6-K
Table of Contents

 
 
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 Pages (US GAAP F Pages)
2Q05 Financial Pages (US GAAP S Pages)
Signature page


Table of Contents

US GAAP
(COMPANHIA VALE DO RIA DOCE LOGO)
REAPING THE FRUITS OF THE LONG CYCLE
CVRD’s performance in the second quarter of 2005
BOVESPA: VALE3, VALE5
NYSE: RIO, RIOPR
LATIBEX: XVALO, XVALP
Rio de Janeiro, August 10, 2005 - Excellence in strategy execution, supported mainly by discipline in capital allocation, has enabled CVRD to successfully take advantage of the opportunities offered by the long cycle of mining and metals. The results of the second quarter of 2005 (2Q05) reflect this process, with the achievements of new records: shipments of iron ore and pellets, gross revenues, operational performance, cash generation and net earnings. The quality of the result is highlighted by production records –112.157 million tons of iron ore in 1H05, capital expenditure of US$ 2.5 billion in the last 12 months and the achievement of the investment grade rating.
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
  62.386 million tons of iron ore and pellets shipped in 2Q05, beating the 4Q04 record of 61.824 million tons.
  Gross revenues of US$3.721 billion, 53.3% higher than the previous quarterly record, of US$2.428 billion for 4Q04.
  Operating profit, measured by adjusted EBIT(1), reached US$1.771 billion, 112.9% more than in 2Q04.
  Adjusted EBIT margin of 50.1%, 680 basis points (bp) higher than the previous record of 43.3% in 2Q04.
  Adjusted EBITDA(2), at US$2.033 billion, more than doubled the value of 2Q04, passing the US$2 billion mark for the first time in CVRD’s history.
  LTM adjusted EBITDA amounted to US$5.034 billion, showing its thirteenth consecutive quarter of growth.
 
  Net earnings of US$ 1.630 billion, 223.4% yoy growth, and 72.9% higher than the previous record of US$ 943 million, registered in 3Q04.
SELECTED FINANCIAL INDICATORS
                                         
                                    US$ million  
    2Q04     1Q05     2Q05     1S04     1S05  
Gross revenues
    2,033       2,328       3,721       3,764       6,049  
Adjusted EBIT
    832       795       1,771       1,415       2,566  
Adjusted EBIT margin (%)
    43.3       35.9       50.1       39.6       44.6  
Adjusted EBITDA
    971       993       2,033       1,714       3,026  
Net earnings
    504       698       1,630       909       2,328  
Earnings per share (US$)
    0.44       0.61       1.41       0.79       2.02  
Annualized ROE (%)
    31.8       35.4       39.0       31.8       39.0  
Total debt/ adjusted LTM EBITDA (3) (x)
    1.55       1.05       0.83       1.55       0.83  
Capex
    488.3       570.3       821.3       846.3       1,391.6  
 
