as a result of
labor strikes or stoppages. Pension Plans Employees of CVRD and most of its subsidiaries are eligible to participate in pension plans
managed by Fundação Vale do Rio Doce de Seguridade Social-VALIA (Valia). Sponsored by CVRD,
Valia is a closed, nonprofit, complementary social security plan with financial and administrative
autonomy. Substantially all of the participants in plans sponsored by Valia are participants in a
new plan Valia implemented in May 2000. The new plan is primarily a defined contribution plan with
a defined benefit feature relating to service prior to May 2000. Valia also sponsors the old
plan which is a defined benefit plan, with benefits based on years of service, salary and social
security benefits. This plan covers retired participants and their beneficiaries, as well as a
relatively small number of employees that declined to transfer from the old plan to the new plan
when it was established in May 2000. Employees of CAEMI and its subsidiaries, MBR and CADAM, and employees of Alunorte participate
in different pension plans. CAEMI and MBR contribute to an open supplementary pension plan that is
principally a defined contribution, maintained by Bradesco Vida e Previdência S.A. This plan had
its origin in the social security and pension plan maintained by Fundação CAEMI de Previdência
Social and sponsored by CAEMI and MBR. The benefits granted by CAEMI and MBR include pensions for
retirement, disability and death. Benefits related to health care and group life insurance
provided by CAEMI and its subsidiaries to the employees come to an end when the beneficiary leaves
the company, whether retired or not. On December 1, 2001, CADAM joined a defined contribution
supplementary pension plan managed by Bradesco Vida e Previdência S.A. Alunortes employees are
covered by a pension plan managed by Bradesco Previdência Privada. Other Benefits All CVRD employees and their dependants are entitled to supplementary medical assistance,
which offers coverage for outpatient and in-hospital treatment, dental care and prescription drug
costs. Beneficiaries have free choice of care providers, with part of expenses being reimbursed.
Other important fringe benefits offered to employees are an annual amount for school materials,
group life insurance, funeral assistance and reimbursement of nursery school costs for employees
children up to the age of three years. 101




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Equity Ownership CVRDs employees previously had an equity stake in our business through Clube de Investimentos
dos Empregados da Vale,or Investvale, an association of our current and retired employees. During
2002, Investvale contributed all of its shares in CVRD in exchange for an interest in Valepar S.A.,
our principal shareholder. On November 14, 2003, Investvale sold its stake in Valepar to BNDESPAR
and now has no remaining direct or indirect stake in CVRD. CVRDs bylaws authorize us to establish stock option plans, but to date we have not done so. Employee Profit Sharing All CVRD employees receive incentive compensation each year in an amount based on the
performance of CVRD, the performance of the employees department and the employees individual
performance. Similar incentive compensation arrangements are in place in other companies within
the CVRD group. 
 Item 7. Major Shareholders and Related Party Transactions 
 MAJOR SHAREHOLDERS Overview Major CVRD Shareholders.The table below sets forth certain information regarding beneficial
ownership of our common and preferred class A shares as of April 30, 2005, by each person we know
to be the beneficial owner of more than 5% of any class of our outstanding capital stock, and by
all directors and executive officers as a group. Shares Owned
    
    
    Percent of ClassCommon SharesValepar S.A(1)
    
    
    392,147,133
    
    
    
    53.3
    %BNDESPAR(2)
    
    
    52,189,680
    
    
    
    7.1Directors and executive officers as a group
    
    
    77,762
    
    
    
    *Preferred Class A Shares(3)Directors and executive officers as a group
    
    
    174,517
    
    
    
    *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. It does not necessarily imply that the named 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 15,226,023 preferred class A shares
representing 3.7% of the outstanding preferred class A shares, and BNDESPAR owns 3,054,645
preferred class A shares representing 0.7% of the outstanding preferred class A shares.(*)
    
    Represents less than 1% of the outstanding shares of the class. 102




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Valepar Shareholders.The tables below set forth information as of April 30, 2005
regarding share ownership of the common shares of Valepar S.A. and Litel Participações S.A. Number of Valepar
    
    
    Percent of ValeparCommon Shares Owned
    
    
    Common Shares OwnedValepar S.A.Litel Participações S.A(1)
    
    
    157,991,298
    
    
    
    49.00
    %Eletron S.A.
    
    
    94,359
    
    
    
    0.03Bradespar S.A. (2)
    
    
    1,977,852
    
    
    
    0.61Bradesplan Participações S.A.(2)
    
    
    66,420,639
    
    
    
    20.60Mitsui & Co. Ltda.
    
    
    58,822,071
    
    
    
    18.24BNDESPAR
    
    
    37,125,000
    
    
    
    11.51Total
    
    
    322,431,219
    
    
    
    100.00
    %
   (1)
    
    Litel owns 49,784,472 preferred Class B shares of Valepar, which represents 71.41% of
the preferred shares. Litela, an affiliate of Litel owns 19,931,442 preferred Class B
shares of Valepar, which represents 28.59% of the preferred shares.(2)
    
    Bradespar and Bradesplan are 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.In 1997, we were privatized by the Brazilian government,
which sold its voting control to Valepar. As part of the privatization process, the National
Treasury and BNDES, the government-owned development bank, together retained 32% of our common
shares and 4% of our preferred class A shares. On March 20, 2002, as the final step of the
privatization process, the Brazilian government and BNDES each sold 39,393,919 shares, in the form
of common shares or American Depositary Shares, which together represented 32.1% of our outstanding
common shares. Currently, BNDESPAR, a wholly owned subsidiary of BNDES, owns common shares
representing approximately 7.1% of our outstanding common shares and 0.7% of our outstanding
preferred class A shares. The Brazilian government now owns approximately 3.7% of our outstanding
preferred class A shares (not counting shares held by BNDESPAR), and three golden shares in us,
which gives it veto powers over certain actions that we could propose to take. For a detailed
description of the veto powers granted to the Brazilian government by virtue of its ownership of
the golden share, see Item 10. Additional InformationCommon and Preferred SharesGeneral. Stock Split.Our shareholders approved a forward stock split at an Extraordinary General
Shareholders Meeting held on August 18, 2004. Therefore, on August 19, 2004, each of our shares
listed on the São Paulo Stock Exchange (Bovespa), both common (VALE3) and preferred (VALE5), was
split into three shares. On September 7, 2004 each ADR representing our common shares (RIO) or preferred shares (RIOPR)
of the Company listed on the New York Stock Exchange had a similar forward split. As a result, the
proportion of one ADR to one underlying common or preferred share was maintained. 103




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Principal Shareholder Our principal shareholder is Valepar. The shareholders of Valepar have entered into a
shareholders agreement, ending in 2017. This agreement:  
    grants rights of first refusal on any transfer of Valepar shares and preemptive rights
on any new issue of Valepar shares;
    prohibits the direct acquisition of CVRD shares by Valepars shareholders unless
authorized by the other shareholders;
    prohibits encumbrances on Valepar shares (other than in connection with financing our
acquisition);
    requires each party generally to retain control of its special purpose company holding
its interest in shares of Valepar, unless the rights of first refusal mentioned above are
observed;
    allocates Valepars and our board seats;
    provides for the maintenance by CVRD of a dividend policy requiring CVRD to distribute a
specific percentage of CVRDs net profit for each fiscal year;
    provides for the maintenance by CVRD of a capital structure that does not exceed
specified debt to equity thresholds;
    requires the Valepar shareholders to vote their indirectly held CVRD shares and to cause
their representatives on CVRDs Board of Directors to vote only in accordance with
decisions made at Valepar pre-meetings held prior to meetings of CVRDs Board of Directors
or shareholders; and
    establishes supermajority voting requirements for certain significant actions relating
to Valepar or to us. Pursuant to the shareholders agreement, holders of at least 75% of the Valepar shares must
agree to any of the following matters:  
    any amendment of CVRDs bylaws;
    any increase of CVRDs capital stock by share subscription, creation of a new class of
shares, change in the characteristics of the existing shares or any capital reduction of
CVRD;
    any issuance of any debentures of CVRD, whether convertible into shares of CVRD,
participation certificates upon compensation, call options or any other security of CVRD;
    any determination of issuance price for any new shares of capital stock or other
security of CVRD;
    any amalgamation, spin-off or merger to which CVRD is a party, as well as any change to
CVRDs corporate form;
    any dissolution, receivership, bankruptcy or any other voluntary act for financial
reorganization or any suspension thereof;
    the election and replacement of CVRDs Board of Directors, including the chairman of the
board, and any officer of CVRD;
    the disposal or acquisition of equity participation in any other company by CVRD, as
well as the acquisition of any shares of capital stock of CVRD by Valepar, or of Valepar by
CVRD, to be held in the acquirers treasury;
    the participation by CVRD in a group of companies or in a consortium of any kind; 104




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
    the execution of distribution, investment, sales exportation, technology transfer,
trademark license, patent exploration, license to use and lease agreements, to which CVRD
will be a party;
    the approval and amendment of CVRDs business plan;
    the determination of the compensation of the directors of CVRD, as well as the duties of the board;
    any profit sharing among the administrators of CVRD;
    the determination of the compensation of CVRDs officers;
    any change in the corporate purpose of CVRD;
    the distribution or non-distribution of any dividends on any shares of capital stock of
CVRD other than as provided in CVRDs bylaws and any payment of interest on the net equity
of CVRD;
    the appointment and replacement of CVRDs independent auditor;
    the creation of any in rem guarantee, granting of guarantees including rendering of
sureties by CVRD with respect to obligations of any third party, including any related
companies or subsidiaries;
    the passing of any resolution on any matter which, pursuant to applicable law, entitle a
shareholder to cease being a shareholder upon return of its shares to CVRD;
    the appointment and replacement by the Board of Directors of any representative of CVRD
in subsidiaries, companies related to CVRD or other companies in which CVRD is entitled to
appoint administrators; and
    any change in the debt to equity threshold, as defined in the shareholders agreement. In addition, the shareholders agreement provides that any issuance of participation
certificates by CVRD or any disposition of CVRDs shares held by Valepar requires the unanimous
consent of all of Valepars shareholders. American Depositary Shares As of April 30, 2005, American Depositary Shares represented 27.4% of our outstanding common
shares and 43.9% of our outstanding preferred class A shares. 
 RELATED PARTY TRANSACTIONS At December 31, 2004, we had extended guarantees for borrowings obtained by affiliates and
joint ventures in the amount of US$ 7 million, of which US$ 6 million is denominated in U.S.
dollars and the remaining US$ 1 million in Brazilian currency.
See Note 18 to our consolidated
financial statements. We have commercial relationships in the ordinary course of our business with a number of
companies that are affiliated with Previ and Bradespar S.A., which may be deemed to beneficially
own the shares owned by Valepar, our principal shareholder. The most significant of these are our
relationships with CST and Usiminas, in which both we and Previ hold an interest. In 2004, CST
accounted for approximately 3.0% of our total operating revenues, 3.2% of our sales of iron ore and
metals and 5.7% of our logistics revenue and Usiminas accounted for approximately 1.3% of our total
operating revenues and 1.7% of our sales of iron ore and metals. All of our sales to CST and
Usiminas are made on arms length terms. We also have commercial relationships in the ordinary course of our business with Mitsui. For information regarding investments in affiliated companies and joint ventures and for
information regarding transactions with major related parties, see Notes 13 and 20 to our
consolidated financial statements. 105




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Item 8. Financial Information 
 LEGAL PROCEEDINGS We and our subsidiaries are defendants in numerous legal actions in the normal course of
business, including civil, administrative, tax, social security and labor proceedings. We have set
aside or deposited in court amounts to cover estimated contingency losses due to adverse legal
judgments. Based on the advice of legal counsel, we believe that the provision made against
contingent losses is sufficient to cover probable losses in connection with such actions. We are currently involved in 14 proceedings before the Conselho Administrativo de Defesa
Econômica, or CADE, which is the primary Brazilian antitrust regulator. 11 of these proceedings
involve post-transaction review of acquisition or joint venture transactions, which is required for
nearly all of our acquisitions and joint ventures. The remaining 3 proceedings are administrative
proceedings alleging that we have engaged in illegal anticompetitive conduct in connection with our
iron ore, logistics and aluminum businesses. We intend to defend these claims vigorously, but
cannot predict their outcome. If CADE were to find that we have engaged in anticompetitive
conduct, it could order us to cease the conduct and/or to pay fines, which could be substantial. Our principal pending post-transaction review proceedings involve CVRDs acquisitions of
Socoimex, Samitri, Ferteco, Belém and CAEMI, and the agreement to unwind the cross-shareholdings
between CVRD and Companhia Siderúrgica Nacional, or CSN. CADE may decline to approve these
transactions or may place conditions on its approval that would have a material adverse effect on
our business. In connection with CADEs review, the Brazilian Economic Law Secretariat of the
Ministry of Justice, or SDE, and the Brazilian Secretariat for Economic Monitoring, or SEAE, have
each issued reports to CADE recommending that CADE condition its approval of these transactions on
actions that could have an adverse effect on our business, including maintenance of certain pricing
policies, divestiture of certain of our mines, the termination of our rights regarding the Casa de
Pedra iron ore mine and the sale and restructuring of certain of our logistics interests. Prior to
rendering its decision, CADE must also receive and consider the recommendations of the Ministério
Público Federal. CADE may adopt some, all or none of the recommendations made by such bodies, or
choose to impose other conditions pursuant to its approval that would be harmful to our business,
but it may also decide to impose no restrictions. The CAEMI acquisition was approved by the European Commission subject to certain conditions,
including the sale of the Quebec Cartier Mining Company (QCM). We are still in the process of
disposing of Class B Preferred Shares retained by CAEMI in QCM. For more details, see Note 7(a) to
our consolidated financial statements. Numerous lawsuits challenging the legality of our privatization are pending, including a
number of class action lawsuits. The lower courts issued favorable decisions in these lawsuits
that are being appealed by the plaintiff. We do not believe that, individually or in the
aggregate, these actions will adversely affect the course of the privatization process or otherwise
have a material adverse effect on us. We are a defendant in a public civil action seeking to annul the concession agreement through
which we and certain other defendants operate the Praia Mole port terminal. The case, which was
first filed in 1998, is still in its pre-trial stages and we believe the claim to be without merit. We are currently a defendant in two separate actions brought by the municipality of Itabira,
in the state of Minas Gerais. It alleges that our Itabira iron ore mining operations have caused
environmental and social damages. In one of the actions, filed in August 1996, the municipality of
Itabira alleges that our Itabira iron ore mining operations have caused environmental and social
damages and claims damages with respect to the degradation of the site of one of our mines, as well
as the immediate restoration of the affected ecological complex and the performance of compensatory
environmental programs in the region. The damages sought, as adjusted from the date of the claim,
amount to approximately US$ 1.0 billion. We believe that this amount is significantly higher than
the amount we would actually be responsible for in the event that we were found liable. We have
requested the annulment of this action as it represents no actual controversy. In fact, on June 5,
2000, the local environmental authorities granted an operating license to our Itabira iron ore
mining operations. This license sets forth conditions regarding the environmental restoration of
the degraded site and the performance of compensatory environmental programs. We intend to
continue to comply with these conditions. In the other action, the municipality of Itabira is
claiming the right to be reimbursed for expenses it has incurred in connection with public services
rendered as a consequence of 106




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our mining activities. The damages sought, as adjusted from the date of the claim, amount to
approximately US$ 986 million. We believe that this action is without merit. We are vigorously
defending both pending actions. We are engaged in litigation with respect to certain aspects of recent tax regulation that
requires earnings from foreign subsidiaries to be included in the determination of income taxes
payable in Brazil. We obtained an injunction in February 2003, suspending our obligation to pay
amounts in dispute. Based on the advice of legal counsel, we believe that the likelihood that we
will have to pay certain such taxes is remote and, accordingly, we have not recorded provisions for
these taxes in our financial statements. In accordance with ANEEL Resolution No. 591, dated as of November 2003, ANEEL authorized
LIGHT  Serviços de Eletricidade S.A. (Light) to charge consumidores livresor free consumers in
the state of Rio de Janeiro, and among them Valesul, several additional fees included in the tariff
for the use of the distribution system. Valesul has commenced litigation contesting the legality of
this charge. Valesul had an injunction under which it could either make judicial deposits or pay
directly to Light the amounts requested. In May 2004, Valesul obtained a favorable decision
relieving it from the payment of such fees and the judicial deposits. Light appealed from this
decision and the final outcome is still pending. In the meantime, the injunction was lifted,
forcing Valesul to resume making payments pending the resolution of the matter. 
 DIVIDENDS AND INTEREST ON SHAREHOLDERS EQUITY Under the Brazilian Corporate Law, shareholders are generally entitled to receive an annual
mandatory dividend set forth in the companys bylaws, and according to our bylaws, such mandatory
dividends may not be lower than 25% of adjusted net income for the relevant year, calculated in
accordance with the Brazilian Corporate Law. For a discussion on dividend distribution provisions
in our bylaws, see Item 10. Additional Information. Under our dividend policy, our management proposes to our Board of Directors, no later than
January 31 of each year, a minimum value per share, expressed in U.S. dollars that will be
distributed in that year to our shareholders. Dividends and/or interest on shareholders equity are
determined in U.S. dollars, considering our expected free cash flow generation in the year of
distribution. The proposal establishes two semiannual installments to be paid in the months of
April and October of each year. It is submitted to the Board of Directors in the meetings
scheduled for the months of April and October. Once approved, dividends and/or interest on
shareholders equity are paid in Brazilian reais, and converted at prevailing exchange rates on the
last business day before the board meetings in April and October of each year. Management can also
propose to the Board of Directors, depending on the evolution of our cash flow performance, a
further payment to shareholders of an additional amount per share over and above the minimum
dividend initially established. For 2005, our management proposed to the Board of Directors a
minimum dividend of US$ 1 billion. Our normal practice is to pay the same dividend or interest on
shareholders equity on both common and preferred class A shares. The announced minimum dividend
amount for 2005 is US$ 1 billion. In April 2005, the first installment of this dividend
representing US$ 500 million was approved by our Board of Directors. The first installment was
paid on April 29, 2005. In addition, since our privatization in 1997, and following a recommendation from Valepar, our
principal shareholder, we have distributed a minimum dividend equal to at least 50% of the amount
of net income for distribution with respect to each fiscal year. We may make distributions either in the form of dividends or in the form of interest on
shareholders equity. Dividends with respect to the American Depositary Shares, and to
non-resident holders of common shares or preferred class A shares, will not be subject to Brazilian
withholding tax, except for dividends declared based on profits generated prior to December 31,
1995. These dividends will be subject to Brazilian withholding tax at varying rates.
Distributions of interest on shareholders equity to shareholders, including holders of American
depositary receipts, are currently subject to the applicable Brazilian law related to withholding
tax. See Item 10. Additional InformationTaxationBrazilian Tax Considerations By law, we are required to hold an annual shareholders meeting by April 30 of each year at
which an annual dividend may be declared. Additionally, our Board of Directors may declare interim
dividends. Under the Brazilian Corporate Law, dividends are generally required to be paid to the
holder of record on a dividend declaration date within 60 days following the date the dividend was
declared, unless a shareholders resolution sets forth another date of payment, which, in either
case, must occur prior to the end of the fiscal year in which the dividend was declared. A
shareholder has a three-year period from the dividend payment date to claim dividends (or payments
of interest on 107




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shareholders equity) in respect of its shares, after which we will have no liability for such
payments. From 1997 to 2003, all distributions took the form of interest on shareholders equity.
In 2004, part of the distribution was made in the form of interest on shareholders equity and part
as dividends. See Item 10. Additional InformationCommon Shares and Preferred SharesPayments on
Shareholders Equity. We make cash distributions on the common shares and preferred class A shares underlying the
American Depositary Shares in Brazilian currency to the custodian on behalf of the depositary. The
custodian then converts such proceeds into U.S. dollars and causes such U.S. dollars to be
delivered to the depositary for distribution to holders of American depositary receipts. For more
information on Brazilian tax policies regarding dividend distributions, see Item 10. Additional
InformationTaxationBrazilian Tax Considerations. The table below sets forth the cash distributions we paid to holders of common shares and
preferred class A shares for the periods indicated. Amounts subsequent to August 19, 2004 reflect
a 3 for 1 stock split that occurred in August 2004. We have calculated U.S. dollar conversions
using the commercial selling rate in effect on the date of payment. We stated amounts gross of any
applicable withholding tax. Payment
    
    
    Reaisper Share at
    
    
    U.S. Dollars per Share atYear
    
    Date
    
    
    Payment Date
    
    
    Payment Date2000
    
    March 1
    
    
    1.17
    
    
    
    0.662001
    
    February 20
    
    
    3.33
    
    
    
    1.66December 10
    
    
    2.305
    
    
    
    0.982002
    
    April 30
    
    
    2.305
    
    
    
    0.98December 10
    
    
    2.68
    
    
    
    0.712003
    
    April 30
    
    
    1.62
    
    
    
    0.56October 31
    
    
    3.42
    
    
    
    1.202004
    
    April 30
    
    
    2.06
    
    
    
    0.70October 29 (1) (2)
    
    
    1.27
    
    
    
    0.452005
    
    April 29 (2)
    
    
    1.11
    
    
    
    0.43
   (1)
    
    On October 29, 2004, we paid 1.03 reaisper share in interest on shareholders equity
and 0.24 reaisper share in dividends.(2)
    
    Reflects a 3 for 1 stock split. 108




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Item 9. The Offer and Listing 
 SHARE PRICE HISTORY The table below sets forth trading information for our preferred and common American
Depositary Shares, as reported by the New York Stock Exchange (and for periods prior to June 2000,
reported by the National Quotations Bureau, Inc.), and our preferred class A shares and our common
shares, as reported by the BOVESPA, for the periods indicated. Share prices in the table for
periods after August 19, 2004 (for our common and preferred shares) and after September 7, 2004
(for our common and preferred ADSs) reflect a 3 for 1 stock split. 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
    
    
    Low2000
    
    
    R$52.40
    
    
    
    R$33.00
    
    
    
    R$59.00
    
    
    
    R$38.82
    
    
    US$
    33.13
    
    
    US$
    19.75
    
    
    US$
    
    US$2001
    
    
    55.00
    
    
    
    42.70
    
    
    
    58.70
    
    
    
    44.00
    
    
    
    26.98
    
    
    
    18.65
    
    
    
    
    
    
    
    2002
    
    
    109.00
    
    
    
    50.00
    
    
    
    102.20
    
    
    
    50.90
    
    
    
    29.51
    
    
    
    20.51
    
    
    
    30.00
    
    
    
    21.752003
    
    
    170.80
    
    
    
    80.90
    
    
    
    148.00
    
    
    
    77.45
    
    
    
    51.90
    
    
    
    24.30
    
    
    
    59.59
    
    
    
    25.712004
    
    
    77.50
    
    
    
    43.33
    
    
    
    64.19
    
    
    
    37.67
    
    
    
    24.38
    
    
    
    12.10
    
    
    
    29.01
    
    
    
    14.081Q03
    
    
    104.00
    
    
    
    91.00
    
    
    
    100.00
    
    
    
    87.50
    
    
    
    27.87
    
    
    
    24.30
    
    
    
    29.50
    
    
    
    25.712Q03
    
    
    91.99
    
    
    
    80.90
    
    
    
    88.78
    
    
    
    77.45
    
    
    
    28.70
    
    
    
    25.66
    
    
    
    30.80
    
    
    
    26.853Q03
    
    
    119.00
    
    
    
    85.00
    
    
    
    108.60
    
    
    
    79.10
    
    
    
    37.49
    
    
    
    28.02
    
    
    
    41.60
    
    
    
    29.924Q03
    
    
    170.80
    
    
    
    121.50
    
    
    
    148.00
    
    
    
    108.79
    
    
    
    51.90
    
    
    
    37.35
    
    
    
    59.59
    
    
    
    42.001Q04
    
    
    180.00
    
    
    
    145.10
    
    
    
    159.00
    
    
    
    124.40
    
    
    
    55.50
    
    
    
    42.45
    
    
    
    62.87
    
    
    
    49.962Q04
    
    
    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
    
    
    
    26.05December 2004
    
    
    77.50
    
    
    
    65.00
    
    
    
    64.19
    
    
    
    54.20
    
    
    
    24.38
    
    
    
    19.77
    
    
    
    29.01
    
    
    
    23.70January 2005
    
    
    81.75
    
    
    
    71.00
    
    
    
    69.18
    
    
    
    59.50
    
    
    
    25.76
    
    
    
    22.05
    
    
    
    30.69
    
    
    
    26.05February 2005
    
    
    95.75
    
    
    
    75.71
    
    
    
    78.79
    
    
    
    64.58
    
    
    
    30.00
    
    
    
    24.59
    
    
    
    36.55
    
    
    
    29.00March 2005
    
    
    95.50
    
    
    
    80.20
    
    
    
    79.02
    
    
    
    68.20
    
    
    
    29.74
    
    
    
    25.01
    
    
    
    36.10
    
    
    
    29.61April 2005
    
    
    84.50
    
    
    
    67.70
    
    
    
    72.00
    
    
    
    58.10
    
    
    
    26.90
    
    
    
    22.50
    
    
    
    32.00
    
    
    
    26.60May 2005
    
    
    95.75
    
    
    
    64.00
    
    
    
    61.25
    
    
    
    55.00
    
    
    
    29.70
    
    
    
    25.60
    
    
    
    25.40
    
    
    
    21.93
   (1)
    
    3 for 1 stock split took place during this quarter.Source:
    
    Bloomberg LLP. 
 TRADING MARKETS Our publicly traded share capital consists of common shares and preferred class A shares, each
without par value. Our common shares and our preferred class A shares are publicly traded in
Brazil on BOVESPA, under the ticker symbols VALE3 and VALE5, respectively. Our common shares and
preferred class A shares also trade on the LATIBEX, under the ticker symbols XVALO and XVALP,
respectively. The LATIBEX is an electronic market created in 1999 by the Madrid stock exchange in
order to enable trading of Latin American equity securities in euro denomination. On December 12, 2003, we agreed to comply with heightened corporate governance and disclosure
requirements established by the BOVESPA in order to qualify as a company admitted to BOVESPAs
Level 1 of Corporate Governance Requirements. To become a Level 1 company, an issuer must agree to:  
    ensure that shares of the issuer representing 25% of its total capital are effectively available for trading;
    adopt offering procedures that favor widespread ownership of shares whenever making a
public offering;
    comply with minimum quarterly disclosure standards;
    follow stricter disclosure policies with respect to transactions made by controlling
shareholders, directors and officers involving securities issued by the issuer; 109




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
    disclose any existing shareholders agreements and stock option plans; and
    make a schedule of corporate events available to the shareholders. Our common American Depositary Shares, each representing one common share, have been traded on
the New York Stock Exchange since March 2002, under the ticker symbol RIO. Our preferred American
Depositary Shares, each representing one preferred class A share, have been traded on the New York
Stock Exchange since June 2000, under the ticker symbol RIOPR. Since 1994, the preferred class A
American Depositary Shares traded in the over-the-counter market. JPMorgan Chase Bank serves as
the depositary for both the common and the preferred American Depositary Shares. At April 30,
2005, there were 383,989,885 American Depositary Shares outstanding, representing 43.9% of our
preferred class A shares, 27.4% of our common shares or 33.3% of our total share capital. 
 Item 10. Additional Information 
 MEMORANDUM AND ARTICLES OF ASSOCIATION Company Objects and Purposes Our corporate purpose is defined by our bylaws to include:  
    the exploitation of mineral deposits in Brazil and abroad by means of extraction,
processing, industrialization, transportation, shipment and commerce of mineral 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 Under the Brazilian Corporate Law, if a director or an executive officer has a conflict of
interest with the company in connection with any proposed transaction, the director or executive
officer may not vote in any decision of the Board of Directors or of the board of executive
officers regarding such transaction and must disclose the nature and extent of the conflicting
interest for transcription in the minutes of the meeting. In any case, a director or an executive
officer may not transact any business with the company, including any borrowings, except on
reasonable or fair terms and conditions that are identical to the terms and conditions prevailing
in the market or offered by third parties. Under our bylaws, shareholders set the aggregate
compensation payable to directors and executive officers. The Board of Directors allocates the
compensation among its members and the executive officers. See Item 6. Directors, Management and
EmployeesCompensation.Our bylaws do not establish any mandatory retirement age limits. 110




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COMMON SHARES AND PREFERRED SHARES Set forth below is certain information concerning our authorized and issued share capital and
a brief summary of certain significant provisions of our bylaws and the Brazilian Corporate Law.
This description does not purport to be complete and is qualified by reference to our bylaws (an
English translation of which has been filed with the SEC) and to the Brazilian Corporate Law. General Our bylaws authorize the issuance of up to 900 million common shares and up to 1,800 million
preferred class A shares, in each case based solely on the approval of the Board of Directors
without any additional shareholder approval. Each common share entitles the holder thereof to one vote at meetings of our shareholders.
Holders of common shares are not entitled to any preference relating to our dividends or other
distributions. Holders of preferred class A shares and the golden shares are generally entitled to the same
voting rights as holders of common shares, except with respect to the election of members of the
Board of Directors, and are entitled to a minimum annual non-cumulative preferential dividend of
(i) at least 3% of the book value per share, calculated in accordance with the financial
statements, which serve as reference for the payment of dividends, or (ii) 6% of their pro rata
share of our paid-in capital, whichever is higher. Non-controlling shareholders holding common
shares representing at least 15% of our voting capital, and preferred class A shares representing
at least 10% of our total share capital, have the right to appoint each one member and an alternate
to our Board of Directors. If no group of common or preferred class A shareholders meets the
thresholds described above, shareholders holding preferred class A or common shares representing at
least 10% of our total share capital are entitled to combine their holdings to appoint one member
and an alternate to our Board of Directors. Holders of preferred class A shares and the golden
shares may elect one member of the permanent fiscal council and the respective alternate.
Non-controlling holders of common shares comprising at least 10% of the common shares outstanding
may also elect one member of the fiscal council and an alternate. The Brazilian government holds three golden shares in us. The golden shares are preferred
shares that entitles its holder to the same rights (including with respect to voting and dividend
preference) as holders of preferred class A shares. In addition, the holder of the golden shares
is entitled to veto any proposed action relating to the following matters:  (1)
    a change in our name;(2)
    a change in the location of our head office;(3)
    a change in our corporate purpose as regards the mining activities;(4)
    any liquidation of our company;(5)
    any disposal or winding up of activities of any one or more of the following stages of
our iron ore mining integrated systems:  (a)
    mineral deposits, ore deposits, mines;(b)
    railways; or(c)
    ports and maritime terminals;  (6)
    any change in the bylaws relating to the rights accorded to the classes of capital
stock issued by us; and(7)
    any change in the bylaws relating to the rights accorded the golden shares. 111




