Brazilian miner gunning for BHP

CVRD of Brazil has declared it plans to be bigger in mining than BHP Billiton within five years, after revealing plans to spend an industry record $US11 billion ($12.2 billion) on growth projects next year. "Delivering this investment, we are going to be there head-to-head - but we are going to be there, even considering BHP is willing to invest a lot of money," CVRD's chief executive, Roger Agnelli, told investors yesterday. "In terms of mining, we are going to be bigger than them. "If they acquire someone, OK, let's see." He said CVRD had no big acquisition plans but could strike a deal if the right opportunity presented itself to help it become larger than BHP, outside petroleum. During a three-hour webcast from New York, CVRD executives made several references to its Australian rivals, BHP and Rio Tinto. As benchmark iron ore pricing negotiations begin, the Australian miners are preparing to seek a "freight premium" for their iron ore since they can deliver the product more cheaply to Asian buyers as the shipping distance from Australia is shorter than from Brazil. But CVRD, which produces higher-quality iron ore than BHP and Rio, warned it might seek a "quality premium" if the Australians attempted to gain a freight premium, noting a large rise in the benchmark price would probably be the best outcome for all. "We never played the game of quality [in the past]," CVRD's ferrous minerals head, Jose Carlos Martins, said. "Distortions are everywhere, for Australia and for us. What is a matter of concern is a distortion in the market so big it is bringing a lot of friction in the system because everyone is looking for opportunities to get a better price." This month, BHP threatened to sell some of its expanded iron ore on the spot market if Asian steel makers refused its demand for a freight premium. Mr Agnelli said CVRD wanted to maintain the benchmark system but would deliver more iron ore into the spot market if long-term contract prices did not reflect costs and market conditions, especially given the US dollar had weakened. On Monday Macquarie Equities increased its forecast rise in the iron ore benchmark price to 50 per cent. But its analysts said the argument Australian miners should receive a freight premium was exaggerated, given most of the larger customers did not participate in the spot freight market. CVRD's approved capital budget for next year of $US11 billion compares favourably to BHP's $US9.7 billion budget for the year to June 30, 2008, and Rio's $US5 billion budget for this calendar year. The bulk of CVRD's funds will be put toward iron ore and nickel projects.