VALLEY OF THE RIO DOCE COMPANY
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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the
Securities Exchange Act of 1934
For the month of
August 2005
Valley of the Rio Doce Company
(Translation of Registrant’s name into English)
Avenida Graça Aranha, No. 26
20005-900 Rio de Janeiro, RJ, Brazil
(Address of principal executive office)
(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)
(Check One) Form 20-F þ Form 40-F o
(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1))
(Check One) Yes o No þ
(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7))
(Check One) Yes o No þ
(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)
(Check One) Yes o No þ
(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b). 82-                    .)
 
 

 


TABLE OF CONTENTS

Press Release
2Q05 Financial Statements (BRGAAP)
Signature page


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BR GAAP
(COMPANHIA VALE DO RIO DOCE LOGO)
REAPING THE FRUITS OF THE LONG CYCLE
CVRD’s performance in the second quarter 2005
BOVESPA: VALE3, VALE5
NYSE: RIO, RIOPR
LATIBEX: XVALO, XVALP
www.cvrd.com.br
rio@cvrd.com.br
Investor Relations Department
Roberto Castello Branco
Alessandra Gadelha
Barbara Geluda
Daniela Tinoco
Eduardo Mello Franco
Rafael Azevedo
Tel: (5521) 3814-4540
Rio de Janeiro, August 10, 2005 — Excellent strategy execution, linked mainly to discipline in capital allocation, has allowed Companhia Vale do Rio Doce (CVRD) to benefit from the opportunities offered by the long cycle in the metals and mining sector.
The results in the second quarter of 2005 (2Q05) reflected this process, with various new records being set in the following areas: shipments of iron ore and pellets, gross revenues, operational performance, cash generation and net earnings. Of particular note were the records for production - 115.841 million tons of iron ore in 1H05, investments1 of US$ 2.5 billion and exports of US$ 6.1 billion in the last twelve months, and the Company’s achievement of the investment grade rating.
  Sales of iron ore and pellets in 2Q05 of 61.717 million tons, 10.9% higher than in 2Q04.
 
  Gross revenues in 2Q05 of R$10.052 billion, up 36.3% year-over-year (yoy).
 
  Consolidated exports in 1H05 of US$3.287 billion, exceeding the exports obtained in 1H04, by 22.4%. Once again, CVRD’s sales performance in international markets reinforced the Company’s position as Brazil’s largest exporter.
 
  Net exports in 1H05 (exports less imports) of US$2.912 billion were 29.6% higher than that reported in 1H04. CVRD’s contribution to Brazil’s trade balance continues to be extremely significant, being responsible for 14.8% of the trade surplus of US$19.666 billion in the first half of this year.
 
  Operational performance, as measured by EBIT (earnings before interest and taxation) of R$4.756 billion in 2Q05, 60.2% higher than in 2Q04, when this figure amounted to R$2.968 billion.
 
1   according to the generally accepted accounting principles in the United States (US GAAP)
 
The financial and operational information contained in this press release, except where otherwise indicated, was consolidated in accordance with Brazilian generally accepted accounting principles (Brazilian GAAP). According to the criteria of Brazilian GAAP, those companies in which CVRD has effective control, or shared control as defined by shareholders agreement, are included in the consolidated figures. In the instances where CVRD has effective control, the consolidation is carried out on a 100% basis and the difference between this amount and the percentage of CVRD’s equity stake in the subsidiary is discounted at the minority shareholding line. CVRD’s main subsidiaries are Caemi, Alunorte, Albras, RDM, RDME, RDMN, Urucum Mineração, Docenave, Ferrovia Centro-Atlântica (FCA), Rio Doce Europa, Itaco, CVRD Overseas and Rio Doce International Finance. For companies in which control is shared, the consolidated figures are proportional to the equity stake held by CVRD in each company. The main companies in which CVRD has shared control are MRN, Valesul, Kobrasco, Nibrasco, Hispanobras, Itabrasco, GIIC, Samarco and CSI.
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  Cash generation, as measured by EBITDA (earnings before interest, taxation, depreciation and amortization), in 2Q05 of R$5.334 billion, which represents an increase of 57.6% yoy.
  Net earnings of R$3.479 billion in 2Q05, which corresponds to earnings per share of R$3.02, which is more than double than the figure reported in 2Q04, of R$1.683 billion.
  Return on equity (ROE) of 38.3% in 2Q05, compared to 36.0% in 1Q05.
  Investments of US$821.3 million in 2Q05, as measured according to the US GAAP principles.
SELECTED FINANCIAL INDICATORS
                                         
                                    R$ million  
    2Q04     1Q05     2Q05     1S04     1S05  
Gross operating revenues
    7,374       7,052       10,052       13,304       17,104  
Exports (US$ million)
    1,598       1,336       1,951       2,686       3,287  
EBIT
    2,968       2,375       4,755       4,747       7,132  
EBIT margin (%)
    42.6 %     35.3 %     49.8 %     37.6 %     43.8 %
EBITDA
    3,384       2,849       5,334       5,819       8,183  
Net earnings
    1,683       1,614       3,479       2,637       5,094  
Net earnings per share (R$)
    1.46       1.40       3.02       2.29       4.42  
Capex (US$ million)
    488.3       570.3       821.3       846.3       1,391.6  
(LOGO)BUSINESS OUTLOOK
The global economy appears to be close to completion of a transition toward a more sustainable long-term rate of expansion. In spite of the adverse effect of the shock in oil prices — whose persistence at high levels, indeed, reflects the strength of demand — there are good indications that the world economic growth is robust and should continue over the coming quarters.
In 2Q05 the US economy completed its ninth consecutive quarter with an annual expansion rate above 3%. At the same time, China’s annualized GDP growth rate has been above 9% since 3Q03 and was 9.5% in 2Q05.
Leading indicators of manufacturing industry activity are showing signals that suggest a strong recovery, as new wholesale orders, production, purchasing orders/inventories have been growing significantly since June.
There was substantial accumulation of inventories in the US in 4Q04 and 1Q05, leading companies to reduce them in 2Q05. Therefore, the ISM (Institute of Supply Management) indicator for the industry reached in May 2005 its lowest point of a downtrend which begun in 2Q04. Since then, its behavior reversed markedly, indicating acceleration of industrial growth in the next two quarters.
The adjustment in the US economy coincided with a similar industrial movement in other important economies, in terms of consumption of inventories of commodities and processed raw materials, which had reached excessive levels in response to the increase in prices and supply-side uncertainties in 2004.
With this phase completed, there is a recovery in the Purchasing Manager Indices (PMIs) in practically all the world’s regions, suggesting the start of a globally synchronized recovery in economic activity. This synchronization had been broken down since the middle of 2004, with the slow growth of Japan and the Eurozone.
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The dynamics of the cycle now translate into new purchase orders, increased international trade flows, industrial growth, and recovery in commodity prices. Symptomatically, copper prices reached 20-year record highs in June and July, and primary aluminum prices interrupted their downtrend initiated since last March, accumulating a fall of 15.5% until the first week of July.
In the steel industry, the International Iron and Steel Institute (IISI) figure of 7.6% for global expansion of production in the first half of the year hides the disparity between the very strong Chinese growth of 28.3% and a soft patch in the rest of the world, where production increased by only 0.6%, as a result of the marginal cuts since February. Indeed, building of inventories in the hands of consumers of steel products forced the industry to slow down production, primarily in the EU and North America — where crude steel output decreased, respectively, by 1.7% and 2.6%.
In the developing economies, which are less subject to cyclical variations, being China and India typical examples, steel production continued to grow vigorously, with increases of 28.3% and 12%, respectively, in the first half of 2005.
In the coming months we expect to see the differences between steel production growth in the various regions of the world diminishing — with more moderate expansion in China, where there appears to be a short term excess supply in long steels, and a recovery in the European Union and the US, reflecting the reduction of inventories over recent months. It is important to point out that the urbanization process in large scale in China is expected to continue for at least the next 10 years. Thus, strong demand for long steel, used in civil construction, should prevail.
In China, fixed assets investments, a good leading indicator for steel consumption, has been growing at annual rates above 25% since March, and was 27.1% in June. Thus, the strong outlook for consumption combined with the probably more moderate increase in production indicates lower availability for exports, setting the stage for a recovery in steel production in other regions of the world.
A scenario in which there is persistent economic growth in China, strengthening of the US, European and Japanese economies, and a slow response from supply given the restraints on supply of equipment, makes it possible to foresee lengthening of the present mining and metals cycle.
The continuity of the global economic growth — with strong liquidity in the financial markets and solid demand for commodities — tends to benefit Brazil and sustain the appreciation of the Real against the US dollar.
As a result of the performance of steel production, Chinese imports of iron ore reached 131.2 million tons in the first half of 2005 (1H05), 34.1% higher yoy. China’s volume of imports in 1H05 was equal to the annual imports of the whole of the European Union, for example.
In spite of record imports, inventories of iron ore in the Chinese ports in July continued to be low. Spot market prices started rising again, remaining above benchmark prices. Thus, all the signs indicate that excess global demand for iron ore will continue.
In July, the China National Development & Reform Commission issued its Steel Industry Development Policy, aiming to restructure the steel industry turning it more efficient and competitive in the global market. The steel industry in China is still very fragmented: according to the China Iron & Steel Association (CISA) in 2004 there were 871 steel mills in operation, but only 15 with capacity of 5 million tons per year or more, and the top 10 companies were producing 35% of the total
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output. The Chinese government’s target is to increase this percentage to 50% in 2005 and 70% in 2010, through mergers and expansion of the more competitive operations.
Since the directives of the new policy do not apply to projects that have already been approved, we believe their effects will not be felt in the short term. It is possible, however, to predict that the focus on consolidation, productivity gains and product quality improvements will tend to benefit an iron ore supplier such as CVRD, which has large scale, high quality products, capacity to develop specific solutions, and whose clients are among the players with the largest scale, financial capacity and advanced technological development.
The market for alumina continues to show signs of disequilibrium between supply and demand. Chinese imports in 1H05 were 3.7 million tons, 30% more than in 1H04, and prices have passed the US$ 400/ton mark. Our expectation is that this scenario will not change significantly over the next 18 months.
The situation in the ferro alloys market is different from that of the other mineral products. After a strong rise which began in 4Q03, prices entered a downtrend starting around the middle of 2004, with the exception of medium carbon ferro-manganese alloy, whose price fall is more recent, becoming pronounced in 1Q05.
The imbalance in the alloys market was caused by the strong expansion of capacity — which, according to data from the International Manganese Institute, was 12.3% in 2003 and 15.4% in 2004 - and in global production, which grew 20% in 2004, put in place mainly by the higher-cost, non-integrated producers. The expansion of Chinese production — from 20% of global alloys production in 2000 to 35% in 2004, supported by a considerable increase in imports of manganese ore since 2001 — was a key factor in this context of excess supply.
Due to the context of accumulation of inventories and falling prices, CVRD is shutting down temporarily the two furnaces of its Mo I Rana plants, in Norway, and running the Dunkerque unit, in France, at half-capacity — these two actions should reduce the company’s output of alloys by an estimated 200,000 tons in an annualized basis. At the same time, other players are also reducing production, some recently re-activated plants are being closed, and the Chinese government is eliminating export incentives.
As a consequence, we expect alloy prices to stabilize in the near future. Manganese ore and ferro alloys provided 4.4% of CVRD’s total sales revenue in 2Q05.
(LOGO)IMPORTANT RECENT EVENTS
CVRD rated investment grade
On July 8, Moody’s Investors Service upgraded CVRD foreign currency rating from Ba1 to Baa3. According to Moody’s rating scale, Baa3 qualifies the Company as a moderate credit risk issuer, without speculative elements, corresponding to investment grade.
The upgrade of CVRD’s rating is a landmark in its growth path, characterized by the Company’s strong commitment to shareholder value creation. CVRD is the first Brazilian company to obtain the investment grade rating.
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  Dividend payment
On April 29, CVRD distributed to its shareholders a total of R$ 1,280 billion, equivalent to US$ 0.435 per share, as the first installment of the minimum dividend for the year of 2005, set at US$ 1.0 billion.
Payment of the second tranche of the minimum dividend is scheduled for October 31.
  Development of the Vermelho nickel project approved
In July, CVRD’s Board of Directors gave the go-ahead for development of the Vermelho nickel project, located in the Carajás mineral province, in the Brazilian state of Pará. This project will mark the Company’s entry into the global nickel market. The Vermelho project will have production capacity for approximately 46,000 tons per year (tpy) of metallic nickel and 2,800 tpy of cobalt. The useful life of the project is estimated to be 40 years.
The estimated investment is up to US$ 1.2 billion, with startup scheduled for the fourth quarter of 2008.
  CVRD begins mineral exploration in Australia
In July CVRD signed agreement with the Australian mining companies Aquila Resources Limited and AMCI Holdings for an exploration study of the Belvedere Coal Underground Project (Belvedere). Belvedere is an estimated 2.7 billion ton hard coking coal resource located in the state of Queensland, Australia.
At the conclusion of the pre-feasibility study, CVRD has the option to acquire a 51% interest in Belvedere at a price of US$ 90 million. CVRD has further options to increase its stake in the project up to 100% by acquiring its partners ´ interests at a fair market value determined at the time of the exercising of each option.
With this project, CVRD now has mineral exploration investments in four continents: South America, Africa, Asia and Australasia.
  First iron ore shipment to Ukraine
In August, CVRD concluded its first iron ore shipment to Ukraine. Ukraine is the world seventh largest steel producer. This shipment represents the conquest of a new frontier of the iron ore seaborne market.
  Divestment of QCM
CVRD’s subsidiary Caemi sold its shareholding in Quebec Cartier Mining Company (QCM), an iron ore and pellets producer with operations in Quebec, Canada, for US$ 125 million, to Dofasco Inc, on July 22.
This transaction completed CVRD’s compliance with its undertakings to the antitrust authorities of the European Union.
(LOGO) SALES AND REVENUES
CVRD’s gross revenues in 2Q05 amounted to R$ 10.052 billion, 36.3% higher yoy. The growth of R$ 2.678 billion is essentially a function of the higher pricing level, responsible for an increase of R$ 4.131 billion in gross revenues, principally due to the positive impact of the annual price increase of iron ore and pellets.
Increased sales volume, including shipments of copper concentrates, improved the Company’s gross revenues by R$ 285 million.
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On the other hand, the appreciation of the Brazilian real against the US dollar seen between 2Q05 and 2Q04, of 18.6%, again had a negative impact on CVRD’s revenues, reducing them by around R$ 1.347 billion.
The ferrous minerals area was responsible for 74.3% of the Company’s total gross revenue in 2Q05, the aluminum chain accounted for 9.2%, logistics services 8.5%, non-ferrous minerals 4.1% and steel products 3.8%.
Brazil was once again the main destination of the Company’s sales, accounting for 23.0% of gross revenues in 2Q05. Sales to Europe, accounted for 30.2% of total sales, Germany being the main destination (8.7% of the total). Sales to Asia accounted for 25.1% of gross revenues, where China alone accounted for 11.3% of the total.
  Ferrous minerals
Sales of iron ore totaled 52.969 million tons in 2Q05, up 17.1% yoy. Between 2Q04 and 2Q05, two new mines began operations: Capão Xavier, in June 2004, and Fábrica Nova, in April of this year.
In 2Q05, CVRD purchased 4.140 million tons of iron ore from small mining companies located in the Iron Quadrangle, in the state of Minas Gerais, Brazil to complement its own production in the quarter — a new record, of 62,583 million tons — and enable the Company to meet commitments to clients. Total purchases from third party suppliers in 1H05 were 8.496 million tons, 10.5% more than the 7.687 million tons acquired in 1H04.
Pellet sales, of 8.748 million tons, were down 1.678 million tons compared to 2Q04 due to the programmed maintenance stoppage of the São Luís pelletizing plant, which production decresed 472,000 tons in the 2Q05 quarter-over-quarter (qoq), and because of shipment reprogramming between quarters.
Of the volume sold in 2Q05, 12.3 million tons of iron ore and pellets were shipped to China, representing 19.9% of the total, 6.6 million tons to Japan (10.7%) and 20.6 million tons to Europe (33.4%). Sales within Brazil accounted for 18.5% of the total — 11.4 million tons — of which 2.6 million tons were sent to the pelletizing joint ventures and 8.8 million tons to Brazilian steel and pig iron producers.
Gross revenues from the sale of iron ore and pellets in 2Q05 amounted to R$ 7.015 billion. About 90% of the difference of the iron ore and pellet price increase, retroactive to 1Q05, was accounted for in this quarter.
Revenues from the operation services of the pelletizing plants located in Tubarão, amounted to R$ 13 million.
Sales of manganese ore amounted to 194,000 tons, 5.4% lower than the figure in 2Q04, mainly because of the drop in Chinese demand for this product, generating total gross revenues of R$ 62 million.
Sales of ferro alloys were 151,000 tons and revenues generated from these sales, R$ 381 million, were substantially impacted by the drop in the ferro alloys price seen in 2Q05.
The global market for alloys is in a typical oversupply phase, after production growth of 20% in 2004. With the accumulation of inventories and falling prices, CVRD has decided to suspend production at the two Mo I Rana furnaces in Norway, and reduce capacity utilization at Dunkerque plant, in France, to 50% -
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together these actions reduce output of alloys by an estimated 200,000 tons per year.
Various swing producers — plants with high costs, which produce at the top of the cycle and shut down in the low part of the cycle — have suspended operations due to the price fall, and as a result the rate of growth of production fell in 1Q05, from 20% to 15% per year. Supply — and as a result, prices — are expected to stabilize in the coming quarters.
  Aluminum chain
Sales of bauxite, alumina and primary aluminum in the quarter, due to the fact that short-term production capacity remained unaltered, did not see any significant changes. Some variations seen between quarters, in terms of volume shipped, were because of shipment reprogramming.
In 2Q05, sales of bauxite amounted to 1.401 million tons, 13.4% more than in 2Q04, and 13.6% higher than sales in 1Q05.
Sales of alumina, of 367,000 tons, saw an increase of 8.9%, compared to the sales recorded in the same quarter in 2004, of 337,000 tons.
Primary aluminum sales, of 123,000 tons, were down 7.5% on 2Q04.
Sales of products in the aluminum chain generated gross revenues of R$ 928 million, 9.2% of CVRD’s total sales in this quarter.
  Copper
In 2Q05, CVRD sold 105,000 tons of copper concentrate, 20,000 tons more than 1Q05, 85,000 tons, and 71,000 tons more than in 2Q04, when shipments began. Gross revenues generated from the shipments of copper concentrate amounted to R$ 229 million.
Production at the Sossego copper mine continues to be lower than programmed, since drilling equipment acquired by the Company this year has not yet been delivered. Delivery of these equipments is now expected during the second half of the year. Therefore, production of copper concentrate for 2005 is likely to be approximately 130,000 tons.
  Industrial minerals
Potash sales amounted to 129,000 tons, down 22.3% yoy. In the first half of the year, as well as the unfavorable seasonal effect, the severe drought seen in the South of Brazil resulted in losses in the harvest and contributed to reducing potash consumption in Brazil for the first time since 1998.
In the second half of 2005, with the effects of the drought overcome, and the start of planting for the new crop, especially coffee — which uses potash intensively as a soil nutrient — we expect a strong expansion in sales. Such increase will be enabled by the capacity increase of the Taquari-Vasouras mine. With the ramp-up of the new installations, CVRD should produce 710,000 tons in 2005 against 638,000 tons in 2004. In 2006, operating at full capacity, estimated production is 850,000 tons of potash.
Gross revenues generated by potash sales amounted to R$ 76 million.
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Sales of kaolin totaled 303,000 tons, 3.8% higher than that reported in 2Q04, and generated revenues of R$ 111 million. The increased sales volume was due to new contracts signed, as already anticipated.
  Logistics services
Logistics services contributed with gross revenues of R$ 848 million, 8.5% of the Company’s total revenues in 2Q05. Of this amount, railroad transportation generated R$ 631 million and port services, R$ 123 million. Coastal shipping and port support services together were responsible for revenues of R$ 94 million.
CVRD’s railroads transported 7.755 billion net ton kilometers (ntk) of general cargo, 4.9% above 2Q04. Agricultural products accounted for 39.9% of the total, inputs and steel industry products 36.3% and construction materials and forestry-based products, 6.7%.
CVRD’s ports and maritime terminals handled 8.280 million tons in this quarter, compared to 8.120 million tons in 2Q04.
SALES VOLUME — IRON ORE AND PELLETS
                                                 