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Calculation of Distributable Amount At each annual shareholders meeting, the Board of Directors is required to recommend, based
on the executive officers proposal, how to allocate our earnings for the preceding fiscal year.
For purposes of the Brazilian Corporate Law, a companys net income after income taxes and social
contribution taxes for such fiscal year, net of any accumulated losses from prior fiscal years and
amounts allocated to employees and managements participation in earnings represents its net
profits for such fiscal year. In accordance with the Brazilian Corporate Law, an amount equal to
our net profits, as further reduced by amounts allocated to the legal reserve, to the contingency
reserve or to the unrealized income reserve established by us in compliance with applicable law
(discussed below) and increased by reversals of reserves constituted in prior years, will be
available for distribution to shareholders in any particular year. Such amount, the adjusted net
profits, is herein referred to as the distributable amount. We may also establish discretionary
reserves, reserves for investment projects and fiscal investment reserves, as discussed below. Legal reserve.Under the Brazilian Corporate Law, we are required to maintain a legal reserve
to which we must allocate 5% of our net profits for each fiscal year until the amount of the
reserve equals 20% of our paid-in capital. Net losses, if any, may be charged against the legal
reserve. Discretionary reserves. Under the Brazilian Corporate Law, a company may also provide for
discretionary allocations of net profits to the extent set forth in its bylaws. Our bylaws
provide for one discretionary depletion reserve, which may be taken into account in allocating net
profits for any fiscal year. We currently maintain a tax incentive depletion reserve established
in respect of certain mining operations. Appropriations to the tax incentive depletion reserve are
deductible for tax purposes. The discretionary depletion reserve has not been used since 1996,
when the related tax incentive expired. For more details, see Note 16 to our consolidated
financial statements. There are no limits on the size or amount of proceeds that may be retained
in the discretionary depletion reserve. However, the sum of the legal reserve, the depletion
reserve and the reserve for investment projects may not exceed the amount of our paid-in capital. Contingency reserve.Under the Brazilian Corporate Law, a portion of our net profits may
also be discretionally allocated to a contingency reserve for an anticipated loss that is deemed
probable in future years. Any amount so allocated in a prior year must be either reversed in the
fiscal year in which the loss was anticipated if such loss does not in fact occur or charged off in
the event that the anticipated loss occurs. We have never allocated an amount to the contingency
reserve. Reserve for investment projects.Under the Brazilian Corporate Law, we may allocate a portion
of our net profits for discretionary appropriations for plant expansion and other capital
investment projects, the amount of which is based on a capital budget previously presented by
management and approved by shareholders. Under Law No. 10,303/2001, capital budgets with a
duration longer than one year must be reviewed at each annual shareholders meeting. After
completion of the relevant capital projects, we may retain the appropriation until shareholders
vote to transfer all or a portion of the reserve to capital or retained earnings. Unrealized income reserve.As of March 1, 2002, under Law No. 10,303/2001, which amended the
Brazilian Corporate Law, the amount by which the mandatory dividend exceeds the realized portion
of net profits for any particular year may be allocated to the unrealized income reserve. The
realized portion of net profits is the amount by which net profits exceed the sum of (i) our
net positive results, if any, from the equity method of accounting for earnings and losses of our
subsidiaries and certain affiliates, and (ii) the profits, gains or return obtained on transactions
completed after the end of the following fiscal year. Tax incentive investment reserve. Under the Brazilian tax laws, a portion of net profits
may also be allocated to a general tax incentive investment reserve in amounts corresponding to
reductions in our income tax generated by credits for particular government-approved investments. The Brazilian Corporate Law provides that all discretionary allocations of net profits,
including discretionary reserves, the contingency reserve, the unrealized income reserve and the
reserve for investment projects, are subject to approval by the shareholders voting at the annual
meeting and can be transferred to capital or used for the payment of dividends in subsequent years.
The fiscal incentive investment reserve and legal reserve are also subject to approval by the
shareholders voting at the annual meeting and may be transferred to capital but are not available
for the payment of dividends in subsequent years. 112




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Our calculation of net profits and allocations to reserves for any fiscal year are
determined on the basis of financial statements prepared in accordance with the Brazilian Corporate
Law. Our consolidated financial statements have been prepared in accordance with U.S. GAAP and,
although our allocations to reserves and dividends will be reflected in these financial statements,
investors will not be able to calculate such allocations or required dividend amounts from our
consolidated financial statements. Mandatory Dividend Our bylaws prescribe that we must distribute to our shareholders in the form of dividends or
interest on shareholders equity an annual amount equal to not less than 25% of the distributable
amount, referred to as the mandatory dividend, unless the Board of Directors advises our
shareholders at our general shareholders meeting that payment of the mandatory dividend for the
preceding year is inadvisable in light of our financial condition. The fiscal council must review
any such determination and report it to the shareholders. In addition to the mandatory dividend,
our Board of Directors may recommend to the shareholders payment of dividends from other funds
legally available therefore. Any payment of interim dividends will be netted against the amount of
the mandatory dividend for that fiscal year. The shareholders must also approve the recommendation
of the Board of Directors with respect to any required distribution. The amount of the mandatory
dividend is subject to the size of the legal reserve, the contingency reserve, and the unrealized
income reserve. The amount of the mandatory dividend is not subject to the size of the
discretionary depletion reserve. See Item 10. Additional InformationCommon Shares and Preferred
SharesCalculation of Distributable Amount. To date, our Board of Directors has never determined
that payment of the mandatory dividend was inadvisable. Since our privatization in 1997, and following a recommendation from Valepar, our principal
shareholder, we have distributed a dividend equal to at least 50% of the amount of net income for
distribution with respect to each fiscal year. In November 2002, our Board of Directors approved a new dividend policy. See Item 8.
Financial InformationDividends and Interest on Shareholders Equity. Dividend Preference of Preferred Shares Pursuant to our bylaws, holders of preferred class A shares and the golden shares are entitled
to a minimum annual non-cumulative preferential dividend equal to (i) at least 3% of the book value
per share, calculated in accordance with the financial statements which serve as reference for the
payment of dividends, or (ii) 6% of their pro rata share of our paid-in capital, whichever is
higher. To the extent that we declare dividends in any particular year in amounts which exceed the
preferential dividends on preferred class A shares, and after holders of common shares have
received distributions equivalent, on a per share basis, to the preferential dividends on preferred
class A shares, holders of common shares and preferred class A shares shall receive the same
additional dividend amount per share. Since the first step of our privatization in 1997, we have
had sufficient distributable amounts to be able to distribute equal amounts to both common and
preferred shareholders. Other Matters Relating to Preferred Class A Shares Our bylaws do not provide for the conversion of preferred class A shares into common shares.
In addition, the preferred class A shares do not have any preference upon our liquidation and there
are no redemption provisions associated with the preferred class A shares. Payments on Shareholders Equity Pursuant to a change in Brazilian tax law effective January 1, 1996, Brazilian companies are
permitted to pay limited amounts to shareholders and treat such payments as an expense for
Brazilian income tax purposes. In accordance with Law No. 9,249 dated December 26, 1995, our
bylaws provide for the distribution of interest on shareholders equity as an alternative form of
payment to shareholders. The interest rate applied is limited to the Brazilian long-term interest
rate, or TJLP, for the applicable period. The deduction of the amount of interest paid cannot
exceed the greater of (1) 50% of net income (after the deduction of the provision of social
contribution on net profits and before the deduction of the provision of the corporate income tax)
before taking into account any such distribution for the period in respect of which the payment is
made or (2) 50% of the sum of retained earnings and profit reserves. Any payment of interest on
shareholders equity to shareholders is subject to Brazilian withholding 113




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income tax at the rate of 15%, except for a beneficiary located in a tax haven jurisdiction
(i.e.a country that does not impose income tax or that imposes it at a maximum rate lower than
20%), in which case the rate is 25%. Under our bylaws, the amount paid to shareholders as interest
on shareholders equity (net of any withholding tax) may be included as part of any mandatory and
minimum dividend. Under the Brazilian Corporate Law, we are obligated to distribute to
shareholders an amount sufficient to ensure that the net amount received, after payment by us of
applicable Brazilian withholding taxes in respect of the distribution of interest on shareholders
equity, is at least equal to the mandatory dividend. Voting Rights Each common share entitles the holder thereof to one vote at meetings of our shareholders.
Holders of preferred class A shares are entitled to the same voting rights as holders of common
shares except that they may not vote on the election of members of the Board of Directors, except
in the event of dividend arrearages, as described below. One of the members of the permanent
fiscal council and his or her alternate are elected by majority vote of the holders of preferred
class A shares. Holders of preferred class A shares and common shares may, in certain
circumstances, combine their respective holdings to elect members of our Board of Directors. The golden shares entitle the holder thereof to the same voting rights as holders of preferred
class A shares. The golden shares also confer certain other significant voting rights in respect
of particular actions, as described under Item 10. Additional InformationCommon Shares and
Preferred SharesGeneral. The Brazilian Corporate Law provides that non-voting or restricted-voting shares, such as the
preferred class A shares, acquire unrestricted voting rights beginning when a company has failed
for three consecutive fiscal years (or for any shorter period set forth in a companys constituent
documents) to pay any fixed or minimum dividend to which such shares are entitled and continuing
until payment thereof is made. Our bylaws do not set forth any such shorter period. Any change in the preferences or advantages of our preferred class A shares, or the creation
of a class of shares having priority over the preferred class A shares, would require the approval
of holders of a majority of the outstanding preferred class A shares, voting as a class at a
special meeting. Shareholders Meetings A general shareholders meeting convenes each year to decide all matters relating to our
corporate purposes and to pass such resolutions as they deem necessary for our protection and well
being. Pursuant to the Brazilian Corporate Law, shareholders voting at a general shareholders
meeting have the power, among other powers, to:  
    amend the bylaws;
    elect or dismiss members of the Board of Directors and members of the fiscal council at any time;
    receive annual reports by management and accept or reject managements financial
statements and recommendations including the allocation of net profits and the
distributable amount for payment of the mandatory dividend and allocation to the various
reserve accounts;
    authorize the issuance of debentures;
    suspend the rights of a shareholder in default of obligations established by law or by the bylaws;
    accept or reject the valuation of assets contributed by a shareholder in consideration
for issuance of capital stock;
    pass resolutions to reorganize our legal form, to merge, consolidate or split us, to
dissolve and liquidate us, to elect and dismiss our liquidators and to examine their
accounts; and 114




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
    authorize management to file for bankruptcy or to request a concordata. All shareholders meetings, including the annual shareholders meeting, are convened by
publishing, no fewer than fifteen days prior to the scheduled meeting date and no fewer than three
times, a notice in the Diário Oficial do Estado do Rio de Janeiroand in a newspaper with general
circulation in the city where we have our registered office, which is Rio de Janeiro. Our
shareholders have previously designated Jornal do Commerciofor this purpose. Also, as our shares
are traded on BOVESPA, we must publish a notice in a São Paulo based newspaper. Such notice must
contain the agenda for the meeting and, in the case of an amendment to our bylaws, an indication of
the subject matter. In addition, under our bylaws, the holder of the golden share is entitled to a
minimum of 15 days prior formal notice to its legal representative of any general shareholders
meeting to consider any proposed action subject to the veto rights accorded to the golden shares.
See Item 10. Additional InformationCommon Shares and Preferred SharesGeneral. A shareholders meeting may be held if shareholders representing at least one-quarter of the
voting capital are present. If no such quorum is present, notice must again be given in the same
manner as described above except for the eight-days prior notice, and a meeting may then be
convened without any specific quorum requirement, subject to the minimum quorum and voting
requirements for certain matters, as discussed below. A shareholder without a right to vote may
attend a general shareholders meeting and take part in the discussion of matters submitted for
consideration. Except as otherwise provided by law, resolutions of a shareholders meeting are passed by a
simple majority vote, abstentions not being taken into account. Under the Brazilian Corporate Law,
the approval of shareholders representing at least one-half of the issued and outstanding voting
shares is required for the types of action described below, as well as, in the case of clause (a)
and clause (b), a majority of issued and outstanding shares of the affected class: (a) creating a new class of preferred shares or disproportionately increasing an existing
class of preferred shares relative to the other classes of shares, other than to the extent
permitted by the bylaws; (b) changing a priority, preference, right, privilege or condition of redemption or
amortization of any class of preferred shares or creating any class of non-voting preferred shares
that has a priority, preference, right, condition or redemption or amortization superior to an
existing class of shares, such as the preferred shares; (c) reducing the mandatory dividend; (d) changing the corporate purposes; (e) merging us with another company or consolidating or splitting us; (f) dissolving or liquidating us; (g) participating in a centralized group of companies as defined under the Brazilian Corporate
Law; and (h) canceling any ongoing liquidation of us. Whenever the shares of any class of capital stock are entitled to vote, each share is entitled
to one vote. Annual shareholders meetings must be held by April 30 of each year. Shareholders
meetings are called, convened and presided over by the Chairman or by the Vice-Chairman of our
Board of Directors. A shareholder may be represented at a general shareholders meeting by an
attorney-in-fact appointed not more than one year before the meeting, who must be a shareholder, a
company officer or a lawyer. For a public company, such as us, the attorney-in-fact may also be a
financial institution. 115




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Redemption Rights Our common shares and preferred class A shares are not redeemable, except that a dissenting
shareholder is entitled under the Brazilian Corporate Law to obtain redemption upon a decision made
at a shareholders meeting by shareholders representing at least 50% of the voting shares:  (1)
    to create a new class of preferred shares or to disproportionately increase an existing
class of preferred shares relative to the other classes of shares (unless such actions are
provided for or authorized by the bylaws);(2)
    to modify a preference, privilege or condition of redemption or amortization conferred
on one or more classes of preferred shares, or to create a new class with greater
privileges than the existing classes of preferred shares;(3)
    to reduce the mandatory distribution of dividends;(4)
    to change our corporate purposes;(5)
    to merge us with another company or consolidate us;(6)
    to transfer all of our shares to another company in order to make us a wholly owned
subsidiary of such company, an incorporação de ações;(7)
    to approve the acquisition of control of another company at a price which exceeds
certain limits set forth in the Brazilian Corporate Law;(8)
    to approve our participation in a centralized group of companies as defined under the
Brazilian Corporate Law; or(9)
    in the event that the entity resulting from (a) a merger, (b) an incorporação de ações
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. Only holders of shares adversely affected by the changes mentioned in items (1) and (2) above
may require us to redeem their shares. The right of redemption mentioned in items (5), (6) and (8)
above may only be exercised if our shares do not satisfy certain tests of liquidity at the time of
the shareholder resolution. The right of redemption lapses 30 days after publication of the
minutes of the relevant general shareholders meeting, unless, in the case of items (1) and (2)
above, the resolution is subject to confirmation by the preferred shareholders (which must be made
at a special meeting to be held within one year), in which case the 30-day term is counted from the
publication of the minutes of the special meeting. We would be entitled to reconsider any action giving rise to redemption rights within 10 days
following the expiration of such rights if the redemption of shares of dissenting shareholders
would jeopardize our financial stability. Law No. 9,457 dated May 5, 1997, which amended the
Brazilian Corporate Law, contains provisions, which, among other provisions, restrict redemption
rights in certain cases and allow companies to redeem their shares at their economic value, subject
to certain requirements. Our bylaws currently do not provide that our capital stock will be
redeemable at its economic value and, consequently, any redemption pursuant to the Brazilian
Corporate Law would be made at no less than the book value per share, determined on the basis of
the last balance sheet approved by the shareholders; providedthat if the general shareholders
meeting giving rise to redemption rights occurred more than 60 days after the date of the last
approved balance sheet, a shareholder would be entitled to demand that his or her shares be valued
on the basis of a new balance sheet dated within 60 days of such general shareholders meeting. Preemptive Rights Each of our shareholders has a general preemptive right to subscribe for shares in any capital
increase, in proportion to his or her shareholding. A minimum period of 30 days following the
publication of notice of a capital increase is allowed for the exercise of the right and the right
is negotiable. Under our bylaws, our Board of Directors may decide not to extend preemptive rights
to our shareholders or, under Law No. 10,303/2001, to reduce the 30-day period for the exercise of
preemptive rights, in each case with respect to any issuance of shares, debentures convertible into
shares and warrants in the context of a public offering, subject to the limit on the number of
shares that may be issued with the approval of the board without any additional shareholder
approval. In the event of a capital increase that would maintain or increase the proportion of
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shares, holders of preferred American depositary receipts will have preemptive rights to
subscribe only to newly issued preferred class A shares. In the event of a capital increase that
would reduce the proportion of capital represented by preferred class A shares, shareholders will
have preemptive rights to subscribe for preferred class A shares, in proportion to their
shareholdings, and for common shares only to the extent necessary to prevent dilution of their
overall interest in us. In the event of a capital increase that would maintain or increase the
proportion of capital represented by common shares, shareholders will have preemptive rights to
subscribe only to newly issued common shares. In the event of a capital increase that would reduce
the proportion of capital represented by common shares, holders of common shares will have
preemptive rights to subscribe for preferred class A shares only to the extent necessary to prevent
dilution of their overall interest in us. Tag-along rights According to the Brazilian Corporate Law, in the event of a sale of control of the Company,
the acquirer is obliged to offer to holders of common voting shares the right to sell their shares
for a price equal to at least 80% of the price paid for the common voting shares representing
control. Form and Transfer Our preferred class A shares and common shares are in book-entry form registered in the name
of each shareholder or its nominee. The transfer of such shares is made under the Brazilian
Corporate Law, which provides that a transfer of shares is effected by our transfer agent, Banco
Bradesco S.A., upon presentation of valid share transfer instructions to us by a transferor or its
representative. When preferred shares or common shares are acquired or sold on a Brazilian stock
exchange, the transfer is effected on the records of our transfer agent by a representative of a
brokerage firm or the stock exchanges clearing system. Transfers of shares by a foreign investor
are made in the same way and are executed by the investors local agent, who is also responsible
for updating the information relating to the foreign investment furnished to the Central Bank. BOVESPA operates a central clearing system through Companhia Brasileira de Liquidação e
Custódia, or CBLC. A holder of our shares may participate in this system and all shares elected to
be put into the system will be deposited in custody with CBLC (through a Brazilian institution that
is duly authorized to operate by the Central Bank and maintains a clearing account with CBLC). The
fact that such shares are subject to custody with the relevant stock exchange will be reflected in
our registry of shareholders. Each participating shareholder will, in turn, be registered in the
register of our beneficial shareholders that is maintained by CBLC and will be treated in the same
way as registered shareholders. 
 MATERIAL CONTRACTS For information concerning our material contracts, see Item 4. Information on the Companyand
Item 5. Operating and Financial Review and Prospects. 
 EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITY HOLDERS There are no restrictions on ownership of our capital stock by individuals or legal entities
domiciled outside Brazil. However, the right to convert dividend payments and proceeds from the
sale of preferred class A shares or common shares into foreign currency and to remit such amounts
outside Brazil is subject to restrictions under foreign investment legislation which generally
requires, among other things, that the relevant investment be registered with the Central Bank.
These restrictions on the remittance of foreign capital abroad could hinder or prevent the
custodian for the preferred class A shares or common shares represented by American Depositary
Shares, or holders who have exchanged American Depositary Shares for preferred class A shares or
common shares, from converting dividends, distributions or the proceeds from any sale of preferred
class A shares or common shares, as the case may be, into U.S. dollars and remitting such U.S.
dollars abroad. Delays in, or refusal to grant any required government approval for conversions of
Brazilian currency payments and remittances abroad of amounts owed to holders of American
Depositary Shares could adversely affect holders of American depositary receipts. 117




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Under Resolution No. 2,689/2000, foreign investors may invest in almost all financial assets
and engage in almost all transactions available in the Brazilian financial and capital markets,
provided that certain requirements are fulfilled. In accordance with Resolution No. 2,689/2000,
the definition of foreign investor includes individuals, legal entities, mutual funds and other
collective investment entities, domiciled or headquartered abroad. Under Resolution No. 2,689/2000, a foreign investor must:  
    appoint at least one representative in Brazil, with powers to perform actions relating to its investment,
    complete the appropriate foreign investor registration form,
    register as a foreign investor with the CVM, and
    register its foreign investment with the Central Bank. Securities and other financial assets held by foreign investors pursuant to Resolution No.
2,689/2000 must be registered or maintained in deposit accounts or under the custody of an entity
duly licensed by the Central Bank or the CVM. In addition, securities trading is restricted to
transactions carried out on stock exchanges or through organized over-the-counter markets licensed
by the CVM, except for subscription, bonification, conversion of debentures into shares, securities
indexes, purchase and sale of investment funds quotas and, if permitted by the CVM, going private
transactions, canceling or suspension of trading. Moreover, the offshore transfer or assignment of
the securities or other financial assets held by foreign investors pursuant to Resolution No.
2,689/2000 are prohibited, except for transfers resulting from a corporate reorganization, or
occurring upon the death of an investor by operation of law or will. Resolution No. 1,927/1992 of the National Monetary Council, which is the restated and amended
Annex V to Resolution No. 1,289/1997, which we call the Annex V Regulations, provides for the
issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers. It
provides that the proceeds from the sale of American Depositary Shares by holders of American
depositary receipts outside Brazil are free of Brazilian foreign investment controls and holders of
American Depositary Shares who are not resident in a tax haven jurisdiction (i.e.a country or
location that does not impose taxes on income or where the maximum income tax rate is lower than
20%, or where the legislation imposes restrictions on disclosure of the shareholding composition or
the ownership of the investment) will be entitled to favorable tax treatment. An electronic registration has been issued by the custodian in the name of JPMorgan Chase
Bank, the depositary, with respect to the American Depositary Shares. Pursuant to this electronic
registration, the custodian and the depositary are able to convert dividends and other
distributions with respect to the preferred class A shares or common shares represented by American
Depositary Shares into foreign currency and to remit the proceeds outside Brazil. If a holder
exchanges American Depositary Shares for preferred class A shares or common shares, the holder may
continue to rely on the custodians electronic registration for only five business days after the
exchange. After that, the holder must seek to obtain its own electronic registration with the
Central Bank under Law No. 4,131/1962 or Resolution No. 2,689/2000. Thereafter, unless the
holder has registered its investment with the Central Bank, such holder may not convert into
foreign currency and remit outside Brazil the proceeds from the disposition of, or distributions
with respect to, such preferred class A shares or common shares. A holder that obtains an
electronic registration generally will be subject to less favorable Brazilian tax treatment than a
holder of American Depositary Shares. See Item 10. Additional InformationTaxationBrazilian Tax
Considerations. As of March 14, 2005, there is a single foreign exchange market in Brazil. Foreign currencies
may only be purchased through a Brazilian bank authorized to operate in this market. In the past,
under Brazilian regulations, foreign exchange transactions were carried out on either the
commercial rate exchange market or the floating rate exchange market. Rates in the two markets
were generally the same. Although rates are freely negotiated in the foreign exchange market, they
may be strongly influenced by the Central Banks intervention. See Item 3. Key
InformationExchange Rates. Under Brazilian law, whenever there is a serious imbalance in Brazils balance of payments or
reasons to foresee a serious imbalance, the Brazilian government may impose temporary restrictions
on the remittance to foreign investors of the proceeds of their investments in Brazil, and on the
conversion of Brazilian currency into foreign currencies. Such restrictions may hinder or prevent
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Depositary Shares for underlying preferred class A shares or common shares from converting
distributions or the proceeds from any sale of such shares, as the case may be, into U.S. dollars
and remitting such U.S. dollars abroad. 
 TAXATION The following summary contains a description of the principal Brazilian and U.S. federal
income tax consequences of the ownership and disposition of preferred class A shares, common shares
or American Depositary Shares. You should know that it does not purport to be a comprehensive
description of all the tax considerations that may be relevant to a holder of preferred class A
shares, common shares or American Depositary Shares. Holders of preferred class A shares, common shares, or American Depositary Shares should
consult their own tax advisors to discuss the tax consequences of the purchase, ownership and
disposition of preferred class A shares, common shares or American Depositary Shares, including, in
particular, the effect of any state, local or other national tax laws. Although there is at present no income tax treaty between Brazil and the United States, the
tax authorities of the two countries have had discussions that may result in such a treaty. We
cannot predict whether or when such a treaty will enter into force or how it will affect the U.S.
holders, as defined below, of preferred class A shares, common shares, or American Depositary
Shares. Brazilian Tax Considerations The following discussion summarizes the principal Brazilian tax consequences of the
acquisition, ownership and disposition of preferred class A shares, common shares or American
Depositary Shares by a holder not deemed to be domiciled in Brazil for purposes of Brazilian
taxation (non-Brazilian holder). It is based on the tax laws of Brazil and regulations
thereunder in effect on the date hereof, which are subject to change (possibly with retroactive
effect). This discussion does not specifically address all of the Brazilian tax considerations
applicable to any particular non-Brazilian holder. Therefore, each non-Brazilian holder should
consult his or her own tax advisor concerning the Brazilian tax consequences of an investment in
preferred class A shares, common shares, or American Depositary Shares. Taxation of dividends.Dividends, including dividends paid in kind, paid by us from profits
of periods beginning on or after January 1, 1996 (1) to the depositary in respect of the preferred
class A shares or common shares underlying the American Depositary Shares or (2) to a non-Brazilian
holder in respect of preferred class A shares or common shares will generally not be subject to
Brazilian withholding income tax. Dividends paid from profits generated before January 1, 1996 may
be subject to Brazilian withholding income tax at varying rates depending on the year the profits
were generated, except in the case of stock dividends, which are not subject to withholding income
tax in Brazil unless we redeem the stock within five years from such distribution or the
non-Brazilian holder sells the stock in Brazil within this five-year period. Distributions of interest on shareholders equity. Since January 1, 1996, Brazilian
corporations may attribute interest on shareholders equity as an alternative form of making
dividend distributions, which they may pay in cash. They base the calculation on shareholders
equity as stated in the statutory accounting records. The interest rate applied may not exceed the
TJLP as determined by the Central Bank of Brazil from time to time. Also, the amount paid may not
be higher, for tax purposes, than the greater of (1) 50% of net income (after the deduction of the
provision of social contribution on net profits but before taking into account such payment of
interest and the provision of corporate income tax) for the relevant period or (2) 50% of the sum
of retained earnings and profit reserves as of the beginning of the year in respect of which the
payment is made. The amount of interest attributed to shareholders is deductible for corporate income tax and
social contribution on net profit purposes, as far as the limits described above are observed.
Therefore, the benefit to us, as opposed to making a dividend payment, is a reduction in our
corporate taxes charge equivalent to 34% of such amount. Subject to certain limitations, income
tax is withheld from the shareholders on interest payments at the rate of 15%, except if the
beneficiary is exempt from tax in Brazil, which payments are free of Brazilian tax, and except if
the beneficiary is located in a tax haven jurisdiction (as defined below), in which case the
applicable rate is 25%. Taxation of capital gains.For purposes of Brazilian taxation, two types of non-Brazilian
holders should be considered: (1) non-Brazilian holders that are not resident or domiciled in tax
haven jurisdictions (as defined below), 119




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which are registered before the Central Bank of Brazil and the CVM to invest in Brazil in
accordance with Resolution No. 2,689 or are holders of American Depositary Shares; and (2) other
non-Brazilian holders, which include any and all non-residents in Brazil who invest in the country
through any other means and all type of investors that are located in a tax haven jurisdiction
(i.e., a jurisdiction that does not impose income tax or where the maximum income tax rate is lower
than 20% and/or where internal legislation imposes restrictions on the disclosure of share or
investment ownership),. The investors identified in item (1) are subject to a favorable tax
treatment, as described below. According to the Law No. 10,833, dated December 29, 2003, capital gains earned abroad derived
from the disposition of assets located in Brazil by non-residents to other non-residents may become
subject to taxation in Brazil. Although we believe that the ADSs do not fall within the definition
of assets located in Brazil for the purposes of this rule, considering the general and unclear
scope of the rule and the lack of judicial court rulings in respect thereto, we are unable to
predict whether such understanding will ultimately prevail in the courts of Brazil. The deposit of preferred class A shares or common shares in exchange for American Depositary
Shares is not subject to Brazilian income tax if the preferred class A shares or common shares are
registered under Resolution No. 2,689 and the respective holder is not located in a tax haven
jurisdiction. If the preferred class A shares or common shares are not registered, or if they are
registered but the respective holder is located in a tax haven jurisdiction, the deposit of
preferred class A shares or common shares in exchange for American Depositary Shares may be subject
to Brazilian capital gains tax at the rate of 15%, or 25% in the case of a resident of a tax haven
jurisdiction. The withdrawal of preferred class A shares or common shares in exchange for American
Depositary Shares is not subject to Brazilian income tax. Non-Brazilian holders are subject to income tax imposed at a rate of 15%, or 25% in the case
of a resident of a tax haven jurisdiction, on gains realized on sales or dispositions of preferred
class A shares or common shares other than on the Brazilian stock, future and commodities exchange.
With reference to proceeds of a redemption or of a liquidating distribution with respect to the
preferred class A shares or common shares, the difference between the amount received and the
acquisition cost of the corresponding shares will be treated as a sale or disposition carried out
outside of the Brazilian stock, future and commodities exchange. Gains realized arising from transactions on a Brazilian stock, future and commodities
exchange, by an investor under Resolution No. 2,689 and not located in a tax haven jurisdiction are
exempt from income tax. The preferential treatment under Resolution No. 2,689 is no longer
applicable if the non-Brazilian holder of preferred class A shares or common shares is resident in
a tax haven jurisdiction or if the non-Brazilian holder invest in preferred class A shares or
common shares through any mechanism different from the Resolution No. 2,689. As a consequence,
gains realized on transactions performed by such holder on the Brazilian stock, futures and
commodities exchange are subject to income tax at a rate of 15%, being also subject to a
withholding income tax of 0.005% on the value of the transaction (to be offset against tax due on
eventual capital gains). Therefore, non-Brazilian holders are subject to income tax imposed at a rate of 15% on gains
realized on sales or dispositions of preferred class A shares or common shares that occur on a
Brazilian stock, future and commodities exchange unless such sale or disposition is made by a
non-Brazilian holder who is not resident in a tax haven jurisdiction and (1) such sale is made
within five business days of the withdrawal of such common shares in exchange for American
Depositary Shares and the proceeds thereof are remitted abroad within such five-day period, or (2)
such sale is made under Resolution No. 2,689 by a registered non-Brazilian holder who obtains
registration with the Brazilian securities commission, in which cases the non-Brazilian holder is
exempt from income tax. The gain realized as a result of a transaction on a Brazilian stock, future and commodities
exchange is the difference between the amount in Brazilian currency realized on the sale or
disposition and the acquisition cost, without any correction for inflation, of the shares sold. It
is possible that the current preferential treatment for holders of American depositary receipts and
non-Brazilian holders of preferred class A shares and common shares under Resolution No. 2,689 will
not continue in the future. Any exercise of preemptive rights relating to the preferred class A shares or common shares
will not be subject to Brazilian taxation. Any gain on the transaction will be subject to
Brazilian income taxation according to the same rules applicable to the sale or disposition of
preferred class A shares or common shares. 120




