淡水河谷 (VALE) 2006 Q2 法說會逐字稿

[Audio in progress]. Only mode. Later we will conduct a question and answer session and instructions will be given at that time. [OPERATOR INSTRUCTIONS]. As a reminder, this conference is being recorded. The replay will be available until August 12, 2006, to access the replay please dial 55 11 46 88 62 25 access code 929. Again 55 11 46 88 62 25 access code 929. The file will also be available at the Company’s website at www.cvrd.com.br at the Investor Relations section.

This conference call and the slide presentation are being transmitted via internet as well. You can access the webcast by logging on to the Company’s website, www.cvrd.com.br Investor Relations section, or at www.prnnewswire.com.br.

Before proceeding let me mention that forward looking statements are being made under the Safe Harbor of the Securities Litigation Reform act of 1996. Actual performance could differ materially from that anticipated and any forward looking comments as a result of macroeconomic conditions, market risks and other factors.

With us today in Rio de Janeiro is CVRD’s Director, Investor Relations, Castello Branco -- Roberto Castello Branco. He will proceed first through the presentation and after that we will open for question and answers.

It is now my pleasure to turn the call over to Mr. Castello Branco. Sir, you may now begin.

Good morning. It’s a pleasure to talk to you to say -- to talk about the second quarter results of CVRD. Our Chief Financial Officer, Mr. Fabio Barbosa, is coming during the conference call.

Well, we did have a very good quarter, which shows very clearly that we continue in a growth path -- a profitable growth path. We had several records in production, in Iron Ore, Alumina, Aluminum and Potash, which reflects the conclusion of projects, as in the case of alumina and potash, and productivity gains in iron ore and aluminum, and overall, a full capacity operation.

In Potash we accumulated some inventories that are already sold in July. There is a very clear seasonality in the potash market in Brazil, where the second half of the year is much more stronger than the first half.

Well, in Iron Ore we continued to present records in our sales. Our sales during the second quarter in iron ore were -- reached 62.5m tons, with a 7.8% increase over the last quarter, and an 11.2% year-on-year growth. Over the last two years we concluded three projects. Carajas 70m tons per year, two new mines Capao Xavier and Fabrica Nova. In the first quarter of this year we acquired a new mine, Mar Azul, a small one that in the first half of the year produced 1m tons.

In Alumina, reflecting the record ramp up of phase four and five of the Barcarena alumina refinery, we staged a production record of 1m tons. And as a consequence, we have record sales volume of 867,000 tons.

In parallel with this very substantial operation performance, we had a record financial performance during the quarter in terms of gross revenues, which reached the all time high of $4.3b in our operation profit as measured by adjusted EBIT with $1.9b. Our EBIT margin in the quarter was 45.2%, 800 basis points above the historical average. In terms of our adjusted EBITDA, a new record as well - $2.2b and net earnings of $1.9b.

This quarter we have top line growth of 23.6%. It was mostly driven by volumes, 52% driven by volumes. Our bulk price increased. This was much more pronounced in Ferrous Minerals. But volumes were the key factor behind this increase in revenues. For instance, in Non Ferrous Minerals where we did have an increase in revenues on a quarter over quarter basis of $94m, all this increase was due to the performance of copper concentrate sales.

I have with me our Executive Director of Non Ferrous Minerals, Mr. Jose Lancaster. Would you speak with us about Non Ferrous Minerals at this moment?

Right, in general it was a recovery quarter for the Sossego mine. During the first quarter we had some operational problems with our [bore] mills. We had, I would say, a normal quarter. The production was about 30,000 tons of copper. Our costs were kept under control and we are ready for an improvement in the second half of 2006.

So Sossego, in general, is doing well, and shows that it was a project that hit the right timing of the market. So, the project has been fulfilled and we’re very happy with that.