                                            thousand tons  
    2Q04     %     1Q05     %     2Q05     %  
Iron ore
    45,231       81 %     49,159       83 %     52,969       86 %
Pellets
    10,426       19 %     9,725       17 %     8,748       14 %
Total
    55,657       100 %     58,884       100 %     61,717       100 %
SALES VOLUME - ORES AND METALS
                         
                    thousand tons  
    2Q04     1Q05     2Q05  
Manganese
    205       198       194  
Ferro alloys
    94       136       151  
Copper concentrate
    34       85       105  
Potash
    166       138       129  
Kaolin
    292       280       303  
Bauxite
    1,235       1,233       1,401  
Alumina
    337       464       367  
Aluminum
    133       122       123  
LOGISTICS SERVICES
                         
    2Q04     1Q05     2Q05  
Railroads — general cargo (million ntk)
    7,395       6,009       7,755  
Ports (thousand tons)
    8,120       6,313       8,280  
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VOLUME SOLD BY DESTINATION — IRON ORE AND PELLETS
                                                 
                                            million tons  
    2Q04     %     1Q05     %     2Q05     %  
Asia
    19.7       35.4 %     22.7       38.5 %     22.5       36.5 %
China
    8.9       16.0 %     11.5       19.5 %     12.3       19.9 %
Japan
    6.3       11.3 %     5.8       9.8 %     6.6       10.7 %
South Korea
    2.1       3.8 %     2.5       4.2 %     1.3       2.1 %
Emerging Asia (ex-China)
    2.4       4.3 %     2.9       4.9 %     2.3       3.7 %
Europe
    18.5       33.2 %     18.0       30.6 %     20.6       33.4 %
Germany
    6.4       11.5 %     5.9       10.0 %     6.5       10.5 %
France
    3.1       5.6 %     2.6       4.4 %     3.0       4.9 %
Italy
    2.3       4.1 %     2.2       3.7 %     3.4       5.5 %
Others
    6.7       12.0 %     7.3       12.4 %     7.7       12.5 %
Brazil
    10.9       19.6 %     11.2       19.0 %     11.4       18.5 %
USA
    1.5       2.7 %     1.3       2.2 %     1.1       1.8 %
Rest of the World
    5.1       9.2 %     5.7       9.7 %     6.1       9.9 %
Total
    55.7       100.0 %     58.9       100.0 %     61.7       100.0 %
GROSS REVENUES — BY PRODUCT
                                                 
                                            R$ million  
    2Q04     %     1Q05     %     2Q05     %  
Iron ore and pellets
    3,912       53.1 %     3,920       55.6 %     7,014       69.8 %
Iron ore
    2,680       36.3 %     2,753       39.0 %     5,072       50.5 %
Pellets
    1,232       16.7 %     1,167       16.5 %     1,942       19.3 %
Pelletizing plants operation services
    27       0.4 %     21       0.3 %     13       0.1 %
Manganese and ferro alloys
    527       7.1 %     498       7.1 %     443       4.4 %
Copper concentrate
    72       1.0 %     200       2.8 %     229       2.3 %
Potash
    96       1.3 %     80       1.1 %     76       0.8 %
Kaolin
    116       1.6 %     105       1.5 %     111       1.1 %
Aluminum
    982       13.3 %     1,040       14.7 %     928       9.2 %
Logistics
    792       10.7 %     725       10.3 %     848       8.4 %
Railroads
    553       7.5 %     506       7.2 %     631       6.3 %
Ports
    119       1.6 %     114       1.6 %     123       1.2 %
Shipping
    120       1.6 %     105       1.5 %     94       0.9 %
Steel products
    828       11.2 %     452       6.4 %     379       3.8 %
Others
    22       0.3 %     11       0.2 %     11       0.1 %
Total
    7,374       100.0 %     7,052       100.0 %     10,052       100.0 %
GROSS REVENUES — BY DESTINATION
                                                 
                                            R$ million  
    2Q04     %     1Q05     %     2Q05     %  
Brazil
    1,840       24.9 %     1,765       25.0 %     2,323       23.1 %
USA
    793       10.8 %     743       10.5 %     715       7.1 %
Europe
    2,234       30.3 %     1,828       25.9 %     3,027       30.1 %
Japan
    690       9.4 %     597       8.5 %     841       8.3 %
China
    699       9.5 %     836       11.9 %     1,128       11.3 %
Emerging Asia (ex-China)
    361       4.9 %     428       6.1 %     547       5.5 %
Rest of the World
    757       10.3 %     854       12.1 %     1,470       14.6 %
Total
    7,374       100.0 %     7,052       100.0 %     10,052       100.0 %
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(LOGO) THE EXCELLENCE OF CVRD OPERATIONAL PERFORMANCE
In 2Q05, the Company’s operating profit (EBIT) amounted to R$ 4.756 billion, 60.2% higher yoy. EBIT margin amounted to 49.8%, compared to 42.6% in 2Q04.
Among the determining factors behind the increase of R$ 1.788 billion in EBIT between 2Q04 and 2Q05, the increase in net revenues, of R$ 2.581 billion, was the main one. This was partly offset by a raise of R$ 613 million in the cost of goods sold (COGS).
This increase in COGS is explained by the rise in the price of energy, raw materials, parts and equipments, technical services, as well as expanded production. The specific figures that make up the increased COGS in 2Q05, compared to the same quarter in 2004, are: (a) materials, which were up by R$ 251 million, (b) outsourced services, R$ 225 million, (c) energy, R$ 80 million, and (d) depreciation and exhaustion, R$ 74 million.
In this quarter, demurrage expenses amounted to R$ 40 million, below the R$ 56 million spent in 1Q05, and the R$ 48 million disbursed in 2Q04, which reflects CVRD’s efforts in reducing ship waiting and loading time in the Company’s ports.
EBIT was also negatively affected by an increase of R$ 181 million in operational expenses. Administrative expenses were up by R$ 33 million, principally due to increased expenditure on advertising and publicity (R$ 14 million), travel expenses (R$ 8 million), technical consultancy (external auditing, legal and IT services, R$ 7 million) and rents and taxes (R$ 8 million). In 2Q05, CVRD practically doubled its expenditure on research and development, which enlarged from R$ 81 million to R$ 161 million.
Other operational expenses saw an increase of R$ 82 million, mainly because of investments in social projects.
COGS BREAKDOWN
                                                 
                                            R$ million  
    2Q04     %     1Q05     %     2Q05     %  
Personnel
    352       10.4 %     314       8.3 %     340       8.5 %
Material
    541       15.9 %     715       18.9 %     792       19.7 %
Fuel oil and gases
    399       11.7 %     407       10.7 %     447       11.1 %
Outsourced services
    570       16.8 %     758       20.0 %     795       19.8 %
Electric energy
    291       8.6 %     318       8.4 %     371       9.2 %
Acquisition of products
    608       17.9 %     593       15.7 %     570       14.2 %
Depreciation and exhaustion
    288       8.5 %     347       9.2 %     362       9.0 %
Goodwill amortization
    96       2.8 %     96       2.5 %     96       2.4 %
Others
    252       7.4 %     238       6.3 %     238       5.9 %
Total
    3,397       100.0 %     3,785       100.0 %     4,011       100.0 %
(LOGO) EBITDA: CASH GENERATION IN THE QUARTER EXCEEDS R$ 5 BILLION
Cash generation, as measured by EBITDA, amounted to R$ 5.334 billion in 2Q05, 57.6% higher than the EBITDA reported in 2Q04, of R$ 3.384 billion. In the twelve months ended in June 2005, EBITDA amounted to R$ 14.613 billion.
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The increase of R$ 1.949 billion in EBITDA between 2Q04 and 2Q05 is explained by the increase of R$ 1.788 billion seen in EBIT and the rise of R$ 72 million in depreciation expenses. In addition, in 2Q05, CVRD received R$ 88 million in dividends from affiliated companies.
Earnings from ferrous mineral operations (iron ore, pellets, manganese ore and ferro alloys) increased as a proportion of total EBITDA, from 68.0% in 1Q05, to 79.8% in 2Q05. Logistics services accounted for 10.4% of EBITDA in the quarter, aluminum chain products, 6.5%, non-ferrous minerals (copper, kaolin and potash), 1.5%, while steel products and others contributed 1.7%.
QUARTERLY EBITDA
                         
                    R$ million  
    2Q04     1Q05     2Q05  
Net operating revenues
    6,970       6,720       9,551  
COGS
    (3,398 )     (3,785 )     (4,011 )
SG&A
    (387 )     (358 )     (403 )
Research and development
    (81 )     (81 )     (162 )
Other operational expenses
    (137 )     (121 )     (220 )
EBIT
    2,968       2,375       4,756  
 
Depreciation, amortization & exhaustion
    416       473       488  
Dividends received
                89  
EBITDA
    3,384       2,849       5,334  
EBITDA BY BUSINESS AREA
                         
                    R$ million  
    2Q04     1Q05     2Q05  
Ferrous minerals
    2,184       1,936       4,258  
Non- ferrous minerals
    151       104       82  
Logistics
    358       292       552  
Aluminum
    434       454       348  
Steel
    256       64       120  
Others
                (27 )
Total
    3,384       2,849       5,334  
(LOGO) RECORD NET EARNINGS
CVRD’s net earnings in 2Q05 amounted to R$ 3.479 billion, a new quarterly record, and more than double that reported in 2Q04, of R$ 1.683 billion. Of the increase of R$ 1.796 billion observed between these two quarterly periods, R$ 1.788 billion was as a result of the Company’s increased operating profit.
The net financial result also had a positive impact on net earnings in 2Q05, being R$ 978 million higher yoy. The increase of R$ 859 million in monetary variation is the result of the 11.8% appreciation in the Brazilian real / US dollar exchange rate as at June 30, 2005, compared to the end of 1Q05, against a depreciation of 6.8% in the BRL/USD exchange rate in 2Q04, in relation to 1Q04.
Financial expenses saw an improvement of R$ 106 million, in large part explained by the reduction in lending and financing. Financial revenues increased by R$ 12 million.
The result from shareholdings, of R$ 77 million, was R$ 100 million higher than that seen in 2Q04, at which time the Company saw a loss of R$ 23 million from its
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shareholdings. The positive equity income result of R$ 134 million in 2Q05 was partly offset by the goodwill on consolidated companies, of R$ 57 million.
Provisions for the payment of income tax and social contribution amounted to R$ 1.061 billion in the quarter, R$ 834 million more than in 2Q04, reflecting the expansion in the Company’s taxable earnings base.
(LOGO)PARADIGM SHIFT: THE INVESTMENT GRADE CONQUEST
On July 8, 2005 Moody’s Investors Service upgraded CVRD’s foreign currency credit rating from Ba1 to Baa3 — which on Moody’s scale means credit of moderate risk, without speculative elements, identified as investment grade.
This upgrade is the result of continuous effort to implement a long-term strategy focused on the value creation, which has been responsible for CVRD’s strong cash flow, supported by excellence in financial management, oriented toward minimization of risks and the strengthening of the Company’s capacity to assume financial commitments.
The improvement of CVRD’s credit risk classification is a historic benchmark in the Company’s growth trajectory, characterized as it has been by firm commitment to value creation for its shareholders.
CVRD is now one of the rare cases in which a company that has the vast majority of its assets in a non-investment grade country is itself promoted to investment grade — thus breaking a previous paradigm, and becoming the only company in Brazil with this position.
CVRD’s total debt on June 30, 2005 was US$ 4.168 billion, compared to US$ 4.182 billion on March 2005 and to US$ 4.088 billion in the end of 2004. Net debt at the end of June 2005 was US$ 3.212 billion, slightly higher than the US$ 3.060 billion verified at the end of March 2005.
The average maturity of CVRD’s debt on June 30, 2005 was 6.57 years, with 50% of the total debt at fixed rates and 50% at floating rates.
The rapid growth in adjusted EBITDA has been reflected in the improving trend of the Company’s leverage and interest coverage indicators. Cash generation growth enables the financing of investments and distribution of dividends with only marginal increases in debt levels, leading to a decline in leverage and an increase in interest coverage. This trend is expected to be even higher in 2H05 given the expectation of decrease in total debt due to its amortization.
Total debt/LTM EBITDA fell from 2.05x on December 31, 2001 to 0.83x on June 30, 2005. Interest coverage, expressed as LTM EBITDA/interest paid increased significantly to 17.73x on June 30, 2005 from 7.58x.
In June, CVRD used part of its free cash flow and the prepayment of some bank loans contracted at floating rates, in a transaction with total value of US$ 240.6 million. This aimed to reduce risks - refinancing risk and interest rate risk — and also the Company’s average cost of debt.
In isolation, these transactions reduced the proportion of floating-rate debt from 53% to 50% of CVRD’s total, and also produced a marginal positive impact on the debt’s cost and average maturity.
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The effect of the debt amortization was not fully reflected in the Company’s total debt because CVRD contracted in April export finance credit lines to deal with short-term cash management. Such credit lines will be liquidated during 2H05, US$ 129 million in 3Q05 and US$ 186 million in 4Q05, reducing debt levels.
FINANCIAL EXPENSES
                         
                    US$ million  
    2Q04     1Q05     2Q05  
Financial expenses on:
                       
Debt with third parties
    (79 )     (48 )     (57 )
Debt with related parties
    (5 )     (2 )     (4 )
Total debt-related financial expenses
    (84 )     (50 )     (61 )
                         
    2Q04     1Q05     2Q05  
Gross interest on:
                       
Tax and labour contingencies
    (9 )     (11 )     (13 )
Tax on financial transactions — CPMF
    (14 )     (9 )     (16 )
Derivatives
    23       5       56  
Others
    (22 )     (27 )     (17 )
Total gross interest
    (22 )     (42 )     10  
 
Total
    (106 )     (92 )     (51 )
DEBT INDICATORS
                         
                    US$ million  
    2Q04     1Q05     2Q05  
Gross debt
    4,514       4,182       4,168  
Net debt
    3,455       3,060       3,212  
Gross debt / LTM EBITDA (x)
    1.55       1.05       0.83  
LTM EBITDA / LTM interest expenses (x)
    12.94       13.24       17.73  
Gross debt / EV (x)
    0.22       0.11       0.11  
 
    Enterprise Value = market capitalization + net debt
(LOGO)GREEN LIGHT FOR VERMELHO
CVRD’s priority for the use of its strong cash flow is to finance investments that constitute platforms for shareholder value creation. At this point of the economic cycle, which is characterized, among other factors, by a significant increase in the price of equipments, raw materials and services, the choice of the right investment opportunities, that are truly capable of adding value, became an even greater challenge for the managers of a mining company.
Based on rigorous criteria, CVRD continues to invest a considerable volume of funds in the quest for profitable growth.
Total capital expenditure in 2Q05 was US$ 821.3 million, 44.0% more than in 1Q05. US$ 658.4 million of this total was spent on organic growth — projects and R&D, and US$ 162.9 million on “stay-in-business capex” — maintaining existing operations2.
CVRD’s total capex in the first half of 2005 was US$ 1.392 billion, 41.8% of the total of US$ 3.332 billion budgeted for the year.
The amount spent on research and development in 2Q05 was US$ 42.7 million, more than 50% higher than the US$ 28.2 million spent in the previous quarter.
 