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Other Brazilian taxes.There are no Brazilian inheritance, gift or succession taxes
applicable to the ownership, transfer or disposition of preferred class A shares or common shares
or American Depositary Shares by a non-Brazilian holder, except for gift and inheritance taxes
which are levied by some states of Brazil on gifts made or inheritances bestowed by individuals or
entities not resident or domiciled in Brazil or in the relevant State to individuals or entities
resident or domiciled within such state in Brazil. There are no Brazilian stamp, issue,
registration, or similar taxes or duties payable by holders of preferred class A shares or common
shares or American Depositary Shares. A financial transaction tax (the IOF tax) may be imposed on a variety of foreign
transactions, including the conversion of Brazilian currency into foreign currency (e.g.,for
purposes of paying dividends and interest) or vice-versa (the IOF/Câmbio). The IOF/Câmbio is
currently 0% with some specific exceptions, but the Minister of Finance has the legal power to
increase the rate to a maximum of 25%.Any such increase will be applicable only prospectively. IOF tax may also be levied on transactions involving bonds or securities (the IOF/Títulos)
even if the transactions are effected on the Brazilian stock, futures or commodities exchange. The
rate of the IOF/Títulos with respect to preferred class A shares or common shares or American
Depositary Shares is currently 0%. The Minister of Finance, however, has the legal power to
increase the rate to a maximum of 1.5% per day. Any such increase will be applicable only
prospectively. In addition to the IOF tax, the temporary contribution on financial transactions (the CPMF
tax) will be imposed through December 2007 on all fund transfers in connection with financial
transactions in Brazil. U.S. Federal Income Tax Considerations This discussion only applies to U.S. holders, as defined below, who hold their preferred class
A shares or common shares or American Depositary Shares as capital assets. This discussion does
not describe all of the tax consequences that may be relevant in light of a holders particular
circumstances or to holders subject to special rules, such as:  
    certain financial institutions,
    insurance companies,
    dealers or traders in securities or foreign currencies,
    persons holding preferred class A shares, common shares or American Depositary Shares as
part of hedge, straddle, conversion or other integrated transaction,
    holders whose functional currency is not the U.S. dollar,
    partnerships or other entities classified as partnerships for U.S. federal income tax purposes,
    persons subject to the alternative minimum tax, or
    persons owning, actually or constructively, 10% or more of our voting shares. This discussion is based on the Internal Revenue Code of 1986, as amended to the date hereof,
administrative pronouncements, judicial decisions and final, temporary and proposed Treasury
Regulations, changes to any of which may affect the tax consequences described herein. Holders
should consult their tax advisors with regard to the application of the United States federal
income tax laws to their particular situations as well as any tax consequences arising under the
laws of any state, local or non-U.S. taxing jurisdiction. This discussion is also based, in part, on representations of the depositary and the
assumption that each obligation in the deposit agreement and any related agreement will be
performed in accordance with its terms. 121




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##### Table of Contents



As used herein, the term United States holder means a beneficial owner of preferred class A
shares, common shares, or American Depositary Shares that is for U.S. federal income tax purposes:  
    a citizen or resident alien individual of the United States,
    a corporation created or organized in or under the laws of the United States or of any
political subdivision thereof, or
    an estate or trust, the income of which is subject to United States federal income
taxation regardless of its source. The term United States holder also includes certain former citizens of the United States. In general, for U.S. federal income tax purposes, holders of American depositary receipts
evidencing American Depositary Shares will be treated as the beneficial owners of the preferred
class A shares or common shares represented by those American Depositary Shares. Deposits and
withdrawals of preferred class A shares or common shares by holders in exchange for American
Depositary Shares will not result in the realization of gain or loss for U.S. federal income tax
purposes. Taxation of dividends.Distributions paid on American Depositary Shares, preferred class A
shares or common shares, including distributions paid in the form of payments of interest on
capital for Brazilian tax purposes, out of our current or accumulated earnings and profits, as
determined for U.S. federal tax purposes, before reduction for any Brazilian income tax withheld by
us, will be taxable to you as foreign source dividend income and will not be eligible for the
dividends-received deduction allowed to corporations. You will be required to include dividends paid in reaisin income in an amount equal to their
U.S. dollar value calculated by reference to an exchange rate in effect on the date such items are
received. If you hold American Depositary Shares, you will be considered to receive a dividend
when the dividend is received by the depositary. Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of
dividends received by an individual prior to January 1, 2009 with respect to the American
depository shares will be subject to taxation at a maximum rate of 15% if the dividends are
qualified dividends. Dividends paid on the American depository shares will be treated as
qualified dividends if (i) the American depository shares are readily tradable on an established
securities market in the United States and (ii) the Company was not, in the year prior to the year
in which the dividend was paid, and is not, in the year in which the dividend is paid, (a) a
passive foreign investment company (PFIC) or (b) for dividends paid prior to the 2005 tax year, a
foreign personal holding company (FPHC) or foreign investment company (FIC). The American
depository shares are listed on the New York Stock Exchange and will qualify as readily tradable on
an established securities market in the United States so long as they are so listed. Based on
CVRDs audited financial statements and relevant market and shareholder data, CVRD believes that it
was not treated as a PFIC, FPHC or FIC for U.S. federal income tax purposes with respect to its
2003 or 2004 taxable year. In addition, based on CVRDs audited financial statements and its
current expectations regarding the value and nature of its assets, the sources and nature of its
income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for its 2005
taxable year. Based on existing guidance, it is not entirely clear whether dividends received with respect
to the preferred class A shares and common shares will be treated as qualified dividends, because
the preferred class A shares and common shares are not themselves listed on a U.S. exchange. In
addition, the U.S. Treasury has announced its intention to promulgate rules pursuant to which
holders of American depository shares, preferred class A shares or common stock and intermediaries
through whom such securities are held will be permitted to rely on certifications from issuers to
establish that dividends are treated as qualified dividends. Because such procedures have not yet
been issued, it is not clear whether we will be able to comply with them. Holders of American
depository shares, preferred class A shares and common shares should consult their own tax advisers
regarding the availability of the reduced dividend tax rate in the light of their own particular
circumstances. Subject to generally applicable limitations and restrictions, you will be entitled to a credit
against your United States federal income tax liability, or a deduction in computing your U.S.
federal taxable income, for Brazilian income taxes withheld by us. You must satisfy minimum
holding period requirements to be eligible to claim a foreign tax credit for Brazilian taxes
withheld on dividends. The limitation on foreign taxes eligible for credit is 122




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##### Table of Contents



calculated separately for specific classes of income. For this purpose dividends paid by us
on our shares will generally constitute passive income (or, for some holders, financial services
income). Taxation of capital gains.Upon a sale or exchange of preferred class A shares, common shares
or American Depositary Shares, you will recognize a capital gain or loss for U.S. federal income
tax purposes equal to the difference, if any, between the amount realized on the sale or exchange
and your adjusted tax basis in the preferred class A shares, common shares or American Depositary
Shares. Long-term capital gains recognized by an individual United States holder are subject to
taxation at a reduced rate. This gain or loss will be long-term capital gain or loss if your
holding period in the American Depositary Shares exceeds one year. Any gain or loss will be U.S.
source gain or loss for U.S. foreign tax credit purposes. Consequently, if a Brazilian withholding
tax is imposed on the sale or disposition of American Depositary Shares, preferred class A shares
or common shares, and you do not receive significant foreign source income from other sources you
may not be able to derive effective U.S. foreign tax credit benefits in respect of such Brazilian
withholding tax. You should consult your own tax advisor regarding the application of the foreign
tax credit rules to your investment in, and disposition of, American Depositary Shares, preferred
class A shares or common shares. If a Brazilian tax is withheld on the sale or disposition of shares, the amount realized by a
U.S. holder will include the gross amount of the proceeds of such sale or disposition before
deduction of the Brazilian tax. See Item 10. Additional InformationTaxationBrazilian Tax
Considerations. Information reporting and backup withholding Information returns may be filed with the Internal Revenue Service in connection with
distributions on the preferred class A shares, common shares or American Depositary Shares and the
proceeds from their sale or other disposition. You may be subject to United States backup
withholding tax on these payments if you fail to provide your taxpayer identification number or
comply with certain certification procedures or otherwise establish an exemption from backup
withholding. The amount of any backup withholding from a payment to you will be allowed as a credit against
your U.S. federal income tax liability and may entitle you to a refund, provided that the required
information is furnished to the Internal Revenue Service. 
 DOCUMENTS ON DISPLAY We are subject to the information requirements of the Securities Exchange Act of 1934, as
amended, and accordingly file reports and other information with the SEC. Reports and other
information filed by us with the SEC may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. You may
obtain copies of these materials by mail from the Public Reference Section of the SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. You may also inspect CVRDs reports
and other information at the offices of the New York Stock Exchange, 11 Wall Street, New York, New
York 10005, on which CVRDs American Depositary Shares are listed. Our SEC filings are also
available to the public from the SECs website at http://www.sec.gov. For further information on
obtaining copies of CVRDs public filings at the New York Stock Exchange, you should call (212)
656-5060. We also file financial statements and other periodic reports with the CVM. 
 Item 11. Quantitative and Qualitative Disclosures About Market Risk The principal market risks we face are interest rate risk, exchange rate risk and commodity
price risk. We manage some of these risks through the use of derivative instruments. Our policy
has been to settle all commodity derivatives contracts in cash without physical delivery of
product. Our risk management activities follow policies and guidelines reviewed and approved by our
Board of Directors. These policies and guidelines generally prohibit speculative trading and short
selling and require diversification of transactions and counter-parties. We monitor and evaluate
our overall position daily in order to evaluate financial results and impact on our cash flow. We
also periodically review the credit limits and creditworthiness of our hedging counter-parties. We
report the results of our hedging activities to senior management on a monthly basis. 123




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##### Table of Contents



As of January 1, 2001, we have adopted SFAS 133  Accounting for Derivative Financial
Instruments and Hedging Activities, as amended by SFAS 137 and SFAS 138, and we recognize all
derivatives on our balance sheet at fair value. Accordingly we recognized an initial transition
adjustment of US$ 12 million as a charge in our statement of income relative to net unrealized
losses on contracts open as of December 31, 2000. Since January 1, 2001, all derivatives have been
adjusted to fair market value at each balance sheet date and the gain or loss included in current
earnings. The asset (liability) balances at December 31, 2004 and 2003 and the movement in fair value of
derivative financial instruments is as follows: InterestratesGold
    
    
    (LIBOR)
    
    
    Currencies
    
    
    Alumina
    
    
    Aluminum
    
    
    TotalInitial unrealized gains and (losses) at January 1,
2003
    
    US$
    (15
    )
    
    US$
    (60
    )
    
    US$
    (1
    )
    
    US$
    3
    
    
    US$
    
    
    
    US$
    (73
    )Financial settlement
    
    
    8
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38Unrealized gains (losses) in the period
    
    
    (24
    )
    
    
    (3
    )
    
    
    6
    
    
    
    (22
    )
    
    
    
    
    
    
    (43
    )Effect of exchange rate changes
    
    
    (1
    )
    
    
    (13
    )
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (13
    )Unrealized gains and (losses) at December 31, 2003
    
    US$
    (32
    )
    
    US$
    (46
    )
    
    US$
    5
    
    
    US$
    (18
    )
    
    US$
    
    
    
    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 gains and (losses) at December 31, 2004
    
    US$
    (37
    )
    
    US$
    (17
    )
    
    US$
    4
    
    
    US$
    (55
    )
    
    US$
    (127
    )
    
    US$
    (232
    )
 
 INTEREST RATE AND EXCHANGE RATE RISK The table below sets forth our floating and fixed rate long-term debt, categorized by local
and foreign currency, and as a percentage of our total long-term debt portfolio at the dates
indicated, including loans from both related and unrelated parties, as reflected in our
consolidated financial statements. At December 31,2003
    
    
    2004(in millions of US$, except percentages)Floating rate debt:Real-denominated
    
    US$
    208
    
    
    
    7.5
    %
    
    US$
    104
    
    
    
    3.2
    %Foreign currency denominated
    
    
    1,427
    
    
    
    51.6
    
    
    
    1,640
    
    
    
    51.0Fixed rate debt:Foreign currency denominated
    
    
    1,132
    
    
    
    40.9
    
    
    
    1,464
    
    
    
    45.6Real-denominated
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    0.2Total
    
    US$
    2,767
    
    
    
    100.0
    
    
    US$
    3,214
    
    
    
    100.0
 The table below provides information about our total debt obligations as of December 31,
2004, which are sensitive to changes in interest rates and exchange rates. The table presents the
principal cash flows and related weighted average interest rates of these obligations by expected
maturity date. Weighted average variable interest rates are based on the applicable reference rate
at December 31, 2004. The debt obligations actual cash flows are denominated mainly in U.S.
dollars or Brazilian reaisor other currencies,as indicated. 124




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##### Table of Contents



Fair Value
    
    
    Fair ValueWeighted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash Flow
    
    
    Accountingaverage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    at
    
    
    atinterest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    To
    
    
    
    
    
    
    December
    
    
    December(%)(1)(2)
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2034
    
    
    Total
    
    
    31, 2004
    
    
    31, 2004(in millions of US$)U.S. dollar-denominatedFixed rateBonds
    
    
    8.54
    
    
    
    0
    
    
    
    113
    
    
    
    0
    
    
    
    0
    
    
    
    800
    
    
    
    913
    
    
    
    996
    
    
    
    1,054Loans
    
    
    5.02
    
    
    
    95
    
    
    
    37
    
    
    
    18
    
    
    
    11
    
    
    
    10
    
    
    
    171
    
    
    
    167
    
    
    
    171Securitization Notes
    
    
    5.61
    
    
    
    55
    
    
    
    57
    
    
    
    53
    
    
    
    55
    
    
    
    150
    
    
    
    370
    
    
    
    370
    
    
    
    370Trade Finance
    
    
    4.87
    
    
    
    5
    
    
    
    2
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    7
    
    
    
    7
    
    
    
    7Floating RateLoans
    
    
    5.02
    
    
    
    215
    
    
    
    225
    
    
    
    180
    
    
    
    158
    
    
    
    322
    
    
    
    1,100
    
    
    
    965
    
    
    
    1,100Securitization Notes
    
    
    5.61
    
    
    
    27
    
    
    
    29
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    56
    
    
    
    52
    
    
    
    56Trade Finance
    
    
    4.87
    
    
    
    266
    
    
    
    14
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    280
    
    
    
    269
    
    
    
    280Subtotal
    
    
    
    
    
    
    663
    
    
    
    477
    
    
    
    251
    
    
    
    224
    
    
    
    1,282
    
    
    
    2,897
    
    
    
    2,826
    
    
    
    3,038Real-denominatedFixed rate loans
    
    
    10.76
    
    
    
    4
    
    
    
    2
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    6
    
    
    
    6
    
    
    
    6Floating Rate Loans
    
    
    10.76
    
    
    
    24
    
    
    
    21
    
    
    
    15
    
    
    
    12
    
    
    
    32
    
    
    
    104
    
    
    
    102
    
    
    
    104Subtotal
    
    
    
    
    
    
    28
    
    
    
    23
    
    
    
    15
    
    
    
    12
    
    
    
    32
    
    
    
    110
    
    
    
    108
    
    
    
    110Other
currency-denominatedFixed rate loan
    
    
    3.9
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    0
    
    
    
    0
    
    
    
    3
    
    
    
    3
    
    
    
    3Floating rate loan
    
    
    5.57
    
    
    
    4
    
    
    
    4
    
    
    
    4
    
    
    
    3
    
    
    
    7
    
    
    
    22
    
    
    
    22
    
    
    
    22Subtotal
    
    
    
    
    
    
    33
    
    
    
    28
    
    
    
    20
    
    
    
    15
    
    
    
    39
    
    
    
    135
    
    
    
    133
    
    
    
    135No maturity
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    182
    
    
    
    182
    
    
    
    182Total
    
    
    
    
    
    
    696
    
    
    
    505
    
    
    
    271
    
    
    
    239
    
    
    
    1,321
    
    
    
    3,214
    
    
    
    3,141
    
    
    
    3,355
   (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, 2004. Interest Rate Risk We are exposed to interest rate risk on our outstanding borrowing and in future debt
issuances. Our floating rate debt consists principally of U.S. dollar borrowings related to trade
finance and loans from commercial banks and multilateral organizations. In general, our foreign
currency floating rate debt is principally subject to changes in the London Interbank Offered Rate,
(USD LIBOR). Our floating rate debt denominated in reaisis mainly subject to changes in the TJLP,
as fixed by the Central Bank. We enter into interest rate derivative transactions primarily to hedge the exposure we hold on
our USD floating rate debt. In the case we issue debt in a currency other than USD or reais, we
usually enter into derivative contracts to protect against interest rate movements in the other
currencies against USD. We generally do not hedge our TJLP-based debt. Our interest rate
derivatives portfolio consists of options and interest rate swaps to convert floating rate
exposures to fixed rate exposures or to cap our exposure to interest rate fluctuations. A cap is
the maximum rate we will be required to pay on the notional amount of the debt. Conversely, a
floor is the minimum rate we will be required to pay on the notional amount of the debt. In our
current portfolio, there is a swap subject to knock-out provisions, which, if triggered, eliminate
the protection provided by it. The table below sets forth certain information with respect to our
interest rate derivatives portfolio at December 31, 2003 and 2004: Libor At December 31, 2003
    
    
    At December 31, 2004Notional
    
    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
    
    500
    
    5.7  6.0 %
    
    
    (16
    )
    
    150
    
    5.7  6.0%
    
    
    (3.5
    )
    
    Nov 2006Cap
    
    850
    
    5.75  11.0%
    
    
    0
    
    
    300
    
    5.75  11.0%
    
    
    0.0
    
    
    Oct 2007Swap
    
    454
    
    5.8  6.7%
    
    
    (30
    )
    
    231
    
    5.8  6.7%
    
    
    (13.4
    )
    
    Oct 2007Total
    
    
    
    
    
    US$
    (46
    )
    
    
    
    
    
    US$
    (16.9
    )
 125




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##### Table of Contents



The unrealized loss in the amount of US$ 46 million and US$ 16.9 million represents the
amount payable if all transactions had been settled on December 31, 2003 and 2004, respectively. Exchange Rate Risk We are exposed to exchange rate risk associated with our foreign currency denominated debt.
On the other hand, a substantial proportion of our revenues are denominated in, or automatically
indexed to, the U.S. dollar, while the majority of our costs are expressed in reais.This provides
a natural hedge against any devaluation of the Brazilian realagainst the U.S. dollar. When
devaluation occurs, the immediate negative impact on foreign currency denominated debt is offset
over time by the positive effect of devaluation on future cash flows. In light of this framework,
we generally do not use derivative instruments to manage the currency exposure on our long-term
dollar-denominated debt. However, we do monitor market fluctuations and occasionally use
derivatives to minimize the effects of the volatility of the exchange rates in the cash flow. From time to time we enter into foreign exchange derivative swap transactions seeking to
change the characteristics of our real-denominated cash investments to US dollar-indexed
instruments. The extent of such transactions depends on our perception of market and currency
risk, and they have been designated as cash flow hedging transactions. All such deals are
marked-to-market daily, and the respective results are reflected in the P&L account at the end of
each reporting period. During the years ended December 31, 2004 and 2003 our use of such
instruments was not significant. We have other exposures associated with our outstanding debt portfolio. We have currency
exposure associated with a BNDES credit line linked to a basket of currencies, including US
dollars, Euros and Japanese Yens and we have Euro exposure associated with a credit line extended
by KFW (Kreditanstalt fur Wiedeaufbau). To mitigate the foreign currency risk, we entered into
some forward transactions that will be specified in the next table. The table below sets forth
certain information with respect to our exchange rate derivatives portfolio at December 31, 2003
and 2004. Exchange Rate Risk Tibor-Libor (JPYUSD) At December 31, 2003
    
    
    At December 31, 2004Notional
    
    
    
    
    
    
    Unrealized
    
    
    Notional
    
    
    
    
    
    
    Unrealized
    
    
    FinalValue
    
    
    Rate Range
    
    
    Gain (Loss)
    
    
    Value
    
    
    Rate Range
    
    
    Gain (Loss)
    
    
    Maturity(in millions, except rate ranges)Floating Rate purchased
    
    ¥
    3,178
    
    
    Tibor + Spread 1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Floating Rate sold
    
    USD 26
    
    Libor + Spread 2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    US$
    3.6
    
    
    
    
    
    
    
    
    
    
    
    
 Euribor-Libor (EURUSD) At December 31, 2003
    
    
    At December 31, 2004Notional
    
    
    
    
    
    
    Unrealized
    
    
    Notional
    
    
    
    
    
    
    Unrealized
    
    
    FinalValue
    
    
    Rate Range
    
    
    Gain (Loss)
    
    
    Value
    
    
    Rate Range
    
    
    Gain (Loss)
    
    
    Maturity(in millions, except rate ranges)Floating Rate purchased
    
    
    19.13
    
    
    Euribor + Spread 1
    
    
    
    
    
    
    16.74
    
    
    Euribor + Spread 1
    
    
    
    
    
    Dec 2011Floating Rate sold
    
    USD 21.59
    
    Libor + Spread 2
    
    
    
    
    
    USD 18.89
    
    Libor + Spread 2
    
    
    
    
    
    Dec 2011Total
    
    
    
    
    
    
    
    
    
    US$
    2.4
    
    
    
    
    
    
    
    
    
    
    US$
    3.7
 126




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##### Table of Contents



At December 31, 2003
    
    
    At December 31, 2004Notional
    
    
    
    
    
    
    Unrealized
    
    
    Notional
    
    
    
    
    
    
    Unrealized
    
    
    FinalValue
    
    
    Price Range
    
    
    Gain (Loss)
    
    
    Value
    
    
    Price Range
    
    
    Gain (Loss)
    
    
    Maturity(in millions, except rate ranges)Yen purchased
    
    ¥
    206.6
    
    
    ¥79  83 per US$
    
    US$
    (0.59
    )
    
    ¥
    64.7
    
    
    ¥79  83 per US$
    
    
    (0.2
    )
    
    Apr 2005Euro purchased
    
    
    2.87
    
    
    US$
    1.22  1.23 per 
    
    
    US$
    0.11
    
    
    
    0.90
    
    
    US$
    1.22  1.23 per
    
    
    
    0.1
    
    
    Apr 2005Euro sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.3
    
    
    
    1.327
    
    
    
    (0.1
    )
    
    Jan 2005Total
    
    
    
    
    
    
    
    
    
    US$
    (0.48
    )
    
    
    
    
    
    
    
    
    
    US$
    (0.2
    )
 The unrealized gains in the amount of US$ 5.52 million and the unrealized gain of US$ 3.5
million represent the amounts received if all transactions had been settled on December 31, 2003
and 2004, respectively. 
 PRODUCTS PRICE RISK We are also exposed to various market risks relating to the volatility of world market prices for:  
    iron ore and pellets, which represented 60.7% of our 2004 gross consolidated revenues;
    manganese ore and ferroalloys, which represented 8.3% of our 2004 gross consolidated revenues;
    aluminum-related products, which represented 14.7% of our 2004 gross consolidated revenues;
    gold, which represented less than 0.1% of our 2004 gross consolidated revenues; and
    copper, which we began producing in 2004 as copper concentrate and represented 2.4% of
our 2004 gross consolidated revenues. We do not enter into derivatives transactions to hedge our iron ore, copper, manganese ore or
ferroalloys exposure. See Item 5. Operating and Financial Review and Prospects. To manage the risk associated with fluctuations in aluminum prices, our affiliates Albras and
Alunorte engage in hedging transactions involving put and call options, as well as forward
contracts. These derivative instruments allow Albras and Alunorte to establish minimum average
profits for their future aluminum production in excess of their expected production costs and
therefore ensure stable cash generation. However, they also have the effect of reducing potential
gains from price increases in the spot market for aluminum. The table below sets forth certain information with respect to Albras derivatives portfolio
at December 31, 2003 and 2004. Effective January 1, 2004, Albras is consolidated in our financial
statements. At December 31, 2003
    
    
    At December 31, 2004Notional
    
    
    
    
    
    
    Unrealized
    
    
    Notional
    
    
    
    
    
    
    Unrealized
    
    
    FinalValue
    
    
    Price Range
    
    
    Gain (Loss)
    
    
    Value
    
    
    Price Range
    
    
    Gain (Loss)
    
    
    Maturity(tons of
    
    
    
    
    
    
    (in millions
    
    
    (tons of
    
    
    
    
    
    
    (in millionsaluminum)
    
    
    (US$ per ton)
    
    
    of US$)
    
    
    aluminum)
    
    
    (US$ per ton)
    
    
    of US$)Puts purchased
    
    
    148,500
    
    
    US$
    1,390-1,450
    
    
    US$
    1.9
    
    
    
    104,000
    
    
    US$
    1,395-1,400
    
    
    US$
    0.1
    
    
    Sep 2006Forwards sold
    
    
    27,000
    
    
    
    1,400-1,600
    
    
    
    (5.4
    )
    
    
    9,000
    
    
    
    1,545-1,650
    
    
    
    (23.7
    )
    
    Dec 2006Calls sold
    
    
    160,500
    
    
    
    1,570-1,630
    
    
    
    (9.8
    )
    
    
    116,000
    
    
    
    1,540-1,590
    
    
    
    (27.2
    )
    
    Sep 2006Other instruments
    
    
    246,000
    
    
    
    1,390-1,680
    
    
    
    (6.9
    )
    
    
    155,000
    
    
    
    1,395-1,700
    
    
    
    (8.0
    )
    
    Dec 2008Total
    
    
    
    
    
    
    
    
    
    US$
    (20.2
    )
    
    
    
    
    
    
    
    
    
    US$
    (58.8
    )
 127




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##### Table of Contents



The table below sets forth certain information with respect to Alunortes derivatives
portfolio at December 31, 2003 and 2004. We consolidate Alunortes operations in our financial
statements. At December 31, 2003
    
    
    At December 31, 2004Notional
    
    
    
    
    
    
    Unrealized
    
    
    Notional
    
    
    
    
    
    
    Unrealized
    
    
    FinalValue
    
    
    Price Range
    
    
    Gain (Loss)
    
    
    Value
    
    
    Price Range
    
    
    Gain (Loss)
    
    
    Maturity(tons of
    
    
    
    
    
    
    (in millions
    
    
    (tons of
    
    
    
    
    
    
    (in millionsaluminum)
    
    
    (US$ per ton)
    
    
    of US$)
    
    
    aluminum)
    
    
    (US$ per ton)
    
    
    of US$)Puts purchased
    
    
    101,000
    
    
    US$
    1,390  1,400
    
    
    US$
    0.7
    
    
    
    113,000
    
    
    US$
    1,385  1,395
    
    
    US$
    0.1
    
    
    Sep 2006Forwards sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Calls sold
    
    
    113,000
    
    
    
    1,540  1,580
    
    
    
    (6.1
    )
    
    
    125,000
    
    
    
    1,535  1,590
    
    
    
    (29.7
    )
    
    Sep 2006Other instruments
    
    
    240,000
    
    
    
    1,380  1,690
    
    
    
    (12.6
    )
    
    
    108,000
    
    
    
    1,390  1,625
    
    
    
    (25.9
    )
    
    Dec 2008Total
    
    
    
    
    
    
    
    
    
    US$
    (18.0
    )
    
    
    
    
    
    
    
    
    
    US$
    (55.5
    )
 To manage the risk associated with fluctuations in gold prices, we enter into derivative
instruments, which allow us to establish a minimum price level for future gold production or the
content of gold associated with the copper concentrate production. However, they may also have the
effect of eliminating potential gains on certain price increases in the spot market for gold. The table below sets forth certain information with respect to our gold derivatives portfolio
at December 31, 2003 and 2004. At December 31, 2003
    
    
    At December 31, 2004Unrealized
    
    
    
    
    
    
    
    
    
    
    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
    
    
    393,000
    
    
    
    270  385
    
    
    US$
    1.1
    
    
    
    303,000
    
    
    
    285  385
    
    
    
    0.7
    
    
    Dec 2008Calls sold
    
    
    423,000
    
    
    
    317  440
    
    
    
    (31.5
    )
    
    
    393,000
    
    
    
    330  440
    
    
    
    (37.4
    )
    
    Dec 2008Other instruments
    
    
    20,000
    
    
    
    
    
    
    
    (1.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    US$
    (31.8
    )
    
    
    
    
    
    
    
    
    
    US (36.7)
 The unrealized loss in the amount of US$ 32 million and US$ 37 million represents the
amount payable if all transactions had been settled on December 31, 2003 and 2004, respectively. 128