In terms of our nickel project, we have concluded the feasibility study for the mine at Onca Puma that we bought in December of 2005. We are presently studying the synergies that exist between Onca Puma in Vermelho in the Carajas area. But we have already started with the early construction work in earth works and drainage, which are required to be made at this time of the year, because this is the dry season in Brazil. We are very enthusiastic about Onca Puma. We are on schedule and ready to start production in nickel in 2009.

[Inaudible] on a quarter over quarter basis we have the stability of our June cost of production as almost 100% of our cost increase adjusting for depreciation and acquisition of other products was due to higher volumes of production and sales. In the quarter the only item that was contributing -- is still contributing to the cost increase was materials -- were the income taxes, spare parts and tires which contribute to -- with higher price of these inputs to cost increase. But it is the first step in a program that’s dedicated to reduce costs. And we are going to see the results of this cost cutting program and our drive for reaching higher efficiency levels over the next 12 months.

If you compare EBITDA evolution between the two quarters, second quarter ’06 with one quarter ’06, and adjust for the effect of retroactive price accrual, we have a very nice environment. EBITDA grew 27.6% on a quarter over quarter basis, instead of only 7% as shown by the growth numbers. And almost 75% of the increase in the EBITDA was due to volume growth. That’s a very healthy evolution.

In terms of earnings and operational performance, we continue in a winning streak of high performance with growing earnings on a last 12 months period basis, which reached $5.6b. In the last 12 month period earnings reached $5.6b in the last 12 month period ended at June 2006. And our EBIT margin stayed above 40% since the second quarter ’05. And we are in the fifth consecutive quarter of above $1b earnings.

In terms of -- the next slide is showing that CapEx is driving growth and diversification. More than 70% of our CapEx is focused on growth, on projects and in search and development expansions. And if you see the scenario by business area, you are going to see that Ferrous Minerals are responsible for 48% of our investment. And on the other hand, Ferrous Minerals, as you know, are responsible for more than 70% of our cash generation. So, we have underway a diversification process and it’s very important in terms of performance. In this quarter, for instance, we had a weak performance for Pellets, but on the other hand we had aluminum products and copper more than offsetting this weak performance in order to allow us to reach a very good final result.

Finally, talking about investments we see that although we have our invested capital more than -- multiplied by almost five times over the next three years, our return on invested capital was able to be kept above 45%, which is a very important performance.

Talking about the future, we see the industrial production is very important in terms of support of the demand for minerals and metals growing on a global basis for the thirty ninth consecutive month. Global economy has been in an acceleration mood since the second quarter of 2005. We expect now a deceleration in global GDP growth towards a more sustainable and moderate growth and according to its long term trend. We see the continuation of a very robust growth giving support to a very robust growth of the demand for minerals and metals, but on a more sustainable basis.

Chinese economic growth reached as well the high in the second quarter ’06. In response to that growth acceleration there are several measures taken by the Chinese authorities in order to bring down growth. But we expect the Chinese economy to continue to grow at a more moderate rate by Chinese standards at 9% per year consistent with its long term trend.

As a consequence of this very high global industrial production growth at the pace of 5 to 6% per year, we have seen the recovery in steel price that were reduced during -- mainly during the second quarter of 2005, reflecting the global inventory cycle. But more regions in the world, steel price, as an average, are approaching or reaching previous peaks.

And as a consequence of the behavior of steel price, we have seen also the price of metallics like pig iron or HDI or scrap. Here we are showing the performance of pig iron price recovering very sharply since mid second -- first quarter 2006.

Ex-China steel production is recorded here as well. It was in negative territory in the second quarter of last year. Now, it’s reversed probably reflecting the main growth for the steel products of approximately 5% per year. And as a consequence of this recovery of the steel production in the world ex-China, better demand in the seaborne trade is recovered as well, and allowed us to return from these two operations in order to meet this demand increase.

In terms of iron ore price, the spot market prices are showing a similar scenario that prevailed in the past. They continue above benchmark price, even after the 19% price increase, which shows -- showed that the big lever between demand and supply is still there. And it is important to notice that if we correct this price deflation by a price volatility and by all the difference, it should be much wider than it is now.