    Except where otherwise indicated, operational and financial information in this press release is based on the consolidated figures in accordance with generally accepted accounting principles in the United States (US GAAP). Except for the information on investments and market behavior, this information is based on quarterly financial statements reviewed by independent auditors. The main subsidiaries of CVRD that are consolidated are: Caemi, Alunorte, Albras, RDM, RDME, RDMN, Urucum Mineração, Docenave, Ferrovia Centro-Atlântica (FCA), Itaco, CVRD Overseas and Rio Doce International Finance.
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US GAAP
(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.
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.
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US GAAP
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 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
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US GAAP
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 4.2% 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.
  Dividend payment
On April 29, CVRD distributed to its shareholders a total of US$ 500 million, 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.
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US GAAP
  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) NEW RECORD OF REVENUES: US$ 3.7 BILLION
CVRD’s gross revenues in 2Q05, of US$ 3.721 billion, was 83.0% higher yoy, and exceeded the previous quarterly revenue record of US$ 2.428 billion achieved in 4Q04. The increase of US$ 1.688 billion in comparison to 2Q04 is mainly due to higher sales prices (85%), of which US$ 1.294 billion was related to the annual price increase of iron ore and pellets.
Increase in volume sold contributed US$ 261 million for the revenues increase – US$ 190 million of this coming from iron ore and US$ 63 million from copper concentrate, which began to be shipped to clients only in June 2004.
Ferrous minerals accounted to 78.2% of gross revenues, aluminum products 8.8%, logistics services 8.5% and non-ferrous minerals 4.5%.
The main destinations of CVRD’s sales in the 1Q05 were: Europe (30.9%), Brazil (27.2%) and Asia (24.8%). Of the total revenue of US$ 1.013 billion accounted as sales to the Brazilian market, US$ 216 million were sales of pellet feed to the Tubarão joint ventures (Nibrasco, Itabrasco, Hispanobras and Kobrasco), which process them into pellets and sell to other markets. After Brazil itself, China was the Company’s largest single destination market, representing 11.6% of total revenues.
  Ferrous minerals
Record shipments of iron ore and pellets
In 2Q05 CVRD shipped 62.386 million tons of iron ore and pellets, 11.8% more than in 2Q04, and 0.9% higher than the previous quarterly record (4Q04), of 61.824 million tons.
Shipments of iron ore totaled 56.167 million tons, and shipments of pellets totaled 6.219 million tons. The reduction in pellet sales in comparison with the 7.459 million tons shipped in 2Q04 was due to the maintenance stoppage at the São Luís plant, whose production was reduced by 472,000 tons in 2Q05, and distribution of shipments between quarters of the year. Thus, total shipments of pellets in 1H05, 13.532 million, were only marginally less than the total of 13.584 million in 1H04.
In 2Q05, CVRD purchased 4.140 million tons of iron ore from other mining companies located in the Iron Ore Quadrangle in the Brazil’s State of Minas Gerais to complement its own production in the quarter – a new record, of 60,692 million tons – and enable it to fulfill client contracts. Total purchases from third party suppliers in 1H05 were 8.496 million tons, 10.5% more than the 7.687 million tons of 1H04.
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US GAAP
Of the total of iron ore and pellets sold in 2Q05, 11.747 million tons or 18.8% went to China, 10.4% to Germany, 10.0% to Japan, 5.0% to Italy and 4.6% to France.
Sales to Brazilian steelmakers and pig iron producers totaled 9.038 million tons, 14.5% of total shipments; and shipments to the Tubarão joint ventures were 5.359 million tons, 8.6% of the total.
CVRD’s average sale prices in 2Q05 were US$ 38.58 per ton for iron ore and US$ 90.69 per ton for pellets, an yoy growth of 97.8% and 121.8%, respectively. It should be noted that 2Q05 revenues contains approximately 90% of the retroactive adjustment for the January — March period for price increases. This adjustment distorts the figure for the average price in the period.
Sales of manganese ores amounted to 194,000 tons, 4.4% less yoy and 2.0% less qoq, mainly reflecting reduction in Chinese demand.
Sales of ferro alloys reached 147,000 tons, 7.3% more than in 2Q04, and 11.4% more than in the previous quarter.
The average price of manganese ore was US$ 97.94 per ton, 3.0% down from 1Q05, and maintaining the downtrend, which started in 4Q04 – but still 80.7% higher than the price level of 2Q04. The reduction in price was more accentuated in ferro alloys: this quarter’s average price of US$ 939 per ton was 12.7% less than in 1Q05 and 6.7% less than in 2Q04.
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 shut down temporarily its Mo I Rana plants in Norway, and reduce capacity utilization at Dunkerque, France, to 50% – these actions together will reduce output of alloys by an estimated 200,000 tons in an annualized basis.
Various swing producers – plants with high costs, which produce at the top of the cycle and close in the low part of the cycle – have shut down operations due to the price fall, and, therefore, the rate of production growth fell in 1Q05, from 20% to 15% per year. Supply – and as a result, prices – are expected to stabilize in the coming quarters.
CVRD’s sales of ferrous minerals – iron ore, pellets, manganese and ferro alloys in 2Q05 was US$ 2.908 billion, 103.9% higher than 2Q04, US$ 1.426 billion, and 81.3% more than 1Q05, US$ 1.604 billion.
Iron ore shipments produced revenues of US$ 2.167 billion, pellets US$ 564 million, operating services for the Tubarão pelletizing plants US$ 6 million, manganese ore US$ 19 million and ferro alloys US$ 138 million.
  The aluminum chain
Given the stabilization of the production capacity in the short term, there were no remarkable changes in the quarterly sales volumes of bauxite, alumina and aluminum. Considerable portion of the quarter variations was caused by reschedule of shipments.
Sales of bauxite were 475,000 tons in the quarter, compared to 361,000 tons in 1Q05 and 365,000 in 2Q04.
Alumina sales volume was 402,000 tons, 19.6% higher than the 336,000 tons produced in 2Q04, but 15.9% lower than the volume produced in 1Q05.
CVRD’s sales volume of primary aluminum, 110,000 tons, was in line with its 109,000 tons sold in 1Q05, and slightly lower than the 119,000 tons sold in 2Q04.
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US GAAP
The operational improvements in the Barcarena smelter increased the production of primary aluminum to 220,000 tons in 1H05, enabling CVRD to benefit from the increase in prices.
CVRD’s average selling prices in 2Q05 were US$ 27.37 per ton for bauxite, US$ 274 per ton for alumina and US$ 1,855 per ton for aluminum. Compared to average prices for 2Q04, these prices were 24.9% higher for bauxite, 10.8% higher for alumina and 12.6% higher for primary aluminum.
Revenues from aluminum products in 2Q05 totaled US$ 327 million, 13.2% more than the 2Q04 revenues of US$ 289 million. The increase in prices of products was responsible for 86.8% of this difference.
  Copper
CVRD sold 105,000 tons of copper concentrate in 2Q05, 20,000 tons more than in the previous quarter, 85,000 tons, and 71,000 tons more than in 2Q04, when shipments began.
Output of the Sossego copper mine continues to be lower than programmed, since the drilling equipments acquired this year have not yet been delivered – delivery is now expected in the second half of the year. The resulting expected production of copper in concentrate in 2005 should be approximately 130,000 tons.
The average price of copper concentrate in 2Q05, US$ 886 per ton, was 25.5% more than in 2Q04, US$ 706 per ton, and slightly higher than the average price of US$ 882 per ton in 1Q05. LME copper prices continue to be at record levels, reflecting strong Chinese demand, the slowdown in the increase of smelters’ production, and the extremely low level of reported inventories.
CVRD’s revenue from copper concentrates in the quarter was US$ 93 million. This was US$ 69 million more than in 2Q04. The volume increase was responsible for 91% of this increase in revenue, and higher prices for 9%.
  Industrial minerals
The Company sold 303,000 tons of kaolin in 2Q05, which compares to 293,000 tons in 2Q04, and 280,000 tons in 1Q05. The increase reflects new contracts with clients as already antecipated.
CVRD’s average sale price of kaolin in 2Q05 was US$ 149 per ton, an increase of 6.6% qoq and of 11.6% yoy. Sales revenues was US$ 45 million, which exceeded the sales revenue of 2Q04 and 1Q05 – US$ 39 million in both quarters – by US$ 6 million.
Shipments of potash, 129,000 tons, were 22% less yoy. In the first half of the year, as well as the adverse seasonal effect, Brazilian consumption of potash fell year-on-year for the first time since 1998 due to crop losses caused by the strong drought in the South of Brazil.
In the second half of 2005, with the effects of the drought overcome, and with the 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 expansion of the Taquari-Vasouras mine. With the ramp-up of the new installations, CVRD should produce 710,000 tons in 2005 against 638,000 in 2004. In 2006, operating at full capacity, estimated production is 850,000 tons of potash.
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US GAAP
The average market price of potash, which is settled in the international market, was US$ 240 per ton in 2Q05, 28.7% more than in 2Q04 and 10.5% more than in 1Q05.
Sales of potash contributed US$31 million to CVRD’s total revenue in 2Q05.
  Logistics
Logistics services generated revenues of US$ 316 million in 2Q05, 43.6% more than the revenues of US$ 220 million verified in 2Q04, and 36.2% more than the US$ 232 million of 1Q05. It provided 8.5% of the Company’s total revenues in the quarter.
General cargo carried by the Carajás (EFC), Vitória-Minas (EFVM) and Centro-Atlântica (FCA) railroads contributed with revenues of US$ 233 million, while port services produced US$ 59 million, and coastal shipping and port support services US$ 24 million.
CVRD’s railroads transported 7.418 billion net ton kilometers (ntk) of general cargo, an increase of 4.0% against 2Q04, when 7.135 billion ntk were transported. The main types of cargo were agricultural products, 39.9% of the total, steel industry inputs and products 36.3%, and building materials and forest products 6.7%.
The Company’s ports and maritime terminals handled 8.336 million tons of general cargo, compared to 7.614 million tons in 2Q04.
VOLUME SOLD: IRON ORE AND PELLETS
                                                 