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CREDIT RISK Financial Institutions Risk & Exposure We have a strict policy regarding financial credit risk arising from derivative and other
financial transactions executed with Financial Institutions. The credit policy was approved by the
Board and makes the Executive Board responsible for selecting institutions and setting the exposure
limits for each institution as well as for the global portfolio. On a semiannual basis, our credit
exposures on the portfolio of institutions are required to be submitted to the financial committee
and to the Executive Board. The credit quality of each institution is evaluated based on its financial strength, foreign
currency ratings published by international rating agencies, shareholders equity size and range of
financial products provided. The policy only allows CVRD to perform financial transactions with institutions that hold at
least an A- foreign currency credit rating. In the case the rating of the institution is capped by
the sovereign ceiling, the rating of the country in which the institution is incorporated has to be
at least equal to Brazil rating, and the local currency rating of the institution has to be at
least A-. In addition, we can only invest our cash holdings and enter into derivative transactions
with institutions whose limits are consistent with our credit policy. Commercial Credit Exposure CVRDs commercial credit policy establishes a set of rules under which the Executive Board
approves an Annual Commercial Exposure Limit, representing the maximum commercial credit exposure
CVRD is willing to take. This exposure limit is applied to each business segment of CVRD. The
policy outlines a procedure for measuring, granting and controlling commercial credit within CVRD
which requires that each customer seeking commercial credit has to be evaluated considering its
credit quality measured by the strength of its financial statements, company size, past payment
performance and country risk. In 2005, we expect to extend the commercial credit policy to all of
CVRDs consolidated companies. For those companies in which CVRD is the controlling shareholder,
the limits are established according to such policy. For the other companies, CVRDs Executive
Board recommended a credit limit in line with CVRDs policy. 
 Item 12. Description of Securities Other than Equity Securities Not applicable. 
 PART II 
 Item 13. Defaults, Dividend Arrearages and Delinquencies None. 
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds None. 
 Item 15. Controls and Procedures 
 Evaluation of Disclosure Controls and Procedures CVRD has carried out an evaluation under the supervision and with the participation of CVRDs
management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of CVRDs disclosure controls and procedures as of the end of the
period covered by this annual report. Vale Overseas carried out a similar evaluation that relied
primarily on CVRDs evaluation of its controls. There are inherent limitations to the effectiveness
of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.
Accordingly, even effective disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives. Based upon the evaluation described above, the
Chief Executive Officer and Chief Financial Officer of CVRD and the Director and Principal
Executive Officer and Director and Principal Financial Officer of Vale 129




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Overseas concluded that, as
of the end of the period covered by this annual report, the disclosure controls and procedures were
effective to provide reasonable assurance that information required to be disclosed in the reports
CVRD or Vale Overseas, as applicable, files and submits under the Exchange Act is recorded,
processed, summarized and reported as and when required. 
 Changes in Internal Controls Our management identified no change in CVRDs or Vale Overseas internal control over
financial reporting during CVRDs and Vale Overseas fiscal year ended December 31, 2004 that has
materially affected or is reasonably likely to materially affect CVRDs or Vale Overseas internal
control over financial reporting. 
 Item 16A. Audit Committee Financial Expert Our Board of Directors currently serves as our audit committee for purposes of the
Sarbanes-Oxley Act of 2002. CVRDs Board of Directors has determined that CVRD board members
Arlindo Magno de Oliveira, Mário da Silveira Teixeira Júnior and Renato da Cruz Gomes are audit
committee financial experts. As described in Item 6. Directors, Senior Management and Employees  fiscal council, on or
before July 31, 2005, we expect to designate and empower CVRDs fiscal council to act as our audit
committee for purposes of the Sarbanes-Oxley Act of 2002. At that time, we expect that at least
one of the members of the fiscal council will be determined by our Board of Directors to be an
audit committee financial expert. 
 Item 16B. Code of Ethics CVRD has adopted a code of ethics that applies to all board members, executive officers and
employees, including the Chief Executive Officer and the Chief Financial Officer and Principal
Accounting Officer of CVRD. CVRDs code of ethics is also applicable to Vale Overseas and applies
to its directors. We have posted copies of these codes of ethics on our website:
http://www.cvrd.com.br/cvrd_us/media/CVRD_%20Codigodeetica_i.pdf. Copies of our codes of ethics
may be obtained without charge by writing to us at the address set forth on the front cover of this
Form 20-F. Neither CVRD nor Vale Overseas has granted any implicit or explicit waivers from any
provision of its code of ethics to the officers described above since adoption of the code. 
 Item 16C. Principal Accountant Fees and Services 
 Principal Accountant Fees PricewaterhouseCoopers Auditores Independentes billed the following fees to us for
professional services in 2003 and 2004. Year ended December 31,2003
    
    
    2004(thousands of US$)Audit Fees
    
    US$
    673
    
    
    US$
    1,075Audit-Related Fees
    
    
    
    
    
    
    2,455Tax Fees
    
    
    
    
    
    
    94All Other Fees
    
    
    
    
    
    
    Total Fees
    
    US$
    673
    
    
    US$
    3,624
 Audit Fees are the aggregate fees billed by PricewaterhouseCoopers for the audit of our
consolidated and annual financial statements, reviews of interim financial statements and
attestation services that are provided in connection with statutory and regulatory filings or
engagements. Audit-Related Fees are fees charged by PricewaterhouseCoopers for assurance and related services that are reasonably related to the
performance of the audit or review of our financial statements and are not reported under Audit
Fees. Audit-Related Fees refers primarily to internal control-related expenses related to CVRDs
preparation for the assessment required under Section 404 of the Sarbanes-Oxley Act. 130




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Audit Committee Pre-Approval Policies and Procedures Our Board of Directors currently serves as our audit committee for purposes of the
Sarbanes-Oxley Act of 2002. Our Board of Directors requires management to obtain the boards
approval before engaging independent auditors to provide any audit or permitted non-audit services
to us or our subsidiaries. Pursuant to this policy, our Board of Directors is required to
pre-approve all audit and non-audit services provided to CVRD and its subsidiaries by their
respective independent auditors. Our Board of Directors has adopted a pre-approval policy for audit and non-audit services
provided to CVRD and its consolidated subsidiaries. Under the policy, the Board of Directors has
pre-approved a detailed list of services based on detailed proposals from our auditors up to
specified monetary limits set forth in the policy. Services that are not listed or that exceed the
specified limits must be separately pre-approved by the Board of Directors. The Board of Directors
is provided with reports on the services provided under the policy on a periodic basis, and the
list of pre-approved services is updated periodically. The policy also sets forth a list of
prohibited services. Internal control related services must be specifically pre-approved by the
Board of Directors. 
 Item 16D. Exemptions from the Listing Standards for Audit Committees Under the listed company audit committee rules of the NYSE and the SEC, effective July 31,
2005, we must comply with Exchange Act Rule 10A-3, which requires that we either establish an audit
committee composed of members of the Board of Directors that meets specified requirements or
designate and empower our fiscal council to perform the role of the audit committee in reliance on
the exemption set forth in Exchange Act Rule 10A-3(c)(3). We expect to take the steps necessary to
designate and empower our fiscal council to perform this role on or before July 31, 2005. In our
assessment, our fiscal council will be able to act independently in performing the responsibilities
of an audit committee under the Sarbanes-Oxley Act and to satisfy the other requirements of
Exchange Act Rule 10A-3. 
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers In 2004, neither CVRD nor any affiliated purchaser purchased or repurchased any of CVRDs
equity securities. 
 PART III 
 Item 17. Financial Statements The Registrant has responded to Item 18in lieu of responding to this Item. 
 Item 18. Financial Statements Reference is made to pages F-1 to F-48. 
 Item 19. Exhibits ExhibitNumber1.1
    
    Bylaws of Companhia Vale do Rio Doce, as amended April 27, 2005 (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, 2004
 131




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##### Table of Contents



ExhibitNumber8
    
    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 Deloitte Touche Tohmatsu (Albras).14.4
    
    Consent of Trevisan (Alunorte).14.5
    
    Consent of Deloitte Touche Tohmatsu (Alunorte).14.6
    
    Consent of KPMG LLP (CSI).14.7
    
    Consent of Deloitte Touche Tohmatsu (Docenave).14.8
    
    Consent of Deloitte Touche Tohmatsu (Hispanobras).14.9
    
    Consent of Deloitte Touche Tohmatsu (Itabrasco).14.10
    
    Consent of Deloitte Touche Tohmatsu (Kobrasco).14.11
    
    Consent of Deloitte Touche Tohmatsu (MRN).14.12
    
    Consent of Deloitte Touche Tohmatsu (Nibrasco).14.13
    
    Consent of Deloitte Touche Tohmatsu (Valesul).14.14
    
    Consent of KPMG Auditores Independentes (Valesul).14.15
    
    Consent of Deloitte Touche Tohmatsu (RDM).14.16
    
    Consent of Deloitte Touche Tohmatsu (Urucum).14.17
    
    Consent of Pincock, Allen & Holt
   (*)
    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. 132




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##### Table of Contents



SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F
and that it has duly caused and authorized the undersigned to sign this annual report on its
behalf. COMPANHIA VALE DO RIO DOCEBy:
    
    /s/ Roger AgnelliName: Roger AgnelliTitle: Chief Executive OfficerBy:
    
    /s/ Fabio de Oliveira BarbosaName: Fabio de Oliveira BarbosaTitle: Chief Financial OfficerVALE OVERSEAS LIMITEDBy:
    
    /s/ Fabio de Oliveira BarbosaName: Fabio de Oliveira BarbosaTitle: Director and Principal Executive OfficerBy:
    
    /s/ Leonardo Moretzsohn de AndradeName: Leonardo Moretzsohn de AndradeTitle: Director and Principal Financial Officer
 Date: June 2, 2005 133




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageCompanhia Vale do Rio DoceReport of PricewaterhouseCoopers Auditores Independentes
    
    
    F-2Consolidated Balance Sheets as of December 31, 2004 and 2003
    
    
    F-3Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002
    
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
    
    
    F-6Consolidated Statements of Changes in Stockholders Equity for the years ended December 31, 2004, 2003 and 2002
    
    
    F-7Notes to the Consolidated Financial Statements
    
    
    F-8Vale Overseas LimitedReport of PricewaterhouseCoopers Auditores Independentes
    
    
    F-41Balance Sheets as of December 31, 2004 and 2003
    
    
    F-42Statements of Income and Changes in Retained Earnings (Accumulated Losses) for the years ended December 31, 2004, 2003 and 2002
    
    
    F-43Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
    
    
    F-44Notes to the Financial Statements
    
    
    F-45Index to Audit Reports from Independent Accountants listed in Note 23 to the Consolidated Financial Statements of Companhia Vale do Rio Doce
    
    
    B-1
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Companhia Vale do Rio Doce In our opinion, based upon our audits and the reports of other auditors, the accompanying
consolidated balance sheets and the related consolidated statements of income, of cash flows and of
changes in stockholders equity, present fairly, in all material respects, the financial position
of Companhia Vale do Rio Doce and its subsidiaries at December 31, 2004 and 2003, and the results
of their operations and their cash flows for each of the three years in the period ended December
31, 2004, in conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Companys management; our
responsibility is to express an opinion on these financial statements based on our audits. We did
not audit the financial statements of certain affiliates, the investments in which total US$ 376
million at December 31, 2003 and equity in earnings of US$157 million and US$60 million for 2003
and 2002, respectively. Also, we did not audit the financial statements of certain majority-owned
subsidiaries as at and for the years ended December 31, 2003, which statements reflect total assets
of US$1,352 million at December 31, 2003 and total revenues of US$839 million and US$426 million
for 2003 and 2002, respectively. The financial statements of these affiliates and subsidiaries were
audited by other auditors whose reports there on have been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts for these affiliates and subsidiaries, is
based solely on the reports of the other auditors. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting Oversight Board (United States)
which require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits and the reports of other auditors
provide a reasonable basis for the opinion expressed above. As discussed in Note 4 to the financial statements, the Company changed its method of accounting
for asset retirement obligations, as from January 1, 2003. PricewaterhouseCoopers
Auditores Independentes Rio de Janeiro, Brazil
March 21, 2005 F-2




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##### Table of Contents



Consolidated Balance Sheets
Expressed in millions of United States dollars As of December 31,2004
    
    
    2003AssetsCurrent assetsCash and cash equivalents
    
    
    1,249
    
    
    
    585Accounts receivableRelated parties
    
    
    124
    
    
    
    115Unrelated parties
    
    
    905
    
    
    
    703Loans and advances to related parties
    
    
    56
    
    
    
    56Inventories
    
    
    849
    
    
    
    505Deferred income tax
    
    
    203
    
    
    
    91Recoverable taxes
    
    
    285
    
    
    
    214Others
    
    
    219
    
    
    
    2053,890
    
    
    
    2,474Property, plant and equipment, net
    
    
    9,063
    
    
    
    6,484Investments in affiliated companies and joint ventures and other
investments, net of provision for losses on equity investments
    
    
    1,159
    
    
    
    1,034Other assetsGoodwill on acquisition of subsidiaries
    
    
    486
    
    
    
    451Loans and advancesRelated parties
    
    
    55
    
    
    
    40Unrelated parties
    
    
    56
    
    
    
    68Prepaid pension cost
    
    
    170
    
    
    
    82Deferred income tax
    
    
    70
    
    
    
    234Judicial deposits
    
    
    531
    
    
    
    407Unrealized gain on derivative instruments
    
    
    4
    
    
    
    5Others
    
    
    231
    
    
    
    1551,603
    
    
    
    1,442TOTAL
    
    
    15,715
    
    
    
    11,434
 F-3




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##### Table of Contents



Consolidated Balance Sheets
Expressed in millions of United States dollars
(Except number of shares) (Continued) As of December 31,2004
    
    
    2003Liabilities and stockholders equityCurrent liabilitiesSuppliers
    
    
    689
    
    
    
    482Payroll and related charges
    
    
    141
    
    
    
    78Interest attributed to stockholders
    
    
    11
    
    
    
    118Current portion of long-term debt - unrelated parties
    
    
    730
    
    
    
    1,009Short-term debt
    
    
    74
    
    
    
    129Loans from related parties
    
    
    52
    
    
    
    119Provision for income taxes
    
    
    433
    
    
    
    21Others
    
    
    325
    
    
    
    2972,455
    
    
    
    2,253Long-term liabilitiesEmployees post-retirement benefits
    
    
    215
    
    
    
    198Long-term debt - unrelated parties
    
    
    3,214
    
    
    
    2,767Loans from related parties
    
    
    18
    
    
    
    4Provisions for contingencies (Note 18)
    
    
    914
    
    
    
    635Unrealized loss on derivative instruments
    
    
    236
    
    
    
    96Others
    
    
    484
    
    
    
    2685,081
    
    
    
    3,968Minority interests
    
    
    788
    
    
    
    329Stockholders equityPreferred class A stock - 1,800,000,000
no-par-value shares authorized and 415,727,739 issued
    
    
    1,176
    
    
    
    1,055Common stock - 900,000,000 no-par-value
shares authorized and 749,949,429 issued
    
    
    2,121
    
    
    
    1,902Treasury stock - 11,951 (2003 - 12,549) preferred and 14,145,510 common shares
    
    
    (88
    )
    
    
    (88
    )Additional paid-in capital
    
    
    498
    
    
    
    498Other cumulative comprehensive deficit
    
    
    (3,774
    )
    
    
    (4,375
    )Appropriated retained earnings
    
    
    4,143
    
    
    
    3,035Unappropriated retained earnings
    
    
    3,315
    
    
    
    2,8577,391
    
    
    
    4,884TOTAL
    
    
    15,715
    
    
    
    11,434
 See notes to consolidated financial statements. F-4




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##### 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 31,2004
    
    
    2003
    
    
    2002Operating revenues, net of discounts, returns and allowancesSales of ores and metals
    
    
    6,333
    
    
    
    4,060
    
    
    
    3,342Revenues from logistic services
    
    
    877
    
    
    
    604
    
    
    
    458Aluminum products
    
    
    1,250
    
    
    
    852
    
    
    
    462Other products and services
    
    
    19
    
    
    
    29
    
    
    
    208,479
    
    
    
    5,545
    
    
    
    4,282Taxes on revenues
    
    
    (413
    )
    
    
    (195
    )
    
    
    (159
    )Net operating revenues
    
    
    8,066
    
    
    
    5,350
    
    
    
    4,123Operating costs and expensesCost of ores and metals sold
    
    
    (2,881
    )
    
    
    (2,066
    )
    
    
    (1,579
    )Cost of logistic services
    
    
    (513
    )
    
    
    (370
    )
    
    
    (252
    )Cost of aluminum products
    
    
    (674
    )
    
    
    (678
    )
    
    
    (412
    )Others
    
    
    (13
    )
    
    
    (14
    )
    
    
    (20
    )(4,081
    )
    
    
    (3,128
    )
    
    
    (2,263
    )Selling, general and administrative expenses
    
    
    (452
    )
    
    
    (265
    )
    
    
    (224
    )Research and development
    
    
    (153
    )
    
    
    (82
    )
    
    
    (50
    )Employee profit sharing plan
    
    
    (69
    )
    
    
    (32
    )
    
    
    (38
    )Others
    
    
    (188
    )
    
    
    (199
    )
    
    
    (119
    )(4,943
    )
    
    
    (3,706
    )
    
    
    (2,694
    )Operating income
    
    
    3,123
    
    
    
    1,644
    
    
    
    1,429Non-operating income (expenses)Financial income
    
    
    82
    
    
    
    102
    
    
    
    127Financial expenses
    
    
    (671
    )
    
    
    (351
    )
    
    
    (375
    )Foreign exchange and monetary gains (losses), net
    
    
    65
    
    
    
    242
    
    
    
    (580
    )Gain on sale of investments
    
    
    404
    
    
    
    17
    
    
    
    (120
    )
    
    
    10
    
    
    
    (828
    )Income before income taxes, equity results and minority interests
    
    
    3,003
    
    
    
    1,654
    
    
    
    601Income taxesCurrent
    
    
    (433
    )
    
    
    (90
    )
    
    
    (12
    )Deferred
    
    
    (316
    )
    
    
    (207
    )
    
    
    161(749
    )
    
    
    (297
    )
    
    
    149Equity in results of affiliates and joint ventures and change in provision
for losses on equity investments
    
    
    542
    
    
    
    306
    
    
    
    (87
    )Minority interests
    
    
    (223
    )
    
    
    (105
    )
    
    
    17Income from continuing operations
    
    
    2,573
    
    
    
    1,558
    
    
    
    680Change in accounting practice for asset retirement obligations (Note 4)
    
    
    
    
    
    
    (10
    )
    
    
    Net income
    
    
    2,573
    
    
    
    1,548
    
    
    
    680Basic and diluted earnings per Preferred Class A Share
    
    
    2.23
    
    
    
    1.34
    
    
    
    0.59Basic and diluted earnings per Common Share
    
    
    2.23
    
    
    
    1.34
    
    
    
    0.59Weighted average number of shares outstanding (thousands of shares)Common shares
    
    
    735,804
    
    
    
    735,804
    
    
    
    749,592Preferred Class A shares
    
    
    415,716
    
    
    
    415,714
    
    
    
    405,126
 See notes to consolidated financial statements. F-5




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##### Table of Contents



Consolidated Statements of Cash Flows
Expressed in millions of United States dollars Year ended December 31,2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net income
    
    
    2,573
    
    
    
    1,548
    
    
    
    680Adjustments to reconcile net income to cash provided by
operating activities :Depreciation, depletion and amortization
    
    
    399
    
    
    
    238
    
    
    
    214Dividends received
    
    
    200
    
    
    
    197
    
    
    
    91Equity in results of affiliates and joint ventures and change in provision
for losses on equity investments
    
    
    (542
    )
    
    
    (306
    )
    
    
    87Deferred income taxes
    
    
    316
    
    
    
    207
    
    
    
    (161
    )Provisions for contingencies
    
    
    137
    
    
    
    9
    
    
    
    53Impairment of property, plant and equipment
    
    
    34
    
    
    
    51
    
    
    
    62Gain on sale of investments
    
    
    (404
    )
    
    
    (17
    )
    
    
    Change in
accounting practice for asset retirement obligations (Note 4)
    
    
    
    
    
    
    10
    
    
    
    Foreign exchange and monetary losses (gains)
    
    
    112
    
    
    
    (382
    )
    
    
    1,031Unrealized derivative losses, net
    
    
    134
    
    
    
    43
    
    
    
    83Minority interests
    
    
    223
    
    
    
    105
    
    
    
    (17
    )Interest payable, net
    
    
    93
    
    
    
    24
    
    
    
    Others
    
    
    (123
    )
    
    
    (27
    )
    
    
    57Decrease (increase) in assets:Accounts receivable
    
    
    (98
    )
    
    
    37
    
    
    
    (123
    )Inventories
    
    
    (216
    )
    
    
    (22
    )
    
    
    (69
    )Others
    
    
    (78
    )
    
    
    (9
    )
    
    
    (105
    )Increase (decrease) in liabilities :Suppliers
    
    
    230
    
    
    
    (18
    )
    
    
    102Payroll and related charges
    
    
    28
    
    
    
    (25
    )
    
    
    23Income taxes
    
    
    348
    
    
    
    
    
    
    
    Others
    
    
    105
    
    
    
    94
    
    
    
    94Net cash provided by operating activities
    
    
    3,471
    
    
    
    1,757
    
    
    
    2,102Cash flows from investing activities :Loans and advances receivableRelated partiesAdditions
    
    
    (33
    )
    
    
    (157
    )
    
    
    (101
    )Repayments
    
    
    51
    
    
    
    71

    
    
    
    75Others
    
    
    18
    
    
    
    35
    
    
    
    20Guarantees and deposits
    
    
    (111
    )
    
    
    (99
    )
    
    
    (78
    )Additions to investments
    
    
    (34
    )
    
    
    (68
    )
    
    
    (1
    )Additions to property, plant and equipment
    
    
    (2,022
    )
    
    
    (1,543
    )
    
    
    (766
    )Proceeds from disposal of investments
    
    
    579
    
    
    
    83
    
    
    
    Proceeds from disposals of property, plant and equipment
    
    
    11
    
    
    
    58
    
    
    
    7Cash used to acquire subsidiaries, net of cash acquired
    
    
    
    
    
    
    (380
    )
    
    
    (45
    )Net cash provided by (used in) investing activities
    
    
    (1,541
    )
    
    
    (2,000
    )
    
    
    (889
    )Cash flows from financing activities:Short-term debt, net issuances (repayments)
    
    
    (60
    )
    
    
    (38
    )
    
    
    (345
    )LoansRelated partiesAdditions
    
    
    21
    
    
    
    72
    
    
    
    54Repayments
    
    
    (27
    )
    
    
    (26
    )
    
    
    (75
    )Issuances of
long-term debtRelated parties
    
    
    20
    
    
    
    14
    
    
    
    17Others
    
    
    1,031
    
    
    
    1,025
    
    
    
    698Repayments
of long-term debtRelated parties
    
    
    (3
    )
    
    
    (4
    )
    
    
    (15
    )Others
    
    
    (1,283
    )
    
    
    (766
    )
    
    
    (330
    )Interest attributed to stockholders
    
    
    (787
    )
    
    
    (675
    )
    
    
    (602
    )Net cash used in financing activities
    
    
    (1,088
    )
    
    
    (398
    )
    
    
    (598
    )Increase (decrease) in cash and cash equivalents
    
    
    842
    
    
    
    (641
    )
    
    
    615Effect of exchange rate changes on cash and cash equivalents
    
    
    (204
    )
    
    
    135
    
    
    
    (641
    )Initial cash in new consolidated subsidiary
    
    
    26
    
    
    
    
    
    
    
    Cash and cash equivalents, beginning of period
    
    
    585
    
    
    
    1,091
    
    
    
    1,117Cash and cash equivalents, end of period
    
    
    1,249
    
    
    
    585
    
    
    
    1,091Cash paid during the period for:Interest on short-term debt
    
    
    (5
    )
    
    
    (7
    )
    
    
    (46
    )Interest on long-term debt
    
    
    (295
    )
    
    
    (178
    )
    
    
    (157
    )Income tax
    
    
    (108
    )
    
    
    (55
    )
    
    
    (12
    )Non-cash transactionsConversion of loans to investments
    
    
    
    
    
    
    (187
    )
    
    
    (55
    )Income tax paid with credits
    
    
    (100
    )
    
    
    (81
    )
    
    
    Interest capitalized
    
    
    (31
    )
    
    
    (19
    )
    
    
    (27
    )
 See notes to consolidated financial statements. F-6




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##### 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 31,2004
    
    
    2003
    
    
    2002Preferred class A stock (including one special share)Beginning of the period
    
    
    1,055
    
    
    
    904
    
    
    
    820Transfer from appropriated retained earnings
    
    
    121
    
    
    
    151
    
    
    
    84End of the period
    
    
    1,176
    
    
    
    1,055
    
    
    
    904Common stockBeginning and end of the period
    
    
    1,902
    
    
    
    1,630
    
    
    
    1,479Transfer from appropriated retained earnings
    
    
    219
    
    
    
    272
    
    
    
    151End of the period
    
    
    2,121
    
    
    
    1,902
    
    
    
    1,630Treasury 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
    
    
    (4,449
    )
    
    
    (5,185
    )
    
    
    (3,475
    )Change in the period
    
    
    580
    
    
    
    736
    
    
    
    (1,710
    )End of the period
    
    
    (3,869
    )
    
    
    (4,449
    )
    
    
    (5,185
    )Unrealized gain on available-for-sale securitiesBeginning of the period
    
    
    74
    
    
    
    
    
    
    
    Change in the period
    
    
    21
    
    
    
    74
    
    
    
    End of the period
    
    
    95
    
    
    
    74
    
    
    
    Adjustments relating to investments in affiliatesBeginning of the period
    
    
    
    
    
    
    10
    
    
    
    10Transfer to retained earnings
    
    
    
    
    
    
    (10
    )
    
    
    Beginning and end of the period
    
    
    
    
    
    
    
    
    
    
    10Total other cumulative comprehensive deficit
    
    
    (3,774
    )
    
    
    (4,375
    )
    
    
    (5,175
    )Appropriated retained earningsBeginning of the period
    
    
    3,035
    
    
    
    2,230
    
    
    
    3,212Transfer (to) from retained earnings
    
    
    1,448
    
    
    
    1,228
    
    
    
    (747
    )Transfer to
capital stock
    
    
    (340
    )
    
    
    (423
    )
    
    
    (235
    )End of the period
    
    
    4,143
    
    
    
    3,035
    
    
    
    2,230Unappropriated retained earningsBeginning of the period
    
    
    2,857
    
    
    
    3,288
    
    
    
    2,184Net income
    
    
    2,573
    
    
    
    1,548
    
    
    
    680Interest attributed to stock holdersPreferred class A stock
    
    
    (241
    )
    
    
    (275
    )
    
    
    (117
    )Common stock
    
    
    (426
    )
    
    
    (486
    )
    
    
    (206
    )Appropriation (to) from reserves
    
    
    (1,448
    )
    
    
    (1,218
    )
    
    
    747End of the period
    
    
    3,315
    
    
    
    2,857
    
    
    
    3,288Total stock holders equity
    
    
    7,391
    
    
    
    4,884
    
    
    
    3,287Comprehensive income (deficit) is comprised as follows:Net income
    
    
    2,573
    
    
    
    1,548
    
    
    
    680Cumulative translation adjustments
    
    
    580
    
    
    
    736
    
    
    
    (1,710
    )Unrealized gain (loss) on available-for-sale securities
    
    
    21
    
    
    
    74
    
    
    
    Total comprehensive income (deficit)
    
    
    3,174
    
    
    
    2,358
    
    
    
    (1,030
    )SharesPreferred 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
    
    
    (14,158,059
    )
    
    
    (14,158,953
    )
    
    
    (14,145,783
    )Acquisitions
    
    
    
    
    
    
    
    
    
    
    (13,170
    )Sales
    
    
    598
    
    
    
    894
    
    
    
    End of the period
    
    
    (14,157,461
    )
    
    
    (14,158,059
    )
    
    
    (14,158,953
    )1,151,519,707
    
    
    
    1,151,519,109
    
    
    
    1,151,518,215Interest attributed to stockholders (per share)Preferred class A stock (including three special share)
    
    
    0.58
    
    
    
    0.66
    
    
    
    0.28Common stock
    
    
    0.58
    
    
    
    0.66
    
    
    
    0.28
   (1)
    
    As of December 31, 2004, 14,145,510 common shares and 11,951 preferred shares were
held in treasury in the amount of US$ 88. The 14,145,510 common shares guarantee a loan to
our subsidiary Alunorte. Notes to consolidated financial statements. F-7




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##### Table of Contents



Notes to the Consolidated Financial StatementsExpressed in millions of United States dollars, unless otherwise stated
  1
    The Company and its operationsCompanhia Vale do Rio Doce (CVRD) is a limited liability company, duly organized and
existing under the laws of the Federative Republic of Brazil. Our operations are carried
out through CVRD and its subsidiary companies, joint ventures and affiliates, and mainly
consist of mining, non-ferrous metal production and logistics, as well as energy, aluminum
and steel activities. Further details of our operations and those of our joint ventures
and affiliates are described in Note 13.The main operating subsidiaries we consolidate are as follows: % voting
    
    
    Head officeSubsidiary
    
    % ownership
    
    
    capital
    
    
    location
    
    
    Principal activityAlumina do Norte do Brasil S.A. - Alunorte (Alunorte)
    
    
    57
    
    
    
    61
    
    
    Brazil
    
    AluminaAlumínio Brasileiro S.A. - Albras (Albras) (8)
    
    
    51
    
    
    
    51
    
    
    Brazil
    
    AluminumCADAM S.A (CADAM) (2) (4)
    
    
    37
    
    
    
    100
    
    
    Brazil
    
    KaolinCELMAR S.A. - Indústria de Celulose e Papel (3)
    
    
    100
    
    
    
    100
    
    
    Brazil
    
    ForestryCVRD Overseas Ltd.
    
    
    100
    
    
    
    100
    
    
    Cayman Island
    
    TradingFerrovia Centro-Atlântica S.A. (4)
    
    
    100
    
    
    
    100
    
    
    Brazil
    
    LogisticsFerteco Mineração S.A. - FERTECO (3)
    
    
    100
    
    
    
    100
    
    
    Brazil
    
    Iron ore and PelletsItabira Rio Doce Company Ltd. - ITACO
    
    
    100
    
    
    
    100
    
    
    Cayman Island
    
    TradingMineração Serra do Sossego S.A. (5)
    
    
    100
    
    
    
    100
    
    
    Brazil
    
    CopperMinerações Brasileiras Reunidas S.A. - MBR (4) (7)
    
    
    56
    
    
    
    90
    
    
    Brazil
    
    Iron oreNavegação Vale do Rio Doce S.A. - DOCENAVE
    
    
    100
    
    
    
    100
    
    
    Brazil
    
    ShippingPará Pigmentos S.A.
    