In terms of Chinese demand, we have seen Chinese imports to grow as expected. They reached in the first half of 2006 161.4m tons and growing at 23% per year, which is consistent with our expectations for 2006.

In terms of alumina price, decreased as a consequence of a very substantial increase of Chinese production growth and announcement of Chinese capacity expansions due 2008. But the alumina price are expected to stay in the level that -- which is much higher than in previous levels in the spot market and at a level that will allow us to have -- or to continue to have a very profitable operation.

Well, thank you very much. Now, we are here, Mr. Jose Lancaster and myself. We’ll be available for questions and answers session.

Thank you. [OPERATOR INSTRUCTIONS]. Our first question comes from Mr. Ivan Fadel with Credit Suisse.

Hello, good afternoon gentlemen. A question regards to the cost impact and cost inflation then going forward the trend of the cost. So, in the press release you mentioned that you now see a lower impact of cost inflation that is the higher input prices. And also, that you expect to see results of the cost cutting program in the next 12 months. So, what are the main measures you’re going to take or you are taking for bringing down those costs? And what is the expected impact on perhaps EBITDA and EBITDA margin that you expect from those measures? Thank you.

Well, our goal, as we have said, is to reduce costs over a 12 month period. And we have -- we are using all the alternatives we have in all areas to reduce costs. So, that includes on the big items and like outsource of service, reviewing all the contracts we have trying to find opportunities to reduce costs.

We are streamlining our operations seeking to increase efficiency. We have a very important program in this area, an excellent program focusing on our maintenance operation and investment execution.

We are -- as I said, there is no specific measure on -- focusing on cost cutting. We are analyzing, exploring, all the options that we have trying to discover -- to find every opportunity we can to reduce costs in order to have a much more efficient and less costly operation in order to continue to show a very excellent performance.

Okay. And is there any goal in terms of achieving a certain amount of dollar amount, or--?

No, we have no goals. Our goal is to reduce costs. And we are going to show the results over time. We are going to see them.

Right, okay. Then the second question would be you started the Sao Luis plant in mid July due to the recovery of the pellet demand. So, how much do you plan to sell in total of pellets in the next two quarters? And what do you think are the reasons for the better demand for pellets?

Well, the reason for that -- the main demand for pellets are very clear - the recovery of steel production ex-China -- in the world ex-China. Europe and North America are much more important, in the seaborne trade of pellets than Asia. So, the recovery indeed of steel production in these countries is the main factor behind a stronger pellet demand in seaborne trade.

We expect the Sao Luis plant will return into activity on July 17. It’s going to start -- it’s starting production effectively this month. And we plan to operate it and the other pellets plants at full capacity. And we sell everything -- each pound produced will be shipped to a client. So, this will form the scenario for these -- the next five months.

Okay, Roberto, thank you very much, very helpful. Thanks.

You’re very welcome, Ivan.

Thank you for your question Mr. Fadel. Our next question comes from Andrea Weinberg with Merrill Lynch. Please go ahead.

Hello, Roberto, congratulations on a very good quarter. First question will be on your debt level. Given your recent upgrades again under the investment grade by the rating agencies, I just wanted to understand what debt level would you be comfortable today, and at what total debts that would comfortable for you?

And my second question would be to Lancaster, just to get an update on the projects. 118 is delayed a year. So, I just wanted to understand the size of the Vermelho and the size of the other three copper projects.

Well, good morning Andrea. Responding to your first question about debt levels, well, we manage our financial policy in order to achieve several different ratios. Not only in terms of total debt, EBITDA, but there are several other indicators that where you have rules, you have guidelines and are observed by the rating agencies.