                                    Thousands of tons  
    2Q04     %     1Q05     %     2Q05     %  
Iron ore
    48,357       86.6       52,483       87.8       56,167       90.0  
Pellets
    7,459       13.4       7,313       12.2       6,219       10.0  
Total
    55,816       100.0       59,796       100.0       62,386       100.0  
IRON ORE AND PELLET SALES BY DESTINATION
                                                 
                                    Thousands of tons  
    2Q04     %     1Q05     %     2Q05     %  
EU
    17,577       31.5 %     17,403       29.1 %     20,016       32.1 %
Germany
    6,199       11.1 %     5,816       9.7 %     6,466       10.4 %
France
    3,088       5.5 %     2,424       4.1 %     2,850       4.6 %
Belgium
    2,047       3.7 %     1,907       3.2 %     1,779       2.9 %
Italy
    1,883       3.4 %     1,920       3.2 %     3,148       5.0 %
Others
    4,360       7.8 %     5,336       8.9 %     5,773       9.3 %
China
    8,400       15.0 %     10,857       18.2 %     11,747       18.8 %
Japan
    6,818       12.2 %     5,693       9.5 %     6,249       10.0 %
South Korea
    1,823       3.3 %     2,455       4.1 %     1,237       2.0 %
Middle East
    1,136       2.0 %     1,314       2.2 %     2,063       3.3 %
USA
    1,755       3.1 %     1,276       2.1 %     1,083       1.7 %
Brazil
    13,985       25.1 %     14,210       23.8 %     14,397       23.1 %
Steel mills and pig iron producers
    9,167       16.4 %     8,820       14.8 %     9,038       14.5 %
Pelletizing joint ventures
    4,818       8.6 %     5,390       9.0 %     5,359       8.6 %
RoW
    4,322       7.7 %     6,588       11.0 %     5,595       9.0 %
Total
    55,816       100.0 %     59,796       100.0 %     62,387       100.0 %

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Table of Contents

US GAAP
VOLUME SOLD: MINERALS AND METALS
                         
                    Thousands of tons  
    2Q04     1Q05     2Q05  
Manganese ore
    203       198       194  
Ferro alloys
    137       132       147  
Alumina
    336       478       402  
Primary aluminum
    119       109       110  
Bauxite
    365       361       475  
Potash
    166       138       129  
Kaolin
    293       280       303  
Copper concentrates
    34       85       105  
LOGISTICS SERVICES – GENERAL CARGO
                         
    2Q04     1Q05     2Q05  
Railroads (million ntk)
    7,135       5,679       7,418  
Ports (thousand tons)
    7,614       6,355       8,336  
AVERAGE PRICES REALIZED
                         
                    US$ / ton  
    2Q04     1Q05     2Q05  
Iron ore
    19.50       20.73       38.58  
Pellets
    40.89       43.89       90.69  
Manganese
    54.19       101.01       97.94  
Ferro alloys
    1,007.30       1,075.76       938.78  
Alumina
    247.02       284.52       273.63  
Aluminum
    1,647.06       1,834.86       1,854.55  
Bauxite
    21.92       27.70       27.37  
Potash
    186.75       217.39       240.31  
Kaolin
    133.11       139.29       148.51  
Copper concentrates
    705.88       882.35       885.71  
GROSS REVENUE BY PRODUCT
                                                 
                                            US$ million  
    2Q04     %     1Q05     %     2Q05     %  
Ferrous minerals
    1,426       70.2       1,604       68.9       2,908       78.2  
Iron ore
    943       46.4       1,088       46.7       2,167       58.2  
Pellet plant operation services
    15       0.7       20       0.9       6       0.2  
Pellets
    304       15.0       321       13.8       564       15.2  
Manganese ore
    11       0.5       20       0.9       19       0.5  
Ferro alloys
    139       6.8       142       6.1       138       3.7  
Others
    14       0.7       13       0.6       14       0.4  
Non ferrous minerals
    94       4.6       144       6.2       169       4.5  
Potash
    31       1.5       30       1.3       31       0.8  
Kaolin
    39       1.9       39       1.7       45       1.2  
Copper concentrates
    24       1.2       75       3.2       93       2.5  
Aluminum products
    289       14.2       346       14.9       327       8.8  
Primary aluminum
    197       9.7       200       8.6       204       5.5  
Alumina
    82       4.0       136       5.8       110       3.0  
Bauxite
    8       0.4       10       0.4       13       0.3  
Others
    2       0.1       0             0        
Logistics services
    220       10.8       232       10.0       316       8.5  
Railroads
    153       7.5       159       6.8       233       6.3  
Ports
    45       2.2       47       2.0       59       1.6  
Shipping
    22       1.1       26       1.1       24       0.6  
Others
    4       0.2       2       0.1       1       0.0  
Total
    2,033       100.0       2,328       100.0       3,721       100.0  
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US GAAP
GROSS REVENUE BY DESTINATION
                                                 