2   Capex figures are based on actual disbursements.
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Mineral exploration efforts were focused on identifying new deposits of copper, coal, nickel, gold and manganese.
CVRD has various studies in progress. Highlights are: the Cristalino copper project in Carajás, in the Brazilian state of Pará; the São João do Piauí nickel project in the Brazilian state of Piauí; the coal project at Moatize in Mozambique; the manganese project at Franceville in Gabon; the phosphates project in Bayóvar, Peru; and the potash project at Rio Colorado in Argentina. The Company will start studies for the Belvedere coal project in Queensland, Australia.
The acquisition of 25% of the Chinese anthracite producer Henan Long Energy Resources Ltd. was concluded in this quarter, on payment of US$ 86.3 million. Henan is expected to produce 1.7 million tons in 2005.
At the beginning of July, CVRD’s Board of Directors approved investment in development of the Vermelho nickel project with estimated production capacity of 46,000 tpy of metallic nickel and 2,800 tpy of cobalt. The estimated total investment is up to US$ 1.2 billion, for startup scheduled for the last quarter of 2008.
  Main CVRD projects currently in progress
                 
        Budgeted    
        2005    
Area   Project   US$ million   Status
Ferrous
minerals
  Expansion of the Carajás iron ore mines by 85 Mtpa – Northern System     140     For completion in 2006, this will add 15 million tons to CVRD’s annual production capacity. The second ship loading system of Pier III is in test phase.
 
               
 
  Brucutu iron ore mine
– Southern System
    205     Phase I should be completed in 2006, increasing nominal production capacity to 15 million tpy. Phase II is scheduled for completion in 2007, to bring production capacity to 24 million tpy. A further expansion, to 30 million tpy is currently under study.
 
               
 
  Itabira iron ore mines
– Southern System
    16     Modernization of operations and expansion of production capacity to 46 million tpy, for conclusion and startup in 2006.
 
               
 
  Fazendão iron ore mine
– Southern System
    52     Project to produce 14 million tons run-of-mine (ROM) iron ore/year. Works to begin in second half 2005, for completion and operational startup in 2007.
 
               
 
  Fábrica iron ore mine –
Southern System
    38     Project for expansion of production capacity by 5 million tons, from 12 to 17 million tpy. Startup scheduled for 2007.
 
               
 
  Timbopeba iron ore mine
– Southern System
    25     Extension of the mine’s working life to 2008, with estimated annual production capacity of 2.7 million tons. US$7.8 million will be invested in development, purchase of small scale equipment and new access for the crushing facilities; a further US$17.6 million will be spent on rolling stock for the EFVM railroad.
 
               
 
  Tubarão Port expansion
– Southern System
    22     Expansion of the conveyor belt and dockside machinery, and construction of new dockside storage patios.
 
               
 
  Expansion of the São Luis pelletizingplant     18     Expansion of capacity from 6 to 7 million tpy. The expansion will be completed by January 2006. Production this year is estimated at 6.25 million tons.
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BR GAAP
                 
        Budgeted    
        2005    
Area   Project   US$ million   Status
Coal
  Anthracite     86     Acquisition of 25% of the Chinese anthracite producer Henan Longyu Energy Resources Ltd., in partnership with Yoncheng and Baosteel, has been completed. The mine will produce 1.7 million tons of high quality anthracite in 2005.
 
               
 
  Metallurgical coke     16     Acquisition of 25% stake in the Chinese coal producer Shandong Yankuang International Coking Ltd. – for production of metallurgical coke – in association with Yankuang. The project has estimated production capacity of 2 million tpy of coke, and 200,000 tpy of methanol. Startup is planned for 2006.
 
               
Non-ferrous
minerals
  Expansion of the Taquari-Vassouras potash mine     9     Project to expand nominal potash production capacity from 600,000 to 850,000 tpy. The ramp-up period has begun and production of 710,000 tons is expected this year.
 
               
 
  118 copper mine     32     Project for production of 36,000 tons of copper cathode/year.
 
               
 
  Vermelho nickel mine     34     Project for production of 46,000 tons of metallic nickel and 2,800 tons of cobalt, per year. Approved in July 2005; conclusion planned for 4Q08.
 
               
Aluminum
  Alumina: Alunorte Modules 4 and 5     306     Modules 4 and 5 will increase the refinery’s production capacity to 4.2 million tons of alumina/year. Completion is planned for 1Q06.
 
               
 
  Paragominas I bauxite
mine
    154     Will produce 4.5 million tpy of bauxite starting early in 2007. Tubes are currently being delivered for construction of the 244-km ore delivery pipeline to transport bauxite from Paragominas to the alumina refinery in Barcarena, in the Brazilian state of Pará. Earthmoving work has been completed for start of construction.
 
               
Logistics
  Acquisition of locomotives and railcars for EFVM, EFC and FCA railroads     559     2,288 railcars and 63 locomotives were bought in the first half of 2005.
 
               
Electric
energy
  Aimorés hydroelectric
power plant
    12     This power plant on the Doce river in the Brazilian state of Minas Gerais will have generation capacity of 330MW. The first turbine started up in July 2005; the other two are programmed to startup by October. CVRD owns 51.0% stake in the project.
 
               
 
  Capim Branco I and II hydroelectric power plants     73     Both plants are on the Araguari river in the Brazilian state of Minas Gerais. Scheduled to start operating in 2006, they have generating capacity of 240MW and 210MW, respectively. Works are 68% completed on Capim Branco I, and 41% on Capim Branco II. CVRD has a 48.4% stake in both projects.
CAPEX BY BUSINESS AREA
                                 
    US$ million  
Business area   2Q05     Realized 2005  
Ferrous minerals
    340.2       41.4 %     540.1       38.8 %
Non ferrous minerals
    53.1       6.5 %     88.8       6.4 %
Logistcs
    128.6       15.6 %     282.5       20.3 %
Aluminum
    151.0       18.4 %     277.7       19.9 %
Coal
    91.5       11.1 %     94.0       6.8 %
Electric energy
    35.7       4.4 %     59.5       4.3 %
Others
    21.1       2.6 %     49.1       3.5 %
Total
    821.3       100.0 %     1,391.6       100.0 %
(LOGO)THE SARBANES-OXLEY LAW: ADAPTING THE BYLAWS
CVRD’s Extraordinary General Shareholders Meeting held on June 19, 2005 made changes to the Bylaws to introduce and provide for compliance with the principles and concepts of the Sarbanes-Oxley Act of 2002, Rule 10A-3 of the Securities and Exchange Act of 1934, and Rule 303A.06 of the New York Stock Exchange Listed Company Manual, with necessary adaptations to Brazilian legislation. Also in accordance with the rules of the Sarbanes-Oxley Act, CVRD created an internal complaints channel.
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(LOGO)TELECONFERENCE AND WEBCAST
CVRD will hold a conference call and webcast on Friday, August 12, 2005, at 12:00 p.m. Rio de Janeiro time, 11:00 a.m. US Eastern Standard time, and 4:00 p.m. UK time. To participate, see the instructions on CVRD’s website www.cvrd.com.br, in the Investor Relations subsection. A playback of the call and webcast will be available on the site for 90 days following August 12.
(LOGO)SELECTED FINANCIAL INDICATORS OF THE MAIN NON-CONSOLIDATED COMPANIES
Selected financial indicators of the principal non-consolidated companies can be found in CVRD’s quarterly accounts, which are available on its website, www.cvrd.com.br, in the Investor Relations subsection.
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FINANCIAL STATEMENTS
                         
    R$ million  
    2Q04     1Q05     2Q05  
Gross operating revenues
    7,374       7,052       10,052  
Taxes
    (404 )     (332 )     (500 )
Net operating revenues
    6,970       6,720       9,551  
Cost of goods sold
    (3,398 )     (3,785 )     (4,011 )
Gross profit
    3,572       2,935       5,540  
Gross margin (%)
    51.3 %     43.7 %     58.0 %
Operational expenses
    (605 )     (560 )     (785 )
Sales
    (111 )     (100 )     (96 )
Administrative
    (276 )     (258 )     (308 )
Research and development
    (81 )     (81 )     (161 )
Other operational expenses
    (137 )     (121 )     (220 )
Result from shareholdings
    (23 )     73       77  
Equity income
    53       130       147  
Goodwill amortization
    (80 )     (57 )     (57 )
Others
    5             (13 )
Financial result
    (895 )     (274 )     82  
Financial expenses
    (353 )     (295 )     (247 )
Financial revenues
    46       113       58  
Monetary variation
    (588 )     (92 )     271  
Operating profit
    2,050       2,174       4,914  
Income tax and social contribution
    (227 )     (391 )     (1,061 )
Minority interest
    (140 )     (169 )     (375 )
Net earnings
    1,683       1,614       3,479  
BALANCE SHEET
                 
    R$ million  
    03/31/05     06/30/05  
Asset
               
Current
    11,937       12,386  
Long term
    3,787       4,106  
Fixed
    29,159       30,462  
Total
    44,884       46,954  
Liabilities
               
Current
    8,712       8,195  
Long term
    14,225       12,918  
Others
    2,162       2,579  
Shareholders’ equity
    19,785       23,262  
Paid-up capital
    7,300       14,000  
Reserves
    12,485       9,262  
Total
    44,884       46,954  
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CASH FLOW
                         
    R$ million  
    2Q04     1Q05     2Q05  
Cash flows from operating activities:
                       
Net income
    1,683       1,614       3,479  
Adjustments to reconcile net income with cash provided by operating activities:
                       
Result from shareholdings
    23       (74 )     (77 )
Depreciation, depletion and amortization
    560       385       384  
Deferred income tax and social contribution
    65       (113 )     53  
Financial expenses and foreign exchange and monetary net variation
    886       46       (982 )
Minority interest
    140       169       375  
Impairment of property, plant and equipment
    116       15       60  
Goodwill amortization in the COGS
    96       96       96  
Net unrealized derivative losses
    (77 )     5       (10 )
Dividends/interest attributed to stockholders received
                89  
Others
    130       (81 )     58  
Decrease (increase) in assets:
                       
Accounts receivable
    (426 )     (338 )     (1,026 )
Inventories
    (296 )     (70 )     (67 )
Others
    (253 )     (122 )     (593 )
Increase (decrease) in liabilities:
                       
Suppliers and contractors
    (160 )     49       278  
Payroll and related charges
    (1 )     (94 )     30  
Taxes and Contributions
    249       (579 )     885  
Others
    52       (257 )     288  
Net cash provided by operating activities
    2,785       651       3,322  
Cash Flow from investing activities:
                       
Loans and advances receivable
    0       12       (43 )
Guarantees and deposits
    (77 )     (52 )     (37 )
Additions to investments
          (10 )     (208 )
Additions to property, plant and equipment
    (1,527 )     (1,755 )     (1,926 )
Proceeds from disposals of investments/property, plant and equipment
    3       6       4  
Net cash used I investing activities
    (1,601 )     (1,798 )     (2,212 )
Cash flows from financing activities:
                       
Short-term debt, net issuances (repayments)
    (184 )     221       470  
Long-term debt
    780       726       342  
Repayments:
                       
Financial institutions
    (700 )     (477 )     (1,138 )
Shares in treasury
    (791 )     0       (1,280 )
Net cash used in financing activities
    (895 )     470       (1,606 )
Increase (decrease) in cash and cash equivalents
    289       (677 )     (496 )
Cash and equivalents, beginning of period
    3,503       3,917       3,240  
Cash and equivalents, end of period
    3,792       3,240       2,744  
Cash paid during the period for:
                       
Interest on short-term debt
    (7 )     (2 )     (20 )
Interest on long-term debt
    (148 )     (226 )     (128 )
Paid income tax and social contribution
    (126 )     (211 )     (379 )
Non-cash transactions:
                       
Additions to property, plant and equipment — interest capitalization
    (204 )     (27 )     402  
Income tax and social contribution paid with credits
    (196 )     (49 )     (56 )
2T05

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BR GAAP
     
 
     
“This communication may include declarations which represent the expectations of the Company’s Management about future results or events. All such declarations, when based on future expectations and not on historical facts, involve various risks and uncertainties. The Company cannot guarantee that such declarations turn out to be correct. Such risks and uncertainties include factors relative to the Brazilian economy and capital markets, which are volatile and may be affected by developments in other countries; factors relative to the iron ore business and its dependence on the steel industry, which is cyclical in nature; and factors relative to the high degree of competitiveness in industries in which CVRD operates. To obtain additional information on factors which could cause results to be different from those estimated by the Company, please consult the reports filed with the Comissão de Valores Mobiliários (CVM — Brazilian stock exchange regulatory authority) and the U.S. Securities and Exchange Commission — SEC, including the most recent Annual Report — CVRD Form 20F.”
2T05

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Contents
         
Part I
    2  
1- Management’s Discussion and Analysis of the Operating Results for the semesters ended June 30, 2005 Compared With June 30, 2004
    2  
1.1- General Aspects
    2  
1.2- Comments on the Consolidated Results
    4  
1.2.1- Gross Revenue
    4  
1.2.2- Cost of Products and Services
    6  
1.2.3- Operating Expenses
    6  
1.2.4- Net Financial Results
    6  
1.2.5- Income Tax and Social Contribution
    6  
1.2.6- Cash Generation Consolidated
    7  
1.3- Comments on the Parent Company Results
    8  
1.3.1- Net Income
    8  
1.3.2- Gross Revenue
    8  
1.3.3- Cost of Products and Services
    8  
1.3.4- Gross Margin
    8  
1.3.5- Results of Shareholdings by Business Area
    8  
1.3.6- Operating Expenses
    9  
1.3.7- Net Financial Results
    9  
1.3.8- Income Tax and Social Contribution
    9  
Part II
    10  
Quarterly Information and Notes to the Quarterly Information
    10  
2- Balance Sheet
    10  
3- Statement of Income
    11  
4- Statement of Changes in Stockholders’ Equity (Additional Information)
    12  
5- Statement of Cash Flows (Additional Information)
    13  
6- Notes to the Quarterly Information at June 30, 2005 and 2004
    14  
6.1- Operations
    14  
6.2- Presentation of Quarterly Information
    14  
6.3- Significant and Practices Accounting Policies
    14  
6.4- Principles and Practices of Consolidation
    14  
6.5- Cash and Cash Equivalents
    15  
6.6- Accounts Receivable from Customers
    15  
6.7- Inventories
    15  
6.8- Related Parties
    16  
6.9- Taxes to Recover or Offset
    16  
6.10- Deferred Income Tax and Social Contribution
    16  
6.11- Consolidated investments
    17  
6.12- Property, Plant and Equipment
    18  
6.13- Loans and Financing
    19  
6.14- Contingent Liabilities
    20  
6.15- Environmental and Site Reclamation and Restoration Costs
    21  
6.16- Paid-up Capital
    21  
6.17- Treasury Stock
    22  
6.18- Remuneration of Shareholders
    22  
6.19- Financial Results
    22  
6.20- Financial Instruments – Derivatives
    23  
6.21- Administrative and Other Operating Expenses
    25  
6.22- Subsequent Event
    25  
Part III
    26  
7- Attachment I — Statement of Investments in Subsidiaries
    26  
8- Other Information the Company Deems Relevant
    27  
8.1- Consolidated Iron Ore and Pellet Sales (Main Markets — Not Reviewed)
    27  
9- Report of the Independent Accountants
    28  
10- Board of Directors, Advisory Committees, Fiscal Council, Executive Officers and Technical Responsibles
    29  