In terms of total debt EBITDA we have a very clear guideline of not achieving a level equal or higher than two times. And the [inaudible] in terms of the cycle we are even correct by the cyclicality of debt and cash flows. We are in a very favorable position, very comfortable one below one time total debt is less than our EBITDA on a last 12 months basis.

Well, I pass to Jose Lancaster to answer to your question.

Okay, Andrea, you asked me about the copper and nickel projects specially 118. Project 118, we were issued the preliminary license -- environmental license for 118 a couple of months ago. We are working in the process. We issued the implementation license. We expect this process is three to four months. So, we expect to be in construction with 118 starting in April of this year, and that means that the project would actually have a start up around the first semester of 2009.

In terms of the nickel projects, I think I mentioned Vermelho. We also went through the process with the environment agent in the State of Para. We got an approval from the Agency. And we should be issued a license in the next couple of months -- a preliminary license again. And we will start with a process three or four months, just like 118, for the implementation license of Vermelho. So, at this point we expect to start the Vermelho project in April of 2009.

And in the meantime we have all the licensing and all the requirements to start the construction of 118, which we have this month. So, if you go to the Onca Puma site you will see the earth works and drainage works that are being done. And in the meantime, because of the proximity of the two projects, they’re only 100 kilometers apart, we are doing a very complete study of synergy, which -- on the CapEx and OpEx. So, in the next two or three months we should have the results of that and then we will be able about issuing the final numbers for both projects.

And also, we are studying the phase one of Salobo. Salobo project we are looking from the point of view of hydrometallurgy, but also from the point of view of a concentrate. These studies, I’d say, are in the advanced stage and we’ll be able to probably tell you that we have a direction for the Salobo project.

And the hydrometallurgical plant that we are building at Sossego, we are building an industrial plant of 10,000 tons to test the CESL technology, the use of CESL technology with copper concentrate. That’s under construction. We’ve done the earth works and we are now studying the [federal] works to start buildings the buildings and autoclave which is being built in Italy, is in the final stages. So, I expect we will have the plant built by August of 2007. So, next year you’ll start seeing the operation of the industrial plant.

Okay, and the alumina [inaudible]?

Those are [inclined]. We see the [bill] at this stage. So, we are looking at amount from the point of view of a long term period for an underground. To go underground we need additional drilling that is still being carried out.

And Cristalino, Cristalino is in the pre-feasibility stage. We are studying -- it’s a particle and we’re studying ways of determining base fees for feasibility.

Okay, thank you.

Our next question comes from Mr. Rodrigo Barros with Unibanco.

Good morning gentlemen. First, regarding CapEx we just saw recently strong new entrants, just like Portugal did, just increased their estimated CapEx by 37%. So, my question is regarding your projected expansions, including the Samarco pipeline expansion, could you give us some light -- the CapEx you are to be reaching budgets? Or are you see any cost situation in those?

Well, Samarco pipeline’s not included in our CapEx. Samarco is a JV. It’s not included in our CapEx, Rodrigo.

But in answer to your question, of course, our goal is to reduce not only our operational costs, but also CapEx costs. And we expect to see some impact of this program in the future. It takes times. It’s not immediately, but we expect to see some positive impact effect at least in 2007.

Okay, and my second question is regarding your two projects. Let’s say, CESL said yesterday that CVRD is offering some projects for expansion, including [Mar Azul] and those that we read. With Minas probably has a new flat plant and probably a bit tight with some final destination of products. Could you give us some light on what type of projects CVRD’s is analyzing together its potential partners nowadays?

Well we have announced two projects, two major projects with a decent Group this year, say JV. That’s a very big project in the state of Rio de Janeiro and CRIU in the state of Ceará, Brazil. That’s a smaller one but very important. So both will bring a new capacity of approximately 5.5m of –- 6.5m tons per year to come on stream by the late 2008, first half 2009. And as a result of CVRD’s initiatives to promote this, we will have a third blast furnace once Salobo, Brazil comes on stream in the first quarter of 2007.

[Inaudible].