                                            US$ million  
    2Q04     %     1Q05     %     2Q05     %  
Europe
    706       34.7       653       28.0       1,149       30.9  
Brazil
    580       28.5       652       28.0       1,013       27.2  
China
    203       10.0       279       12.0       431       11.6  
Japan
    197       9.7       216       9.3       324       8.7  
Emerging Asia (ex China)
    87       4.3       125       5.4       167       4.5  
USA
    58       2.9       98       4.2       119       3.2  
Rest of the World
    202       9.9       305       13.1       518       13.9  
Total
    2,033       100.0       2,328       100.0       3,721       100.0  
(LOGO) OPERATING COSTS AND EXPENSES
Globally, the mining and metals industry is suffering pressures in costs of energy, equipment, parts, various raw materials and labor. At the same time, the currencies of commodity producing countries have appreciated significantly against the US dollar. Although the weakness of the US dollar contributes, over time, to increasing dollar prices of mining and metals, it has a negative, and almost immediate, effect on costs.
Since 70% of CVRD’s operational costs and expenses are denominated in Reais, the 18.6% appreciation of the Real against the US dollar from 2Q04 to 2Q05, alone, produced a negative effect of US$ 169 million in the operational results.
Cost of goods sold (COGS) in 2Q05 was US$ 1.508 billion, an increase of US$ 261 million over 1Q05, and US$ 596 million more than in 2Q04.
The largest individual item in the difference in COGS from 2Q04 was outsourced services – an increase of US$ 164 million, mainly due to higher sales volumes (US$ 41 million), the increase in rail freight charges (US$ 37 million), the appreciation of the Brazilian currency (US$ 34 million), increased waste material removal in the mines (US$ 24 million), and higher prices (US$ 18 million).
Part of CVRD’s iron ore production is transported through MRS, which impacts outsourced services expenses. In 2Q05 CVRD spent US$ 104 million with railroad freights, totaling US$ 202 million in the first half of the year. To speed up production in the high part of the cycle and prepare reduction of costs for the low part of the cycle, the Company has increased the rate of waste material removal – which is carried out by outsourced service companies.
Cost of materials increased by US$ 130 million, with a strong element from higher costs of spare parts. Besides that, the increase in price of iron ore and pellets also had a significant impact on COGS. Expenditure on the acquisition of these products increased by US$ 99 million.
Energy costs, which are 17.6% of COGS, increased by US$ 95 million, reflecting higher fuel prices – the effects of the oil shock, passed through to the Brazilian market – and higher prices of electricity. In the new long-term contract for supply of electricity to the aluminum smelter in Barcarena, the price is denominated in Reais with a portion indexed to the LME metal price. Thus the appreciation of the Real against the US dollar and the increase in the price of the metal from 2Q04 both contributed to an increase in CVRD’s energy costs.
Due to the increase in the value of the Company’s asset base, depreciation and amortization expenses were US$ 42 million higher yoy. In the last 30 months, CVRD invested US$ 5.4 billion and the Brazilian Real has appreciated 50.3% against the US dollar. These events caused an increase in property plant and
2Q05

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US GAAP
equipment, from US$ 3.3 billion in December 2002 to US$ 11.5 billion in June 2005. Depreciation increased to US$ 249 million in 1H05, from US$ 375 million in 2004 and US$ 205 million in 2002.
Demurrage expenses were US$ 16 million in the quarter. This is higher than the total of US$ 14 million in 2Q04, but there was a considerable reduction from the US$ 21 million of demurrage expenses in 1Q05.
CVRD has been working strongly to improve its logistic processes in order to optimize the mine-railway-port integration.
Simultaneously, the Company is investing considerable resources in its logistics infrastructure. One of the results of these efforts is the minimization of waiting time suffered by vessels at its ports and maritime terminals.
One example is the second ship loader of Pier III at the Company’s port of Ponta da Madeira (PDM), which started operation in July, increasing its operational capacity and flexibility. In the same month, PDM’s third car dumper came into operation – this will speed up unloading of the iron ore trains from Carajás. The operation of the second ship loader of Pier III and the third car dumper enables PDM iron ore loading capacity to reach 85 million tpy.
SG&A expenses of US$ 135 million in 1Q05 were US$ 29 million more than in 2Q04 – basically reflecting the increase in salaries, put in place in July 2004, and increased disbursement on social projects, US$ 7.5 million, and on general expenses.
In 2Q05 CVRD donated US$ 3.6 million to its foundation, Fundação Vale do Rio Doce — institution that finances projects aimed at elementary education and at promotion of citizenship in low income communities, spent US$ 2.0 million in projects for indigenous communities and invested US$ 6.9 million to complete the construction of physical infrastructure in the Canaã dos Carajás municipality, in the State of Pará, where the Sossego copper mine is located. In 1H05, CVRD spent US$ 16.3 million to improve economic and social welfare in the regions where it operates.
Intensification of investments in mineral exploration resulted in research and development expenditure of US$ 54 million in 2Q05, twice its value of US$ 27 million in 2Q04.
COST OF GOODS SOLD – BREAKDOWN
                                                 
                                            US$ million  
    2Q04     %     1Q05     %     2Q05     %  
Personnel
    92       10.1       98       7.9       117       7.8  
Material
    149       16.3       231       18.5       279       18.5  
Fuels
    102       11.2       130       10.4       148       9.8  
Electric energy
    68       7.5       97       7.8       117       7.8  
Outsourced services
    178       19.5       290       23.3       342       22.7  
Acquisition of iron ore and pellets
    116       12.7       115       9.2       215       14.3  
Acquisition of other products
    83       9.1       87       7.0       81       5.4  
Depreciation and exhaustion
    85       9.3       122       9.8       127       8.4  
Others
    39       4.3       77       6.2       82       5.4  
Total
    912       100.0       1.247       100.0       1.508       100.0  
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US GAAP
(LOGO) THE EXCELLENCE OF CVRD’S OPERATIONAL PERFORMANCE
Operating profit measured by adjusted EBIT was a record US$ 1.771 billion, 112.9% higher than in 2Q04 and 122.8% higher than in 1Q05. For the half-year it was US$ 2.566 billion, 81.3% more than in 1H04.
EBIT margin, in spite of the 18.6% yoy appreciation in the Real against the dollar, as measured by the average exchange rate, was 50.1%, higher than its previous record value, of 43.3%, in 2Q04.
Adjusted EBIT in 2Q05 was US$ 939 million more than in 2Q04, reflecting the increase of US$ 1.616 billion in net revenues, which was partially offset by the increase of US$ 596 million in COGS.
The adjusted EBIT margin of the ferrous minerals division was 56.2%, 1,040 basis points higher than its value of 45.8% in 2Q04, reflecting the 2005 increase in prices for iron ore and pellets.
The aluminum business posted an adjusted EBIT margin of 32.7%, which compares with 47.5% in 2Q04. In spite of the increase in average price between the two quarters, there was a fall in margin mainly due to the appreciation of the Real against the US dollar and the increase in costs of electricity.
The adjusted EBIT margin of the logistics services was 30.0%, 190 bp higher yoy, helped by the appreciation of the Real – since logistics transactions are Real denominated.
The EBIT margin of the non-ferrous minerals division, at 36.9% in 2Q05, was lower than in 2Q04 (48.3%), due to increased depreciation expenses and increased cost of production of copper concentrate. The previously mentioned operational problems at Sossego are resulting in production below expected levels and in temporary increase in operational costs.
ADJUSTED EBIT MARGIN BY BUSINESS AREA
                         