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Part I
Expressed In thousands of reais
1-   Management’s Discussion and Analysis of the Operating Results for the semesters ended June 30, 2005 Compared With June 30, 2004
1.1- General Aspects
(a)   Companhia Vale do Rio Doce group’s segments of business are as follows:
    Ferrous minerals: iron ore and pellets as well as manganese and ferroalloys;
 
    Non-ferrous minerals: potash, kaolin and copper;
 
    Logistics: railroads, ports and maritime terminals and shipping; and
 
    Holdings: equity holdings in producers of aluminum, steel and electric power generation.
Ferrous Minerals
Iron Ore and Pellets
Operating through two world-class integrated systems for ore production and distribution. The Northern System, based in the states of Pará and Maranhão and the Southern System, based in the states of Minas Gerais and Espírito Santo, each consisting of mines, railroads and maritime terminals. Besides those, there is a third system that consists of mines and port facilities from Caemi.
Currently CVRD operates nine pelletizing plants in Brazil, five of them in joint ventures with international partners. The Company also has an interest in Samarco, which owns and operates two pelletizing plants in Espírito Santo, and an interest in GIIC, a pelletizing plant in Bahrein.
Iron ore and pellets sales are generally made pursuant to long-term supply contracts which provide for annual price negotiations. 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 processes required to produce the final product, granulometric, moisture content, and the type and concentration of contaminants (such as phosphorus, alumina and manganese) in the ore, influence contract prices for iron ore. Contract prices also depend on transportation costs.
Annual price negotiations generally occur from November to February, with separate prices established for the Asian and European iron ore markets. In the Asian market, the renegotiated prices are effective as of April of each period up to March of the next period. In the European market, the renegotiated prices are effective from January to December.
Manganese and Ferroalloys
This activity is carried out through the subsidiaries RDM located in the state of Bahia, Pará and Minas Gerais, Urucum located in the state of Mato Grosso do Sul, Rio Doce Manganèse Europe in France and Rio Doce Manganese Norway in Norway.
Non-Ferrous Minerals
Potash
The Company through a leasing contract with Petróleo Brasileiro S.A. – PETROBRAS, has a potash leased mine since 1995 from Operational Unit Taquari-Vassouras (UOTV), located in state of Sergipe. It is the only producer of potash chloride in activity in Brazil. The potash explored by the Company is raw material to fertilizers producers.
Copper
CVRD’s copper activities have been operating since June, 2004 the operation of the Sossego mine in Pará. Sossego is the first copper mine of CVRD.
Kaolin
Kaolin is a fine white aluminum silicate clay, used in the paper, ceramic and pharmaceutical industries as a coating and filler. Kaolin commercial activities are conducted through Caemi, controller of Pará Pigmentos S.A. and Cadam.

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Logistics
The logistics system includes the Vitória to Minas Railroad and the Tubarão port complex in the Southern System, and the Carajás Railroad and Ponta da Madeira Marine Terminal in the Northern System. In addition, CVRD controls the railroad Ferrovia Centro-Atlântica S.A. – FCA, Terminal de Vila Velha S.A. (TVV) and Cia Portuária Baia de Sepetiba (CPBS), the Maritime terminal Guaiba Island and has a holding in MRS Logística.
The principal cargo of CVRD’s railroad is the Company’s own iron ore, along with steel, coal, pig iron, limestone, agricultural products and fuel. The Company charges market rates for third-party cargo, which vary based upon the distance traveled and the density of the freight in question.
Energy
The Company participates in nine hydroelectric plants, four of which are in operation. CVRD’s investments in the sector seek to optimize the Group’s supply of electric power.
Holdings
Aluminum Operations
The Company sells aluminum, alumina and bauxite to an active world market in which prices are determined based on prices for the primary aluminum quoted on the London Metals Exchange.
Bauxite extraction operation works through our jointly-controlled company Mineração Rio do Norte S.A. – MRN.
Alumina refine works through ALUNORTE – Alumina do Norte do Brasil S.A. and the smelts of aluminum through ALBRAS – Aluminio Brasileiro S.A. and the jointly-controlled company Valesul Alumínio S.A..
Steel
Commercial activities in the steel industry are conducted through the jointly-controlled company California Steel Industries Inc., located in United States and through the affiliated company Usinas Siderúrgicas de Minas Gerais S.A.
(b)   The variations of the main currencies and indices in relation to the real, which impacted the results of the Company and its subsidiaries, jointly-controlled companies and affiliates, were as follows:
                                                 
    D%     Parity - end of period  
Currencies / Indices   U.S.                                
Period   DOLLAR     YEN     IGP-M     TJLP     US$ x R$     US$ x Yen  
From 01/01/05 to 06/30/05
    (11.5 )     (18.3 )     1.8       4.8       2.3504       110.91  
From 04/01/05 to 06/30/05
    (11.8 )     (14.8 )     0.2       2.4       2.3504       110.91  
From 01/01/05 to 03/31/05
    0.4       (4.1 )     1.6       2.4       2.6662       107.39  
From 01/01/04 to 06/30/04
    7.6       5.9       6.8       4.8       3.1075       108.89  
From 04/01/04 to 06/30/04
    6.8       2.5       4.0       2.4       3.1075       108.89  
About 87% of the consolidated gross revenue on 06/30/05 is linked to the U.S. dollar. About 32% of total consolidated costs are linked to the U.S. dollar. Consequently, fluctuations in the exchange rate between the two currencies have a significant impact on the operating cash flows.
Approximately 92% of the short-term and long-term loans of the consolidated on 06/30/05 are denominated in U.S. dollars. As a result, exchange rate fluctuations have a significant impact on the financial expenses (Notes 6.13 and 6.19).

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(c) On 06/30/05, the consolidated trade balance of US$ 2,912 million was generated as follows:
                                         
    Consolidated (in US$ million)  
    Quarter     Accumulated  
    2Q/05     1Q/05     2Q/04     06/30/05     06/30/04  
Exports
    1,951       1,336       1,598       3,287       2,686  
Imports
    (134 )     (241 )     (283 )     (375 )     (439 )
 
                             
 
    1,817       1,095       1,315       2,912       2,247  
 
                             
(d) CVRD receives the investment grade rating:
Moody’s Investors Service (Moody ´s), upgraded CVRD foreign currency rating from Ba1 to Baa3. According to Moody ´s rating scale, Baa3 qualifies the Company as a moderate credit risk issuer, without speculative elements, corresponding to investment grade.
The upgrade of CVRD ´s rating is a landmark in its growth path.
(e) Changes in the Fiscal Council
On 07/19/05 the Extraordinary General Shareholders Meeting decided to attribute CVRD ´s Fiscal Council the function of the Audit Committee’s role under the Sarbanes-Oxley Act. In this connection, Mr. Aníbal Moreira dos Santos (financial expert) was appointed as a member of the Fiscal Council.
1.2- Comments on the Consolidated Results
The net income of the Company on 06/30/05 was R$ 5,094,475 compared with net income of R$ 2,636,855 on 06/30/04 (the earnings per share corresponds to R$ 4.42 on 06/30/05 versus R$ 2.29 on 06/30/04).
1.2.1- Gross Revenue
Sales volume and revenues by products and services:
                                                                                                 
    In thousands of metric tons        
    (except railroad transportation)     In thousands of reais  
    Quarter     Accumulated     Quarter     Accumulated  
    2Q/05     1Q/05     2Q/04     06/30/05     03/31/04     D%     2Q/05     1Q/05     2Q/04     06/30/05     06/30/04     D%  
Iron ore
    52,969       49,159       45,231       102,128       88,614       15       5,072,201       2,753,407       2,680,170       7,825,608       4,943,805       58  
Pellets (*)
    8,748       9,725       10,426       18,473       19,853       (7 )     1,955,682       1,188,131       1,259,132       3,143,813       2,203,174       43  
 
                                                                           
 
    61,717       58,884       55,657       120,601       108,467       11       7,027,883       3,941,538       3,939,302       10,969,421       7,146,979       53  
 
                                                                           
Manganese
    194       198       205       392       366       7       62,013       63,355       41,251       125,368       63,918       96  
Ferroalloys
    151       136       94       287       297       (3 )     380,969       434,884       485,982       815,853       831,451       (2 )
 
                                                                                     
 
                                                    442,982       498,239       527,233       941,221       895,369       5  
 
                                                                                     
 
Copper
    105       85       34       190       34       459       228,570       199,980       72,350       428,550       72,350       492  
Potash
    129       138       166       267       304       (12 )     75,506       80,373       96,176       155,879       161,448       (3 )
Kaolin
    303       280       292       583       578       1       110,955       104,576       115,960       215,531       228,554       (6 )
 
                                                                                     
 
                                                    415,031       384,929       284,486       799,960       462,352       73  
 
                                                                                     
 
Railroad transportation (millions of TKU) (**)
    10,019       8,333       9,933       18,352       18,340             630,946       505,512       552,456       1,136,458       1,009,414       13  
Port services
    8,280       6,313       8,120       14,593       14,333       2       122,875       114,375       119,175       237,250       215,261       10  
Maritime transportation
                                        94,146       104,576       119,919       198,722       212,409       (6 )
 
                                                                                     
 
                                                    847,967       724,463       791,550       1,572,430       1,437,084       9  
 
                                                                                     
 
Aluminum
    123       122       133       245       243       1       582,268       611,222       700,641       1,193,490       1,225,732       (3 )
Alumina
    367       464       337       831       804       3       237,726       358,703       214,777       596,429       521,529       14  
Bauxite
    1,401       1,233       1,235       2,634       2,370       11       108,176       70,043       65,940       178,219       136,775       30  
 
                                                                                     
 
                                                    928,170       1,039,968       981,358       1,968,138       1,884,036       4  
 
                                                                                     
 
Steel
                                        378,697       452,153       828,725       830,850       1,438,376       (42 )
Other products and services
                                        10,718       11,073       21,245       21,791       39,258       (44 )
 
                                                                                     
 
                                                    10,051,448       7,052,363       7,373,899       17,103,811       13,303,454       29  
 
                                                                                     
 
(*)   Includes revenues derived from services provided to pelletizing join ventures in the amount of R$ 12,689, R$ 21,213, R$ 26,990, R$ 33,902 and R$ 40,766 referring to the 2Q/05, 1Q/05, 2Q/04, 06/30/05 and 06/30/04, respectively.
 
(**)   The company carried through its railroad system 7,755, 6,009, 7,395, 13,764 and 13,456 million of TKUs of general cargo and 2,264, 2,324, 2,538, 4,588 and 4,884 million of TKUs of iron ore for third parties in 2Q/05, 1Q/05, 2Q/04, 06/30/05 and 06/30/04, respectively.

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     Revenues of all traded products on the first semester of 2005 are negatively impacted by the 13% average appreciation of the Real against the U.S. Dollar, this the selling currency of majority of the revenues, compared with the same period of 2004.
     Besides this impact it is worth pointing out:
     Revenues from iron ore and pellets increased by 53% (R$ 10,969,421 on 06/30/05 against R$ 7,146,979 on 06/30/04) due to higher prices on this quarter and the 11% increase of quantities sold.
     Revenues from manganese and ferroalloys increased by 5% (R$ 941,221 on 06/30/05 against R$ 895,369 on 06/30/04) due to the change of mix of products related to the companies of the segment, as well as higher average selling prices.
     Revenues from copper increased by 492% (R$ 428,550 on 06/30/05 against R$ 72,350 on 06/30/04) due to the 459% increase of volume sold once the trading of copper began on June, 2004, as well as higher international market prices.
     Revenues from potash decreased by 3% (R$ 155,879 on 06/30/05 against R$ 161,448 on 06/30/04). This effect was due to the trend of having inventories in the first semester to supply the demand in the second semester.
     Revenues from kaolin decreased by 6% (R$ 215,531 on 06/30/05 against R$ 228,554 on 06/30/04). The volumes sold remained stable, but the exchange rate variation more than offset the increase of sales price.
     Revenues from transportation rose 9% (R$ 1,572,430 on 06/30/05 against R$ 1,437,084 on 06/30/04), due mainly to higher railway freight rates partially offset by the decrease of maritime transportation freight rates.
     Revenues in the aluminum area rose 4% (R$ 1,968,138 on 06/30/05 versus R$ 1,884,036 on 06/30/04), due to increase of volumes sold and average selling prices.
     Revenues from steel products decreased by 42% (R$ 830,850 on 06/30/05 compared with R$ 1,438,376 on 06/30/04). This reflects the sale of CST in December 2004.
(PIE CHART)

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Gross Revenue by Geographic Area
                                                                                                                                 
                            Holdings             Quarter     Total  
    Ferrous     Ferrous                                                                                      
    Minerals     Minerals     Logistics     Aluminum     Steel     Eliminations     2Q/05     %     1Q/05     %     2Q/04     %     06/30/05     %     06/30/04     %  
External market
                                                                                                                               
Americas, except United States
    857,935       150       26,629       211,474             (348,087 )     748,101       7       518,258       7       452,672       6       1,266,359       7       925,736       7  
United States
    417,236       36             145,305       378,697       (226,027 )     715,247       7       743,389       11       792,918       11       1,458,636       9       1,396,111       10  
Germany
    1,297,268       121,756                         (542,786 )     876,238       9       480,107       7       542,086       7       1,356,345       8       942,777       7  
France
    580,050       14,139                         (220,575 )     373,614       4       205,788       3       252,606       3       579,402       3       463,578       3  
England
    241,526       534             4,763             (84,010 )     162,813       2       148,006       2       45,089       1       310,819       2       90,975       1  
Europe, except for France and England
    1,853,813       185,693       14,176       470,523             (910,351 )     1,613,854       16       994,225       14       1,394,018       19       2,608,079       15       2,312,322       17  
Middle East/Africa/Oceania
    880,784       922                         (160,190 )     721,516       7       335,674       5       305,191       4       1,057,190       6       578,537       4  
China
    1,653,806       14,460             499             (539,937 )     1,128,828       11       836,224       12       699,037       9       1,965,052       11       1,277,082       10  
South Korea
    293,882       73,453                         (177,811 )     189,524       2       187,706       3       164,815       2       377,230       2       363,806       3  
Japan
    952,207       13,684             244,442             (369,204 )     841,129       8       597,197       8       689,295       9       1,438,326       8       1,242,738       9  
Ásia, other than China, South Korea and Japan
    463,185       82,229             40,284             (227,654 )     358,044       4       240,728       3       196,295       3       598,772       4       385,040       3  
 
                                                                                               
 
    9,491,692       507,056       40,805       1,117,290       378,697       (3,806,632 )     7,728,908       77       5,287,302       75       5,534,022       74       13,016,210       75       9,978,702       74  
Brasil
    1,948,756       101,841       926,421       311,075             (965,553 )     2,322,540       23       1,765,061       25       1,839,877       26       4,087,601       25       3,324,752       26  
 
                                                                                               
Total operating revenues
    11,440,448       608,897       967,226       1,428,365       378,697       (4,772,185 )     10,051,448       100       7,052,363       100       7,373,899       100       17,103,811       100       13,303,454       100  
 