[Inaudible] if you were a shareholder of CFC it was able to promote these projects.

Okay, thanks Roberto.

You’re very welcome Rodrigo.

Thank you Mr. Barros for your question. Our next question comes from Daniel Altman with Bear Stearns. Please go ahead.

Hello, thanks very much. Congratulations on a great quarter. Couple of questions, firstly on China we’ve seen increases in iron ore production and rather significant increases. I wonder if you’ve heard anything on your end in terms of whether they’re fudging the numbers or whether they truly have been able to achieve higher volumes, and if it has any impact on the seaborne market?

Second question is on the CSN right of first refusal. Just to see if an update there. If you’ve had any volumes put to you or sold to you for the second half of this year, if you’re anticipating any?

And the third question is regarding Inco. I apologize for asking about this but, you’re name obviously has found it’s way into quite a few newspaper articles related to Inco, one that said you were working frantically on a deal. And I’m just wondering if you have any comments and whether you think Inco at these levels would be too expensive for CVRD to jump in? Thanks.

Thank you Daniel. It’s a pleasure to have you with us today. I’ll start responding to your third question. You don’t have to apologize. You are only reflecting rumors and we do not comment rumors, that’s all.

Regarding CSN, we have no news about that.

And third, regarding Chinese iron ore statistics, we would all have had some difficulty in understanding Chinese iron ore production. But what is real is that we continue to see a very strong demand for new ore, as we have shown in the data. China imported 151.4m tons of iron ore in the first half of the year and this continues on a very strong pace. So, regardless of the statistics that sometimes reflects only run of the mine sometimes iron ore but the real life demand for iron ore, for imported iron ore, continues to be very strong.

Okay, so no comment other than that on rumors on Inco.

It’s our policy and we do not comment on rumors.

Okay, thanks.

You’re welcome.

Thank you for your question Mr. Altman. Our next question comes from Katie Blacklock with Thames River Capital. Please go ahead.

Hello, I just have a question on the SG&A side in the quarter. There was quite a sharp jump in your SG&A expense versus the first quarter and second quarter of last year. I wondered if you could just explain what’s happening there and what we could work with going forward. And perhaps have you reallocated any costs to this line?

Well, good morning Katie. It’s a pleasure to have you with us.

There are no -- the SG&A increase on a year-over-year basis was due to –- mainly due to salary increase. As you know we had a wage increase from July 2005 onwards so there is a bias when you compare the second quarter of 2006 with second quarter 2005. Due to gross profits we increased the number of employees year-over-year, but from now on we are going to see some of the effects of our cost cutting program and there is nothing special about this.

So there are some labor costs obviously going to SG&A but presumably the majority of your labor costs go into the cost of goods sold side. And if I look at the increase year-on-year it was about 38% in Reais terms. So even with the 6.5% salary increase that you put through in the second half of last year it still looks like a very large leap.

Yes, it’s much more in a one event development. And there were also some expense in under-pricing as a way to promote the image of the Company domestically as part of our corporate responsibility program and this is a one-time event. It’s not a trend.

Okay. And then I just had two other very brief questions. The first on the up-deal alumina production. Given that the quarter you’ve had are you still sticking with your full year production target of 3.8m tons of alumina?

And then lastly just on the effective tax rate, it was much lower this quarter. Will that have any impact on your guidance for the full year tax rate?

We continue with our program to produce 3.8m tons of alumina this year and 4.4m tons next year.

In terms of tax rate it’s only a temporary effect. We expect to have an effective tax rate for the year close to 20% and, over time, the conversion to a level of 25%.

Okay, thank you very much.

You are very welcome Katie.

Thank you for your question Ms. Blacklock. Our next question comes from Martin Schutz with [Alegion] Asset Management. Please go ahead.

Good morning, thanks for taking the question. Actually the first one’s already answered. More of a macro prospective would be any thoughts on shipping prices and any thoughts also on Baltic Dry Index obviously coming up some? More macro question, any thoughts on directionally where that might head and how it affects your business? Thanks.