    2Q04     1Q05     2Q05  
Ferrous minerals
    45.8 %     38.8 %     56.2 %
Non ferrous minerals
    48.3 %     30.9 %     39.4 %
Aluminum
    47.9 %     38.6 %     32.7 %
Logistics
    28.1 %     22.2 %     30.0 %
Total
    43.3 %     35.9 %     50.1 %
(LOGO) ANOTHER MILESTONE: QUARTERLY EBITDA ABOVE US$ 2 BILLION
CVRD’s 2Q05 adjusted EBITDA moved to a new level – above US$ 2 billion – at US$ 2.033 billion. It was more than the double of values for 2Q04 and 1Q05, US$ 971 million and US$ 993 million, respectively.
In the twelve-month period to June 2005, adjusted EBITDA amounted to US$ 5.034 billion. 2Q05 was the thirteenth consecutive quarterly result in which the LTM adjusted EBITDA increased and was 72.9% higher yoy.
The difference of US$ 1.062 billion between cash generation of 2Q05 and 2Q04 is made up of an increase of US$ 939 million in adjusted EBIT, a raise of US$ 57 million in depreciation, and an increment of US$ 66 million in dividends received.
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US GAAP
The dividends received from affiliated companies and joint ventures totaled US$ 126 million in 2Q05 against US$ 60 million in 2Q04. CVRD received US$ 35 million from Samarco, US$ 34 million from Usiminas, US$ 30 million from MRN, US$ 11 million from GIIC, US$ 8 million from Valesul, and US$ 3 million from Hispanobras.
The 2Q05 cash generation by business unit was: ferrous minerals 83.0%, aluminum products 7.3%, logistics 6.4%, and non-ferrous minerals 2.2%.
QUARTERLY ADJUSTED EBITDA
                         
                    US$ million  
    2Q04     1Q05     2Q05  
Net operating revenues
    1.920       2.213       3.536  
COGS
    (912 )     (1,247 )     (1,508 )
SG&A
    (106 )     (113 )     (135 )
Research and development
    (27 )     (34 )     (54 )
Other operational expenses
    (43 )     (24 )     (68 )
Adjusted EBIT
    832       795       1.771  
 
Depreciation, amortization & exhaustion
    79       129       136  
Dividends received
    60       69       126  
 
Adjusted EBITDA
    971       993       2,033  
ADJUSTED EBITDA BY BUSINESS AREA
                                                 
                                            US$ million  
    2Q04     %     1Q05     %     2Q05     %  
Ferrous minerals
    678       69.8       674       67.9       1.687       83.0  
Non ferrous minerals
    28       2.9       40       4.0       45       2.2  
Logistics
    99       10.2       90       9.1       130       6.4  
Aluminum
    164       16.9       169       17.0       149       7.3  
Others
    2       0.2       20       2.0       22       1.1  
Total
    971       100.0       993       100.0       2.033       100.0  
(LOGO) FINANCIAL REVENUES/EXPENSES
CVRD posted net financial expenses of US$ 24 million in 2Q05. In relation to 2Q04 this was an improvement of US$ 63 million. Financial revenues, at US$ 27 million, were US$ 8 million higher than in 2Q04; and financial expenses, at US$ 51 million, were US$ 55 million lower.
The lower financial expenses reflected an increase of US$ 33 million in the result of derivatives transactions made for protection against market risks — interest rate, currency and commodity price – which had generated a gain of US$ 56 million in 2Q05, compared to a gain of US$ 23 million in 2Q04. The main driver was the gains from hedging of alumina and aluminum prices of the order of US$ 73 million.
The effect on the Company’s net foreign currency liability of the 11.8% appreciation of the Real against the US dollar from 31 March to 30 June, 2005 generated a positive accounting gain of US$ 304 million in the 2Q05 result.
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US GAAP
(LOGO) INCOME FROM SHAREHOLDINGS
Equity income from affiliates and joint ventures totaled US$ 220 million, 46.7% or US$ 70 million higher yoy. The pelletizing companies, benefiting from the increase in prices of their products, were the main responsible for the raise, being its equity income US$ 131 million in 2Q05, against US$ 34 million in 2Q04.
The contribution of the shareholdings in steel, on the other hand, at US$ 62 million, was lower than in 2Q04 (US$ 92 million), reflecting the divestment of CVRD’s interest in CST in the second half of 2004.
(LOGO) RECORD NET EARNINGS: US$ 1.630 BILLION
CVRD’s net earnings in 2Q05 was a record, US$ 1.630 billion, 223.4% higher than in 2Q04 and 133.5% higher than in 1Q05. Net earnings in the half-year were US$ 2.328 billion, compared to US$ 909 million in 1H04.
The principal element in this excellent performance was operational profit, US$ 939 million higher than in 2Q04.
The appreciation of the Real, while having an adverse impact on operational costs and expenses, resulting in compressing margins, operational profit and cash generating, on the other hand caused a positive accounting gain of US$ 304 million on currency variations.
Of the difference of US$ 1.126 billion between net profit in 2Q04 and 2Q05, the lower net financial expenses contributed to US$ 63 million, and the increase in equity income to US$ 70 million.
The Company’s good operational and financial results more than offset the US$ 373 million increase in income tax and social contribution, arising from higher 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.
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US GAAP
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(4) 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 adjusted EBITDA fell from 2.05x on December 31, 2001 to 0.83x on June 30, 2005. Interest coverage, expressed as LTM adjusted EBITDA / interest paid(5) 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.
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  
Financial expenses on:   2Q04     1Q05     2Q05  
Debt with third parties
    (79 )     (48 )     (57 )
Debt with related parties
    (5 )     (2 )     (4 )
Total debt related financial expenses
    (84 )     (50 )     (61 )
                         