                                                                                               
1.2.2- Cost of Products and Services
By Nature
                                                                                                         
    Denominated in     Quarter     Accumulated  
    R$     US$     2Q/05     %     1Q/05     %     2Q/04     %     06/30/05     %     06/30/04     %     D%  
Personnel
    313,570       26,550       340,120       8       314,171       8       352,279       10       654,291       8       673,172       10       (3 )
Material
    613,754       178,074       791,828       20       715,021       19       540,856       16       1,506,849       19       1,064,973       16       41  
Oil and gas
    359,078       87,320       446,398       11       406,509       11       399,416       12       852,907       11       746,735       12       14  
Outsourced services
    613,045       181,820       794,865       20       758,162       20       570,374       17       1,553,027       20       1,106,568       17       40  
Energy
    311,612       59,860       371,472       9       317,545       8       290,735       9       689,017       9       526,319       8       31  
Raw Material
    7,579       562,272       569,851       14       593,004       16       607,837       18       1,162,855       15       1,208,160       18       (4 )
Depreciation and depletion
    345,956       15,837       361,793       9       346,733       9       288,134       8       708,526       9       603,209       9       17  
Amortization of goodwill
    96,095             96,095       2       96,095       3       96,096       3       192,190       2       192,192       3        
Others
    91,572       146,666       238,238       7       237,739       6       252,231       7       475,977       7       441,649       7       8  
 
                                                                             
Total
    2,752,261       1,258,399       4,010,660       100       3,784,979       100       3,397,958       100       7,795,639       100       6,562,977       100       19  
 
                                                                             
 
    69 %     31 %                                                                                        
 
                                                                                                   
The 19% increase (R$ 1,232,662) in the cost of products and services (R$ 7,795,639 on 06/30/05 against R$ 6,562,977 on 06/30/04) is due to increase in sales volumes and changes in the prices of the various elements which comprise production cost during the period.
1.2.3- Operating Expenses
The operating expenses, except for non recurring item, increased R$ 207,919 (R$ 1,344,017 on 06/30/05 compared to R$ 1,136,098 on 06/30/04), basically due to the increase with Research and Development costs.
1.2.4- Net Financial Results
The net financial result on 06/30/05 had an impact of R$ 1,208,373 (expense of R$ 192,576 on 06/30/05 compared to expense of R$ 1,400,949 on 06/30/04) due to exchange rate variation effect of the Real against the dollar over debt.
1.2.5- Income Tax and Social Contribution
Income tax and social contribution reflect an expense of R$ 1,451,423 on 06/30/05 compared with an expense of R$ 462,199 on 06/30/04, mainly caused by increase of taxable income. (Note 6.10)

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1.2.6- Cash Generation Consolidated
The operating cash generation consolidated measured by EBITDA (earnings before financial results, results of equity investments, interest, income tax and depreciation, amortization and depletion plus dividends received) was R$ 8,182,997 on 06/30/05, against R$ 5,819,212 on 06/30/04, an increase of 40.6%.
EBITDA
                                         
    Quarter     Accumulated  
    2Q/05     1Q/05     2Q/04     06/30/2005     30/06/04  
Net operating revenue
    9,551,455       6,720,573       6,970,366       16,272,028       12,628,991  
Cost of products and services
    (4,010,660 )     (3,784,979 )     (3,397,958 )     (7,795,639 )     (6,562,977 )
Operating expenses
    (784,322 )     (559,695 )     (604,741 )     (1,344,017 )     (1,318,894 )
 
                             
Operating profit
    4,756,473       2,375,899       2,967,667       7,132,372       4,747,120  
Depreciation / amortization of goodwill
    488,208       473,495       415,877       961,703       853,233  
 
                             
 
    5,244,681       2,849,394       3,383,544       8,094,075       5,600,353  
Dividends received
    88,922                   88,922       36,063  
Goodwill Samitri
                            182,796  
 
                             
EBITDA
    5,333,603       2,849,394       3,383,544       8,182,997       5,819,212  
 
                             
 
                                       
Current liabilities
                                       
Current portion of long-term debt — unrelated parties
    1,966,679       2,058,984       3,083,071       1,966,679       3,083,071  
Short-term debt
    1,165,071       702,853       846,401       1,165,071       846,401  
Related parties
    84,038       108,801       72,223       84,038       72,223  
 
                             
 
    3,215,788       2,870,638       4,001,695       3,215,788       4,001,695  
 
                             
Long-term liabilities
                                       
Long-term debt — unrelated parties
    7,667,145       9,336,284       12,142,378       7,667,145       12,142,378  
Related parties
    33,973       31,131       3,334       33,973       3,334  
 
                             
 
    7,701,118       9,367,415       12,145,712       7,701,118       12,145,712  
 
                             
Gross debt
    10,916,906       12,238,053       16,147,407       10,916,906       16,147,407  
 
                             
Interest paid
    148,068       227,668       155,634       375,736       456,030  
Stockholders’ equity
    23,262,421       19,784,523       16,678,312       23,262,421       16,678,312  
 
                                       
EBITDA (LTM) / Interest paid
    16.52       14.19       12.76       16.52       12.76  
EBITDA Margin (LTM)
    47 %     44 %     46 %     47 %     46 %
EBIT Margin (LTM)
    42 %     39 %     38 %     42 %     38 %
Gross debt / EBITDA
    0.75       0.97       1.39       0.75       1.39  
Gross debt / Equity Capitalization
    32       38       49       32       49  
Consolidated EBITDA by Segment
                                                 
    2Q/05     1Q/05     2Q/04  
    EBITDA     EBITDA     EBITDA  
    Segments     % of total     Segments     % of total     Segments     % of total  
Ferrous minerals
    4,257,784       80 %     1,935,966       68 %     2,184,199       65 %
Non — ferrous minerals
    82,527       1 %     103,739       4 %     151,027       4 %
Logistics
    551,941       10 %     292,033       10 %     358,203       11 %
Holdings
                                               
Aluminum
    348,276       7 %     453,984       16 %     434,207       13 %
Steel
    119,974       2 %     63,672       2 %     255,908       7 %
Others
    (26,899 )                              
 
                                   
 
    5,333,603       100 %     2,849,394       100 %     3,383,544       100 %
 
                                   

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1.3- Comments on the Parent Company Results
1.3.1- Net Income
On the first semester of 2005 CVRD accounted for a net income of R$ 5,094,475, a 93% increase compared with the same period of the previous year of R$ 2,636,855. This result reflects a great operational performance along with the actual standard of iron ore and pellets selling prices, partially offset by a 13% appreciation of the Real against the U.S. Dollar.
1.3.2- Gross Revenue
The 36% increase in gross revenue (R$ 8,552,428 on 06/30/05 against R$ 6,309,165 on 06/30/04) is the result of the 11% higher volume sold of iron ore and pellets and the increase of 3% in the volume of transportation services and also for the increase of prices of both item. The revenues of the period include the sale of copper that began in June 2004 and alumina, that began in December 2004. This effect was compensated in part by the average valuation of the real against the United States Dollar by 13%, incident on 90% of the revenue of the Company.
1.3.3- Cost of Products and Services
Cost of products and services sold was R$ 4,503,305 on 06/30/05 against R$ 3,251,657 on 06/30/04 representing a 38% increase. The main factors are the start of the trading of copper and alumina, higher volumes sold of products in general, contracts readjustments and the increase of assets reflecting higher expenses related to depreciation. Besides, during 1Q/05 iron ore, copper and potash unit cost production increased due to rains.
1.3.4- Gross Margin
The gross margin reduced by 1.5% (44.2% on 06/30/05 against 45.7% on 06/30/04) manly due to the exchange variation loss from revenues, as described above and the increase of unit cost production of iron ore, copper and potash on 1Q/05.
1.3.5- Results of Shareholdings by Business Area
The numbers below do not necessarily reflect the individual results of each company, but rather the amounts effectively applicable to the business area.
                         
    Accumulated  
Business Area   06/30/05     06/30/04     D%  
Ferrous Minerals                        
. Iron ore
    1,755,274       445,074       294  
. Pellets
    496,908       203,779       144  
. Manganese and ferroalloys
    170,126       227,034       (25 )
 
                       
Non-Ferrous Minerals
    (167 )     3,914       104  
 
                       
Logistics
    131,149       101,198       30  
 
                       
Holdings
                       
. Steel
    276,804       373,256       (26 )
. Aluminum
    457,659       317,471       44  
. Research and development of coal
    (26,816 )            
 
                       
Others
    300       900       (67 )
 
                   
Gain on investments accounted for by the equity method
    3,261,237       1,672,626       95  
 
                   
 
                       
Provision for losses
    (36,311 )     (58,927 )     38  
 
                       
Amortization of goodwill
    (114,540 )     (137,283 )     17  
 
                       
Exchange variation in Stockholders’ Equity of companies abroad
    (697,250 )     169,600       (511 )
 
                   
 
                       
Results of equity investments
    2,413,136       1,646,016       47  
 
                   
Results of equity investments are strongly affected by the exchange rate variation over debt, which had a positive impact due to the 11% appreciation of the Real against the Dollar in the first semester of 2005 comparing with an 8% depreciation of the Real in the first semester of 2004. This effect is partially offset by the negative exchange rate variation from investments abroad.

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Operationally, volumes and average selling prices increased in all businesses areas, except for ferroalloys and transportation services, for which quantities and average sales price services reduced.
Decrease in steel is due to the sale of CST.
The negative result of equity in research and development of coal refers to expenses with subsidiaries of mineral extraction in South Africa and Mozambique.
1.3.6- Operating Expenses
The operating expenses, except for non recurring item, increased R$ 75,574 (R$ 637,684 on 06/30/05 compared to R$ 562,110 on 06/30/04) as a consequence of the increase of research and development cost.
1.3.7- Net Financial Results
The net financial result on 06/30/05 had an impact of R$ 1,363,640 (revenue of R$ 455,448 on 06/30/05 compared to expense of R$ 908,192 on 06/30/04) due to the exchange rate variation effect of Real against the dollar over debt.
1.3.8- Income Tax and Social Contribution
Income tax and social contribution reflect an expense of R$ 698,760 on 06/30/05 compared with an expense of R$ 97,065 on 06/30/04, mainly caused by increase of taxable income. (Note 6.10)

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Part II
Quarterly Information and Notes to the Quarterly Information
(A free translation of the original in Portuguese relating to the Quarterly Information prepared in accordance with the requirements of Accounting Practices Generally Accepted in Brazil)
2- Balance Sheet
                                         
June 30   In thousands of reais  
    Consolidated     Parent Company  
    Notes     06/30/05     03/31/05     06/30/05     03/31/05  
Assets
                                       
Current assets
                                       
Cash and cash equivalents
    6.5       2,743,828       3,239,768       240,334       300,355  
Accounts receivable from customers
    6.6       4,439,511       3,413,896       2,191,521       1,619,253  
Related parties
    6.8       125,378       131,320       814,403       963,991  
Inventories
    6.7       3,038,371       2,963,736       1,074,457       935,812  
Taxes to recover or offset
    6.9       725,139       815,259       307,261       477,741  
Deferred income tax and social contribution
    6.10       474,282       587,969       364,883       473,668  
Others
          840,034       785,162       480,411       369,524  
 
                             
 
            12,386,543       11,937,110       5,473,270       5,140,344  
 
                             
Long-term receivables
                                       
Related parties
    6.8       90,721       115,325       486,640       562,107  
Loans and financing
          135,575       147,951       100,663       103,322  
Deferred income tax and social contribution
    6.10       1,077,555       1,011,684       540,898       528,869  
Judicial deposits
    6.14       1,768,954       1,731,461       1,172,507       1,181,151  
Prepaid expenses
          111,429       101,154              
Accounts receivable — sale of assets
          26,404       34,375              
Assets for sale
          59,212       92,496              
Advances to energy suppliers
          445,280       302,394              
Others
          390,508       250,618       175,166       51,209  
 
                             
 
            4,105,638       3,787,458       2,475,874       2,426,658  
 
                             
Permanent assets
                                       
Investments
    6.11       2,900,157       2,773,384       15,081,773       13,932,719  
Property, plant and equipment
    6.12       27,369,703       26,181,260       17,265,235       16,386,783  
Deferred charges
          192,400       204,558              
 
                             
 
            30,462,260       29,159,202       32,347,008       30,319,502  
 
                             
 
            46,954,441       44,883,770       40,296,152       37,886,504  
 
                             
Liabilities and stockholders’ equity
                                       
Current liabilities
                                       
Short-term debt
    6.13       1,165,071       702,853       407,258        
Current portion of long-term debt
    6.13       1,966,679       2,058,984       742,611       724,782  
Payable to suppliers and contractors
          2,299,147       2,020,679       1,915,656       1,584,524  
Related parties
    6.8       84,038       108,801       3,434,537       3,083,308  
Payroll and related charges
          335,601       305,163       225,454       198,376  
Pension Plan — Valia
          102,407       90,790       102,407       90,790  
Proposed dividends and interest on stockholders’ equity
          39,142       1,516,322             1,278,513  
Taxes and contributions
          1,067,655       1,046,419       218,210       575,053  
Provision for operating expenses
          368,874       195,712       368,874       195,712  
Others
          766,044       666,215       235,447       139,554  
 
                             
 
            8,194,658       8,711,938       7,650,454       7,870,612  
 
                             
Long-term liabilities
                                       
Long-term debt
    6.13       7,667,145       9,336,284       2,235,844       2,939,859  
Related parties
    6.8       33,973       31,131       2,994,039       3,569,389  
Provisions for contingencies
    6.10       3,266,629       2,630,271       2,611,990       1,994,756  
Pension Plan — Valia
    6.14       536,239       576,209       536,239       576,209  
Provision for environmental liabilities
          260,648       263,281       260,648       263,281  
Provisions for derivatives
          265,081       379,396       39,503       43,778  
Others
          888,509       1,008,431       705,014       844,097  
 
                             
 
            12,918,224       14,225,003       9,383,277       10,231,369  
 
                             
Deferred income
          7,948       8,909              
 
                             
Minority interests
          2,571,190       2,153,397              
 
                             
Stockholders’ equity
                                       
Paid-up capital
    6.16       14,000,000       7,300,000       14,000,000       7,300,000  
Revenue reserves
    6.16       9,262,421       12,484,523       9,262,421       12,484,523  
 
                             
 
            23,262,421       19,784,523       23,262,421       19,784,523  
 
                             
 
            46,954,441       44,883,770       40,296,152       37,886,504  
 
                             
The additional information, notes and attachment I are an integral part of the quarterly information.

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(A free translation of the original in Portuguese relating to the Quarterly Information prepared in accordance with the requirements of Accounting Practices Generally Accepted in Brazil)
3- Statement of Income
     
Periods ended June 30
  In thousands of reais
                                                                 
            Consolidated     Parent Company  
            Quarter     Accumulated     Accumulated  
    Notes     2Q/05     1Q/05     2Q/04     06/30/05     06/30/04     06/30/05     06/30/04  
Operating revenues
    1.2.1/                                                          
Sales of ore and metals
    1,3,2                                                          
Iron ore and pellets
            7,027,883       3,941,538       3,939,302       10,969,421       7,146,979       7,040,421       5,309,392  
Manganese and ferroalloys
            442,982       498,239       527,233       941,221       895,369              
Copper
            228,570       199,980       72,350       428,550       72,350       392,847       72,350  
Potash
            75,506       80,373       96,176       155,879       161,448       155,879       161,448  
Kaolin
            110,955       104,576       115,960       215,531       228,554              
 
                                                 
 
            7,885,896       4,824,706       4,751,021       12,710,602       8,504,700       7,589,147       5,543,190  
Transport services
            847,967       724,463       791,550       1,572,430       1,437,084       842,921       742,415  
Sales of aluminum-related products
            928,170       1,039,968       981,358       1,968,138       1,884,036       98,796        
Sales of steel products
            378,697       452,153       828,725       830,850       1,438,376              
Other products and services
            10,718       11,073       21,245       21,791       39,258       21,564       23,560  
 
                                                 
 
            10,051,448       7,052,363       7,373,899       17,103,811       13,303,454       8,552,428       6,309,165  
Value Added taxes
            (499,993 )     (331,790 )     (403,533 )     (831,783 )     (674,463 )     (486,788 )     (316,506 )
 
                                                 
 
Net operating revenues
            9,551,455       6,720,573       6,970,366       16,272,028       12,628,991       8,065,640       5,992,659  
 
                                                 
 
                                                               
Cost of products and services
    1,2,2/                                                          
 
Ores and metals
    1,3,3       (2,619,094 )     (2,405,412 )     (2,019,403 )     (5,024,506 )     (3,909,239 )     (4,147,292 )     (3,031,893 )
Transport services
            (489,874 )     (440,795 )     (427,434 )     (930,669 )     (835.627 )     (290,784 )     (213,469 )
Aluminum-related products
            (543,775 )     (549,292 )     (450,149 )     (1,093,067 )     (914,028 )     (50,946 )      
Steel products
            (352,156 )     (383,660 )     (490,936 )     (735,816 )     (883,418 )            
Other products and services
            (5,761 )     (5,820 )     (10,036 )     (11,581 )     (20,665 )     (14,283 )     (6,295 )
 