Well, Martin. We have had a few, mid 2005, a very sharp increase in shipping rates globally as part of the acceleration of global growth. And mostly the very, very substantial increase in my kind of transportation of boat products like iron ore, coal, soya beans and others. But the shipping industry, the shipping companies reacted all bringing a significant amount of tonnage from the ship yards. The ship yards were full of orders so they -- even in 2005 they increasing tonnage for the global fleet of fixed priced vessels were introduced. Fixed priced vessels are the most important type of vessel to carry both globally, increased by an amount of tonnage that was the highest in history. And so there was a conurbation of shipping rates towards a more lower level. And volatility in shipping rates is a fact of life. It’s a market which is very volatile. So we expect to have some volatility around a lower level price. For instance, for iron ore from Brazil to Asia we saw a level of $40 per ton in April 2005. It was a peak level. Now we have a shipping rate for this route varying from $20 to $25 per ton and more, more going to one.

In terms of our competitiveness, of course, it will help us much more if you had more levels of shipping rate which make our products much less expensive in major. On the other hand the increase in shipping rates reflects the strength in the demand for iron ore. And so this is, it has two sides. On the one hand, structurally, it reduces our competitiveness, although we have been able to sell iron ore to Asia since 1955 due to the superior quality of our product. On the other hand, higher level shipping rates reflects a better performance of the global economy, very strong demand for boats, particularly in the case of iron ore.

Okay, great, thank you. And just a quick follow-up, any thoughts on why the recent index seems to be turning upwards? Are you seeing forward freight type of activity that would indicate the continued acceleration by China or other buying on that front.

These are very short term movements. It’s very difficult to explain.

Okay, thank you.

Thank you for your question Mr. Schutz. Our next question comes from Oscar Cabrera from Goldman Sachs. Please go ahead.

Gentlemen, congratulations on the great quarter and continuing strengthening the results.

I just -- if you look at the results from MBR you guys are trending to produce in excess of 60m tons. Just wondering if they are the expectations or do we look for something a little bit lower on the second half of the year?

We stick to our program to produce 254m tons in the year mainly from the Southern System. It means 120m. Carajas has a mode to produce 85m tones. In the case of MBR 58m tons. The MBR mines are presenting very good productivity gains and there is only a new mine, Mar Azul, which was only acquired early this year and produced 1m tons. But we could it produce more than 58m it would be good. It would be a very nice surprise. For the time being, this is our program and we expect to meet the goal of 254m tons this year.

Okay, thanks. And if I can just follow-up the previous caller’s question. In terms of your –- the assumptions of the number you were using for shipping and transportation costs in the spot prices that you’ve shown us here, what prices are you putting under this $68 a ton?

The spot price for iron ore transportation from Brazil to China.

Okay, so that’s the $20 to $25 you were referring to.

Yes.

Okay. Thanks very much.

You’re welcome Oscar. It’s a pleasure too.

Excuse me. Our next question comes from Mr. Ivan Fadel with Credit Suisse.

Hello Roberto. Just that you mentioned earlier that you expect fuel production at China to improve. However there are wide spread concerns over demand for steel and metals in general, especially concerning rising inventories in the U.S. and also falling levels of the PMI in China. So how do you see this possible less favorable scenario steel translating to iron ore demand?

Well, what we expect is more moderate and sustainable growth rates of industrial production around the world. If you look back to the beginning of this global cycle it alternated sales of acceleration and deceleration. We had a very clear acceleration from mid 2003 to mid 2004. Then deceleration between 2004 and 2005 and new acceleration phase there. So we believe that it remains in the second quarter of 2006 reaching low activity growth above 5%, which largely is a long term plan. Now we expect deceleration and to be very healthy. It doesn’t mean that we expect a weaker demand for mineral metals. I expect to get continuation of a strong demand but at more moderate levels.