Gross interest on:   2Q04     1Q05     2Q05  
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 / adjusted LTM EBITDA (x)
    1.55       1.05       0.83  
Adjusted LTM EBITDA / LTM interest expenses (x)
    12.94       13.24       17.73  
Gross debt / EV (6) (x)
    0.22       0.11       0.11  
Enterprise Value = market capitalization + net debt
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US GAAP
(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 operations1.
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. 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
                 
Area   Project   Budgeted 2005   Status
        US$ million    
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.
 
1   Capex figures are based on actual disbursements.
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US GAAP
                 
Area   Project   Budgeted 2005   Status
        US$ million    
 
  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.
 
               
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.
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US GAAP
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.
(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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US GAAP
BALANCE SHEET
                         
                    US$ million  
    06/30/04     03/31/05     06/30/05  
Assets
                       
Current
    3,069       3,923       4,634  
Long-term
    1,527       1,688       1,911  
Fixed
    7,838       10,763       13,022  
Total
    12,434       16,374       19,567  
Liabilities
                       
Current
    1,980       2,391       3,002  
Long term
    5,275       5,895       6,316  
Shareholders’ equity
    5,179       8,088       10,249  
Paid-up capital
    3,707       3,707       6,366  
Reserves
    1,472       4,381       3,883  
Total
    12,434       16,374       19,567  
FINANCIAL STATEMENTS
                         
                    US$ million  
    2Q04     1Q05     2Q05  
Gross operating revenues
    2,033       2,328       3,721  
Taxes
    (113 )     (115 )     (185 )
Net operating revenue
    1,920       2,213       3,536  
Cost of goods sold
    (912 )     (1,247 )     (1,508 )
Gross profit
    1,008       966       2,028  
Gross margin (%)
    52.5       43.7       57.4  
Selling, general and administrative expenses
    (106 )     (113 )     (135 )
Research and development expenses
    (27 )     (34 )     (54 )
Employee profit-sharing
    (17 )     (17 )     (24 )
Others
    (26 )     (7 )     (44 )
Operating profit
    832       795       1,771  
Financial revenues
    19       29       27  
Financial expenses
    (106 )     (92 )     (51 )
Monetary variation
    (245 )     (2 )     304  
Tax and social contribution (Current)
    (41 )     (160 )     (330 )
Tax and social contribution (Deferred)
    (23 )     47       (107 )
Equity income and provision for losses
    150       133       220  
Minority interest
    (82 )     (52 )     (204 )
Net earnings
    504       698       1,630  
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US GAAP
CASH FLOW STATEMENT
                         
                    US$ million  
    2Q04     1Q05     2Q05  
Cash flows from operating activities:
                       
Net income
    504       698       1,630  
Adjustments to reconcile net income with cash provided by operating activities:
                       
Depreciation, depletion and amortization
    79       129       136  
Dividends received
    60       69       126  
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    (150 )     (133 )     (220 )
Deferred income taxes
    23       (47 )     107  
Provisions for contingencies
          (3 )     (8 )
Impairment of property, plant and equipment
          4       12  
Foreign exchange and monetary losses
    291       27       (298 )
Net unrealized derivative losses
    (22 )     (5 )     (85 )
Minority interest
    82       52       204  
Net interest payable
    27       (2 )     38  
Others
    27       (17 )     (63 )
Decrease (increase) in assets:
                       
Accounts receivable
    (132 )     (92 )     (472 )
Inventories
    (67 )     (20 )     (50 )
Others
    67       (74 )     (187 )
Increase (decrease) in liabilities:
                       
Suppliers
    (59 )     45       142  
Payroll and related charges
    (18 )     (35 )     13  
Income Tax
          (79 )     325  
Others
    (12 )     (86 )     76  
Net cash provided by operating activities
    700       431       1,426  
Cash flows from investing activities:
                       
Loans and advances receivable
    3       4       (5 )
Guarantees and deposits
    (18 )     (17 )     (3 )
Additions to investments
    (6 )     (1 )     (90 )
Additions to property, plant and equipment
    (416 )     (661 )     (777 )
Proceeds from disposals of property, plant and equipment
          2       1  
Net cash used in investing activities
    (437 )     (673 )     (874 )
Cash flows from financing activities:
                       
Short-term debt, net issuances (repayments)
    (44 )     21       216  
Loans
    2       (13 )     (6 )
Long-term debt
    227       239       125  
Repayments of long-term debt
    (201 )     (156 )     (432 )
Interest attributed to stockholders
    (269 )           (500 )
Net cash used in financing activities
    (285 )     91       (597 )
Increase (decrease) in cash and cash equivalents
    (22 )     (151 )     (45 )
Effect of exchange rate changes on cash and cash equivalents
    (2 )     24       (121 )
Cash and cash equivalents, beginning of period
    1,083       1,249       1,122  
Cash and cash equivalents, end of period
    1,059       1,122       956  
Cash paid during the period for:
                       
Interest on long-term debt
    (51 )     (82 )     (35 )
Income tax
          (79 )     (171 )
Non-cash transactions
                       
Interest capitalized
    (6 )     (15 )     (9 )
Income tax paid with credits
    (64 )     (27 )     (53 )
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US GAAP
(LOGO) APPENDIX
Reconciliation of “non-GAAP” information with corresponding US GAAP figures
(1) Adjusted EBIT
                         