                                                 
 
            (4,010,660 )     (3,784,979 )     (3,397,958 )     (7,795,639 )     (6,562,977 )     (4,503,305 )     (3,251,657 )
 
                                                 
 
                                                               
Gross profit
            5,540,795       2,935,594       3,572,408       8,476,389       6,066,014       3,562,335       2,741,002  
 
                                                               
Gross margin
            58.0 %     43.7 %     51.3 %     52.1 %     48.0 %     44.2 %     45.7 %
 
                                                               
Operating expenses
                                                               
Selling
            (95,514 )     (100,149 )     (111,166 )     (195,663 )     (224,107 )     (597 )     (11,384 )
Administrative
    6,21       (307,592 )     (257,549 )     (275,503 )     (565,141 )     (517,891 )     (284,799 )     (238,406 )
Research and development
            (161,446 )     (81,129 )     (80,923 )     (242,575 )     (147,354 )     (174,887 )     (139,056 )
Other operating expenses
    6,21       (219,770 )     (120,868 )     (137,149 )     (340,638 )     (246,746 )     (177,401 )     (173,264 )
Non recurring item — Samitri’s Goodwill amortization
                                    (182,796 )           (182,796 )
 
                                                 
 
            (784,322 )     (559,695 )     (604,741 )     (1,344,017 )     (1,318,894 )     (637,684 )     (744,906 )
 
                                                 
 
                                                               
Operating profit before financial results and results of equity investments
            4,756,473       2,375,899       2,967,667       7,132,372       4,747,120       2,924,651       1,996,096  
Results of equity investments
    6,11                                                          
Gain on investments accounted for by the equity method
            146,831       130,359       52,522       277,190       116,653       3,261,237       1,672,626  
Amortization of goodwill
            (57,270 )     (57,270 )     (80,013 )     (114,540 )     (137,283 )     (114,540 )     (137,283 )
Provision for losses
                                          (36,311 )     (58,927 )
Exchange variation in stockholders ‘equity of companies
            (12,672 )     430       4,807       (12,242 )     5,229       (697,250 )     169,600  
 
                                                               
Financial results
    6,19       81,871       (274,447 )     (895,475 )     (192,576 )     (1,400,949 )     455,448       (908,192 )
 
                                                 
 
                                                               
Income before income tax and social contribution
            4,915,233       2,174,971       2,049,508       7,090,204       3,330,770       5,793,235       2,733,920  
 
                                                               
Income tax and social contribution
    6,10       (1,060,879 )     (390,544 )     (226,651 )     (1,451,423 )     (462,199 )     (698,760 )     (97,065 )
 
                                                 
 
                                                               
Income before minority interests
            3,854,354       1,784,427       1,822,857       5,638,781       2,868,571       5,094,475       2,636,855  
 
                                                               
Minority interests
            (375,069 )     (169,237 )     (139,716 )     (544,306 )     (231,716 )            
 
                                                 
 
                                                               
Net income for the period
            3,479,285       1,615,190       1,683,141       5,094,475       2,636,855       5,094,475       2,636,855  
 
                                                 
 
                                                               
Number of shares outstanding at the end of the period (in thousands) (a)
            1,151,520       1,151,520       1,151,520       1,151,520       1,151,520       1,151,520       1,151,520  
 
                                                 
 
                                                               
Net earnings per share outstanding at the end of the period (R$)
            3.02       1.40       1.46       4.42       2.29       4.42       2.29  
 
                                                 
The additional information, notes and attachment I are an integral part of the quarterly information.
(a) Reflects as if the stocks split had occurred on 06/30/04

11


Table of Contents

(A free translation of the original in Portuguese relating to the Quarterly Information prepared in accordance with the requirements of Accounting Practices Generally Accepted in Brazil)
4- Statement of Changes in Stockholders’ Equity (Additional Information)
                                                                                 
Periods ended June 30   In thousands of reais  
                    Revenue reserves              
            Paid-up     Expansion/             Unrealized             Fiscal     Treasury     Retained        
    Notes     capital     Investments     Depletion     income     Legal     incentives     stock     earnings     Total  
December 31, 2003
            6,300,000       6,039,326       1,004,166       557,266       1,080,141       89,993       (131,318 )           14,939,574  
 
                                                           
Capitalization of reserves
            1,000,000       (910,007 )                       (89,993 )                  
Realization of reserve
                              (211,538 )                       211,538        
 
Net income for the year
                                                      6,459,519       6,459,519  
Interim interest on stockholders’ equity
                                                      (1,671,484 )     (1,671,484 )
Interim dividends
                                                      (279,763 )     (279,763 )
Additional remuneration proposed
                                                      (1,278,513 )     (1,278,513 )
Apropriation to revenue reserves
                  3,077,659                   322,976       40,662             (3,441,297 )      
 
                                                           
December 31, 2004
            7,300,000       8,206,978       1,004,166       345,728       1,403,117       40,662       (131,318 )           18,169,333  
 
                                                           
 
Net income for the period
                                                      1,615,190       1,615,190  
 
                                                           
 
March 31, 2005
            7,300,000       8,206,978       1,004,166       345,728       1,403,117       40,662       (131,318 )     1,615,190       19,784,523  
 
                                                           
 
Net income for the period
                                                      3,479,285       3,479,285  
Interim interest on stockholders’ equity
    6,16       6,700,000       (5,129,319 )     (1,004,166 )           (525,853 )     (40,662 )                  
Provision for interest on stockholders’ equity
    6,18                                                 (1,387 )     (1,387 )
 
                                                           
June 30, 2005
            14,000,000       3,077,659             345,728       877,264             (131,318 )     5,093,088       23,262,421  
 
                                                           
The additional information, notes and attachment I are an integral part of the quarterly information.

12


Table of Contents

(A free translation of the original in Portuguese)
5- Statement of Cash Flows (Additional Information)
                                                         
Periods ended June 30   In thousands of reais  
    Consolidated     Parent Company  
    Quarter     Accumulated     Accumulated  
    2Q/05     1Q/05     2Q/04     06/30/05     06/30/04     30/06/05     30/06/04  
Cash flows from operating activities:
                                                       
Net income for the period
    3,479,285       1,615,190       1,683,141       5,094,475       2,636,855       5,094,475       2,636,855  
Adjustments to reconcile net income for the period with cash provided by operating activities:
                                                       
Results of equity investments
    (76,889 )     (73,519 )     22,684       (150,408 )     15,401       (2,413,136 )     (1,646,016 )
Depreciation, amortization and depletion
    384,488       385,025       559,594       769,513       688,137       415,866       336,709  
Deferred income tax and social contribution
    52,590       (113,309 )     65,108       (60,719 )     (27,967 )     (36,459 )     (65,622 )
Financial expenses and monetary and exchange rate variations on assets and liabilities, net
    (981,548 )     46,291       886,286       (935,257 )     1,066,420       (591,177 )     603,412  
Minority interests
    375,069       169,237       139,716       544,306       231,716              
Disposal of property, plant and equipment
    60,382       15,247       116,148       75,629       131,151       21,202       30,428  
Amortization of goodwill in the cost of products sold
    96,095       96,095       96,096       192,190       192,192       192,190       192,192  
Non recurring item — goodwill of Samitri
                            182,796             182,796  
Net losses on derivatives
    (10,321 )     4,595       (77,193 )     (5,726 )     77,347       (511 )     (19,947 )
Dividends/interest on stockholders’ equity
    88,922                   88,922       36,063       598,001       402,983  
Others
    57,532       (81,327 )     129,783       (23,795 )     58,293       3,886       4,194  
 
                                         
 
    3,525,605       2,063,525       3,621,363       5,589,130       5,288,404       3,284,337       2,657,984  
 
                                         
Increase in assets:
                                                       
Accounts receivable
    (1,025,615 )     (337,836 )     (426,212 )     (1,363,451 )     (588,886 )     (341,567 )     (175,040 )
Inventories
    (67,305 )     (69,899 )     (296,040 )     (137,204 )     (374,432 )     (193,763 )     (144,506 )
Others
    (592,634 )     (122,327 )     (253,028 )     (714,961 )     (706,883 )     (457,701 )     (26,834 )
 
                                         
 
    (1,685,554 )     (530,062 )     (975,280 )     (2,215,616 )     (1,670,201 )     (993,031 )     (346,380 )
 
                                         
Increase (decrease) in liabilities:
                                                       
Suppliers and contractors
    278,468       48,617       (160,479 )     327,085       (254,664 )     399,755       (88,921 )
Payroll and related charges and others
    30,438       (94,265 )     (901 )     (63,827 )     32,940       (62,998 )     (32,729 )
Taxes and contributions
    885,434       (578,876 )     248,577       306,558       523,158       510,992       180,727  
Others
    288,291       (256,754 )     51,787       31,537       620,813       95,724       63,085  
 
                                         
 
    1,482,631       (881,278 )     138,984       601,353       922,247       943,473       122,162  
 
                                         
Net cash provided by operating activities
    3,322,682       652,185       2,785,067       3,974,867       4,540,450       3,234,779       2,433,766  
 
                                         
 
                                                       
Cash flows from investing activities:
                                                       
Loans and advances receivable
    (43,441 )     12,030       402       (31,411 )     63,145       (50,554 )     286,034  
Guarantees and deposits
    (37,493 )     (51,560 )     (77,071 )     (89,053 )     (137,153 )     (25,074 )     (94,877 )
Additions to investments
    (208,400 )     (10,182 )           (218,582 )     (105,188 )     (602,265 )     (415,636 )
Additions to property, plant and equipment
    (1,926,388 )     (1,755,264 )     (1,527,030 )     (3,681,652 )     (2,456,063 )     (2,621,146 )     (1,783,883 )
Proceeds from disposal of property, plant and equipment/investments
    3,584       6,477       2,654       10,061       2,960       10,061       2,960  
 
                                         
Net cash used in investing activities
    (2,212,138 )     (1,798,499 )     (1,601,045 )     (4,010,637 )     (2,632,299 )     (3,288,978 )     (2,005,402 )
 
                                         
Cash flows from financing activities:
                                                       
Short-term debt
    469,987       220,852       (183,998 )     690,839       (11,402 )     1,322,016       (735,020 )
Long-term debt
    341,618       725,819       779,626       1,067,437       2,920,788       1,157,767       2,368,156  
Repayments:
                                                       
Related parties
                                  (497,986 )      
Financial institutions
    (1,138,189 )     (477,347 )     (700,198 )     (1,615,536 )     (2,363,660 )     (713,291 )     (1,385,018 )
Interest on stockholders’ equity payed to stockholders
    (1,279,900 )           (790,710 )     (1,279,900 )     (790,710 )     (1,279,900 )     (790,710 )
 
                                         
Net cash provided by (used in) financing activities
    (1,606,484 )     469,324       (895,280 )     (1,137,160 )     (244,984 )     (11,394 )     (542,592 )
 
                                         
Increase (decrease) in cash and cash equivalents
    (495,940 )     (676,990 )     288,742       (1,172,930 )     1,663,167       (65,593 )     (114,228 )
Cash and cash equivalents, beginning of the period
    3,239,768       3,916,758       3,502,969       3,916,758       2,128,544       305,927       342,008  
 
                                         
Cash and cash equivalents, end of the period
    2,743,828       3,239,768       3,791,711       2,743,828       3,791,711       240,334       227,780  
 
                                         
Cash paid during the period for:
                                                       
Short-term interest
    (19,680 )     (1,544 )     (7,385 )     (21,224 )     (25,724 )           (4,016 )
Long-term interest
    (128,388 )     (226,124 )     (148,249 )     (354,512 )     (430,306 )     (133,776 )     (201,298 )
Income tax and social contribution paid
    (378,297 )     (210,771 )     (125,741 )     (589,068 )     (134,996 )     (396,246 )      
Non-cash transactions:
                                                       
 
                                                       
Additions to property, plant and equipment - interest ’ capitalization
    402,249       (26,792 )     (203,653 )     375,457       (225,572 )     144,297       (137,602 )
Transfer of advance for future capital increase to investments
                                  (506,880 )      
Compensated income tax and social contribution
    (56,159 )     (48,681 )     (156,840 )     (104,840 )     (187,248 )     (16,045 )     (122,231 )
The additional information, notes and attachment I are an integral part of the quarterly information.

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(A free translation of the original in Portuguese relating to the Quarterly Information prepared in accordance with the requirements of Accounting, Practices Generally Accepted in Brazil)
6- Notes to the Quarterly Information at June 30, 2005 and 2004
Expressed in thousands of reais
6.1- Operations
Companhia Vale do Rio Doce is a publicly traded corporation whose predominant activities are mining, processing and sale of iron ore, pellets, copper and potash, as well as logistic services, power generation and mineral research and development. In addition, through its direct and indirect subsidiaries and jointly-controlled companies, CVRD operates in iron ore and pellets, manganese and ferroalloys, kaolin, steel, aluminum-related products and logistics.
6.2- Presentation of Quarterly Information
The quarterly information have been prepared in conformity with accounting practices followed in Brazil, based on corporate legislation, as well as the rules and guidelines issued by the Comissão de Valores Mobiliários — CVM (Brazilian Securities Commission) and Instituto dos Auditores Independentes do Brasil — IBRACON (Brazilian Independent Auditors Institute).
In order to provide better information to the market, the Company is presenting as additional information the Statement of Cash Flows – based on the criteria of NPC 20 of IBRACON.
6.3- Significant and Practices Accounting Policies
(a)   The Company adopts the accrual basis of accounting;
 
(b)   Assets and liabilities that are realizable or due more than twelve months after the quarterly information date are classified as long-term;
 
(c)   Marketable securities, classified as cash and cash equivalents, are stated at cost plus accrued income earned to the Quarterly Information date;
 
(d)   Inventories are stated at average purchase or production cost, and imports in transit at the cost of each item, not exceeding market or realizable value;
 
(e)   Assets and liabilities in foreign currencies are translated at exchange rates in effect at the quarterly information date, and those in local currency, when applicable, are restated based on contractual indices;
 
(f)   Investments in subsidiaries, jointly-controlled companies and affiliated companies are accounted for by the equity method, based on the stockholders’ equity of the investees, and when applicable increased/decreased by goodwill and negative goodwill to be amortized and provision for losses. Other investments are recorded at cost, less provision for losses when applicable;
 
(g)   Property, plant and equipment, including interest and financial charges incurred during the construction period of large-scale projects, are recorded at historical cost (increased by monetary restatement up to 1995) and depreciated on the straight-line method, based on the useful lives of the assets. Depletion of mineral reserves is based on the ratio between production and estimated capacity;
 
(h)   Research and development costs are registered as operational expenses until the proof of its economical feasibility to commercially exploit the mine. After this proof, the costs are capitalized as part of the costs of the mine operation;
 
(i)   During the development of a mine, stripping costs registered are capitalized as part of the depreciable cost of building and constructing the mine. Post-production stripping costs are recorded as cost of production when incurred; and
 
(j)   Pre-operating costs except for financial charges capitalized as mentioned in (g) above, are deferred and amortized over a period of 10 years. The deferred charges (consolidated) refer basically to copper projects and expansion of Alunorte and Albras.
6.4- Principles and Practices of Consolidation
(a)   The consolidated quarterly information show the balances of assets and liabilities on June 30, 2005 and on March 31, 2005 and the operations of the Parent Company on June 30, 2005 and June 30, 2004, its direct and indirect subsidiaries and its jointly-controlled companies for the periods then ended;
 
(b)   Intercompany balances and the Parent Company’s investments in its direct and indirect subsidiaries and jointly-controlled companies were eliminated in the consolidation. Minority interests are shown separately on the balance sheet and statement of income;

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(c)   In the case of investments in companies in which the control is shared with other stockholders, the components of assets and liabilities and revenues and expenses are included in the consolidated quarterly information in proportion to the participation of the Parent Company in the capital of each invested;
(d)   The principal figures of the subsidiaries and jointly-controlled companies included in the consolidation are presented in Attachment I.
6.5- Cash and Cash Equivalents
                                 
    Consolidated     Parent Company  
    06/30/05     03/31/05     06/30/05     03/31/05  
Cash and bank accounts
    377,694       434,263       25,443       23,414  
Marketable securities linked to the interbank deposit certificate rate
    1,005,946       966,996       214,891       276,941  
Time deposits / overnight investments
    1,003,010       1,470,828              
Others
    357,178       367,681              
 
                       
 
    2,743,828       3,239,768       240,334       300,355  
 
                       
6.6- Accounts Receivable from Customers
                                 
    Consolidated     Parent Company  
    06/30/05     03/31/05     06/30/05     03/31/05  
Domestic
    751,144       592,708       846,773       526,084  
Export
    3,932,863       3,073,705       1,437,679       1,178,719  
 