And in the case of iron ore, there are no signals that demand for iron ore and pellets will weaker. We have temporary weaker half in the demand for pellets mostly due to the global inventory cycle. That’s a natural phenomenon within an economic cycle. There’s nothing to worry about there.

Okay, thank you very much, Roberto, thank you.

You’re welcome.

Thank you for your question Mr. Fadel. Our next question comes from Edmo Chagas of UBS. Please go ahead.

Hello Roberto, two quick questions. Your CapEx number first half of this year was about $1.9m. I know that you don’t have an opinion on CapEx, but I would say that you are likely to be below the $4.6b guidance or don’t you have a CapEx in the second half of this year?

And the second question related to your shareholders debentures. Your mark to market this quarter should be something you’re going to do. But the question is are you going to provision the royalties that those debentures paid to shareholders on a quarterly basis as well?

We -– regarding the CapEx, we have a program budget sustained at $4.6b and the first half of the year have spent $1,944m. And continuing with the CapEx, nothing was significantly changed. That’s for the numbers and wait until year end.

In the case of debentures, these provisions are not cash ones. We are marking to market. There was a very significant average price increase comparing the second quarter to the first quarter then we made a provision.

In the case of the revenues of the debenture holders, this is where it is made on a cash basis. We pay twice a year the remuneration on these debentures to the debenture holders. So it’s going -– it’s accrued on a timely basis and it corresponds to a cash expense, while the provision for the price increase are non-cash ones.

Okay, thank you.

Thank you for your question Mr. Chagas. Our next question comes from Thomas [Pintobasto] with AGF. Please go ahead.

Hello. I just had a question on the hedges on the alumina or aluminum. My understanding is they were attached to loan covenants. I’m just curious if there’s been any change in those hedges and if not going forward if there’s a timeline in terms to as to when they might end or under what kind of conditions we might those hedges by removed?

And the second question was if you could provide an update in terms of your exploration or where else you’re looking outside of Brazil in terms of your copper, coal and nickel?

Regarding the first question we have this, you are right, with these hedged positions on aluminum and alumina were made to a covenants to comply with covenants in loans that were taken by our subsidiaries in the past. And we bundled this policy of hedging against aluminum price before the end of 2004. And at the equivalent alumina price it would be very, very costly to unwind these hedged positions. So, we continue with them. They are going to remain these positions. They are going to mature, part of these in 2006, part in 2007 and 2008 we will have nothing. These are depleting, they correspond to the decreasing share of our total aluminum production.

The second question I’ll pass to Jose Lancaster to talk about our mineral exploration.

Our exploration activities outside of Brazil, you mentioned coal and copper. Copper is in the [corridors] of South America. So we are doing activities in Chile, Peru at exploration stage.

In terms of coal we are progressing with our multi-business projects. Our feasibility studies should be done in a few months. We have a new front in Australia, the Belvedere project which we’ve been working there for maybe six months with positive intersections. This project is situated in the Bowen Basin of Australia. So it’s coke and coal, which is the main objection of CVRD.

In terms of copper, we are also doing some movements in Kazakhstan. We have a project, Vostock project that we beginning activity with. We are continuing Mongolia. We’re also getting into the copper belt of Africa. We already have projects in the Angola and in Zuragham. Looking on a regional basis, the Congo in Zambia are areas of copper.

Okay, thank you.

Thank you for your question Mr. Pintobasto.

This concludes today’s question and answer session. Mr. Castello Branco at this time you may proceed with your closing statement sir.

Well, I would like to thank you everybody for the attendance to our conference call webcast. Our webcast will be available in our website for the next 90 days. I would like to thank Dr. Jose Lancaster for his important contribution to this conference call and we hope to deliver even better results in the future.

Thank you very much.

That does conclude our Companhia Vale do Rio Doce second quarter 2006 earnings conference for today. Thank you very much for your participation. You may now disconnect.