                    US$ million  
    2Q04     1Q05     2Q05  
Net operating revenues
    1,920       2,213       3,536  
COGS
    (912 )     (1,247 )     (1,508 )
SG&A
    (106 )     (113 )     (135 )
Research & development
    (27 )     (34 )     (54 )
Other operating expenses
    (43 )     (24 )     (68 )
Adjusted EBIT
    832       795       1,771  
(2) Adjusted EBITDA
The term “EBITDA” refers to a financial measure that is defined as earnings (losses) before interest, taxes, depreciation and amortisation; we use the term “Adjusted EBITDA” to reflect that our financial measure also excludes monetary gains/losses, equity in results of affiliates and joint ventures less dividends received from those companies, changes in provision for losses on equity investments, adjustments for changes in accounting practices, minority interests and non-recurring expenses. However, Adjusted EBITDA is not a measure determined under GAAP in the United States of America and may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA should not be construed as a substitute for operating income or as a better measure of liquidity than cash flow from operating activities, which are determined in accordance with GAAP. We have presented Adjusted EBITDA to provide additional information with respect to our ability to meet future debt service, capital expenditure and working capital requirements. The following schedule reconciles Adjusted EBITDA to net cash provided by (used in) operating activities reported on our Consolidated Statements of Cash Flows, which we believe is the most directly comparable GAAP measure:
RECONCILIATION BETWEEN ADJUSTED EBITDA VS. OPERATING CASH FLOW
                         
                    US$ million  
    2Q04     1Q05     2Q05  
Operating cash flow
    700       431       1,426  
Income tax
    41       160       330  
Monetary and foreign exchange losses
    (46 )     (25 )     (6 )
Financial expenses
    60       65       (14 )
Net working capital
    221       341       153  
Unrealized losses with derivatives
    22       5       85  
Others
    (27 )     16       59  
Adjusted EBITDA
    971       993       2,033  
(3) Gross debt / last 12 months adjusted EBITDA
                         
    2Q04     1Q05     2Q05  
Total debt / adjusted LTM EBITDA (x)
    1.55       1.05       0.83  
Total debt / LTM operating cash flow (x)
    2.01       1.27       1.03  
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US GAAP
(4) Net debt
RECONCILIATION BETWEEN GROSS DEBT VS, NET DEBT
                         
                    US$ million  
    2Q04     1Q05     2Q05  
Gross debt
    4,514       4,182       4,168  
Cash and cash equivalents
    1,059       1,122       956  
Net debt
    3,455       3,060       3,212  
(5) Adjusted LTM EBITDA / LTM interest expenses
                         
    2T04     1T05     2T05  
Adjusted LTM EBITDA / LTM interest expenses (x)
    12.94       13.24       17.73  
LTM operating income / LTM interest expenses (x)
    10.26       11.12       15.05  
(6) Total debt / enterprise value
                         
    2Q04     1Q05     2Q05  
Total debt / EV (x)
    21.74       11.06       10.98  
Total debt / total assets (x)
    36.30       25.54       21.30  
Entreprise value = net debt + market capitalization
 
“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.”
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COMPANHIA VALE DO RIO DOCE
INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
         
    Page  
Condensed Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004
    F-3  
 
       
Condensed Consolidated Statements of Income for the three-month periods ended June 30, 2005 and 2004 and March 31, 2005 and for the six-month periods ended June 30, 2005 and 2004
    F-5  
 
       
Condensed Consolidated Statements of Cash Flows for the three-month periods ended June 30, 2005 and 2004 and March 31, 2005 and for the six-month periods ended June 30, 2005 and 2004
    F-6  
 
       
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three-month periods ended June 30, 2005 and 2004 and March 31, 2005 and for the six- month periods ended June 30, 2005 and 2004
    F-7  
 
       
Notes to the Condensed Consolidated Financial Information
    F-8  
 
       
Supplemental Financial Information
    S-1  

F-1


Table of Contents

Report of Independent Registered
Public Accounting Firm
To the Board of Directors and Stockholders
Companhia Vale do Rio Doce
We have reviewed the accompanying unaudited condensed consolidated balance sheet of Companhia Vale do Rio Doce and subsidiaries as of June 30, 2005, and the unaudited condensed consolidated statements of income, of cash flows and of changes in stockholders’ equity for the three-month periods ended June 30 and March 31, 2005 and June 30, 2004 and and for the six-month periods ended June 30, 2005 and 2004, respectively. This interim financial information is the responsibility of the Company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated interim financial information referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.
We previously audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Companhia Vale do Rio Doce and subsidiaries as of December 31, 2004, and the related consolidated statements of income, of cash flows and of changes in stockholders’ equity for the year then ended (not presented herein) and in our report dated March 21, 2005, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2004 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
PricewaterhouseCoopers
Auditores Independentes
Rio de Janeiro, Brazil
August 10, 2005

F-2


Table of Contents

Condensed Consolidated Balance Sheets
Expressed in millions of United States dollars
                 
    June 30,     December 31,  
    2005     2004  
    (unaudited)        
Assets
               
 
               
Current assets
               
 
               
Cash and cash equivalents
    956       1,249  
Accounts receivable, net
               
Related parties
    252       124  
Unrelated parties
    1,486       905  
Loans and advances to related parties
    82       56  
Inventories
    1,033       849  
Deferred income tax
    215       203  
Recoverable taxes
    250       285  
Others
    360       219  
 
           
 
    4,634       3,890  
 
           
 
               
Property, plant and equipment, net
    11,514       9,063  
 
               
Investments in affiliated companies and joint ventures and other investments, net of provision for losses on equity investments
    1,508       1,159  
 
               
Other assets
               
Goodwill on acquisition of subsidiaries
    546       486  
Loans and advances
               
Related parties
    44       55  
Unrelated parties
    58       56  
Prepaid pension cost
    248       170  
Deferred income tax
    33       70  
Judicial deposits
    622       531  
Unrealized gain on derivative instruments
    2       4  
Others
    358       231  
 
           
 
    1,911       1,603  
 
           
TOTAL
    19,567       15,715  
 
           

F-3


Table of Contents

Condensed Consolidated Balance Sheets
Expressed in millions of United States dollars
(Except number of shares)
(Continued)
                 
    June 30,     December 31,  
    2005     2004  
    (unaudited)        
Liabilities and stockholders’ equity
               