    
    76
    
    
    
    86
    
    
    Brazil
    
    KaolinRio Doce International Finance Ltd. - RDIF
    
    
    100
    
    
    
    100
    
    
    Bahamas
    
    International financeRio Doce Manganês S.A. (6)
    
    
    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. (1)
    
    
    100
    
    
    
    100
    
    
    Brazil
    
    CopperUrucum Mineração S.A.
    
    
    100
    
    
    
    100
    
    
    Brazil
    
    Iron ore, Ferroalloys andManganese
   (1)
    
    Development stage companies(2)
    
    Through Caemi Mineração e Metalurgia S.A. Caemi holds 61.48% of the total capital and 100% of
the voting capital of Cadam.
CVRD holds 60.2% of the total capital and 100% of the
voting capital of Caemi.(3)
    
    Merged with CVRD on August 29,
2003(4)
    
    Consolidated as from September 2003(5)
    
    Merged with
CVRD on December 30, 2003(6)
    
    Formerly
Sibra-Eletrosiderúrgica Brasileira S.A.(7)
    
    Through Caemi Mineração e Metalurgia S.A. and Belém Administrações e
Participações Ltda.(8)
    
    Consolidated as from January 1, 2004 (See Note
4)  2
    Basis of consolidationAll majority-owned subsidiaries where we have both share and management control are
consolidated, with elimination of all significant intercompany
accounts and transactions. Additionally variable interest entities in which are the primary beneficiary (Note 4(b))
are consolidated as from January 1, 2004. 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 F-8




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##### Table of Contents



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.Our condensed consolidated interim financial information for the three-month periods ended
December 31, 2004, September 30, 2004, and December 31, 2003 is unaudited. However, in our
opinion, such condensed consolidated financial information includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair presentation of the
results for interim periods. Certain interim footnotes have been excluded due of the
inclusion of the footnote for the annual information.3
    Summary of significant accounting policiesIn preparing the consolidated financial statements, we are required to use estimates to
account for certain assets, liabilities, revenues and expenses. Our consolidated financial
statements therefore include various estimates concerning the selection of useful lives of
property, plant and equipment, provisions necessary for contingent liabilities, fair values
assigned to assets and liabilities acquired in business combinations, income tax valuation
allowances, employee post-retirement benefits and other similar evaluations; actual results may
vary from our estimates.(a)
    Basis of presentationWe have prepared the consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America (US GAAP), which differ in certain
respects from the accounting practices adopted in Brazil that we use in preparing our statutory
financial statements.The U.S. dollar amounts for the years presented have been remeasured (translated) from the
Brazilian currency amounts in accordance with the criteria set forth in Statement of Financial
Accounting Standards 52  Foreign Currency Translation (SFAS 52).Prior to July 1, 1997, Brazil was considered under SFAS 52 to have a highly inflationary
economy and accordingly, up to June 30, 1997, we adopted the U.S. dollar as both our functional
currency and reporting currency.As from July 1, 1997, we concluded that the Brazilian economy had ceased to be highly
inflationary and changed our functional currency from the reporting currency (U.S. dollars) to the
local currency (Brazilian Reais), for Brazilian operations and extensions thereof. Accordingly, we
translated the U.S. dollar amounts of non-monetary assets and liabilities into Reais at the current
exchange rate, and those amounts became the new accounting bases for such assets and liabilities.We have remeasured all assets and liabilities into U.S. dollars at the current exchange rate
at each balance sheet date (R$2.6544 and R$2.8892 to US$1.00 at December 31, 2004 and 2003,
respectively), and all accounts in the statements of income (including amounts relative to local
currency indexation and exchange variances on assets and liabilities denominated in foreign
currency) at the average rates prevailing during the period. The translation gain or loss resulting
from this remeasurement process is included in the cumulative translation adjustments account in
stockholders equity.The net exchange transaction gain (loss) included in our statement of income was US$79, US$222
and (US$515) in 2004, 2003 and 2002, respectively, included within the line Foreign exchange and
monetary losses, net.(b)
    Business combinationsWe adopt the procedures determined by SFAS 141  Business Combinations to recognize
acquisitions of interests in other companies. The method of accounting used in our
business combination transactions is the purchase method, which requires that acquirers
reasonably determine the fair value of the identifiable assets and liabilities of acquired
companies, individually, in order to determine the goodwill paid in the purchase to be
recognized as an intangible asset. On the acquisition of assets, which include the rights
to mine reserves of natural resources, the establishment of values for these assets
includes the placing of fair values on purchased reserves, F-9




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##### Table of Contents



which are classified in the balance sheet as property, plant and equipment.Goodwill was amortized in a systematic manner over the periods estimated to be benefited
through December 31, 2001. As required by SFAS 142 - Goodwill and Other Intangible
Assets from January 1, 2002 goodwill resulting from the acquisitions is no longer
amortized, but is tested for impairment at
least annually and reduced to fair value to the extent any such impairment is identified.(c)
    InventoriesInventories are stated at the average cost of purchase or production, lower than replacement
or realizable values. We record allowances for slow moving or obsolete inventories when considered
appropriate, reflecting our periodic assessment of recoverability. A write-down of inventory
utilizing the allowance establishes a new cost basis for the related inventory.Finished goods inventories include all related materials, labor and direct production
expenditures, and exclude general and administrative expenses.(d)
    Property, plant and equipmentProperty, plant and equipment are recorded at cost, including interest cost incurred during
the construction of major new facilities. We compute depreciation on the straight-line basis at
annual rates which take into consideration the useful lives of the items, such as: from 2% to 20%
for the railroads, 5% for ships, 3% for buildings, from 2% to 5% for installations and from 5% to
20% for mining and other equipment. Expenditures for maintenance and repairs are charged to
operating costs and expenses as incurred.We capitalize the costs of developing major new ore bodies or expanding the capacity of
operating mines and amortize these to operations on the unit-of-production method based on the
total probable and proven quantity of ore to be recovered. Exploration costs are expensed until
economic viability of mining activities is established; subsequently such costs are capitalized
together with further exploration costs. We capitalize mine development costs as from the time we
actually begin such development.(e)
    Available-for-sale equity securitiesEquity securities classified as available-for-sale are recorded in accordance with SFAS 115
Accounting for Certain Investments in Debt and Equity Securities. Accordingly, we exclude
unrealized holding gains and losses, net of taxes, if applicable, from income and recognize them,
net of tax effects, as a separate component of stockholders equity until realized.(f)
    Revenues and expensesRevenues are recognized when title has transferred to the customer or services are rendered.
Revenue from exported products is recognized when such products are loaded on board the
ship. Revenue from products sold in the domestic market is recognized when delivery is
made to the customer. Revenue from transportation services, other than shipping
operations, is recognized when the service order has been fulfilled. Shipping operations
are recorded on the completed voyage basis and net revenue, costs and expenses of voyages
not completed at period-end are deferred. Anticipated losses on voyages are provided when
probable and can be reasonably estimated. Expenses and costs are recognized on the accrual
basis.(g)
    Environmental and site reclamation and restoration costsExpenditures relating to ongoing compliance with environmental regulations are
charged against earnings or capitalized as appropriate. These ongoing programs are
designed to minimize the environmental impact of our activities. With respect to our major
iron ore mine at Carajás, which has extensive remaining reserves, liabilities for final
site reclamation and restoration costs will be recorded when the respective reclamation
and restoration strategies can be reasonably determined and the related costs can be
reasonably estimated. F-10




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##### Table of Contents



(h)
    Compensated absencesWe fully accrue the employees compensation liability for vacations vested during the year.(i)
    Income taxesIn accordance with SFAS 109 - Accounting for Income Taxes, the deferred tax effects of tax loss
carryforwards and temporary differences have been recognized in the consolidated financial
statements. A valuation allowance is made when we believe that it is more likely than not that tax
assets will not be fully recoverable in the future.(j)
    Statement of cash flowsCash flows relating to overnight financing and investment are reported net. Short-term investments
that have a ready market and maturity to us, when purchased, of 90 days or less are considered
cash equivalents.(k)
    Earnings per shareEarnings per share are computed by dividing net income by the weighted average number of
common and preferred shares outstanding during the period.(l)
    Interest attributed to stockholdersAs from January 1, 1996 Brazilian corporations are permitted to attribute interest on
stockholders equity. The calculation is based on the stockholders equity amounts as stated
in the statutory accounting records and the interest rate applied may not exceed the long-term
interest rate (TJLP) determined by the Brazilian Central Bank. Also, such interest may not
exceed 50% of net income for the year nor 50% of retained earnings plus revenue reserves.The amount of interest attributed to stockholders is deductible for income tax purposes.
Accordingly, the benefit to us, as opposed to making a dividend payment, is a reduction in our
income tax charge equivalent to the statutory tax rate applied to such amount. Income tax is
withheld from the stockholders relative to interest at the rate of 15%.Under Brazilian law, interest attributable to stockholders is considered as part of the annual
minimum dividend (Note 16). Accordingly such distributions are treated as dividends for
accounting purposes.We have opted to pay such tax-deductible interest to our stockholders and have therefore
accrued the amounts due as of December 31, 2004, 2003 and 2002, with a direct charge to
stockholders equity.(m)
    Derivatives and hedging activitiesAs of January 1, 2001 we adopted SFAS 133 - Accounting for Derivative Financial
Instruments and Hedging Activities, as amended by SFAS 137, SFAS 138 and SFAS 149. Those
standards require that we recognize all derivative financial instruments as either assets
or liabilities on our balance sheet and measure such instruments at fair value. Changes in
the fair value of derivatives are recorded in each period in current earnings or in other
comprehensive income, in the latter case depending on whether a transaction is designated
as an effective hedge.(n)
    Comprehensive incomeWe have disclosed comprehensive income as part of the Statement of Changes in Stockholders
Equity, in compliance with SFAS 130  Reporting Comprehensive Income.(o)
    ReclassificationCertain minor reclassifications have been made to the financial statements for 2003 and 2002
to make them comparable with the 2004 presentation. F-11




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##### Table of Contents



(p)
    Stockpiled inventoryWe classify proven and probable reserve quantities attributable to stockpiled inventory as
inventory and account for them as processed when they are removed from the mine. These reserve
quantities are not included in the total proven and probable reserve quantities used in the units
of production, depreciation, depletion and amortization calculations.(q)
    Removal of waste materials to access mineral depositsDuring the development of a mine, before production commences, stripping costs (i.e., the
costs associated with the removal of overburden and other waste materials) are capitalized
as part of the depreciable cost of building and constructing the mine. Such costs are
subsequently amortized over the useful life of the mine based on proven and probable
reserves.Post-production stripping costs are recorded as cost of sales when incurred.4
    Change in accounting practice(a) 2003  SFAS 143In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS 143 -
Accounting for Asset Retirement Obligations. We adopted SFAS 143 as from January 1,
2003, and as a consequence an additional US$26 for asset retirement obligations was
recorded as Others - long-term liabilities, a net increase of US$11 in mine development
costs was registered within Property, plant and equipment and a resulting charge of
US$10 was registered as Change in Accounting Practice for Asset Retirement Obligations
on the Statement of Income, net of income tax (US$15 gross of deferred income tax). Over
time the liabilities will be accreted for the change in their present value and initial
capitalized costs will be amortized over the useful lives of the related assets.(b) 2004  FIN 46RAs from January 1, 2004 we have consolidated Albras based on our 51% interest in that
entity under FASB Interpretation (FIN) Consolidation of Variable Interest Entities
(revised December 2003). Albras is an Aluminum company with revenues of US$707 and total
assets of US$805 for the year ended December 31, 2004 which sells all of its output to its
shareholders based in its participation.Albras purchases its principal raw material, alumina, from Alunorte and obtains financing
principally from CVRD and its subsidiaries. None of Albras or CVRDs assets guarantee
Albras obligations except for industrial property, plant and equipment of US$316 given in
guarantee of US$192 of third party basis but CVRD has provided financial guarantees for
Albras financings. Had Albras been consolidated at and for the year ended December 31,
2003 CVRDs consolidated statement of income would have been is follows: 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 practice
    
    
    (10
    )
    
    
    
    
    
    
    (10
    )Minority interests
    
    
    (105
    )
    
    
    (100
    )
    
    
    (205
    )Net income
    
    
    1,548
    
    
    
    
    
    
    
    1,548
 F-12




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5
    Recently-issued accounting pronouncementsIn December 2004, the FASB issued SFAS No. 123R, Share-Based Payment which sets
accounting requirements for share-based compensation to employees, including
employee-stock-purchase-plans (ESPPs) and provides guidance on accounting for awards to
non-employees. This Statement will require companies to recognize in the income statement
the grant-date fair value of stock options and other equity-based compensation issued to
employees, but expresses no preference for a type of
valuation model. For public entities, this Statement is effective for the first interim
period beginning after June 15, 2005. We do not expect FASB No. 123R to have a
significant impact on our financial position, results of operations or cash flows.In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets an
amendment of APB No. 29. This Statement amends Opinion 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a general
exception for exchanges of nonmonetary assets that do not have commercial substance. The
Statement specifies that a nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the exchange.
This Statement is effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset
exchanges occurring in fiscal periods beginning after the date this Statement is issued.
Retroactive application is not permitted. We will apply this Statement in the event
exchanges of nonmonetary assets occur in fiscal periods beginning after June 15, 2005.In November 2004, the FASB issued SFAS No. 151, Inventory Costs an amendment of ARB No.
43, Chapter 4, which amends Chapter 4 of ARB No. 43 that deals with inventory pricing. The
Statement clarifies the accounting for abnormal amounts of idle facility expenses,
freight, handling costs, and spoilage. Under previous guidance, paragraph 5 of ARB No. 43,
chapter 4, items such as idle facility expense, excessive spoilage, double freight, and
rehandling costs might be considered to be so abnormal, under certain circumstances, as to
require treatment as current period charges. This Statement eliminates the criterion of
so abnormal and requires that the costs of conversion be based on the normal capacity of
the production facilities. The provisions of this Statement shall be effective for 2005.
Also, this Statement requires that allocation of fixed production overheads to inventories
by June 15, 2005. Earlier application is permitted for inventory costs incurred during
fiscal years beginning after the date this Statement is issued. The provisions of this
Statement shall be applied prospectively. We are analyzing the requirements of this new
Statement and believes that its adoption will not have any significant impact on the
Companys financial position, results of operations or cash flows.In September 2004, the FASB issued FSP EITF Issue 03-1-1, which delayed the effective date
of paragraphs 10-20 of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments. Paragraphs 10-20 of EITF Issue No. 03-1 give
guidance on how to evaluate and recognize an impairment loss that is other that temporary.
Application of these paragraphs has been deferred pending issuance, of proposed FSP EITF
Issue 03-1a. We do not expect EITF Issue No. 03-01 to have any impact on our financial
position, results of operations or cash flows.At its March 31, 2004 meeting, the Emerging Issues Task Force (EITF) reached final
consensus on EITF Issue No. 03-6, Participating Securities and the Two-Class Method under
F ASB Statement No. 128, Earnings per Share. Typically, a participating security is
entitled to share in a companys earnings, often via a formula tied to dividends on the
companys common stock. The issue clarifies what is meant by the term participating
security, as used in Statement 128. When an instrument is deemed to be a participating
security, it has the potential to significantly reduce basic earnings per common share
because the two-class method must be used to compute the instruments effect on earnings
per share. The consensus also covers other instruments whose terms include a participation
feature. The consensus also addresses the allocation of losses. If undistributed earnings
must be allocated to participating securities under the two-class method, losses should
also be allocated. However, EITF 03-6 limits this allocation only to situations when the
security has F-13




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##### Table of Contents



(1) the right to participate in the earnings of the company, and (2) an objectively
determinable contractual obligation to share in net losses of the company;The consensus reached in EITF 03-6 is effective for fiscal periods beginning after March
31, 2004. EPS in prior periods must be retroactively adjusted in order to comply with the
consensus decisions reached in EITF 03-6. We do not expect that this consensus will have
any impact on our calculation of Basic and Diluted EPS.6
    Our privatizationIn May 1997, we were privatized by the Brazilian Government, which transferred voting control
to Valepar S.A. (Valepar). The Brazilian Government has retained certain rights with respect to
our future decisions and those of Valepar and has also caused us to enter into agreements which may
affect our activities and results of operations in the future. These rights and agreements are:  .
    Preferred Special Share. The Brazilian Government holds three preferred special shares of
CVRD which confers upon it permanent veto rights over changes in our (i) name, (ii)
headquarters location, (iii) corporate purpose with respect to mineral exploration, (iv)
continued operation of our integrated iron ore mining systems and (v) certain other matters..
    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 presentedWe made the following acquisitions during the periods presented. Pro forma information with
respect to our acquisitions of the control of Alunorte in June 2002 and Caemi in September 2003 is
shown in items (b) and (c) below:(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).This acquisition was approved by the European Commission subject to the commitment for Caemi
to sell its equity investment in Quebec Cartier Mining Company (QCM), a Canadian producer of
iron ore and pellets. On December 31, 2003 Caemi sold its
holding of QCMs common shares to
the Quebec Provincial Government for the symbolic amount of 100 Canadian dollars and converted
loans to QCM of 20 million Canadian dollars into preferred stock with no voting rights (other
than on matters required by law). Caemi will continue to guarantee certain financings of QCM
until 2007 and has undertaken to provide further financial support to QCM, if necessary, in
the form of subordinated loans up to 2010, limited to 34.5 million Canadian dollars
(equivalent to US$27 at December 31, 2004 ). The fair value of this commitment has been fully
provided.CVRD and Mitsui, each of which held 50% of Caemis common shares, entered into a shareholder
agreement requiring both shareholders to approve all major decisions affecting Caemi.On September 2, 2003 we acquired a further 43.37% of the capital of Caemi for US$426,
increasing our total participation to 60.23%. Caemi has been consolidated as from this date. F-14




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##### Table of Contents



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




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##### Table of Contents



Unaudited pro forma information with respect to the effect on our consolidated
statements of income, reflecting the consolidation of ALUNORTE as if control has been
acquired as at January 1, 2002 is as follows: 2002CVRD
    
    
    
    
    
    
    Pro FormaConsolidated
    
    
    ALUNORTE
    
    
    (unaudited)Net operating revenues
    
    
    4,123
    
    
    
    138
    
    
    
    4,261Operating costs and expenses
    
    
    (2,694
    )
    
    
    (151
    )
    
    
    (2,845
    )Operating income
    
    
    1,429
    
    
    
    (13
    )
    
    
    1,416Non-operating income (expenses)
    
    
    (828
    )
    
    
    (38
    )
    
    
    (866
    )Income before income taxes, equity results
and minority interests
    
    
    601
    
    
    
    (51
    )
    
    
    550Income taxes
    
    
    149
    
    
    
    
    
    
    
    149Equity in results of affiliates and joint ventures
    
    
    (28
    )
    
    
    23
    
    
    
    (5
    )Change in provision for losses on equity investments
    
    
    (59
    )
    
    
    
    
    
    
    (59
    )Minority interests
    
    
    17
    
    
    
    28
    
    
    
    45Net income
    
    
    680
    
    
    
    
    
    
    
    680
  (c)
    On October 10, 2003, the subsidiary Companhia Paulista de Ferro Ligas (CPFL) finalized
the sale of its shares in Fertilizantes Fosfatados S.A. (Fosfértil) to Bunge Fertilizantes S.A. for
US$84. The profit on the operation was US$61.(d)
    On November 7, 2003 we sold our investment in Companhia Ferroviária do Nordeste (CFN) to CSN
for a symbolic amount, recording a loss on this transaction of US$44.(e)
    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$164. The profit on the
transaction was US$314 and US$90, respectively.8
    Income taxesIncome taxes in Brazil comprise federal income tax and social contribution, which is an
additional federal tax. The statutory composite enacted tax rate applicable in the periods
presented is 34% represented by a 25% federal income tax rate plus a 9% social contribution rate.The amount reported as income tax expense in our consolidated financial statements is
reconciled to the statutory rates as follows: Year ended December 31,2004
    
    
    2003
    
    
    2002Income before income taxes, equity results and minority interests
    
    
    3,003
    
    
    
    1,654
    
    
    
    601Federal income tax and social contribution expense at
statutory enacted rates
    
    
    (1,021
    )
    
    
    (562
    )
    
    
    (204
    )Adjustments to derive effective tax rate:Tax benefit on interest attributed to stockholders
    
    
    214
    
    
    
    271
    
    
    
    99Exempt foreign income (expenses)
    
    
    247
    
    
    
    (59
    )
    
    
    196Difference on tax basis of equity investees
    
    
    (240
    )
    
    
    (56
    )
    
    
    20Tax effect related to provision for losses and write-downs
    
    
    
    
    
    
    
    
    
    
    29Tax incentives
    
    
    53
    
    
    
    60
    
    
    
    4Valuation allowance reversal (provision)
    
    
    77
    
    
    
    53
    
    
    
    (12
    )Non-taxable losses on derivative
    
    
    (57
    )
    
    
    
    
    
    
    Other non-taxable gains (losses)
    
    
    (22
    )
    
    
    (4
    )
    
    
    17Federal income tax and social contribution expense in
consolidated statements of income
    
    
    (749
    )
    
    
    (297
    )
    
    
    149
 F-16




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We have certain tax incentives relative to our iron ore and manganese operations in
Carajás, potash in Sergipe and relative to alumina in Alunorte. The incentives relative to
iron ore and manganese comprise full income tax exemption on defined production levels up to
2005 and partial exemption up to 2013. The incentive relative to potash expires in 2013 while
incentives relative to alumina expire in 2010. An amount equal to the tax saving must be
appropriated to a reserve account within stockholders equity and may not be distributed in
the form of cash dividends.The major components of the deferred tax accounts in the balance sheet are as follows: As of December 312004
    
    
    2003Current deferred tax assetsAccrued expenses deductible only when disbursed
    
    
    110
    
    
    
    91Interest attributed to stockholders
    
    
    93203
    
    
    
    91Long-term deferred tax assets and liabilitiesAssetsDeferred tax relative to temporary differences
    
    
    
    
    
    
    3Tax deductible goodwill in business combinations
    
    
    10
    
    
    
    79Related to provision for losses and write-downs of investments
    
    
    51
    
    
    
    149Employees post retirement benefits provision
    
    
    83
    
    
    
    73Tax loss carryforwards
    
    
    235
    
    
    
    132Other temporary differences
    
    
    19
    
    
    
    206398
    
    
    
    642LiabilitiesInflationary income
    
    
    (23
    )
    
    
    (26
    )Relative to investments acquired
    
    
    (115
    )
    
    
    (202
    )Prepaid retirement benefit
    
    
    (58
    )
    
    
    (28
    )Fair value adjustments in business combinations
    
    
    (55
    )
    
    
    (40
    )(251
    )
    
    
    (296
    )Valuation allowanceBeginning balance
    
    
    (112
    )
    
    
    (230
    )Translation adjustments
    
    
    (42
    )
    
    
    (37
    )Business acquisition, sales and others
    
    
    
    
    
    
    102Change in allowance
    
    
    77
    
    
    
    53Ending balance
    
    
    (77
    )
    
    
    (112
    )Net long-term deferred tax assets
    
    
    70
    
    
    
    234
  9
    Cash and cash equivalents As of December 312004
    
    
    2003Cash
    
    
    123
    
    
    
    88Deposits in local currency
    
    
    385
    
    
    
    267Deposits in United States dollars
    
    
    741
    
    
    
    2301,249
    
    
    
    585
 F-17




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10
    Accounts receivable As of December 312004
    
    
    2003CustomersDomestic
    
    
    236
    
    
    
    195Export, all denominated in
United States dollars
    
    
    847
    
    
    
    6651,083
    
    
    
    860Allowance for doubtful accounts
    
    
    (37
    )
    
    
    (30
    )Allowance for ore weight credits
    
    
    (17
    )
    
    
    (12
    )Total
    
    
    1,029
    
    
    
    818
  Accounts receivable from customers in the steel industry represent 29.2% and 27.5% of
domestic receivables and export receivables represent 82.0% and 88.1% at December 31, 2004 and
2003, respectively.No single customer accounted for more than 10% of total revenues in any of the years presented.11
    Inventories As of December 312004
    
    
    2003Finished productsIron ore and pellets
    
    
    205
    
    
    
    146Manganese and ferroalloys
    
    
    156
    
    
    
    78Alumina
    
    
    20
    
    
    
    20Aluminum
    
    
    54
    
    
    
    Kaolin
    
    
    17
    
    
    
    16Others
    
    
    11
    
    
    
    8Spare parts and maintenance supplies
    
    
    386
    
    
    
    237849
    
    
    
    505
 F-18




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##### Table of Contents



12
    Property, plant and equipment  a)
    By business area: As of December 31, 2004
    
    
    As of December 31, 2003Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedCost
    
    
    depreciation
    
    
    Net
    
    
    Cost
    
    
    depreciation
    
    
    NetFerrousFerrous  Southern SystemMining
    
    
    2,397
    
    
    
    963
    
    
    
    1,434
    
    
    
    2,196
    
    
    
    812
    
    
    
    1,384Railroads
    
    
    1,047
    
    
    
    447
    
    
    
    600
    
    
    
    866
    
    
    
    389
    
    
    
    477Marine terminals
    
    
    326
    
    
    
    153
    
    
    
    173
    
    
    
    183
    
    
    
    87
    
    
    
    963,770
    
    
    
    1,563
    
    
    
    2,207
    
    
    
    3,245
    
    
    
    1,288
    
    
    
    1,957Ferrous  Northern SystemMining
    
    
    804
    
    
    
    318
    
    
    
    486
    
    
    
    676
    
    
    
    277
    
    
    
    399Railroads
    
    
    1,072
    
    
    
    446
    
    
    
    626
    
    
    
    924
    
    
    
    376
    
    
    
    548Marine terminals
    
    
    270
    
    
    
    100
    
    
    
    170
    
    
    
    196
    
    
    
    85
    
    
    
    1112,146
    
    
    
    864
    
    
    
    1,282
    
    
    
    1,796
    
    
    
    738
    
    
    
    1,058Pelletizing
    
    
    430
    
    
    
    160
    
    
    
    270
    
    
    
    382
    
    
    
    133
    
    
    
    249Ferroalloys
    
    
    362
    
    
    
    197
    
    
    
    165
    
    
    
    273
    
    
    
    153
    
    
    
    120Energy
    
    
    198
    
    
    
    18
    
    
    
    180
    
    
    
    128
    
    
    
    11
    
    
    
    117Construction in progress
    
    
    1,546
    
    
    
    
    
    
    
    1,546
    
    
    
    914
    
    
    
    
    
    
    
    9148,452
    
    
    
    2,802
    
    
    
    5,650
    
    
    
    6,738
    
    
    
    2,323
    
    
    
    4,415Non-FerrousCopper
    
    
    578
    
    
    
    71
    
    
    
    507
    
    
    
    
    
    
    
    
    
    
    
    Potash
    
    
    65
    
    
    
    30
    
    
    
    35
    
    
    
    54
    
    
    
    22
    
    
    
    32Gold
    
    
    6
    
    
    
    2
    
    
    
    4
    
    
    
    27
    
    
    
    25
    
    
    
    2Kaolin
    
    
    254
    
    
    
    97
    
    
    
    157
    
    
    
    220
    
    
    
    75
    
    
    
    145Research and projects
    
    
    33
    
    
    
    19
    
    
    
    14
    
    
    
    86
    
    
    
    62
    
    
    
    24Construction in progress
    
    
    731
    
    
    
    
    
    
    
    731
    
    
    
    797
    
    
    
    
    
    
    
    7971,667
    
    
    
    219
    
    
    
    1,448
    
    
    
    1,184
    
    
    
    184
    
    
    
    1,000LogisticsGeneral cargo
    
    
    769
    
    
    
    232
    
    
    
    537
    
    
    
    575
    
    
    
    188
    
    
    
    387Maritime transportation
    
    
    31
    
    
    
    8
    
    
    
    23
    
    
    
    8
    
    
    
    6
    
    
    
    2Construction in progress
    
    
    114
    
    
    
    
    
    
    
    114
    
    
    
    35
    
    
    
    
    
    
    
    35914
    
    
    
    240
    
    
    
    674
    
    

    
    618
    
    
    
    194
    
    
    
    424HoldingsAluminum
    
    
    1,317
    
    
    
    445
    
    
    
    872
    
    
    
    545
    
    
    
    92
    
    
    
    453Others
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    2
    
    
    
    1
    
    
    
    1Construction in progress
    
    
    230
    
    
    
    
    
    
    
    230
    
    
    
    111
    
    
    
    
    
    
    
    1111,548
    
    
    
    445
    
    
    
    1,103
    
    
    
    658
    
    
    
    93
    
    
    
    565Corporate CenterCorporate
    
    
    68
    
    
    
    43
    
    
    
    25
    
    
    
    67
    
    
    
    28
    
    
    
    39Construction in progress
    
    
    163
    
    
    
    
    
    
    
    163
    
    
    
    41
    
    
    
    
    
    
    
    41231
    
    
    
    43
    
    
    
    188
    
    
    
    108
    
    
    
    28
    
    
    
    80Total
    
    
    12,812
    
    
    
    3,749
    
    
    
    9,063
    
    
    
    9,306
    
    
    
    2,822
    
    
    
    6,484
  b)
    By type of assets: As of December 31, 2004
    
    
    As of December 31, 2003Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedCost
    
    
    depreciation
    
    
    Net
    
    
    Cost
    
    
    depreciation
    
    
    NetLand and buildings
    
    
    991
    
    
    
    396
    
    
    
    595
    
    
    
    749
    
    
    
    303
    
    
    
    446Installations
    
    
    3,600
    
    
    
    1,262
    
    
    
    2,338
    
    
    
    2,466
    
    
    
    932
    
    
    
    1,534Equipment
    
    
    1,218
    
    
    
    574
    
    
    
    644
    
    
    
    883
    
    
    
    405
    
    
    
