Vale Agrees To Buy 9% Of Belo Monte Dam For BRL2.3 Billion

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SOURCE Dow Jones Newswires | 29 April 2011

SAO PAULO -(Dow Jones)- Vale SA said Thursday its board approved the purchase of a 9% stake in the controversial Belo Monte dam and will invest 2.3 billion Brazilian reais ($1.46 billion) in the project.

A Vale executive denied widespread speculation that the company's investment in the mammoth 11,200 megawatt dam project comes in response to pressure from the Brazilian government.

One of the world's top base metals miners, Vale's entry into the project follows the withdrawal of the local Bertin Group from it. Bertin's Gaia Energia said in February it wasn't depositing the capital needed to guarantee its 9% stake in the project, which is located Brazil's Amazon region.

Belo Monte is being built largely by state-controlled utility Centrais Eletricas Brasileiras, or Eletrobras.

Vale said in a regulatory filing Thursday that as a partner in the dam, it would be able to lower energy costs at its operations. The investment will guarantee Vale a 400 megawatt supply of energy from the Belo Monte dam, boosting the company's energy self-sufficiency level to 63% from the current level of 45%, Vale's Energy Director Almir Rezende told reporters on a conference call.

"The return expected by Vale from this investment in Belo Monte is superior to our cost of capital and in line with what had been estimated during Vale's participation in the auction" of licenses to build the dam, Vale said.

Vale had previously participated in another investment group that lost the bid for the project, which was put up for auction last year.

Market speculation that the ouster of Vale Chief Executive Roger Agnelli earlier this month -- with support from the government, the biggest stakeholder Vale's controlling group -- was an effort to increase the firm's participation in government-backed development projects, such as Belo Monte.

However, Vale strategies director Jose Carlos Martins denied on the call that there was any political element in the decision to invest in the dam. "This is an economic decision without any political aspect," Martins told reporters. "It's absolutely part of our strategy to develop clean energy sources and guarantee energy supplies for Vale's projects."

Martins added that Vale has been studying entry into Belo Monte for about 1.5 years. The company has invested in power generation in Brazil and other countries for the last 11 years, is a shareholder in nine hydroelectric plants in Brazil, it said in the statement.

Of the total BRL25.8 billion total investment that will be needed by Norte Energia, the consortium leading the development the dam, about 75% will be financed, mainly by Brazil's BNDES development bank, according to Martins. As the financing available will also be applicable to Vale's part of the investment, this means Vale will need to make an initial capital outlay of between $400 million and $500 million in the project, he said.

But the Belo Monte project has been the target of numerous lawsuits, with environmentalists and indigenous rights groups claiming the government steamrolled objections to the project.

In addition to lawsuits by federal prosecutors asking for dam work to be halted -- who say that environmental regulators gave licenses even after builders failed to meet prerequisites -- the Organization of American States asked the government to halt the project, saying it didn't meet the demands of local groups.

The government reportedly sent the OAS a reply to their request this week, though the content of the Brazilian government's response wasn't disclosed.

Martins declined to comment on the environmental concerns, saying questions on these issues should be directed to Norte Energia, and not to Vale, which will hold just a 9% stake.

"Vale's just another partner. It wants to make a better project," he said.

Martins also declined to set a probable start-up date on the dam's generating activities or to give details on sales of the energy to be produced by the dam.

By Paulo Winterstein and Diana Kinch, Dow Jones Newswires

04-28-11 1952ET

Copyright (c) 2011 Dow Jones & Company, Inc.

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