Brazil raises pressure on Vale

Brazil’s government is pushing for management change at Vale in an effort to align the world’s biggest miner of iron ore more closely with national interests, according to people close to the company.

The main objective has been to ensure that Roger Agnelli, the chief executive, does not stay on at the company when his mandate comes to an end next May, these people said.

They said that the majority of the company’s seven executive directors would quit if the government got its way.

Vale has been steadily exporting more iron ore to China and building many of its ships in Asia instead of Brazil, something the government argues is damaging industrial growth. Politicians have pressed the company to invest more locally, especially in the steel industry, in an effort to help foster the development of Latin America’s biggest economy.

The government has been at loggerheads with Vale over the R$5bn ($3bn) it believes the miner owes in royalties. The company says that it has paid all its dues and plans to take the issue to judicial review.

Although Mr Agnelli is likely to be replaced by a market-friendly executive, people close to Vale said that the shake-up would send a signal not only about the outlook for the company, but also about the freedom of business to operate in Brazil.

“This is an attack on the institution,” one person said. “Whoever they hire next will have to abide by the government’s rules and no other professional executive wants to be a part of that. We really are at a turning point, and this is a very dangerous situation, not only for the company but for the whole country. Are we going to go down the path of the free market or the path of Venezuela?”

As part of the government’s efforts, Guido Mantega, finance minister, held a meeting last Friday with Bradesco, the bank that is one of Vale’s main shareholders, to try to persuade it to back a new chief executive.

Bradesco’s support is vital to the government’s objectives.

Vale’s other major shareholders are mostly linked to the state in some way: BNDES, the government-run development bank, and Previ, a pension fund for employees of Banco do Brasil, the country’s biggest state-run bank.

Mitsui is also a major shareholder but the Japanese trading company is seen as taking a more passive role in the negotiations.

Mr Agnelli worked for Bradesco for almost 20 years as an investment banker before joining Vale in 2001.

Bradesco, Vale and Brazil’s finance ministry declined to comment.

Brazil’s unequal trading relationship with China has become one of the top priorities for new president Dilma Rousseff and is likely to be high on the agenda when she visits the country in April.

While Brazil primarily exports commodities to China, its domestic manufacturing industry is being undermined by a strong exchange rate and a flood of cheap imports from the Asian economy.

Vale is likely to play a decisive role in the future relationship between the two countries. The Rio de Janeiro-based company is now the country’s biggest exporter and brought in almost $47bn in revenue last year thanks to a surge in global iron prices.

Unlike Petrobras, Brazil’s national oil company, Vale has increasingly followed its own path since it was privatised in 1997, selling to whoever will buy and building ships wherever it is cheapest.