    478Railroads
    
    
    2,091
    
    
    
    884
    
    
    
    1,207
    
    
    
    1,741
    
    
    
    756
    
    
    
    985Mine development costs
    
    
    1,345
    
    
    
    150
    
    
    
    1,195
    
    
    
    931
    
    
    
    123
    
    
    
    808Others
    
    
    783
    
    
    
    483
    
    
    
    300
    
    
    
    638
    
    
    
    303
    
    
    
    33510,028
    
    
    
    3,749
    
    
    
    6,279
    
    
    
    7,408
    
    
    
    2,822
    
    
    
    4,586Construction in progress
    
    
    2,784
    
    
    
    
    
    
    
    2,784
    
    
    
    1,898
    
    
    
    
    
    
    
    1,898Total
    
    
    12,812
    
    
    
    3,749
    
    
    
    9,063
    
    
    
    9,306
    
    
    
    2,822
    
    
    
    6,484
 F-19




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##### Table of Contents



Losses on disposals and impairments of property, plant and equipment totaled US$34, US$51
and US$62 in 2004, 2003 and 2002, respectively. Disposals and impairments mainly relate to
impairment of gold mines, sales of ships and trucks, locomotives and other equipment which were
replaced in the normal course of business.In 2002 we sold certain forestry assets of our subsidiary Florestas Rio Doce S.A. for US$59 and
recorded a gain on this sale of US$49. In 2003 we sold Fazenda Brasileiro a gold mining operation
for US$ 21 the equivalent to its book value.c)
    Hydroelectric projectsWe participate in several jointly-owned hydroelectric plants, already in operation or under
construction. We have an undivided interest in these plants and are responsible for our
proportionate share of the costs of construction and operation and are entitled to our
proportionate share of the energy produced. We record our proportion of these assets as
property, plant and equipment.The situation of these projects at December 31, 2004 is as follows: 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
    
    
    
    148
    
    
    
    56
    
    
    
    (11
    )
    
    
    
    
    
    
    Porto Estrela
    
    November, 2001
    
    
    33.3
    
    
    
    63
    
    
    
    21
    
    
    
    (2
    )
    
    
    
    
    
    
    Funil
    
    January, 2003
    
    
    51.0
    
    
    
    129
    
    
    
    66
    
    
    
    (4
    )
    
    
    
    
    
    
    Candonga
    
    September, 2004
    
    
    50.0
    
    
    
    110
    
    
    
    55
    
    
    
    (1
    )
    
    
    
    
    
    
    Aimorés
    
    July, 2005
    
    
    51.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    237
    
    
    
    121Capim Branco I
    
    
    2006
    
    
    48.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69
    
    
    
    33Capim Branco II
    
    
    2006

    
    
    48.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    13Foz do Chapecó
    
    
    
    
    
    40.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    2Estreito
    
    
    

    
    
    30.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    2
  Income and expenses relating to operating plants are not material. F-20




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##### Table of Contents



13.
    Investments in affiliated companies and joint ventures December 31,Quoted2004
    
    
    Investments
    
    
    Equity Adjustments
    
    
    Dividends received
    
    
    marketNetincome
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DecemberParticipation
    
    
    Net
    
    
    for the
    
    
    
    
    
    
    
    
    
    
    Year ended December 31,
    
    
    Year ended December 31,
    
    
    31,in capital (%)
    
    
    equity
    
    
    period
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004voting
    
    
    totalSteelUsinas Siderúrgicas de Minas Gerais S.A.  USIMINAS
    
    
    22.99
    
    
    
    11.46
    
    
    
    1,223
    
    
    
    995
    
    
    
    140
    
    
    
    31
    
    
    
    114
    
    
    
    34
    
    
    
    (15
    )
    
    
    13
    
    
    
    3
    
    
    
    4
    
    
    
    483Companhia Siderúrgica de Tubarão  CST (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86
    
    
    
    102
    
    
    
    45
    
    
    
    19
    
    
    
    
    
    
    
    52
    
    
    
    4
    
    
    
    N/ACalifornia Steel Industries Inc.  CSI
    
    
    50.00
    
    
    
    50.00
    
    
    
    298
    
    
    
    109
    
    
    
    149
    
    
    
    103
    
    
    
    55
    
    
    
    2
    
    
    
    19
    
    
    
    9
    
    
    
    5
    
    
    
    9
    
    
    
    SIDERAR (cost $15)  available for sale investment
    
    
    4.85
    
    
    
    4.85
    
    
    
    
    
    
    
    
    
    
    
    110
    
    
    
    89
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110399
    
    
    
    309
    
    
    
    271
    
    
    
    81
    
    
    
    23
    
    
    
    22

    
    
    
    60
    
    
    
    17
    
    
    
    593Aluminum and bauxiteMineração Rio do Norte S.A.  MRN
    
    
    40.00
    
    
    
    40.00
    
    
    
    427
    
    
    
    142
    
    
    
    171
    
    
    
    168
    
    
    
    57
    
    
    
    33
    
    
    
    38
    
    
    
    54
    
    
    
    27
    
    
    
    31
    
    
    
    Valesul Alumínio S.A.  VALESUL (6)
    
    
    54.51
    
    
    
    54.51
    
    
    
    101
    
    
    
    26
    
    
    
    55
    
    
    
    49
    
    
    
    14
    
    
    
    10
    
    
    
    14
    
    
    
    12
    
    
    
    9
    
    
    
    6
    
    
    
    Alumínio Brasileiro S.A.  ALBRAS
    
    
    51.00
    
    
    
    51.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112
    
    
    
    
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Alumínio Brasileiro S.A.  ALBRAS  change in provision for losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Alumina do Norte do Brasil S.A.  ALUNORTE (4)
    
    
    62.09
    
    
    
    57.03
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    226
    
    
    
    329
    
    
    
    71
    
    
    
    147
    
    
    
    39
    
    
    
    66
    
    
    
    36
    
    
    
    37
    
    
    
    FerrousCaemi Mineração e Metalurgia S.A. (3)
    
    
    100.00
    
    
    
    60.23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    (102
    )
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    N/ACompanhia Nipo-Brasileira de Pelotização  NIBRASCO (6)
    
    
    51.11
    
    
    
    51.00
    
    
    
    60
    
    
    
    25
    
    
    
    30
    
    
    
    18
    
    
    
    13
    
    
    
    3
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    Companhia Hispano-Brasileira de Pelotização  HISPANOBRÁS (6)
    
    
    51.00
    
    
    
    50.89
    
    
    
    50
    
    
    
    17
    
    
    
    26
    
    
    
    17
    
    
    
    9
    
    
    
    3
    
    
    
    5
    
    
    
    1
    
    
    
    2
    
    
    
    2
    
    
    
    Companhia Coreano-Brasileira de Pelotização  KOBRASCO
    
    
    50.00
    
    
    
    50.00
    
    
    
    25
    
    
    
    21
    
    
    
    13
    
    
    
    1
    
    
    
    11
    
    
    
    1
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Companhia Coreano-Brasileira de Pelotização  KOBRASCO -
change in provision for losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Companhia Ítalo-Brasileira de Pelotização  ITABRASCO (6)
    
    
    51.00
    
    
    
    50.90
    
    
    
    36
    
    
    
    12
    
    
    
    18
    
    
    
    11
    
    
    
    6
    
    
    
    3
    
    
    
    5
    
    
    
    
    
    
    
    1
    
    
    
    4
    
    
    
    Gulf Industrial Investment Company  GIIC
    
    
    50.00
    
    
    
    50.00
    
    
    
    90
    
    
    
    32
    
    
    
    45
    
    
    
    40
    
    
    
    16
    
    
    
    12
    
    
    
    5
    
    
    
    11
    
    
    
    9
    
    
    
    6
    
    
    
    SAMARCO Mineração S.A.  SAMARCO (5)
    
    
    50.00
    
    
    
    50.00
    
    
    
    441
    
    
    
    233
    
    
    
    261
    
    
    
    221
    
    
    
    117
    
    
    
    70
    
    
    
    28
    
    
    
    100
    
    
    
    78
    
    
    
    17
    
    
    
    Minas da Serra Geral S.A.  MSG
    
    
    50.00
    
    
    
    50.00
    
    
    
    36
    
    
    
    (6
    )
    
    
    18
    
    
    
    15
    
    
    
    (3
    )
    
    
    2
    
    
    
    4
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    Others
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    21
    
    
    
    1
    
    
    
    (1
    )
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    435
    
    
    
    344
    
    
    
    170
    
    
    
    133
    
    
    
    (66
    )
    
    
    112
    
    
    
    91
    
    
    
    35
    
    
    
    LogisticsCompanhia Ferroviária do Nordeste  CFN  change in provision for losses (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ferroban  Ferrovias Bandeirantes S.A.  change in provision for losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ferrovia Centro-Atlântica S.A.  FCA  change in provision for losses (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (93
    )
    
    
    (42
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MRS Logística S.A
    
    
    37.23
    
    
    
    29.35
    
    
    
    266
    
    
    
    112
    
    
    
    78
    
    
    
    39
    
    
    
    33
    
    
    
    39
    
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MRS Logística S.A.  change in provision for losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sepetiba Tecon S.A.  change in provision for losses
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Others, mainly investments sold in 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    (5
    )79
    
    
    
    44
    
    
    
    33
    
    
    
    (52
    )
    
    
    (88
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other affiliates and joint venturesFertilizantes Fosfatados S.A.  FOSFERTIL (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    8
    
    
    
    
    
    
    
    9
    
    
    
    2
    
    
    
    Others
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    8
    
    
    
    (3
    )
    
    
    (4
    )
    
    
    (3
    )
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    20
    
    
    
    8
    
    
    
    (3
    )
    
    
    (3
    )
    
    
    5
    
    
    
    
    
    
    
    10
    
    
    
    2
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,159
    
    
    
    1,034
    
    
    
    542
    
    
    
    306
    
    
    
    (87
    )
    
    
    200
    
    
    
    197
    
    
    
    91
    
    
    
    593
   (1)
    
    During the quarter ended June 30, 2003 CVRD acquired an additional 5.17% of CSTs total
capital for US$60. During 2004 CVRD sold its interest in CST (Note 7(e));(2)
    
    Investment sold in 2003;(3)
    
    Consolidated as from September 2003, after acquisition of control;(4)
    
    Consolidated as from June 30, 2002, after acquisition of control;(5)
    
    Investment includes goodwill of US$40 and US$37 in 2004 and 2003, respectively.(6)
    
    CVRD held more than 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. F-21




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##### Table of Contents



14
    Short-term debtOur short-term borrowings are from commercial banks and relate export financing denominated
in United States dollars.Average annual interest rates on short-term borrowings were 2.33%, 3.19% and 3.97% at 2004,
2003 and 2002, respectively.15
    Long-term debt As of December 31Current liabilities
    
    
    Long-Term liabilities2004
    
    
    2003
    
    
    2004
    
    
    2003Foreign debtLoans and financing contracted in the following currencies:United States dollars
    
    
    376
    
    
    
    470
    
    
    
    1,179
    
    
    
    1,151Japanese Yen
    
    
    1
    
    
    
    30
    
    
    
    2
    
    
    
    2Others
    
    
    3
    
    
    
    3
    
    
    
    23
    
    
    
    25Fixed Rate Notes  US$ denominated
    
    
    
    
    
    
    300
    
    
    
    913
    
    
    
    600Securitization of export receivables  US$ denominated
    
    
    55
    
    
    
    44
    
    
    
    425
    
    
    
    481Perpetual notes
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    65Accrued charges
    
    
    61
    
    
    
    54
    
    
    
    
    
    
    
    496
    
    
    
    901
    
    
    
    2,607
    
    
    
    2,324Local debtIndexed by Long-Term Interest Rate  TJLP
    
    
    22
    
    
    
    10
    
    
    
    89
    
    
    
    88Indexed by General Price Index-Market (IGPM)
    
    
    21
    
    
    
    16
    
    
    
    14
    
    
    
    19Basket of currencies
    
    
    7
    
    
    
    30
    
    
    
    17
    
    
    
    23Non-convertible debentures
    
    
    
    
    
    
    
    
    
    
    117
    
    
    
    90Indexed by U.S. dollars
    
    
    166
    
    
    
    33
    
    
    
    368
    
    
    
    221Accrued charges
    
    
    18
    
    
    
    19
    
    
    
    2
    
    
    
    2234
    
    
    
    108
    
    
    
    607
    
    
    
    443Total
    
    
    730
    
    
    
    1,009
    
    
    
    3,214
    
    
    
    2,767
  The long-term portion at December 31, 2004 becomes due in the following years: 2006
    
    
    6962007
    
    
    5052008
    
    
    2712009 thereafter
    
    
    1,560No due date (Perpetual notes and non-convertible debentures)
    
    
    1823,214
  At December 31, 2004 annual interest rates on long-term debt were as follows: Up to 7%
    
    
    2,5747.1% to 9%
    
    
    1,2029.1% to 11%
    
    
    18Over 11%
    
    
    79Variable (Perpetual notes)
    
    
    713,944
 F-22




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##### Table of Contents



The indexes applied to debt and respective percentage variations in each year were
as follows: 2004
    
    
    2003
    
    
    2002TJLP  Long-Term Interest Rate (effective rate)
    
    
    9.8
    
    
    
    11.5
    
    
    
    9.9IGP-M  General Price Index  Market
    
    
    12.4
    
    
    
    8.7
    
    
    
    25.3United States Dollar
    
    
    (8.1
    )
    
    
    (18.2
    )
    
    
    52.3
  On December 15, 2004 Vale Overseas Limited finalized the cash tender offer for its US$ 300
million principal amount outstanding 8.625% Enhanced Guaranteed Notes due 2007. The amount of US$
186.9 has been repurchased by the price of US$ 1,117.34 per US$ 1,000.00 of principal Notes
remaining US$ 113.1 of amount outstanding.At December 31, 2004 the US$ denominated Fixed Rate Notes of US$913 (2003  US$900) and
other debt of US$1,834 (2003  US$1,634) are unsecured. The export securitization of
US$480 (2003-US$525) is secured by existing and future accounts receivable of our
subsidiary CVRD Overseas Ltd. Loans from international lenders of US$170 (2003-US$232)
are guaranteed by the Federal Government, to which we have given counter-guarantees of
US$170 (2003  US$165) 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$251 (2003  US$165). The remaining
long-term debt of US$296 (2003  US$387) 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 a 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 share numbers and per
share amounts included herein reflect retroactive application of the stock.As of December 31, 2004, we had acquired 14,157,461 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 net income, upon approval at the annual stockholders meeting. In the case of preferred
stockholders, this dividend cannot be less than 6% of the preferred capital as stated in the
statutory accounting records or, if greater, 3% of the statutory book equity value per share.
With respect to each of 2004, 2003 and 2002 we distributed dividends to preferred stockholders in
excess of this limit. Interest attributed to stockholders as from January 1, 1996 is considered
part of the minimum dividend.Brazilian law permits the payment of cash dividends only from retained earnings as stated in
the statutory accounting records and such payments are made in Reais. At December 31, 2004 , we
had no undistributed retained earnings. In addition, appropriated retained earnings at December
31, 2004 includes US$3,221, related to the unrealized income and expansion reserves, which could
be freely transferred to retained earnings and paid as dividends, if approved by the
stockholders.No withholding tax is payable on distribution of profits earned as from January 1, 1996,
except for distributions in the form of interest attributed to stockholders (Note 3 (e)).Brazilian laws and our By-laws require that certain appropriations be made from
retained F-23




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##### Table of Contents



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 312004
    
    
    2003
    
    
    2002Appropriated retained earningsUnrealized income reserveBalance January 1
    
    
    193
    
    
    
    211
    
    
    
    548Transfer to retained earnings
    
    
    (63
    )
    
    
    (18
    )
    
    
    (337
    )Balance December 31
    
    
    130
    
    
    
    193
    
    
    
    211Expansion reserveBalance January 1
    
    
    2,090
    
    
    
    1,494
    
    
    
    1,667Transfer to capital stock
    
    
    (309
    )
    
    
    (423
    )
    
    
    Transfer from (to) retained earnings
    
    
    1,310
    
    
    
    1,019
    
    
    
    (173
    )Balance December 31
    
    
    3,091
    
    
    
    2,090
    
    
    
    1,494Legal reserveBalance January 1
    
    
    374
    
    
    
    241
    
    
    
    325Transfer from (to) retained earnings
    
    
    155
    
    
    
    133
    
    
    
    (84
    )Balance December 31
    
    
    529
    
    
    
    374
    
    
    
    241Fiscal incentive depletion reserveBalance January 1
    
    
    347
    
    
    
    284
    
    
    
    649Transfer to capital stock
    
    
    
    
    
    
    
    
    
    
    (212
    )Transfer to retained earnings
    
    
    31
    
    
    
    63
    
    
    
    (153
    )Balance December 31
    
    
    378
    
    
    
    347
    
    
    
    284Fiscal incentive investment reserveBalance January 1
    
    
    31
    
    
    
    
    
    
    
    23Transfer to capital stock
    
    
    (31
    )
    
    
    
    
    
    
    (23
    )Transfer from retained earnings
    
    
    15
    
    
    
    31
    
    
    
    Balance December 31
    
    
    15
    
    
    
    31
    
    
    
    -Total appropriated retained earnings
    
    
    4,143
    
    
    
    3,035
    
    
    
    2,230
 The purpose and basis of appropriation to such reserves is described below:  
    Unrealized income reserve  this represents principally our share of the earnings
of affiliates and joint ventures, not yet received in the form of cash dividends.
    Expansion reserve  this is a general reserve for expansion of our activities.  
    Legal reserve  this reserve is a requirement for all Brazilian corporations and
represents the appropriation of 5% of annual net income under Brazilian GAAP up to a limit
of 20% of capital stock under Brazilian GAAP.  
    Fiscal incentive depletion reserve  this represents an additional amount relative
to mineral reserve depletion equivalent to 20% of the sales price of mining production,
which is deductible for tax purposes providing an equivalent amount is transferred from
retained earnings to the reserve account. This fiscal incentive expired in 1996.  
    Fiscal incentive investment reserve  this reserve results from an option to
designate a portion of income tax otherwise payable for investment in government approved
projects and is recorded in the year following that in which the taxable income was
earned. As from 2000, this reserve also contemplates tax incentives (Note 8). F-24




---



##### Table of Contents



Basic and diluted earnings per shareBasic and diluted earnings per share amounts have been calculated as follows: Basic anddilutedper-shareIncome
    
    
    Thousand of
    
    
    amount(Numerator)
    
    
    Shares
    
    
    (US$ per(US$ million)
    
    
    (Denominator)
    
    
    share)Net 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
    
    
    
    1.34Net income for the year ended December 31, 2002
    
    
    680Income available to preferred stockholders
    
    
    239
    
    
    
    405,126
    
    
    
    0.59Income available to common stockholders
    
    
    441
    
    
    
    749,592
    
    
    
    0.59
  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 plan.The following information details the status of the defined benefit elements of the Old
Plan and supplementary pension plan (SPP) in accordance with SFAS 132  Employers
Disclosure about Pensions and Other Post-retirement Benefits, as amended. F-25




---



##### Table of Contents



(a)
    Change in benefit obligation As of December 312004
    
    
    2003Benefit obligation at beginning of year
    
    
    1,485
    
    
    
    1,476Service cost
    
    
    2
    
    
    
    2Interest cost
    
    
    188
    
    
    
    151Benefits paid
    
    
    (133
    )
    
    
    (128
    )Effect of exchange rate changes
    
    
    137
    
    
    
    20Actuarial loss
    
    
    40
    
    
    
    (36
    )Benefit obligation at end of year
    
    
    1,719
    
    
    
    1,485
  We use a measurement date of December 31 for our pension and post-retirement
benefit plans.  (b)
    Change in plan assets As of December 312004
    
    
    2003Fair value of plan assets at beginning of year
    
    
    1,657
    
    
    
    1,301Actual return on plan assets
    
    
    410
    
    
    
    436Employer contributions
    
    
    37
    
    
    
    31Benefits paid
    
    
    (133
    )
    
    
    (128
    )Effect of exchange rate changes
    
    
    137
    
    
    
    17Fair value of plan assets at end of year
    
    
    2,108
    
    
    
    1,657
  Old plan assets at December 31, 2004 include US$274 of portfolio investments in our own
shares (US$194 at December 31, 2003) and US$37 of shares of related parties (US$20 at December
31, 2003), as well as US$303 of Federal Government Securities (US$323 at December 31, 2003).Employer contributions expected for 2005 are US$ 16 (unaudited).(c)
    Accrued pension cost liability (prepaid pension cost) As of December 312004
    
    
    2003Funded status, excess of benefit obligation over plan assets
    
    
    (389
    )
    
    
    (172
    )Unrecognized net transitory obligation
    
    
    (51
    )
    
    
    (56
    )Unrecognized net actuarial loss
    
    
    459
    
    
    
    323Accrued pension cost liability (prepaid pension cost)
    
    
    19
    
    
    
    95
  (d)
    Assumptions used in each year (expressed in nominal terms) F-26




---



##### Table of Contents



2004
    
    
    2003Discount 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
    
    
    6.91% p.a
    
    
    
    6.91% p.aInflation
    
    
    5.00% p.a
    
    
    
    5.00% p.a
  (e)
    Investment targets and composition of plan assetsThe fair value of Old Plan assets for these plans is US$2,079 and US$1,637 at the end of
2004 and
2003, respectively. The asset allocation for the Companys Old Plan at the end of 2004
and 2003, and the target allocation for 2005, by asset category, follows. Target
    
    
    Percentage of plan assets atallocation
    
    
    December 31,Asset category
    
    for 2005
    
    
    2004
    
    
    2003(unaudited)Equity securities
    
    
    29
    %
    
    
    29
    %
    
    
    27
    %Real estate
    
    
    6
    %
    
    
    6
    %
    
    
    6
    %Loans
    
    
    3
    %
    
    
    3
    %
    
    
    2
    %Fixed Income
    
    
    62
    %
    
    
    62
    %
    
    
    65

    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  The fixed income allocation target of 59% was established in order to match the
asset with the benefit payments. The proposal for 2004 is an increase of up to 33% in
the investments in inflation-indexed funds. The remaining investments in fixed income
would be responsible for the payment of short-term plan benefits.The increase in the target allocation for equity securities is related to a 32% expected
return in the IBOVESPA (Brazilian stock index). This high return is due to an expected
increase of corporate profits, and a belief that Brazils risk will decrease, economic
activity will increase, and U.S. interest rates will remain low.(f)
    Pension costs Year ended December 312005(unaudited)
    
    
    2004
    
    
    2003Service cost
    
    
    2
    
    
    
    2
    
    
    
    2Interest cost
    
    
    220
    
    
    
    188
    
    
    
    151Estimated return on plan assets
    
    
    (274
    )
    
    
    (213
    )
    
    
    (158
    )Amortization of initial transitory obligation
    
    
    9
    
    
    
    9
    
    
    
    9Amortization of actuarial gain/loss
    
    
    (15
    )
    
    
    (24
    )
    
    
    Net periodic pension cost
    
    
    (58
    )
    
    
    (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$215 and US$198, at December 31, 2004 and 2003, respectively, plus US$37 and US$32,
respectively, in current liabilities.The cost recognized in the years 2004, 2003 and 2002 relative to the defined
contribution element of the New Plan was US$7, US$5 and US$5, respectively. F-27




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##### Table of Contents



18
    Commitments and contingencies(a)
    At December 31, 2004, we had extended guarantees for borrowings obtained by affiliates and
joint ventures in the amount of US$7, as follows: Amount of
    
    
    Denominated
    
    
    
    
    
    
    Final
    
    
    CounterAffiliate or Joint Venture
    
    guarantee
    
    
    currency
    
    
    Purpose
    
    
    maturity
    
    
    guaranteesSAMARCO
    
    
    6
    
    
    US$
    
    Debt guarantee
    
    
    2008
    
    
    NoneVALESUL
    
    
    1
    
    
    
    R$
    
    
    Debt guarantee
    
    
    2007
    
    
    None7
  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 made
against 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, 2004
    
    
    December 31, 2003Provision for
    
    
    Judicial
    
    
    Provision for
    
    
    Judicialcontingencies
    
    
    deposits
    
    
    contingencies
    
    
    depositsLabor claims
    
    
    221
    
    
    
    109
    
    
    
    177
    
    
    
    66Civil claims
    
    
    185
    
    
    
    72
    
    
    
    167
    
    
    
    54Tax  related actions
    
    
    502
    
    
    
    344
    
    
    
    285
    
    
    
    279Others
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    8914
    
    
    
    531
    
    
    
    635
    
    
    
    407
  Labor  related actions principally comprise employee claims for (i) payment of
time spent travelling 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 of the tax on checking accountant transactions  CPMF.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 2004, 2003 and 2002 aggregated US$67, US$182 and US$178,
respectively, and additional provisions aggregated US$157, US$146 and US$264,
respectively.In addition to the contingencies for which we have made provisions we have possible
losses F-28




---



##### Table of Contents



totaling US$727 at December 31, 2004, for which based on the advice of our legal counsel, no
provision is maintained.(c)
    We are defendants in two actions seeking substantial compensatory damages brought by
the Municipality of Itabira, State of Minas Gerais, which we believe are without merit.
Due to the remote likelihood that any loss will arise therefrom no provision has been
made in the financial statements with respect to these two actions.(d)
    We are committed under a take-or-pay agreement to purchase approximately 42,391
thousand metric tons of bauxite from Mineração Rio do Norte S.A.  MRN at a formula
price, calculated based on the current London Metal Exchange (LME) quotation for
aluminum. Based on a market price of US$ 20.45 per metric ton as of December 31, 2004,
this arrangement represents the following total commitment: 2005
    
    
    572006
    
    
    572007
    
    
    572008
    
    
    572009 and thereafter
    
    
    625853
  (e)
    We and BNDES entered into a contract, known as the Mineral Risk Contract, in
March 1997, relating to prospecting authorizations for mining regions where drilling and
exploration are still in their early stages. The Mineral Risk Contract provides for the
joint development of certain unexplored mineral deposits in approximately two million
identified hectares of land in the Carajás region, as well as proportional participation
in any financial benefits earned from the development of such resources. Iron ore and
manganese deposits already identified and subject to development are specifically
excluded from the Mineral Risk Contract.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, 2004, the
remaining contributions towards exploration and development activities totaled US$ 52
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 F-29




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##### Table of Contents



common or preferred shares. During 2002 we registered the debentures
with the Securities Commissions (CVM) in order to permit trading.Under Brazilian Central Bank regulations, pre-privatization shareholders that held their
shares through our preferred share American Depositary Receipt, or ADR, program and
institutional investors that held their shares through rule 1,298/87 of Brazilian
Central Bank were not permitted to receive the debentures or any financial benefits
relating to the debentures. We sought approval from the Central Bank to distribute the
debentures to these investors, but the Central Bank rejected our request. We renewed our
request to the Central Bank, but we cannot be sure that we will succeed. Therefore,
unless the Central Bank approves our request, the debentures will not have any value for
ADR holders and foreign investors through Annex V 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 referring
to copper resources in 2004 and expect to start payments referring to iron ore resources
in approximately 2020 for the Northern System and 2030 for the Southern System, and
payments related to other mineral resources at the end of the 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.Northern System
    
    Iron ore
    
    1.8% of net revenue, after total sales from May
1997 exceeds 1.2 billion tons.Pojuca, Andorinhas,
Liberdade and
Sossego
Igarapé Bahia and
Alemão
    
    Gold and
copper
Gold and
copper
    
    2.5% of net revenue from the beginning of
commercialization. 
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
Other areas owned
as of May 1997
    
    Gold
Other
minerals
    
    2.5% of net revenue. 
1% of net revenue, 4 years after the beginning
of the commercialization.All areas
    
    Sale of mineral
rights owned as
of May 1997
    
    1% of the sales price.
  We sold Fazenda Brasileiro in August 2003 and paid the corresponding amount of US$2 to
debenture holders in 2004.(g)
    We use various judgments and assumptions when measuring our environmental
liabilities and asset retirement obligations. Changes in circumstances, law or
technology may affect our estimates and we periodically review the amounts accrued and
adjust them as necessary. Our accruals do not reflect unasserted claims because we are currently not
aware of any such issues. Also the amounts provided are not reduced by any potential F-30




---



##### Table of Contents



recoveries under cost sharing, insurance or indemnification arrangements because such
recoveries are considered uncertain. The changes are demonstrated as follows: Year ended December 312004
    
    
    2003Environmental liabilities beginning of period
    
    
    81
    
    
    
    15Initial recognition of SFAS 143 as at January 1, 2003
    
    
    
    
    
    
    26Increase due to new subsidiaries acquired
    
    
    
    
    
    
    11Accretion expense
    
    
    13
    
    
    
    6Liabilities settled in the current period
    
    
    (3
    )
    
    
    Revisions in estimated cash flows
    
    
    31
    
    
    
    15Cumulative translation adjustment
    
    
    12
    
    
    
    8Environmental liabilities end of period
    
    
    134
    
    
    
    81
  Had SFAS 143 been applied prior to January 1, 2003, the pro forma asset retirement
obligation at December 31, 2003, would have been US$41.
Additionally, had SFAS 143 been
applied previously, net income for the year ended December 31, 2002 on a pro forma basis
would have been lower by US$8 (unaudited). Had SFAS 143 been applied in prior years the
impact on net income and earnings per share have been as follows: 2002Net income
    
    
    680Net income (pro forma  unaudited)
    
    
    672Basic and diluted earnings per Preferred Class A Share
    
    
    1.77Basic and diluted earnings per Common Share
    
    
    1.77Basic and diluted earnings per Preferred Class A Share (pro forma  unaudited)
    
    
    1.75Basic and diluted earnings per Common Share (pro forma  unaudited)
    
    
    1.75
  (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, 2004:Year ending December 31:


2005
    
    
    442006
    
    
    442007
    
    
    442008
    
    
    44Later years
    
    
    790Total minimum payments required
    
    
    966




| | The total expenses of operating leases in 2004 and 2003 was US$39 and US$37,
respectively.
| | ------------------------------------------------------------------------------------------