                       
 
    4,684,007       3,666,413       2,284,452       1,704,803  
 
Allowance for doubtful accounts
    (196,472 )     (211,942 )     (46,948 )     (46,948 )
Allowance for ore weight credits
    (48,024 )     (40,575 )     (45,983 )     (38,602 )
 
                       
 
    4,439,511       3,413,896       2,191,521       1,619,253  
 
                       
6.7- Inventories
                                 
    Consolidated     Parent Company  
    06/30/05     03/31/05     06/30/05     03/31/05  
Finished products
                               
. Iron ore and pellets
    660,018       597,138       379,882       345,213  
. Manganese and ferroalloys
    387,367       424,620              
. Aluminum
    216,259       215,123              
. Steel products
    81,266       104,539              
. Copper
    28,545       22,981       28,545       22,981  
. Others
    89,223       76,541       20,799       8,145  
 
                       
 
    1,462,678       1,440,942       429,226       376,339  
 
                               
Spare parts and maintenance supplies
    1,575,693       1,522,794       645,231       559,473  
 
                       
 
                               
 
    3,038,371       2,963,736       1,074,457       935,812  
 
                       

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6.8- Related Parties
                                                                 
    Consolidated  
    Assets     Liabilities  
    06/30/05     03/31/05     06/30/05             03/31/05  
            Related party             Related party             Related party             Related party  
    Customers     - assets     Customers     - assets     Suppliers     - liabilities     Suppliers     - liabilities  
Nibrasco
    74,052       26,457       35,723             94,455             36,188       2,805  
Hispanobras
    67,655       130       33,512       131       87,170       7,117       44,181       9,227  
Itabrasco
    64,753       367       31,811       19       39,306       2,336       21,447       6,412  
Kobrasco
    38,316       26,782       26,089       30,113       17,307       15,820       24,380       5,104  
Gulf industrial investment Co. — GIIC
    5,687             22,932             88             2,552        
Usiminas
    46,470             20,902       75,679                          
Valesul
    5,264       309       14,077       263       41             41        
Samarco Mineração S.A
    2,443       13,410       3,432       273                          
MRS Logistica
    249       18,031       802       13,411       1,404       26,418       1,912       45,819  
Baovale Mineração S.A
    264       85       531             14,072             19,795        
Ferroban
    526       106,401       526       103,005             30,907             27,442  
Mineração Rio do Norte
    291       281       284       230       30,653             20,255        
Valepar S.A.
    528             247                   11,715             13,156  
Nova Era Silicon
    81       4,368       151       3,864                          
Others
    75,467       19,478       30,162       19,657       9,983       23,698       20,733       29,967  
 
                                               
Total
    382,046       216,099       221,181       246,645       294,479       118,011       191,484       139,932  
 
                                               
 
                                                               
Registered as:
                                                               
 
                                                               
Short-term
    382,046       125,378       221,181       131,320       294,479       84,038       191,484       108,801  
Long-term
          90,721             115,325             33,973             31,131  
 
                                               
 
    382,046       216,099       221,181       246,645       294,479       118,011       191,484       139,932  
 
                                               
6.9- Taxes to Recover or Offset
                                 
    Consolidated     Parent Company  
    06/30/05     03/31/05     06/30/05     03/31/05  
Witholding income tax on marketable securities and stockholders’ equity
    47,177       50,634       15,987       23,852  
Value-addedd tax
    313,812       432,977       212,850       350,029  
PIS and COFINS
    172,359       169,894       48,213       74,871  
Others
    191,791       161,754       30,211       28,989  
 
                       
 
                               
 
    725,139       815,259       307,261       477,741  
 
                       
6.10- Deferred Income Tax and Social Contribution
Income of the Company is subject to the normal tax system. The balances of deferred assets and liabilities are presented as follows:
                                 
    Net Deferred  
    Consolidated     Parent Company  
    06/30/05     03/31/05     06/30/05     03/31/05  
Tax loss carryforward
    557,724       738,046       35,749       145,000  
 
                       
 
Temporary differences:
                               
. Pension Plan
    224,171       235,935       224,171       235,935  
. Contingent liabilities
    626,875       599,427       564,312       549,090  
. Provision for losses on assets
    136,782       126,538       136,782       122,678  
. Others
    6,285       (100,293 )     (55,233 )     (50,166 )
 
                       
 
    994,113       861,607       870,032       857,537  
 
                       
 
                               
Total
    1,551,837       1,599,653       905,781       1,002,537  
 
                       
 
                               
Short-term
    474,282       587,969       364,883       473,668  
Long-term
    1,077,555       1,011,684       540,898       528,869  
 
                       
 
 
    1,551,837       1,599,653       905,781       1,002,537  
 
                       

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The amounts reported as income tax and social contribution, which affected the results for the period, are as follows:
                                                         
    Consolidated     Parent Company  
    2Q/05     1Q/05     2Q/04     06/30/05     06/30/04     06/30/05     06/30/04  
Income before income tax and social contribution
    4,915,233       2,174,971       2,049,508       7,090,204       3,330,770       5,793,235       2,733,920  
Equity in results of subsidiaries and affiliated companies
    (146,831 )     (130,359 )     (52,522 )     (277,190 )     (116,653 )     (3,261,237 )     (1,672,626 )
Exchange rate variation on equity
    12,672       (430 )     (4,807 )     12,242       (5,229 )     697,250       (169,600 )
Non-deductable goodwill and provision for losses
    54,909       54,909       54,909       109,818       109,818       146,129       109,820  
 
                                         
 
    4,835,983       2,099,091       2,047,088       6,935,074       3,318,706       3,375,377       1,001,514  
 
                                                       
Income tax and social contribution at combined tax rates
    34 %     34 %     34 %     34 %     34 %     34 %     34 %
 
                                         
Federal income tax and social contribution at statutory rates
    (1,644,234 )     (713,691 )     (696,010 )     (2,357,925 )     (1,128,360 )     (1,147,628 )     (340,515 )
Adjustments to net income which modify the effect on the results for the period:
                                                       
. Income tax benefit from interest on stockholders’ equity
    290,166       145,000       145,329       435,166       306,170       435,166       306,170  
. Fiscal incentives
    52,764       58,481       9,801       111,245       36,010       11,846        
. Results of overseas companies
    178,790       121,605       230,151       300,395       279,730              
. Tax rate incentive
    29,335       20,746       16,386       50,081       30,150              
. Others
    32,300       (22,685 )     67,692       9,615       14,101       1,856       (62,720 )
 
                                         
Income tax and social contribution
    (1,060,879 )     (390,544 )     (226,651 )     (1,451,423 )     (462,199 )     (698,760 )     (97,065 )
 
                                         
6.11- Consolidated investments
                                                         
    Investments     Results of investment participations  
    06/30/05     03/31/05     2Q/05     1Q/05     2Q/04     06/30/05     06/30/04  
Usinas Siderúrgicas de Mnas Gerais SA - USIMNAS (a) and (b)
    911,319       795,141       127,999       111,506       39,000       239,505       84,000  
YANKUANG
    24,989       28,347       (3,358 )     125             (3,233 )      
SIDERAR (cost $15) (a)
    35,256       39,993       (4,737 )     177       2,984       (4,560 )     3,275  
Rio Doce Argentina
    1,034       933       (661 )     2             (659 )      
Quadrem
    10,962       12,435       (1,473 )     55       1,098       (1,418 )     1,186  
LARCO
    7,051       7,999       (948 )     36       597       (912 )     639  
Rio Doce South Africa
          17,082             35             35        
Longyu
    202,863                                      
Goodwill in consolidated companies
    1,688,062       1,841,427       (57,270 )     (57,270 )     (80,013 )     (114,540 )     (137,283 )
Others
    18,621       30,027       17,337       18,853       13,650       36,190       32,782  
 
                                         
 
    2,900,157       2,773,384       76,889       73,519       (22,684 )     150,408       (15,401 )
 
                                         
 
(a)   Interest by market price — Usiminas R$ 998,875 and Siderar R$ 305,926; and
 
(b)   Dividends received from Usiminas in the second quarter/2004, R$ 87,500.

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6.12— Property, Plant and Equipment
(a) By type of asset:
                                                                         
            Consolidated     Parent Company  
            06/30/05     03/31/05     06/30/05     03/31/05  
    Average                                                          
    deprecia-             Accumulated                             Accumulated              
    tion rates     Cost     depreciation     Net     Net     Cost     depreciation     Net     Net  
Buildings
    3.00 %     3,526,364       (1,499,934 )     2,026,430       2,127,061       1,862,527       (735,756 )     1,126,771       1,206,660  
Installations
    3.42 %     12,309,880       (5,212,196 )     7,097,684       6,792,738       6,814,310       (2,904,312 )     3,909,998       3,649,828  
Equipment
    9.32 %     5,453,006       (2,524,903 )     2,928,103       2,838,962       1,931,195       (852,524 )     1,078,671       1,036,996  
Railroads
    3.85 %     6,722,944       (3,128,922 )     3,594,022       3.543.049       6,544,504       (3,071,067 )     3,473,437       3,426,219  
Mineral rights (*)
    1.87 %     1,344,146       (321,358 )     1,022,788       1,044,144       1,101,544       (155,800 )     945,744       966,500  
Others
    8.85 %     3,707,648       (1,727,512 )     1,980,136       2,139,565       2,002,447       (942,561 )     1,059,886       1,087,342  
 
                                                     
 
            33,063,988       (14,414,825 )     18,649,163       18,485,519       20,256,527       (8,662,020 )     11,594,507       11,373,545  
Construction in progress
          8,720,540             8,720,540       7,695,741       5,670,728             5,670,728       5,013,238  
 
                                                     
 
                                                                       
Total
            41,784,528       (14,414,825 )     27,369,703       26,181,260       25,927,255       (8,662,020 )     17,265,235       16,386,783  
 
                                                     
 
(*) Calculation based on the volume of ore extracted in relation to the proven and probable reserves.
(b) By business area:
                                 
    Consolidated  
    06/30/05     03/31/05  
            Accumulated              
    Cost     depreciation     Net     Net  
Ferrous
                               
 
                               
In operation
    19,817,249       (9,502,852 )     10,314,397       9,988,484  
 
                               
Construction in progress
    3,934,631             3,934,631       3,380,626  
 
                       
 
                               
 
    23,751,880       (9,502,852 )     14,249,028       13,369,110  
 
                       
 
                               
Non-Ferrous
                               
 
                               
In operation
    2,643,975       (657,589 )     1,986,386       1,970,005  
 
                               
Construction in progress
    1,384,883             1,384,883       1,690,443  
 
                       
 
                               
 
    4,028,858       (657,589 )     3,371,269       3,660,448  
 
                       
 
                               
Logistics
                               
 
                               
In operation
    1,978,097       (589,370 )     1,388,727       1,267,925  
 
                               
Construction in progress
    221,979             221,979       212,566  
 
                       
 
                               
 
    2,200,076       (589,370 )     1,610,706       1,480,491  
 
                       
 
                               
Holdings
                               
 
                               
In operation
    7,536,442       (3,387,966 )     4,148,476       4,276,382  
 
                               
Construction in progress
    1,770,557             1,770,557       1,120,623  
 
                       
 
                               
 
    9,306,999       (3,387,966 )     5,919,033       5,397,005  
 
                       
 
                               
Energy
                               
 
                               
In operation
    577,071       (56,461 )     520,610       525,220  
 
                               
Construction in progress
    590,886             590,886       547,859  
 
                       
 
                               
 
    1,167,957       (56,461 )     1,111,496       1,073,079  
 
                       
 
                               
Corporate
                               
 
                               
In operation
    511,154       (220,587 )     290,567       457,502  
 
                               
Construction in progress
    817,604             817,604       743,625  
 
                       
 
                               
 
    1,328,758       (220,587 )     1,108,171       1,201,127  
 
                       
 
                               
Total
    41,784,528       (14,414,825 )     27,369,703       26,181,260  
 
                       

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6.13— Loans and Financing
Short-term
                                 
    Consolidated     Parent Company  
    06/30/05     03/31/05     06/30/05     03/31/05  
Trade finance
    830,152       375,739       407,258        
Working capital
    334,919       327,114              
 
                       
 
    1,165,071       702,853       407,258        
 
                       
Long-term
                                                                 
    Consolidated     Parent Company  
    Current liabilities     Long-term liabilities     Current liabilities     Long-term liabilities  
    06/30/05     03/31/05     06/30/05     03/31/05     06/30/05     03/31/05     06/30/05     03/31/05  
Foreign operations
                                                               
 
                                                               
Loans and financing in:
                                                               
U.S. dollars
    908,057       1,111,607       2,816,000       3,497,103       673,260       616,224       2,171,642       2,714,345  
Yen
    1,352       1,587       3,380       3,968       1,352       1,587       3,380       3,968  
Other currencies
    7,816       9,444       42,157       55,928       6,806       7,697       37,604       50,392  
Notes in U.S. dollars
    225,698             2,322,205       2,691,539                          
Export securitization
    169,114       169,333       905,804       1,081,528                          
Perpetual notes
                164,354       186,437                          
Accrued charges
    155,190       105,088                   38,895       25,373              
 
                                               
 
    1,467,227       1,397,059       6,253,900       7,516,503       720,313       650,881       2,212,626       2,768,705  
 
                                               
 
                                                               
Local operations
                                                               
 
                                                               
Indexed by TJLP, TR and IGP-M
    175,120       176,119       312,604       419,116       19,257       21,176       21,774       36,741  
Basket of currencies
    3,531       11,923       23,173       43,215       153       2,820       537       680  
Loans in U.S. dollars
    261,626       418,277       742,635       1,028,704       1,791       48,407       895       132,922  
Non-convertible debentures
    705             327,979       319,666       705             12       811  
Accrued charges
    58,470       55,606       6,854       9,080       392       1,498              
 
                                               
 
    499,452       661,925       1,413,245       1,819,781       22,298       73,901       23,218       171,154  
 
                                               
 
    1,966,679       2,058,984       7,667,145       9,336,284       742,611       724,782       2,235,844       2,939,859  
 
                                               
(a)   Foreign currency loans and financing were converted into reais at exchange rates effective on the quarterly information date, being US$ 1.00 = R$ 2.3504 on 06/30/05 (R$ 2.6662 in 03/31/05) and ¥ 1.00 = R$ 0.021194 on 06/30/05 (R$ 0.024875 on 03/31/05);
 
(b)   At 06/30/05, our consolidated debt was secured as follows:
    Loans guaranteed by the Federal Government of R$358, to which we gave counter-guarantees;
 
    Securitization program of R$1,075;
 
    Property, plant and equipment of R$ 378;
 
    Others assets R$ 526.
(c)   Amortization of principal and financing charges incurred on long-term loans and financing obtained abroad and domestically mature as follows, as of 06/30/05:
                                 
    Consolidated     Parent Company  
2006
    807,456       11 %     381,963       17 %
2007
    1,308,967       17 %     422,810       19 %
2008
    816,974       11 %     397,392       18 %
2009 onward
    4,241,426       55 %     1,033,679       46 %
No due date (perpetual notes and debentures)
    492,322       6 %            
 
                       
 
    7,667,145       100 %     2,235,844       100 %
 
                       
The estimated market values of long-term loans and financing calculated at present value based on available interest rates as of 06/30/05 approximate their book values.

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(d)   On March 8, 2002, the Company, through its subsidiary Vale Overseas Limited issued US$ 300 million of Notes bearing interest at 8.625% p.a and maturing on March 8, 2007 (which may be extended to September 2008). In December, 2004, by public offering, CVRD bought back US$ 186,996 thousands of the principal outstanding notes for US$ 1,117.34 per each US$ 1,000.00. This transaction is guaranteed by the Company with political risk protection and is registered with the U.S. Securities and Exchange Commission (SEC). The Notes are listed on the Luxembourg Stock Exchange.
 
(e)   On August 1, 2003 Vale Overseas Limited launched a US$ 300 million bonds issue maturing in 10 years. The bonds carry a coupon of 9.00% p.a with semiannual payment of interest. The bonds are unsecured and non-subordinated obligations of Vale Overseas Limited and have the full and unconditional guarantee of CVRD.
 