F-31



---



##### Table of Contents



19
    Segment and geographical informationIn 1999 we adopted SFAS 131 Disclosures about Segments of an Enterprise and Related
Information with respect to the information we present about our operating segments. SFAS
131 introduced a management approach concept for reporting segment information,
whereby such information is required to be reported on the basis that the chief
decision-maker uses internally for evaluating segment performance and deciding how to
allocate resources to segments. Our business segments are currently organized as
follows:Ferrous products  comprises iron ore mining and pellet production, as well as the Northern
and Southern transportation systems, including railroads, ports and terminals, as they pertain to
mining operations. Manganese mining and ferroalloys are also included in this segment.Non-ferrous products  comprises the production of non-ferrous minerals.Logistics  comprises our transportation systems as they pertain to the operation of our
ships, ports and railroads for third-party cargos.Holdings  divided into the following sub-groups:  
    Aluminum  comprises aluminum trading activities, alumina refining and investments
in joint ventures and affiliates engaged in bauxite mining and aluminum metal smelting.
    Steel  comprises our investments in joint ventures and affiliates operating in the steel industry.
    Others  comprises our investments in joint ventures and affiliates engaged in other businesses.  Information presented to 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-32




---



##### Table of Contents



Results by segment - before eliminations As of and for the year ended December 31,2004
    
    
    2003
    
    
    2002Holdings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Holdings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    HoldingsNon
    
    
    
    
    
    
    (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non
    
    
    
    
    
    
    (1)Ferrous
    
    
    ferrous
    
    
    Logistics
    
    
    Aluminum
    
    
    Others
    
    
    Eliminations
    
    
    Consolidated
    
    
    Ferrous
    
    
    ferrous
    
    
    Logistics
    
    
    Aluminum
    
    
    Others
    
    
    Eliminations
    
    
    Consolidated
    
    
    Ferrous
    
    
    ferrous
    
    
    Logistics
    
    
    Aluminum
    
    
    Others
    
    
    Eliminations
    
    
    ConsolidatedGross revenues  Export
    
    
    7,589
    
    
    
    521
    
    
    
    92
    
    
    
    1,635
    
    
    
    
    
    
    
    (3,725
    )
    
    
    6,112
    
    
    
    5,256
    
    
    
    105
    
    
    
    75
    
    
    
    758
    
    
    
    
    
    
    
    (2,354
    )
    
    
    3,840
    
    
    
    4,200
    
    
    
    143
    
    
    
    41
    
    
    
    387
    
    
    
    
    
    
    
    (1,843
    )
    
    
    2,928Gross revenues  Domestic
    
    
    1,424
    
    
    
    163
    
    
    
    871
    
    
    
    227
    
    
    
    
    
    
    
    (318
    )
    
    
    2,367
    
    
    
    1,142
    
    
    
    107
    
    
    
    472
    
    
    
    165
    
    
    
    
    
    
    
    (181
    )
    
    
    1,705
    
    
    
    996
    
    
    
    96
    
    
    
    374
    
    
    
    75
    
    
    
    3
    
    
    
    (190
    )
    
    
    1,354Cost and expenses
    
    
    (6,499
    )
    
    
    (556
    )
    
    
    (622
    )
    
    
    (1,322
    )
    
    
    (1
    )
    
    
    4,043
    
    
    
    (4,957
    )
    
    
    (4,882
    )
    
    
    (192
    )
    
    
    (367
    )
    
    
    (760
    )
    
    
    3
    
    
    
    2,535
    
    
    
    (3,663
    )
    
    
    (3,782
    )
    
    
    (226
    )
    
    
    (245
    )
    
    
    (426
    )
    
    
    7
    
    
    
    2,033
    
    
    
    (2,639
    )Depreciation, depletion and amortization
    
    
    (301
    )
    
    
    (35
    )
    
    
    (29
    )
    
    
    (34
    )
    
    
    
    
    
    
    
    
    
    
    (399
    )
    
    
    (191
    )
    
    
    (18
    )
    
    
    (14
    )
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    (238
    )
    
    
    (170
    )
    
    
    (25
    )
    
    
    (14
    )
    
    
    (4
    )
    
    
    (1
    )
    
    
    
    
    
    
    (214
    )Operating income
    
    
    2,213
    
    
    
    93
    
    
    
    312
    
    
    
    506
    
    
    
    (1
    )
    
    
    
    
    
    
    3,123
    
    
    
    1,325
    
    
    
    2
    
    
    
    166
    
    
    
    148
    
    
    
    3
    
    
    
    
    
    
    
    1,644
    
    
    
    1,244
    
    
    
    (12
    )
    
    
    156
    
    
    
    32
    
    
    
    9
    
    
    
    
    
    
    
    1,429Financial income
    
    
    251
    
    
    
    2
    
    
    
    15
    
    
    
    16
    
    
    
    3
    
    
    
    (205
    )
    
    
    82
    
    
    
    195
    
    
    
    1
    
    
    
    14
    
    
    
    10
    
    
    
    4
    
    
    
    (122
    )
    
    
    102
    
    
    
    193
    
    
    
    1
    
    
    
    11
    
    
    
    11
    
    
    
    4
    
    
    
    (93
    )
    
    
    127Financial expenses
    
    
    (637
    )
    
    
    (6
    )
    
    
    (15
    )
    
    
    (218
    )
    
    
    
    
    
    
    205
    
    
    
    (671
    )
    
    
    (406
    )
    
    
    (4
    )
    
    
    (9
    )
    
    
    (49
    )
    
    
    (5
    )
    
    
    122
    
    
    
    (351
    )
    
    
    (433
    )
    
    
    (6
    )
    
    
    (5
    )
    
    
    (15
    )
    
    
    (9
    )
    
    
    93
    
    
    
    (375
    )Foreign exchange and monetary gains
(losses), net
    
    
    20
    
    
    
    5
    
    
    
    (1
    )
    
    
    39
    
    
    
    2
    
    
    
    
    
    
    
    65
    
    
    
    150
    
    
    
    16
    
    
    
    (14
    )
    
    
    93
    
    
    
    (3
    )
    
    
    
    
    
    
    242
    
    
    
    (442
    )
    
    
    (36
    )
    
    
    (18
    )
    
    
    (85
    )
    
    
    1
    
    
    
    
    
    
    
    (580
    )Gain on sale of investments
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    396
    
    
    
    
    
    
    
    404
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity in results of affiliates and
joint ventures and
change in provision for losses on equity investments
    
    
    170
    
    
    
    
    
    
    
    33
    
    
    
    71
    
    
    
    268
    
    
    
    
    
    
    
    542
    
    
    
    133
    
    
    
    
    
    
    
    (52
    )
    
    
    147
    
    
    
    78
    
    
    
    
    
    
    
    306
    
    
    
    (66
    )
    
    
    
    
    
    
    (88
    )
    
    
    39
    
    
    
    28
    
    
    
    
    
    
    
    (87
    )Income taxes
    
    
    (726
    )
    
    
    (7
    )
    
    
    (9
    )
    
    
    (4
    )
    
    
    (3
    )
    
    
    
    
    
    
    (749
    )
    
    
    (266
    )
    
    
    (3
    )
    
    
    (2
    )
    
    
    (27
    )
    
    
    1
    
    
    
    
    
    
    
    (297
    )
    
    
    145
    
    
    
    
    
    
    
    (8
    )
    
    
    22
    
    
    
    (10
    )
    
    
    
    
    
    
    149Minority interests
    
    
    (101
    )
    
    
    (2
    )
    
    
    
    
    
    
    (120
    )
    
    
    
    
    
    
    
    
    
    
    (223
    )
    
    
    (44
    )
    
    
    (3
    )
    
    
    
    
    
    
    (58
    )
    
    
    
    
    
    
    
    
    
    
    (105
    )
    
    
    2
    
    
    
    (6
    )
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    17Income from continuing operations
    
    
    1,190
    
    
    
    85
    
    
    
    343
    
    
    
    290
    
    
    
    665
    
    
    
    
    
    
    
    2,573
    
    
    
    1,104
    
    
    
    9
    
    
    
    103
    
    
    
    264
    
    
    
    78
    
    
    
    
    
    
    
    1,558
    
    
    
    643
    
    
    
    (59
    )
    
    
    48
    
    
    
    25
    
    
    
    23
    
    
    
    
    
    
    
    680Change in accounting practice for asset
retirement
obligations (note 4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    1,190
    
    
    
    85
    
    
    
    343
    
    
    
    290
    
    
    
    665
    
    
    
    
    
    
    
    2,573
    
    
    
    1,094
    
    
    
    9
    
    
    
    103
    
    
    
    264
    
    
    
    78
    
    
    
    
    
    
    
    1,548
    
    
    
    643
    
    
    
    (59
    )
    
    
    48
    
    
    
    25
    
    
    
    23
    
    
    
    
    
    
    
    680Sales classified by geographic
destination:Export marketAmerica, except United States
    
    
    735
    
    
    
    1
    
    
    
    65
    
    
    
    221
    
    
    
    
    
    
    
    (426
    )
    
    
    596
    
    
    
    526
    
    
    
    
    
    
    
    38
    
    
    
    156
    
    
    
    
    
    
    
    (329
    )
    
    
    391
    
    
    
    392
    
    
    
    
    
    
    
    25
    
    
    
    27
    
    
    
    
    
    
    
    (207
    )
    
    
    237United States
    
    
    533
    
    
    
    
    
    
    
    15
    
    
    
    186
    
    
    
    
    
    
    
    (345
    )
    
    
    389
    
    
    
    337
    
    
    
    8
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    (188
    )
    
    
    189
    
    
    
    340
    
    
    
    35
    
    
    
    3
    
    
    
    10
    
    
    
    
    
    
    
    (190
    )
    
    
    198Europe
    
    
    3,223
    
    
    
    194
    
    
    
    12
    
    
    
    730
    
    
    
    
    
    
    
    (1,607
    )
    
    
    2,552
    
    
    
    2,213
    
    
    
    76
    
    
    
    30
    
    
    
    378
    
    
    
    
    
    
    
    (913
    )
    
    
    1,784
    
    
    
    1,799
    
    
    
    100
    
    
    
    9
    
    
    
    318
    
    
    
    
    
    
    
    (734
    )
    
    
    1,492Middle East/Africa/Oceania
    
    
    412
    
    
    
    107
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    (141
    )
    
    
    386
    
    
    
    292
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    (70
    )
    
    
    226
    
    
    
    239
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46
    )
    
    
    193Japan
    
    
    683
    
    
    
    31
    
    
    
    
    
    
    
    361
    
    
    
    
    
    
    
    (287
    )
    
    
    788
    
    
    
    569
    
    
    
    13
    
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    (259
    )
    
    
    419
    
    
    
    488
    
    
    
    3
    
    
    
    1
    
    
    
    11
    
    
    
    
    
    
    
    (228
    )
    
    
    275China
    
    
    1,392
    
    
    
    81
    
    
    
    
    
    
    
    129
    
    
    
    
    
    
    
    (606
    )
    
    
    996
    
    
    
    897
    
    
    
    7
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    (401
    )
    
    
    580
    
    
    
    574
    
    
    
    4
    
    
    
    1
    
    
    
    21
    
    
    
    
    
    
    
    (270
    )
    
    
    330Asia, other than Japan and China
    
    
    611
    
    
    
    107
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (313
    )
    
    
    405
    
    
    
    422
    
    
    
    1
    
    
    
    3
    
    
    
    19
    
    
    
    
    
    
    
    (194
    )
    
    
    251
    
    
    
    368
    
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    (168
    )
    
    
    2037,589
    
    
    
    521
    
    
    
    92
    
    
    
    1,635
    
    
    
    
    
    
    
    (3,725
    )
    
    
    6,112
    
    
    
    5,256
    
    
    
    105
    
    
    
    75
    
    
    
    758
    
    
    
    
    
    
    
    (2,354
    )
    
    
    3,840
    
    
    
    4,200
    
    
    
    143
    
    
    
    41
    
    
    
    387
    
    
    
    
    
    
    
    (1,843
    )
    
    
    2,928Domestic market
    
    
    1,424
    
    
    
    163
    
    
    
    871
    
    
    
    227
    
    
    
    
    
    
    
    (318
    )
    
    
    2,367
    
    
    
    1,142
    
    
    
    107
    
    
    
    472
    
    
    
    165
    
    
    
    
    
    
    
    (181
    )
    
    
    1,705
    
    
    
    996
    
    
    
    96
    
    
    
    374
    
    
    
    75
    
    
    
    3
    
    
    
    (190
    )
    
    
    1,3549,013
    
    
    
    684
    
    
    
    963
    
    
    
    1,862
    
    
    
    
    
    
    
    (4,043
    )
    
    
    8,479
    
    
    
    6,398
    
    
    
    212
    
    
    
    547
    
    
    
    923
    
    
    
    
    
    
    
    (2,535
    )
    
    
    5,545
    
    
    
    5,196
    
    
    
    239
    
    
    
    415
    
    
    
    462
    
    
    
    3
    
    
    
    (2,033
    )
    
    
    4,282Assets:Property, plant and equipment, net
    
    
    5,838
    
    
    
    1,448
    
    
    
    674
    
    
    
    1,102
    
    
    
    1
    
    
    
    
    
    
    
    9,063
    
    
    
    4,495
    
    
    
    1,000
    
    
    
    424
    
    
    
    564
    
    
    
    1
    
    
    
    
    
    
    
    6,484
    
    
    
    2,346
    
    
    
    400
    
    
    
    144
    
    
    
    383
    
    
    
    24
    
    
    
    
    
    
    
    3,297Additions to Property, plant and
equipment
    
    
    860
    
    
    
    381
    
    
    
    579
    
    
    
    202
    
    
    
    
    
    
    
    
    
    
    
    2,022
    
    
    
    822
    
    
    
    440
    
    
    
    186
    
    
    
    95
    
    
    
    
    
    
    
    
    
    
    
    1,543
    
    
    
    524
    
    
    
    132
    
    
    
    33
    
    
    
    63
    
    
    
    14
    
    
    
    
    
    
    
    766Investments in affiliated companies and joint ventures
and other investments, net of provision
for losses
    
    
    435
    
    
    
    
    
    
    
    79
    
    
    
    226
    
    
    
    419
    
    
    
    
    
    
    
    1,159
    
    
    
    344
    
    
    
    
    
    
    
    44
    
    
    
    329
    
    
    
    317
    
    
    
    
    
    
    
    1,034
    
    
    
    350
    
    
    
    
    
    
    
    (10
    )
    
    
    200
    
    
    
    192
    
    
    
    
    
    
    
    732Capital employed
    
    
    4,544
    
    
    
    1,099
    
    
    
    680
    
    
    
    976
    
    
    
    27
    
    
    
    
    
    
    
    7,326
    
    
    
    4,137
    
    
    
    266
    
    
    
    429
    
    
    
    498
    
    
    
    20
    
    
    
    
    
    
    
    5,350
    
    
    
    2,364
    
    
    
    119
    
    
    
    161
    
    
    
    209
    
    
    
    24
    
    
    
    
    
    
    
    2,877
   (1)
    
    Control of Alunorte was acquired and
consolidated from June 2002.(2)
    
    Albras was
consolidated as from January 1, 2004 (note
4(b)). F-33




---



##### Table of Contents



Operating income by product  after eliminations Year ended December 31,2004
    
    
    2003
    
    
    2002Impairment/
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment/
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment/Gain on sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain on sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain on saleRevenues
    
    
    Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    of property,
    
    
    Depreciation,
    
    
    
    
    
    
    Revenues
    
    
    Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    of property,
    
    
    Depreciation,
    
    
    
    
    
    
    Revenues
    
    
    Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    of property,
    
    
    Depreciation,added
    
    
    Net
    
    
    Cost and
    
    
    
    
    
    
    plant and
    
    
    depletion and
    
    
    Operating
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    added
    
    
    Net
    
    
    Cost and
    
    
    
    
    
    
    plant and
    
    
    depletion and
    
    
    Operating
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    added
    
    
    Net
    
    
    Cost and
    
    
    
    
    
    
    plant and
    
    
    depletion and
    
    
    OperatingExport
    
    
    Domestic
    
    
    Total
    
    
    tax
    
    
    revenues
    
    
    expenses
    
    
    Net
    
    
    equipment
    
    
    amortization
    
    
    income
    
    
    Export
    
    
    Domestic
    
    
    Total
    
    
    tax
    
    
    revenues
    
    
    expenses
    
    
    Net
    
    
    equipment
    
    
    amortization
    
    
    income
    
    
    Export
    
    
    Domestic
    
    
    Total
    
    
    tax
    
    
    revenues
    
    
    expenses
    
    
    Net
    
    
    equipment
    
    
    amortization
    
    
    incomeFerrousIron ore
    
    
    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
    )
    
    
    (105
    )
    
    
    1,164
    
    
    
    1,642
    
    
    
    505
    
    
    
    2,147
    
    
    
    (63
    )
    
    
    2,084
    
    
    
    (915
    )
    
    
    1,169
    
    
    
    
    
    
    
    (87
    )
    
    
    1,082Pellets
    
    
    893
    
    
    
    255
    

    
    
    1,148
    
    
    
    (44
    )
    
    
    1,104
    
    
    
    (824
    )
    
    
    280
    
    
    
    
    
    
    
    (12
    )
    
    
    268
    
    
    
    627
    
    
    
    211
    
    
    
    838
    
    
    
    (19
    )
    
    
    819
    
    
    
    (627
    )
    
    
    192
    
    
    
    (12
    )
    
    
    (11
    )
    
    
    169
    
    
    
    530
    
    
    
    143
    
    
    
    673
    
    
    
    (19
    )
    
    
    654
    
    
    
    (548
    )
    
    
    106
    
    
    
    
    
    
    
    (5
    )
    
    
    101Manganese
    
    
    61
    
    
    
    15
    
    
    
    76
    
    
    
    (4
    )
    
    
    72
    
    
    
    (46
    )
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    38
    
    
    
    11
    
    
    
    49
    
    
    
    (5
    )
    
    
    44
    
    
    
    (35
    )
    
    
    9
    
    
    
    
    
    
    
    (2
    )
    
    
    7
    
    
    
    24
    
    
    
    12
    
    
    
    36
    
    
    
    (5
    )
    
    
    31
    
    
    
    (20
    )
    
    
    11
    
    
    
    
    
    
    
    (6
    )
    
    
    5Ferroalloys
    
    
    423
    
    
    
    202
    
    
    
    625
    
    
    
    (52
    )
    
    
    573
    
    
    
    (315
    )
    
    
    258
    
    
    
    
    
    
    
    (15
    )
    
    
    243
    
    
    
    201
    
    
    
    99
    
    
    
    300
    
    
    
    (21
    )
    
    
    279
    
    
    
    (218
    )
    
    
    61
    
    
    
    (17
    )
    
    
    (10
    )
    
    
    34
    
    
    
    176
    
    
    
    71
    
    
    
    247
    
    
    
    (14
    )
    
    
    233
    
    
    
    (169
    )
    
    
    64
    
    
    
    
    
    
    
    (5
    )
    
    
    594,523
    
    
    
    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
    )
    
    
    (128
    )
    
    
    1,374
    
    
    
    2,372
    
    
    
    731
    
    
    
    3,103
    
    
    
    (101
    )
    
    
    3,002
    
    
    
    (1,652
    )
    
    
    1,350
    
    
    
    
    
    
    
    (103
    )
    
    
    1,247Non ferrousGold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    21
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    21
    
    
    
    (2
    )
    
    
    19
    
    
    
    
    
    
    
    (2
    )
    
    
    17
    
    
    
    103
    
    
    
    
    
    
    
    103
    
    
    
    
    
    
    
    103
    
    
    
    (86
    )
    
    
    17
    
    
    
    (35
    )
    
    
    (15
    )
    
    
    (33
    )Potash
    
    
    
    
    
    
    124
    
    
    
    124
    
    
    
    (15
    )
    
    
    109
    
    
    
    (51
    )
    
    
    58
    
    
    
    
    
    
    
    (5
    )
    
    
    53
    
    
    
    
    
    
    
    94
    
    
    
    94
    
    
    
    (12
    )
    
    
    82
    
    
    
    (40
    )
    
    
    42
    
    
    
    
    
    
    
    (7
    )
    
    
    35
    
    
    
    
    
    
    
    91
    
    
    
    91
    
    
    
    (12
    )
    
    
    79
    
    
    
    (43
    )
    
    
    36
    
    
    
    
    
    
    
    (4
    )
    
    
    32Kaolin
    
    
    142
    
    
    
    22
    
    
    
    164
    
    
    
    (6
    )
    
    
    158
    
    
    
    (93
    )
    
    
    65
    
    
    
    
    
    
    
    (14
    )
    
    
    51
    
    
    
    83
    
    
    
    13
    
    
    
    96
    
    
    
    (3
    )
    
    
    93
    
    
    
    (70
    )
    
    
    23
    
    
    
    (12
    )
    
    
    (7
    )
    
    
    4
    
    
    
    40
    
    
    
    5
    
    
    
    45
    
    
    
    (1
    )
    
    
    44
    
    
    
    (27
    )
    
    
    17
    
    
    
    
    
    
    
    (2
    )
    
    
    15Copper
    
    
    184
    
    
    
    17
    
    
    
    201
    
    
    
    (3
    )
    
    
    198
    
    
    
    (90
    )
    
    
    108
    
    
    
    
    
    
    
    (16
    )
    

    
    92
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    326
    
    
    
    163
    
    
    
    489
    
    
    
    (24
    )
    
    
    465
    
    
    
    (236
    )
    
    
    229
    
    
    
    
    
    
    
    (35
    )
    
    
    194
    
    
    
    104
    
    
    
    107
    
    
    
    211
    
    
    
    (15
    )
    
    
    196
    
    
    
    (112
    )
    
    
    84
    
    
    
    (12
    )
    
    
    (16
    )
    
    
    56
    
    
    
    143
    
    
    
    96
    
    
    
    239
    
    
    
    (13
    )
    
    
    226
    
    
    
    (156
    )
    
    
    70
    
    
    
    (35
    )
    
    
    (21
    )
    
    
    14AluminumAlumina
    
    
    439
    
    
    
    19
    
    
    
    458
    
    
    
    (18
    )
    
    
    440
    
    
    
    (350
    )
    
    
    90
    
    
    
    
    
    
    
    (19
    )
    
    
    71
    
    
    
    342
    
    
    
    153
    
    
    
    495
    
    
    
    (8
    )
    
    
    487
    
    
    
    (363
    )
    
    
    124
    
    
    
    
    
    
    
    (15
    )
    
    
    109
    
    
    
    85
    
    
    
    74
    
    
    
    159
    
    
    
    (4
    )
    
    
    155
    
    
    
    (119
    )
    
    
    36
    
    
    
    
    
    
    
    (4
    )
    
    
    32Aluminum
    
    
    710
    
    
    
    29
    
    
    
    739
    
    
    
    (3
    )
    
    
    736
    
    
    
    (286
    )
    
    
    450
    
    
    
    
    
    
    
    (15
    )
    
    
    435
    
    
    
    312
    
    
    
    8
    
    
    
    320
    
    
    
    
    
    
    
    320
    
    
    
    (295
    )
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    279
    
    
    
    1
    
    
    
    280
    
    
    
    
    
    
    
    280
    
    
    
    (254
    )
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    26Bauxite
    
    
    53
    
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    53
    
    
    
    (48
    )
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    34
    
    
    
    3
    
    
    
    37
    
    
    
    (1
    )
    
    
    36
    
    
    
    (33
    )
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    23
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    23
    
    
    
    (22
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    11,202
    
    
    
    48
    
    
    
    1,250
    
    
    
    (21
    )
    
    
    1,229
    
    
    
    (684
    )
    
    
    545
    
    
    
    
    
    
    
    (34
    )
    
    
    511
    
    
    
    688
    
    
    
    164
    
    
    
    852
    
    
    
    (9
    )
    
    
    843
    
    
    
    (691
    )
    
    
    152
    
    
    
    
    
    
    
    (15
    )
    
    
    137
    
    
    
    387
    
    
    
    75
    
    
    
    462
    
    
    
    (4
    )
    
    
    458
    
    
    
    (395
    )
    
    
    63
    
    
    
    
    
    
    
    (4
    )
    
    
    59LogisticsRailroads
    
    
    
    
    
    
    612
    
    
    
    612
    
    
    
    (100
    )
    
    
    512
    
    
    
    (334
    )
    
    
    178
    
    
    
    
    
    
    
    (28
    )
    
    
    150
    
    
    
    
    
    
    
    373
    
    
    
    373
    
    
    
    (39
    )
    
    
    334
    
    
    
    (153
    )
    
    
    181
    
    
    
    
    
    
    
    (70
    )
    
    
    111
    
    
    
    
    
    
    
    286
    
    
    
    286
    
    
    
    (27
    )
    
    
    259
    
    
    
    (55
    )
    
    
    204
    
    
    
    (4
    )
    
    
    (72
    )
    
    
    128Ports
    
    
    
    
    
    
    173
    
    
    
    173
    
    
    
    (29
    )
    
    
    144
    
    
    
    (89
    )
    
    
    55
    
    
    
    
    
    
    
    (4
    )
    
    
    51
    
    
    
    1
    
    
    
    143
    
    
    
    144
    
    
    
    (14
    )
    
    
    130
    
    
    
    (75
    )
    
    
    55
    
    
    
    
    
    
    
    (9
    )
    
    
    46
    
    
    
    
    
    
    
    107
    
    
    
    107
    
    
    
    (11
    )
    
    
    96
    
    
    
    (67
    )
    
    
    29
    
    
    
    
    
    
    
    (7
    )
    
    
    22Ships
    
    
    52
    
    
    
    40
    
    
    
    92
    
    
    
    (7
    )
    
    
    85
    
    
    
    (123
    )
    
    
    (38
    )
    
    
    
    
    
    
    (1
    )
    
    
    (39
    )
    
    
    54
    
    
    
    33
    
    
    
    87
    
    
    
    (3
    )
    
    
    84
    
    
    
    (122
    )
    
    
    (38
    )
    
    
    
    
    
    
    
    
    
    
    (38
    )
    
    
    26
    
    
    
    39
    
    
    
    65
    
    
    
    (3
    )
    
    
    62
    
    
    
    (69
    )
    
    
    (7
    )
    
    
    (7
    )
    
    
    (6
    )
    
    
    (20
    )52
    
    
    
    825
    
    
    
    877
    
    
    
    (136
    )
    
    
    741
    
    
    
    (546
    )
    
    
    195
    
    
    
    
    
    
    
    (33
    )
    
    
    162
    
    
    
    55
    
    
    
    549
    
    
    
    604
    
    
    
    (56
    )
    
    
    548
    
    
    
    (350
    )
    
    
    198
    
    
    
    
    
    
    
    (79
    )
    
    
    119
    
    
    
    26
    
    
    
    432
    
    
    
    458
    
    
    
    (41
    )
    
    
    417
    
    
    
    (191
    )
    
    
    226
    
    
    
    (11
    )
    
    
    (85
    )
    
    
    130Others
    
    
    10
    
    
    
    9
    
    
    
    19
    
    
    
    (4
    )
    
    
    15
    
    
    
    (132
    )
    
    
    (117
    )
    
    
    
    
    
    
    
    
    
    
    (117
    )
    
    
    19
    
    
    
    10
    
    
    
    29
    
    
    
    (5
    )
    
    
    24
    
    
    
    (66
    )
    
    
    (42
    )
    
    
    
    
    
    
    
    
    
    
    (42
    )
    
    
    
    
    
    
    20
    
    
    
    20
    
    
    
    
    
    
    
    20
    
    
    
    (40
    )
    
    
    (20
    )
    
    
    
    
    
    
    (1
    )
    
    
    (21
    )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
    
    
    
    2,928
    
    
    
    1,354
    
    
    
    4,282
    
    
    
    (159
    )
    
    
    4,123
    
    
    
    (2,434
    )
    
    
    1,689
    
    
    
    (46
    )
    
    
    (214
    )
    
    
    1,429
 F-34




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##### Table of Contents



20
    Related party transactionsTransactions with major related parties resulted in the following balances: As of December 312004
    
    
    2003Assets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesAFFILIATED COMPANIES AND JOINT VENTURESHISPANOBRAS
    
    
    25
    
    
    
    39
    
    
    
    18
    
    
    
    29ITABRASCO
    
    
    24
    
    
    
    28
    
    
    
    16
    
    
    
    17NIBRASCO
    
    
    32
    
    
    
    29
    
    
    
    36
    
    
    
    25KOBRASCO
    
    
    43
    
    
    
    18
    
    
    
    51
    
    
    
    14CST
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    USIMINAS
    
    
    7
    
    
    
    
    
    
    
    7
    
    
    
    MSG
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    17MRS
    
    
    13
    
    
    
    19
    
    
    
    2
    
    
    
    8FERROBAN
    
    
    39
    
    
    
    8
    
    
    
    1
    
    
    
    4MRN
    
    
    1
    
    
    
    20
    
    
    
    3
    
    
    
    20SAMARCO
    
    
    22
    
    
    
    
    
    
    
    1
    
    
    
    ALBRAS
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    95Others
    
    
    29
    
    
    
    31
    
    
    
    30
    
    
    
    38235
    
    
    
    192
    
    
    
    211
    
    
    
    267Current
    
    
    180
    
    
    
    174
    
    
    
    171
    
    
    
    263Long-term
    
    
    55
    
    
    
    18
    
    
    
    40
    
    
    
    4
  These balances are included in the following balance sheet classifications: As of December 312004
    
    
    2003Assets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesCurrent assetsAccounts receivable
    
    
    124
    
    
    
    
    
    
    
    115
    
    
    
    Loans and advances to related parties
    
    
    56
    
    
    
    
    
    
    
    56
    
    
    
    Other assetsLoans and advances to related parties
    
    
    55
    
    
    
    
    
    
    
    40
    
    
    
    Current liabilitiesSuppliers
    
    
    
    
    
    
    122
    
    
    
    
    
    
    
    144Loans from related parties
    
    
    
    
    
    
    52
    
    
    
    
    
    
    
    119Long-term liabilitiesLong-term debt
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    4235
    
    
    
    192
    
    
    
    211
    
    
    
    267
 F - 35




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##### Table of Contents



The principal amounts of business and financial operations carried out with major
related parties are as follows: Year ended December 312004
    
    
    2003
    
    
    2002Income
    
    
    Expense
    
    
    Income
    
    
    Expense
    
    
    Income
    
    
    ExpenseAFFILIATED
COMPANIES AND JOINT VENTURESCST
    
    
    251
    
    
    
    
    
    
    
    136
    
    
    
    
    
    
    
    152
    
    
    
    NIBRASCO
    
    
    147
    
    
    
    3
    
    
    
    116
    
    
    
    133
    
    
    
    146
    
    
    
    150ALUNORTE (to June 2002)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    SIDERAR
    
    
    86
    
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    35
    
    
    
    ITABRASCO
    
    
    84
    
    
    
    1
    
    
    
    61
    
    
    
    20
    
    
    
    74
    
    
    
    53HISPANOBRAS
    
    
    97
    
    
    
    
    
    
    
    66
    
    
    
    69
    
    
    
    77
    
    
    
    77KOBRASCO
    
    
    92
    
    
    
    2
    
    
    
    62
    
    
    
    57
    
    
    
    84
    
    
    
    46USIMINAS
    
    
    109
    
    
    
    
    
    
    
    79
    
    
    
    
    
    
    
    76
    
    
    
    ALBRAS (to December 2003)
    
    
    
    
    
    
    
    
    
    
    149
    
    
    
    286
    
    
    
    73
    
    
    
    265VALESUL
    
    
    16
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    7
    
    
    
    1MRN
    
    
    
    
    
    
    154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56Others
    
    
    105
    
    
    
    213
    
    
    
    55
    
    
    
    176
    
    
    
    79
    
    
    
    94BRAZILIAN FEDERAL GOVERNMENTBanco do Brasil S.A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    BNDES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2987
    
    
    
    373
    
    
    
    787
    
    
    
    741
    
    
    
    812
    
    
    
    744
  These amounts are included in the following statement of income classifications: 2005
    
    
    1512006
    
    
    1512007
    
    
    1512008
    
    
    1512009 and thereafter
    
    
    1,6592,263
  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,
2004 and 2003 is estimated as follows: As of December 312004
    
    
    2003Fair market value
    
    
    3,355
    
    
    
    2,839Carrying value
    
    
    3,214
    
    
    
    2,767
  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 - 36




---



##### 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 use derivatives for speculation
purposes.We monitor and evaluate our derivative positions on a regular basis and adjust our strategy
in response to market conditions. We also periodically review the credit limits and credit
worthiness of our counter-parties in these transactions. In view of the policies and
practices established for operations with derivatives, management considers the occurrence
of non-measurable risk situations as unlikely.The asset (liability) balances and the movement in fair value of derivative financial
instruments are as follows: InterestratesGold
    
    
    (LIBOR)
    
    
    Currencies
    
    
    Alumina
    
    
    Aluminum
    
    
    TotalUnrealized gains (losses) at January
1, 2004
    
    
    (32
    )
    
    
    (46
    )
    
    
    5
    
    
    
    (18
    )
    
    
    
    
    
    
    (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 gains (losses) at December
31, 2004
    
    
    (37
    )
    
    
    (17
    )
    
    
    4
    
    
    
    (55
    )
    
    
    (127
    )
    
    
    (232
    )Unrealized gains (losses) at January
1, 2003
    
    
    (15
    )
    
    
    (60
    )
    
    
    (1
    )
    
    
    3
    
    
    
    
    
    
    
    (73
    )Financial settlement
    
    
    8
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38Unrealized gains (losses) in the period
    
    
    (24
    )
    
    
    (3
    )
    
    
    6
    
    
    
    (22
    )
    
    
    
    
    
    
    (43
    )Effect of exchange rate changes
    
    
    (1
    )
    
    
    (13
    )
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (13
    )Unrealized gains (losses) at December
31, 2003
    
    
    (32
    )
    
    
    (46
    )
    
    
    5
    
    
    
    (18
    )
    
    
    
    
    
    
    (91
    )Unrealized gains (losses) at January
1, 2002
    
    
    7
    
    
    
    (36
    )
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    (33
    )Gain recognized upon consolidation of
Alunorte
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Financial settlement
    
    
    (2
    )
    
    
    21
    
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    23Unrealized gains (losses) in the period
    
    
    (22
    )
    
    
    (60
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (83
    )Effect of exchange rate changes
    
    
    2
    
    
    
    15
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    18Unrealized gains (losses) at December
31, 2002
    
    
    (15
    )
    
    
    (60
    )
    
    
    (1
    )
    
    
    3
    
    
    
    
    
    
    
    (73
    )
  Unrealized gains (losses) in the period are included in our income statement under the
financial expenses:Final maturity dates for the above instruments are as follows: Gold
    
    Dec 2008Interest rates (LIBOR)
    
    Oct 2007Currencies
    
    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 protect ourselves against
fluctuations in the LIBOR rate.There is an exchange rate risk associated with our foreign currency denominated debt. On F - 37




---



##### Table of Contents



the other hand, the majority of our revenues is denominated in, or automatically indexed
to, the U.S. dollar, while the majority of our costs is denominated in Reais. This provides
a natural hedge against any devaluation of the Brazilian real against the U.S. dollar. When
events of this nature occur, the immediate negative impact on foreign currency denominated
debt is offset over time by the positive effect of devaluation on future cash flows.With the floating exchange rate regime in Brazil, we adopt a strategy of monitoring market
fluctuations, using derivatives to protect against specific risks from exchange rate
variation.From time to time we enter into foreign exchange derivative swap transactions seeking to
change the characteristics of our real-denominated cash investments to US dollar-indexed
instruments. The extent of such transactions depends on our perception of market and
currency risk, but is never speculative in nature. All such operations are marked-to-market
at each balance sheet date and the effect included in financial income
or expense. During the periods presented our use of such instruments was not significant.(b)
    Commodity Price RiskWe also use derivative instruments to manage exposure to changing gold prices and to ensure
an average minimum profit level for future and alumina production. However, they may also
have the effect of eliminating potential gains on certain price increases in the spot
market. We manage our contract positions actively, and the results are reviewed at least
monthly, allowing adjustments to targets and strategy to be made in response to changing
market conditions.In the case of gold and alumina derivatives, our policy has been to settle all contracts
through cash payments or receipts, without physical delivery of product. F - 38




---



##### Table of Contents



23
    Information about independent auditorsOur consolidated financial statements are audited by PricewaterhouseCoopers Auditores
Independentes. The financial statements of certain of our subsidiaries and affiliates have
been audited by independent auditors other than PricewaterhouseCoopers Auditores
Independentes as described below, and, as mentioned in their report, PricewaterhouseCoopers
Auditores Independentes has relied on such audits when expressing their opinion on our
consolidated financial statements.The following entities prepare financial statements accordance with US GAAP which are
audited in accordance with auditing standards generally accept in the United States of
America: Auditors
    
    Years Audited
    
    City
    
    State
    
    CountryAlumina do Norte do Brasil S.A.  ALUNORTE
    
    Trevisan
    
    2003
    
    RJ
    
    RJ
    
    BrazilAlumina do Norte do Brasil S.A.  ALUNORTE
    
    Deloitte
    
    2002
    
    RJ
    
    RJ
    
    BrazilAlumínio Brasileiro S.A.  ALBRAS (1)
    
    Trevisan
    
    2003
    
    RJ
    
    RJ
    
    BrazilOrangeCalifornia Steel Industries, Inc.
    
    KPMG LLP
    
    2002
    
    County
    
    CA
    
    USACompanhia Nipo-Brasileira de Pelotização  NIBRASCO
    
    Deloitte
    
    2003, 2002
    
    RJ
    
    RJ
    
    BrazilCompanhia Coreano Brasileira de Pelotização  KOBRASCO
    
    Deloitte
    
    2003, 2002
    
    Vitória
    
    ES
    
    BrazilCompanhia Hispano-Brasileira de Pelotização  HISPANOBRAS
    
    Deloitte
    
    2003, 2002
    
    Vitória
    
    ES
    
    BrazilCompanhia ¥talo-Brasileira de Pelotização  ITABRASCO
    
    Deloitte
    
    2003, 2002
    
    Vitória
    
    ES
    
    BrazilMineração Rio do Norte S.A.
    
    Deloitte
    
    2003, 2002
    
    RJ
    
    RJ
    
    BrazilNavegação Vale do Rio Doce S.A.  DOCENAVE
    
    Deloitte
    
    2003, 2002
    
    RJ
    
    RJ
    
    BrazilRio Doce Manganês S.A.
    
    Deloitte
    
    2003, 2002
    
    Salvador
    
    BA
    
    BrazilUrucum Mineração S.A.
    
    Deloitte
    
    2003
    
    Salvador
    
    BA
    
    BrazilValesul Alumínio S.A.
    
    KPMG
    
    2002
    
    RJ
    
    RJ
    
    BrazilValesul Alumínio S.A.
    
    Deloitte
    
    2003
    
    RJ
    
    RJ
    
    Brazil
   (1)
    
    Consolidated as from January, 1, 2004 Deloitte Touche Tohmatsu Auditores Idependentes
     RJ  Rio de Janeiro
     ES  Espírito Santo
     BA  Bahia KPMG Auditores Independentes
Trevisan Auditores Independentes


* * *

F - 39



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##### Table of Contents



Board of Directors, Fiscal Council and Executive Officers Board of Directors
    
    Fiscal CouncilSérgio Ricardo Silva Rosa
    
    Pedro Carlos de MelloChairmanArlindo Magno de Oliveira
    
    Marcelo Amaral MoraesCláudio Bernardo Guimarães de Moraes
    
    Oswaldo Mário Pêgo de Amorim AzevedoErik Persson
    
    Joaquim Vieira Ferreira LevyFrancisco Valadares PóvoaJaques WagnerExecutive OfficersKatsuto MomiiRoger AgnelliMário da Silveira Teixeira Júnior
    
    Chief Executive OfficerOscar Augusto de Camargo Filho
    
    José Carlos MartinsExecutive Officer for Equity Holdings andRenato da Cruz Gomes
    
    Business DevelopmentRicardo Carvalho Giambroni
    
    Armando de Oliveira Santos NetoExecutive Officer for Ferrous MineralsAdvisory Committees of the Board of Directors
    
    Carla GrassoExecutive Officer for Human Resources andAudit Committee
    
    Corporate ServicesAntonio José de Figueiredo FerreiraHeitor Ribeiro Filho
    
    José LancasterInácio Clemente da Silva
    
    Executive Officer for Non-Ferrous MineralsPaulo Roberto Ferreira de MedeirosFábio de Oliveira BarbosaExecutive Development Committee
    
    Chief Financial Officer and Investor RelationArlindo Magno de OliveiraFrancisco Valadares Póvoa
    
    Gabriel StoliarJoão Moisés de Oliveira
    
    Executive Officer for PlanningOlga Nietta LoffrediOscar Augusto de Camargo Filho
    
    Guilherme Rodolfo LaagerExecutive Officer for LogisticsStrategic CommitteeRoger AgnelliGabriel StoliarCézar Manoel de MedeirosJosé Roberto Mendonça de BarrosSamir ZraickOtto de Souza Marques JuniorFinance Committee
    
    Chief Officer of Control DepartmentRoger AgnelliFábio de Oliveira BarbosaRômulo de Mello Dias
    
    Marcus Vinícius Dias SeveriniWanderlei Viçoso Fagundes
    
    Chief AccountantWanderley Rezende de Souza
    
    CRC-RJ 093892/O-3Governance and Ethics CommitteeRenato da Cruz GomesRicardo SimonsenRicardo Carvalho Giambroni
 F-40




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##### Table of Contents



Report of Independent RegisteredPublic Accounting Firm To the Board of Directors
and Stockholders of Vale Overseas Limited In our opinion, the accompanying balance sheets and the related statements of income and changes in
retained earnings and of cash flows, present fairly, in all material respects, the financial
position of Vale Overseas Limited (the Company) at December 31, 2004 and 2003, and the results of
its operations and its cash flows for each of the three years ended December 31, 2004, in
conformity with accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Companys management; our responsibility is to
express an opinion on these financial statements based on our audits. We conducted our audits of
these statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States) which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above. PricewaterhouseCoopers
Auditores Independentes
    
    Rio de Janeiro, Brazil
March 21, 2005
 F-41




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##### Table of Contents



VALE OVERSEAS LIMITED 
 Balance Sheets as of December 31Expressed in thousands of United States dollars 
 2004
    
    
    2003AssetsCurrent assetsCash and cash equivalents
    
    
    2
    
    
    
    Advances to related partiesItabira Rio Doce Ltd.  ITACO
    
    
    824
    
    
    
    678Loans to related partiesItabira Rio Doce Ltd.  ITACO
    
    
    31,790
    
    
    
    18,700Deferred costs related to long term debt
    
    
    2,498
    
    
    
    1,58535,114
    
    
    
    20,963Other assetsLoans to related partiesItabira Rio Doce Ltd.  ITACO
    
    
    913,004
    
    
    
    600,000Deferred costs related to long term debt
    
    
    13,692
    
    
    
    7,390926,696
    
    
    
    607,390TOTAL
    
    
    961,810
    
    
    
    628,353Liabilities and stockholders equityCurrent liabilitiesAdvances from related partiesRio Doce International Finance Ltd
    
    
    832
    
    
    
    680CVRD Overseas
    
    
    2
    
    
    
    2Interest on long-term debt
    
    
    31,790
    
    
    
    18,700Deferred income related to loans to related parties
    
    
    2,498
    
    
    
    1,58535,122
    
    
    
    20,967Long-term liabilitiesLong-term debt
    
    
    913,004
    
    
    
    600,000Deferred income related to loans to related parties
    
    
    13,692
    
    
    
    7,390926,696
    
    
    
    607,390Stockholders equityPaid-in capital
    
    
    1
    
    
    
    1Additional paid-in capital
    
    
    21,942
    
    
    
    Retained earnings (accumulated losses)
    
    
    (21,885
    )
    
    
    61Other cumulative comprehensive incomeCumulative translation adjustments
    
    
    (66
    )
    
    
    (66
    )(8
    )
    
    
    (4
    )TOTAL
    
    
    961,810
    
    
    
    628,353
 See notes to financial statements. F-42




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VALE OVERSEAS LIMITED 
 Statement of Income and Changes inRetained Earnings (Accumulated Losses)For the year ended December 31Expressed in thousands of United States dollars(except number of shares and for share amounts) 
 2004
    
    
    2003
    
    
    2002Interest income
    
    
    90,398
    
    
    
    37,674
    
    
    
    21,811Interest expense
    
    
    (90,399
    )
    
    
    (37,675
    )
    
    
    (21,813
    )Loss on extinguishment of loan
    
    
    (21,942
    )
    
    
    Foreign exchange and monetary gains, net
    
    
    
    
    
    
    1
    
    
    
    6General and administrative
    
    
    (3
    )
    
    
    
    
    
    
    (2
    )Net income (loss) for the year
    
    
    (21,946
    )
    
    
    
    
    
    
    2Retained earnings (accumulated losses):Beginning of year
    
    
    61
    
    
    
    61
    
    
    
    59Net income (loss) for the year
    
    
    (21,946
    )
    
    
    
    
    
    
    2End of year
    
    
    (21,885
    )
    
    
    61
    
    
    
    61
 See notes to financial statements. F-43




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VALE OVERSEAS LIMITED 
 Statement of Cash FlowsFor the year ended December 31Expressed in thousands of United States dollars 
 2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net income (loss) for the year
    
    
    (21,946
    )
    
    
    
    
    
    
    2Adjustments to reconcile net income for the year with
cash provided by (used in) operating activities:Loss on extinguishment of debt
    
    
    21,942
    
    
    
    Foreign exchange losses
    
    
    
    
    
    
    (1
    )
    
    
    (3
    )Decrease (increase) in assets:Advances to related parties
    
    
    (146
    )
    
    
    
    
    
    
    (678
    )Increase (decrease) in liabilities:Advances from related parties
    
    
    152
    
    
    
    
    
    
    
    682Net cash provided by operating activities
    
    
    2
    
    
    
    (1
    )
    
    
    3Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (3
    )Decrease in cash and cash equivalents
    
    
    2
    
    
    
    (1
    )
    
    
    Cash and cash equivalents, beginning of year
    
    
    
    
    
    
    1
    
    
    
    1Cash and cash equivalents, end of year
    
    
    2
    
    
    
    
    
    
    
    1Interest paid
    
    
    100,632
    
    
    
    25,875
    
    
    
    Non-cash transactions:Long-term debt issued and passed through to related parties
on the same date during 2004,
in the amount of US$ 492,785 (US$ 295,179 in 2003).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-44




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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$ 2.6544 and R$ 2.8892 to US$ 1.00 at
December 31, 2004 and 2003, respectively), and all accounts in the statement of income at the
average rates prevailing during the year. The translation gain or loss resulting from this
remeasurement process is included in the cumulative translation adjustments account in the
stockholders equity.(b)
    Income and expensesIncome and expenses are recognized on the accrual basis.(c)
    Income taxThe Companys operations are exempt from taxes in the Cayman Islands.(d)
    Deferred cost related to long-term debtCosts related to the issuance of long-term debt are capitalized and amortized to expense on a
straight-line basis over the period of the respective Notes. F-45




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(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.4
    Long-term debtLong-term debt consists of:  (a)
    US$ 113,004 (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.  We and CVRD registered the long-term debt under the U.S. Securities Act of 1933 to be
declared effective for an offer to exchange the notes for a new issue of registered notes and
for resale.The loan contracts obtained imposes 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
(Itaco), a subsidiary of CVRD, on the same date, US$ 300,000 8.625% enhanced guaranteed notes
due March 8, 2007, which are unconditionally guaranteed by CVRD.In December 2004, the Company commenced a cash tender offer for any and all of the US$
300,000 aggregate principal amount outstanding 8.625% Enhanced Guaranteed Notes due 2007. As
a result, the Company repurchased a total of US$186,996 of enhanced guaranteed notes at the
price of US$ 1,117.34 per US$ 1,000.00 principal amount plus accrued and unpaid interest from
the last interest payment date up to, but excluding, the settlement date, which was December
17, 2004. The repurchase of these notes generated an extinguishment of debt expense of US$
21,942 in 2004. F-46




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Simultaneously, an equal amount of the loan receivable from Itaco, which had the same
principal and terms, was repaid by Itaco at the same amount, and the resulting gain of US$
21,942 generated by this transaction under common control was eliminated through the creation
of a capital contribution in the same amount.In 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.5
    Other related party transactionsAt December 31, 2004 the long term loan receivable of US$913,004
(US$600,000 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-47




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BOARD OF DIRECTORSFábio de Oliveira Barbosa
Director
    
    Bernardeth Vieira de Souza
DirectorLeonardo Moretzsohn de Andrade
DirectorMarcus Vinicius Dias Severini
Chief Accountant
CRC-RJ 093.982/O-3
 F-48




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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 Deloitte Touche Tohmatsu dated January 17, 2003 with
respect to the financial statements of Albras for the three years
ended December 31, 2002.
    
    B-3Report of Trevisan Auditores Independentes dated January 21, 2004
with respect to the financial statements of Alunorte for the year
ended December 31, 2003.
    
    B-4Report of Deloitte Touche Tohmatsu dated January 17, 2003 with
respect to the financial statements of Alunorte for the three years
ended December 31, 2002.
    
    B-52000 Report of KPMG LLP dated January 17, 2003 with respect to the
financial statements of CSI for the three years ended December 31,
2002.
    
    B-6Report 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-7Report 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-8Report 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-9Report 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-10Report 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-11Report 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-12Report of Deloitte Touche Tohmatsu dated January 12, 2004 with
respect to the financial statements of Valesul for the year ended
December 31, 2003.
    
    B-13Report of KPMG Auditores Independentes dated January 7, 2003 with
respect to the financial statements of Valesul for the three years
ended December 31, 2002.
    
    B-14Report 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-15Report 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-16
 B-1




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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the directors and stockholders
ALBRAS  Aluminio Brasileiro S.A.
Barcarena  PA  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 generally accepted auditing standards in the
United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit provide
a reasonable basis for our opinion.3.
    In our opinion the accompanying financial statements referred to above present fairly,
in all material respects, the financial position of ALBRAS  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. Rio de Janeiro, Brazil, January 21, 2004/s/ Trevisan Auditores Independentes B-2




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INDEPENDENT AUDITORS REPORT To the Directors and Stockholders of
ALBRAS  Alumínio Brasileiro S.A.
Barcarena  PA We have audited the accompanying balance sheets of ALBRAS  Alumínio Brasileiro S.A. as of December
31, 2002 and 2001, and the related statements of operations, changes in stockholders equity
(deficit) and cash flows for the three-year period ended December 31, 2002 (all expressed in United
States dollars). These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the accompanying financial statements referred to above present fairly, in all
material respects, the financial position of ALBRAS  Alumínio Brasileiro S.A. as of December 31,
2002 and 2001, and the results of its operations and its cash flows for the three-year period ended
December 31, 2002, in conformity with accounting principles generally accepted in the United States
of America. /s/ Deloitte Touche TohmatsuRio de Janeiro, Brazil, January 17, 2003 B-3




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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the directors and stockholders
ALUNORTE  Alumina do Norte do Brasil S.A.
Barcarena  PA  1.
    We have audited the accompanying balance sheet of ALUNORTE  Alumina do Norte do Brasil
S.A. as of December 31, 2003, and the related statements of income and comprehensive
income, changes in stockholders equity and cash flows for the year then ended (all
expressed in the United States dollars). These financial statements are the responsibility
of the Companys management. Our responsibility is to express an opinion on these financial
statements based on our audits. The financial statements of ALUNORTE  Alumina do Norte do
Brasil S.A. as of December 31, 2002 and for the two years ended December 31, 2002 and 2001
were audited by other auditors whose report, dated January 17, 2003, expressed an
unqualified opinion on those statements.2.
    We conducted our audit in accordance with generally accepted auditing standards in the
United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit provide
a reasonable basis for our opinion.3.
    In our opinion the accompanying financial statements referred to above present fairly,
in all material respects, the financial position of ALUNORTE  Alumina do Norte do Brasil
S.A. as of December 31, 2003 and the results of its operations and its cash flows for the
year then ended, in conformity with accounting principles generally accepted in the United
States of America. Rio de Janeiro, Brazil, January 21, 2004/s/ Trevisan Auditores Independentes B-4




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INDEPENDENT AUDITORS REPORT To the Directors and Shareholders
ALUNORTE  Alumina do Norte do Brasil S.A.
Bacarena  PA We have audited the accompanying balance sheets of ALUNORTE  Alumina do Norte do Brasil S.A. as of
December 31, 2002 and 2001, and the related statements of operations, changes in stockholders
equity and cash flows for the three-year period ended December 31, 2002 (all expressed in United
States dollars). These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the accompanying financial statements referred to above present fairly, in all
material respects, the financial position of Alunorte  Alumina do Norte do Brasil S.A. as of
December 31, 2002 and 2001, and the results of its operations and its cash flows for the three-year
period ended December 31, 2002, in conformity with accounting principles generally accepted in the
United States of America. /s/ Deloitte Touche TohmatsuRio de Janeiro, Brazil, January 17, 2003 B-5




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INDEPENDENT AUDITORS REPORT The Board of Directors
California Steel Industries, Inc.: We have audited the accompanying consolidated balance sheets of California Steel Industries, Inc.
and subsidiary as of December 31, 2002 and 2001 and the related consolidated statements of
operations, stockholders equity, and cash flows for each of the years in the three-year period
ended December 31, 2002. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of California Steel Industries, Inc. and subsidiary as of
December 31, 2002 and 2001 and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. /s/ KPMG LLPOrange County, CaliforniaJanuary 17, 2003 B-6




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INDEPENDENT AUDITORS REPORT To the Board of Directors and Stockholders
Navegaçâo Vale do Rio Doce S.A.  DOCENAVE
Rio de Janeiro  RJ 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. We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors provide a reasonable
basis for our opinion. In our opinion, the accompanying financial statements referred to above presented fairly, in all
material respects, the financial position of 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. /s/ Deloitte Touche TohmatsuRio de Janeiro, Brazil, January 21, 2004 B-7




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INDEPENDENT AUDITORS REPORT To the Board of Directors and Stockholders of
Companhia Hispano-Brasileira de Pelotizaçâo  HISPANOBRAS

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 auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.3.
    In our opinion, the financial statements referred to in paragraph (1) present fairly,
in all material respects, the financial position of Companhia Hispano-Brasileira de
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. /s/ Deloitte Touche TohmatsuRio de Janeiro, Brazil, January 15, 2004 B-8




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INDEPENDENT AUDITORS REPORT To the Board of Directors and Stockholders of
Companhia Italo-Brasileira de Pelotizaçâo  ITABRASCO
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 auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.3.
    In our opinion, the financial statements referred in paragraph (1) present fairly, in
all material respects, the financial position of Companhia Italo-Brasileira de 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. /s/ Deloitte Touche TohmatsuRio de Janeiro, Brazil, January 15, 2004 B-9




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INDEPENDENT AUDITORS REPORT To the Board of Directors and Shareholders of
Companhia Coreano-Brasileira de Pelotizaçâo  KOBRASCO
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 auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. At audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.3.
    In our report dated January 18, 2002, we expressed an opinion that the 2001 financial
statements did not present fairly the financial position, results of operations, and cash
flows in conformity with accounting principles generally accepted in the United States of
America, because the Company did not record an allowance for losses in the amount of
US$24,758 thousand as of December 31, 2001, in respect of recoverable value added tax
(ICMS) credits related to the purchase of raw materials and other supplies since such
realization was uncertain. As described in note 16 to the consolidated financial
statements, the Company has recorded the allowance and has restated its 2001 financial
statements to conform with accounting principles generally accepted in the United States of
America. Accordingly, our present opinion on the restated 2001 financial statements, as
expressed herein, is different from that expressed in our previous report.4.
    In our opinion, the accompanying consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Companhia Coreano
Brasileira de 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. /s/ Deloitte Touche TohmatsuRio de Janeiro, Brazil, January 16, 2004 B-10




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INDEPENDENT AUDITORS REPORT To the Stockholders and Board of Directors of
Mineraçâo Rio do Norte S.A.  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 auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.3.
    In our opinion, the financial statements referred to in paragraph (1) present fairly,
in all material respects, the financial position of 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. /s/ Deloitte Touche TohmatsuRio de Janeiro, Brazil, January 14, 2004 B-11




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INDEPENDENT AUDITORS REPORT To the Board of Directors and Shareholders of
Companhia Nipo-Brasileira de Pelotizaçâo  NIBRASCO
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 auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.3.
    In our opinion, the accompanying financial statements referred to above present fairly,
in all material respects, the financial position of Companhia Nipo-Brasileira de
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. /s/ Deloitte Touche TohmatsuRio de Janeiro, Brazil, January 16, 2004 B-12




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INDEPENDENT AUDITORS REPORT To the stockholders and Board of Directors of
Valesul Alumínio S.A.  1.
    We have audited the accompanying balance sheet of Valesul Alumínio S.A. (the Company)
as of December 31, 2003, and the related statements of income, changes in stockholders
equity and comprehensive income/loss and cash flows for the year ended December 31, 2003.
These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.2.
    We conducted our audit in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.3.
    In our opinion, the financial statements referred to in paragraph (1) present fairly,
in all material respects, the financial position of Valesul Alumínio S.A. as of December
31, 2003, and the results of its operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of America.4.
    The financial statements as of December 31, 2002 and 2001, were audited by other
independent accountants, whose report, dated January 7, 2003, stated that they were not
aware of any material modifications that should be made to those statements in order for
them to be in conformity with accounting principles generally accepted in the United States
of America. /s/ Deloitte Touche TohmatsuRio de Janeiro, Brazil, January 12, 2004 B-13




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REPORT OF INDEPENDENT PUBLIC ACCOUNTING FIRM The Board of Directors of
Valesul Alumínio S.A. We have audited the accompanying balance sheets of Valesul Alumínio S.A. (the Company) as of
December 31, 2002 and 2001, and the related statements of income, changes in stockholders equity
and comprehensive income/loss and cash flows for each of the years in the three-year period ended
December 31, 2002. These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Brazil and in
the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Valesul Alumínio S.A. as of December 31, 2002 and 2001, and the
results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2002, in conformity with generally accepted accounting principles in the United States
of America. As more fully described in Notes 7 and 10 to the financial statements, the Company has adjusted its
property, plant and equipment and deferred income taxes accounting balances as a result of
corrections of errors. Consequently, the Companys financial statements for 2000 referred to above
have been restated to conform with these adjustments. January 7, 2003 /s/ KPMG Auditores IndependentesRio de Janeiro, Brazil B-14




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INDEPENDENT AUDITORS REPORT To the Shareholders, Administrative Council and Management of
URUCUM MINERAÇÂO S.A.
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 auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.3.
    In our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of URUCUM 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. /s/ Deloitte Touche TohmatsuSalvador, Brazil, January 26, 2004 B-15




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INDEPENDENT AUDITORS REPORT To the Shareholders, Administrative Council and Management of
RIO DOCE MANGANÊS S.A. and Subsidiaries
Simões Filho  BA  1.
    We have audited the accompanying consolidated balance sheets of RIO DOCE MANGANÊS S.A.
(formerly SIBRA  ELETROSIDERÚRGICA BRASILEIRA S.A.) and subsidiaries as of December 31,
2003 and 2002, and the related consolidated statements of operations, changes in
shareholders equity and comprehensive income (loss), and cash flows for each of the three
years in the period ended December 31, 2003. These financial statement are the
responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits.2.
    We conducted our audits in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting the amount
and disclosures in the financial statements. An audit also includes assessing the
accounting principles used mid significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.3.
    In our opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of RIO DOCE MANGANÊS S.A. and subsidiaries
as of December 31, 2003 and 2002, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States of America.4.
    As discussed in note 1 to the financial statement, the controlling shareholder
concluded the restructuring process of its manganese activities, which is intended to
maximize management integration and simplify the corporate structure of the Company and its
subsidiaries. In connection with this corporate restructuring, the shareholders decided at
an Extraordinary Shareholders Meeting held on October 23 and 27, 2003, to transfer certain
assets (including all of the ferro-alloy, manganese ore and reforestation operations) and
liabilities from the subsidiary companies, Companhia Paulista de Ferro-Ligas, Sociedade
Mineira de 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. /s/ Deloitte Touche TohmatsuSalvador, Brazil, January 26, 2004 B-16