(f)   On 01/09/04 Vale Overseas Limited launched a US$ 500 millions of bonus maturing in 2034. The securities have coupons of 8.25% per period with half-yearning installment. The obligations are non-guaranteed and non-subordinated of Vale Overseas Limited and have full and unconditional guarantee by CVRD.
6.14- Contingent Liabilities
At the quarterly information dates the contingent liabilities of the Company were:
(a)   Provisions for contingencies and judicial deposits (booked under long-term liabilities and long-term assets, respectively), considered by management and its legal counsel as sufficient to cover losses from any type of lawsuit, were as follows:
                                                                 
    Consolidated     Parent Company  
                            Provisions for                             Provisions for  
    Judicial deposits             contingencies     Judicial deposits             contingencies  
    06/30/05     03/31/05     06/30/05     03/31/05     06/30/05     03/31/05     06/30/05     03/31/05  
Tax contingencies
    1,186,589       1,193,436       2,035,662       1,437,422       731,196       757,081       1,650,033       1,048,509  
Labor and social security claims
    312,872       301,137       613,755       591,693       236,166       230,212       504,636       489,888  
Civil claims
    245,321       212,702       498,829       503,242       180,207       169,083       420,053       419,720  
Other
    24,172       24,186       118,383       97,914       24,938       24,775       37,268       36,639  
 
                                               
Total
    1,768,954       1,731,461       3,266,629       2,630,271       1,172,507       1,181,151       2,611,990       1,994,756  
 
                                               
The Company is party to labor, civil, tax and other suits and has been contesting these matters both administratively and in court. When applicable, these are backed by judicial deposits. Provisions for losses are estimated and restated monetarily by management based on the opinions of the legal department and outside counsel.
Tax contingencies relate principally to a legal action claiming unconstitutionality of CPMF (tax on bank transactions) income tax with credits and other actions relating to value-added tax (ICMS).
Labor-related actions principally comprise employee claims in connection with disputes about the amount of indemnities paid upon dismissal and the one-third extra holidays pay.
Civil actions principally relate to claims made against the Company by contractors in connection with losses alleged to have been incurred as a result of various past government economic plans.
In addition to the contingencies for which we have made provisions we have possible losses totaling R$ 1,151,558 (R$ 1,980,995 consolidated) on 30/06/05. Based on the advice of our legal counsel, no provision is maintained.
(b)   Guarantees given to jointly-controlled companies are as follows:
                                         
    Amount of                            
    guarantee                            
            Denominated             Final     Counter  
Affiliate or Joint Venture   06/30/05     currency     Purpose   maturity     guarantees  
SAMARCO
    12,883     US$   Debt guarantee IFC     2008     None
 
                                       
VALESUL
    803       R$   Debt guarantee BNDES     2007     None
The Company does not expect such guarantees to be executed and therefore no provisions for losses have been made. CVRD does not charge Valesul for granting these guarantees.

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(c)   Upon privatization of the Company in 1997, the Brazilian government stipulated the issuance of non-convertible debentures (Debentures) to the stockholders of record, including the federal government. The maturity dates of these Debentures were established to guarantee that pre-privatization stockholders, including the federal government, would share any future benefits from mineral resources held by the Company and its subsidiary and affiliated companies that were not evaluated at the time of setting the minimum price of CVRD shares at the privatization auction.
 
    A total of 388,559,056 Debentures were issued at a par value of R$ 0.01 (one centavo), whose value is to be restated in accordance with the variation in the General Market Price Index (IGP-M), as set forth in the Issue Deed.
On October 4, 2002, Comissão de Valores Mobiliários — CVM (Brazilian Securities Commission) approved the Company’s registration request, filed on June 28, 2002, for public trading of the Debentures. As from October 28, 2002, the Debentures can be traded on the secondary market.
The debenture holders are entitled to receive semi-annual payments equivalent to a percentage of the net revenue deriving from certain mineral resources owned in May 1997 and included in the Issue Deed.
According to the Debenture Issue Deed, the amount of the premium must include interest up to the month prior to that of effective payment, plus 1% in the month in which the funds are made available to the debenture holder. Pursuant to this Deed, the payment date shall take place each semester in March and September.
Based on estimates of the operational start-up of copper projects, CVRD began calculating the premium referring to these minerals rights. Considering the iron ore sale, the Company estimates that the threshold for payment will be reached in approximately 2030 and 2020 for the Southern and Northern systems, respectively. Regarding other minerals, such as bauxite and nickel, the forecast for exploitation is for the second half of the decade, and according to the criteria established in the Deed, payment will be due on the net sales revenue in the fourth period after the date of first commercialization. The obligation to make payments to the debenture holders will cease when the pertinent mineral resources are exhausted.
6.15- Environmental and Site Reclamation and Restoration Costs
Expenditures relating to ongoing compliance with environmental regulations are charged to production costs or capitalized as incurred. The Company manages its environmental policies according to the specifications of ISO 14,001 and maintains ongoing programs to minimize the environmental impact of its mining operations as well as to reduce the costs that will be incurred upon termination of activities at each mine. On 06/30/05, the provision for environmental liabilities amounted to R$ 260,648 (R$ 263,281 on 03/31/05), which was accounted for in “Provision for environmental liabilities” in long-term liabilities. The Company adopts the concepts of the Accounting for Asset Retirement Obligations, as follows:
.   Costs for mine closure are recorded as part of the cost of these assets and a corresponding provision is made for such future expenditure;
 
.   The estimated costs are accounted for at the present value of the obligations, discounted using a risk free rate; and
 
.   The estimated costs are reviewed annually and changes in the present value are adjusted in the recorded values of the assets and liabilities.
6.16- Paid-up Capital
Since the Extraordinary Shareholders’ Meeting held on April 27, 2005, the capital increase without issuing new shares through capitalization of part of the Expansion/Investments Reserve in the amount of R$ 5,129,319, tax reserves of R$ 525,853, exhaustion reserve of R$ 1,004,166 and capitalization of tax incentive reserve in the amount of R$ 40,662 increasing its share capital from R$ 7,300 millions to R$ 14,000 millions.
On August 18, 2004 the Extraordinary General Stockholders ´ Meeting approved the forward stock split. Each share, common and preferred, is represented by three shares. After the split the Company’s capital comprises 1,165,677,168, of which 749,949,429 common shares 415,727,739 class “A” preferred shares.
Preferred shares have the same rights as common shares, except for the right to elect the members of the Board of Directors. They have priority to a minimum annual dividend of 6% on the portion of capital represented by this class of share or 3% of the book net equity value of the share, whichever is greater.

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6.17- Treasury Stock
The Board of Directors, under the terms of subparagraph XV of Article 13 of the Bylaws and based on Article 30 of Law 6404/76 and CVM Instructions 10 of 02/14/80 and 268 of 11/13/97, approved the acquisition by the Company of its own shares to be held in treasury for later sale or cancellation.
On 06/30/05, the Company had acquired 14,145,510 common shares and 11,803 preferred shares, which are held in treasury in the amount of R$ 131,318. The 14,145,510 common shares guarantee a loan of the subsidiary Alunorte.
                                                         
Shares                                
                                            Average  
Class   Quantity     Unit acquisition cost     quoted market price  
    06/30/05     03/31/05     Average     Low     High     06/30/05     03/31/05  
Preferred
    11,803       11,815       17.12       4.67       17.47       47.93       47.93  
Common
    14,145,510       14,145,510       9.27       6.69       17.36       56.13       56.13  
 
                                                   
 
    14,157,313       14,157,325                                          
 
                                                   
6.18- Remuneration of Shareholders
On 04/29/05 occurred the payment of the first installment of the minimum dividend in the total amount of R$ 1,279,900 equivalent to BRL 1.11 per outstanding preferred share or common share as interest on stockholders ´equity, R$ 1,278,513 related to the additional remuneration proposed for the fiscal year 2004 and R$ 1,387 related to the fiscal year 2005.
6.19- Financial Results
Parent Company
                                                 
    1S/05     1S/04  
            Monetary                     Monetary        
            and exchange                     and exchange        
    Financial     rate variation             Financial     rate variation        
    expenses     on liabilities     Total     expenses     on liabilities     Total  
Foreign debt
    (9,972 )     192,101       182,129       (89,858 )     (212,641 )     (302,499 )
Local debt
    (12,362 )     51,231       38,869       (11,359 )     (23,664 )     (35,023 )
Related parties
    (139,085 )     419,017       279,932       (93,954 )     (305,409 )     (399,363 )
 
                                   
 
    (161,419 )     662,349       500,930       (195,171 )     (541,714 )     (736,885 )
Labor, tax and civil contingencies
    (62,586 )     (41,472 )     (104,058 )     (44,214 )     (57,877 )     (102,091 )
 
                                               
Derivatives, net of gain/losses (interest and currencies)
    (3,245 )     (407 )     (3,652 )     3,868       (9,338 )     (5,470 )
Derivatives, net of gain/losses (gold)
    3,936       5,290       9,226       15,603       (5,726 )     9,877  
 
                                               
CPMF
    (39,065 )           (39,065 )     (37,527 )           (37,527 )
Other
    (49,155 )     230,705       181,550       (60,897 )     (179,051 )     (239,948 )
 
                                   
 
    (311,534 )     856,465       544,931       (318,338 )     (793,706 )     (1,112,044 )
 
                                   
                                                 
            Monetary                     Monetary        
            and exchange                     and exchange        
    Financial     rate variation             Financial     rate variation        
    income     on assets     Total     income     on assets     Total  
Related parties
    31,342       (145,480 )     (114,138 )     32,826       99,501       132,327  
Marketable securities
    23,350       9,743       33,093       6,708       30,319       37,027  
Other
    22,495       (30,933 )     (8,438 )     10,095       24,403       34,498  
 
                                   
 
    77,187       (166,670 )     (89,483 )     49,629       154,223       203,852  
 
                                   
Financial income (expenses), net
    (234,347 )     689,795       455,448       (268,709 )     (639,483 )     (908,192 )
 
                                   

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Consolidated
                                                                         
    2Q/05     1Q/05     2Q/04  
            Monetary and                     Monetary and                     Monetary and          
            exchange rate                     exchange                     exchange rate          
    Financial     variation on             Financial     rate variation             Financial     variation on          
    expenses     liabilities     Total     expenses     on liabilities     Total     expenses     liabilities   Total  
Foreign debt
    (101,289 )     780,104       678,815       (80,710 )     (9,599 )     (90,309 )     (218,130 )     (627,826 )     (845,956 )
Local debt
    (54,481 )     235,822       181,341       (64,570 )     (11,428 )     (75,998 )     (65,557 )     (156,843 )     (222,400 )
Related parties
    16,459       4,124       20,583       (27,373 )     (4,111 )     (31,484 )     (10,591 )     (27,466 )     (38,057 )
 
                                                     
 
    (139,311 )     1,020,050       880,739       (172,653 )     (25,138 )     (197,791 )     (294,278 )     (812,135 )     (1,106,413 )
Labor, tax and civil contingencies
    (31,575 )     (18,697 )     (50,272 )     (31,011 )     (23,715 )     (54,726 )     (26,733 )     (33,736 )     (60,469 )
Derivatives, net of gain/losses (interest and currencies)
    (5,878 )     2,637       (3,241 )     4,588       (71 )     4,517       23,313       (8,522 )     14,791  
Derivatives, net of gain/losses (gold, aluminum and alumina)
    16,198       41,964       58,162       (9,183 )     (3,183 )     (12,366 )     52,306       (4,967 )     47,339  
CPMF
    (46,111 )           (46,111 )     (23,584 )           (23,584 )     (45,999 )           (45,999 )
Other
    (40,815 )     (85,525 )     (126,340 )     (63,164 )     (75,171 )     (138,335 )     (61,593 )     (170,447 )     (232,040 )
 
                                                     
 
                                                                       
 
    (247,492 )     960,429       712,937       (295,007 )     (127,278 )     (422,285 )     (352,984 )     (1,029,807 )     (1,382,791 )
 
                                                     
                                                                         
            Monetary and                     Monetary and                     Monetary and        
            exchange rate                     exchange rate                     exchange rate        
    Financial     variation on             Financial     variation on             Financial     variation        
    income     assets     Total     income     assets     Total     income     on assets     Total  
Related parties
    (14,186 )     (5,169 )     (19,355 )     28,993       13,107       42,100       5,156       150,898       156,054  
Marketable securities
    51,507       (230,392 )     (178,885 )     43,101       14,259       57,360       30,206       117,768       147,974  
Other
    20,816       (453,642 )     (432,826 )     40,746       7,632       48,378       10,314       172,974       183,288  
 
                                                     
 
                                                                       
 
    58,137       (689,203 )     (631,066 )     112,840       34,998       147,838       45,676       441,640       487,316  
 
                                                     
 
                                                                       
Financial income (expenses), net
    (189,355 )     271,226       81,871       (182,167 )     (92,280 )     (274,447 )     (307,308 )     (588,167 )     (895,475 )
 
                                                     
                                                 
    1S/05     1S/04  
            Monetary and                     Monetary and        
            exchange rate                     exchange rate        
    Financial     variation on             Financial     variation on        
    expenses     liabilities     Total     expenses     liabilities     Total  
Foreign debt
    (181,999 )     770,505       588,506       (351,947 )     (707,204 )     (1,059,151 )
Local debt
    (119,051 )     224,394       105,343       (119,138 )     (180,605 )     (299,743 )
Related parties
    (10,914 )     13       (10,901 )     (41,881 )     (45,616 )     (87,497 )
 
                                   
 
    (311,964 )     994,912       682,948       (512,966 )     (933,425 )     (1,446,391 )
Labor, tax and civil contingencies
    (62,586 )     (42,412 )     (104,998 )     (44,214 )     (57,877 )     (102,091 )
 
Derivatives, net of gain/losses (interest and currencies)
    (1,290 )     2,566       1,276       3,972       (9,337 )     (5,365 )
Derivatives, net of gain/losses (gold, aluminum and alumina)
    7,015       38,781       45,796       (81,319 )     (5,726 )     (87,045 )
CPMF
    (69,695 )           (69,695 )     (61,120 )           (61,120 )
Other
    (103,979 )     (160,696 )     (264,675 )     (131,535 )     (231,890 )     (363,425 )
 
                                   
 
    (542,499 )     833,151       290,652       827,182       (1,238,255 )     (2,065,437 )
 
                                   
                                                 
            Monetary and                     Monetary and        
            exchange rate                     exchange rate        
    Financial     variation on             Financial     variation on        
    income     assets     Total     income     assets     Total  
Related parties
    14,807       7,938       22,745       22,883       168,745       191,628  
Marketable securities
    94,608       (216,133 )     (121,525 )     57,913       170,987       228,900  
Other
    61,562       (446,010 )     (384,448 )     34,066       209,894       243,960  
 
                                   
 
    170,977       (654,205 )     (483,228 )     114,862       549,626       664,488  
 
                                   
Financial income (expenses), net
    (371,522 )     178,946       (192,576 )     (712,320 )     (688,629 )     (1,400,949 )
 
                                   
6.20- Financial Instruments — Derivatives
The main market risks the Company faces are related to interest rates, exchange rates and commodities prices. CVRD has a policy of managing risks through the use of derivative instruments.
The Company’s risk management follows policies and guidelines reviewed and approved by the Board of Directors and Executive Board. These policies and guidelines prohibit speculative trading and short selling and require diversification of transactions and counterparties. The policy of the Company is to settle all contracts financially without physical delivery of the products. The credit limits and creditworthiness of counterparties are also reviewed periodically and are defined according to the rules approved by the Company’s management. The results of hedging are recognized monthly in the financial results.

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Table of Contents

The following table shows the movement of gains/loss on derivatives:
                                                 
    Consolidated  
    2Q/05  
    Interest                                
    rates (libor)     Currencies     Gold     Aluminum     Alumina     Total  
Gains / (losses) unrealized on 03/31/05
    (30,577 )     7,192       (83,661 )     (138,303 )     (134,046 )     (379,395 )
Financial settlement
    10,162       (991 )     5,629       22,936       21,657       59,393  
Financial expenses, net
    (4,239 )     (1,638 )     (1,228 )     (28,254 )     45,680       10,321  
Monetary variations, net
    3,481       (844 )     9,705       16,381       15,877       44,600  
 
                                   
Gains / (losses) unrealized on 06/30/05
    (21,173 )     3,719       (69,555 )     (127,240 )     (50,832 )     (265,081 )
 
                                   
                                                 
    1Q/05  
    Interest                                
    rates (libor)     Currencies     Gold     Aluminum     Alumina     Total  
Gains / (losses) unrealized on 12/31/04
    (44,887 )     9,405       (97,430 )     (152,280 )     (147,290 )     (432,482 )
Financial settlement
    7,786       (206 )     5,894       26,756       20,706       60,936  
Financial expenses, net
    6,611       (2,023 )     8,606       (10,982 )     (6,807 )     (4,595 )
Monetary variations, net
    (87 )     16       (731 )     (1,797 )     (655 )     (3,254 )
 
                                   
Gains / (losses) unrealized on 03/31/05
    (30,577 )     7,192       (83,661 )     (138,303 )     (134,046 )     (379,395 )
 
                                   
                                                 
    2Q/04  
    Interest