 
               
Current liabilities
               
 
               
Suppliers
    971       689  
Payroll and related charges
    132       141  
Interest attributed to stockholders
    16       11  
Current portion of long-term debt — unrelated parties
    685       730  
Short-term debt
    346       74  
Loans from related parties
    50       52  
Provision for taxes
    382       459  
Provision for operational expenses
    157       64  
Others
    263       235  
 
           
 
    3,002       2,455  
 
           
 
               
Long-term liabilities
               
Employees post-retirement benefits
    229       215  
Long-term debt — unrelated parties
    3,072       3,214  
Loans from related parties
    15       18  
Provisions for contingencies (Note 9)
    1,318       914  
Unrealized loss on derivative instruments
    115       236  
Provisions for environmental liabilities
    159       134  
Others
    339       350  
 
           
 
    5,247       5,081  
 
           
Minority interests
    1,069       788  
 
           
 
               
Stockholders’ equity
               
Preferred class A stock - 1,800,000,000 no-par-value shares authorized and 415,727,739
    2,150       1,176  
Common stock - 900,000,000 no-par-value shares authorized and 749,949,429 issued
    3,806       2,121  
Treasury stock - 11,803 (2004 - 11,951) preferred and 14,145,510 common shares
    (88 )     (88 )
Additional paid-in capital
    498       498  
Other cumulative comprehensive loss
    (2,744 )     (3,774 )
Appropriated retained earnings
    1,829       4,143  
Unappropriated retained earnings
    4,798       3,315  
 
           
 
    10,249       7,391  
 
           
TOTAL
    19,567       15,715  
 
           
See notes to condensed consolidated financial information.

F-4


Table of Contents

Condensed Consolidated Statements of Income
Expressed in millions of United States dollars (Unaudited)
(except number of shares and per-share amounts)
                                         
    Three-month     Six-month periods  
    periods ended     ended June 30  
    June     March     June              
    30, 2005     31, 2005     30, 2004     2005     2004  
Operating revenues, net of discounts, returns and allowances
                                       
Sales of ores and metals
    3,077       1,748       1,520       4,825       2,774  
Revenues from logistic services
    316       232       220       548       411  
Aluminum products
    327       346       289       673       569  
Other products and services
    1       2       4       3       10  
 
                             
 
    3,721       2,328       2,033       6,049       3,764  
 
                                       
Value-added tax
    (185 )     (115 )     (113 )     (300 )     (188 )
 
                             
Net operating revenues
    3,536       2,213       1,920       5,749       3,576  
 
                             
 
                                       
Operating costs and expenses
                                       
Cost of ores and metals sold
    (1,134 )     (912 )     (647 )     (2,046 )     (1,290 )
Cost of logistic services
    (169 )     (143 )     (117 )     (312 )     (232 )
Cost of aluminum products
    (203 )     (191 )     (143 )     (394 )     (290 )
Others
    (2 )     (1 )     (5 )     (3 )     (8 )
 
                             
 
    (1,508 )     (1,247 )     (912 )     (2,755 )     (1,820 )
Selling, general and administrative expenses
    (135 )     (113 )     (106 )     (248 )     (207 )
Research and development
    (54 )     (34 )     (27 )     (88 )     (50 )
Employee profit sharing plan
    (24 )     (17 )     (17 )     (41 )     (30 )
Others
    (44 )     (7 )     (26 )     (51 )     (54 )
 
                             
 
    (1,765 )     (1,418 )     (1,088 )     (3,183 )     (2,161 )
 
                             
Operating income
    1,771       795       832       2,566       1,415  
 
                             
 
                                       
Non-operating income (expenses)
                                       
Financial income
    27       29       19       56       31  
Financial expenses
    (51 )     (92 )     (106 )     (143 )     (248 )
Foreign exchange and monetary gains (losses), net
    304       (2 )     (245 )     302       (287 )
 
                             
 
    280       (65 )     (332 )     215       (504 )
 
                             
Income before income taxes, equity results and minority interests
    2,051       730       500       2,781       911  
 
                             
 
                                       
Income taxes
                                       
Current
    (330 )     (160 )     (41 )     (490 )     (138 )
Deferred
    (107 )     47       (23 )     (60 )     9  
 
                             
 
    (437 )     (113 )     (64 )     (550 )     (129 )
 
                             
 
                                       
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    220       133       150       353       236  
 
                                       
Minority interests
    (204 )     (52 )     (82 )     (256 )     (109 )
 
                             
Net income
    1,630       698       504       2,328       909  
 
                             
 
                                       
Income available to preferred stockholders
    588       252       182       840       328  
Income available to common stockholders
    1,042       446       322       1,488       581  
 
                                       
Basic and diluted earnings per Preferred Class A Share
    1.41       0.61       0.44       2.02       0.79  
Basic and diluted earnings per Common Share
    1.41       0.61       0.44       2.02       0.79  
 
                             
Weighted average number of shares outstanding (thousands of shares)
                                       
Preferred Class A shares
    415,716       415,716       415,713       415,716       415,713  
Common shares
    735,804       735,804       735,804       735,804       735,804  
See notes to condensed consolidated financial information.

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Condensed Consolidated Statements of Cash Flows
Expressed in millions of United States dollars (Unaudited)
                                         
                            Six-month periods  
    Three-month periods ended     ended June 30  
    June     March     June              
    30,2005     31,2005     30,2004     2005     2004  
Cash flows from operating activities:
                                       
Net income
    1,630       698       504       2,328       909  
Adjustments to reconcile net income to cash provided by operating activities:
                                       
Depreciation, depletion and amortization
    136       129       79       265       178  
Dividends received
    126       69       60       195       121  
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    (220 )     (133 )     (150 )     (353 )     (236 )
Deferred income taxes
    107       (47 )     23       60       (9 )
Provisions for other contingencies
    (8 )     (3 )           (11 )      
Impairment of property, plant and equipment
    12       4             16        
Foreign exchange and monetary losses (gains)
    (298 )     27       291       (271 )     336  
Net unrealized derivative losses (gains)
    (85 )     (5 )     (22 )     (90 )     32  
Minority interests
    204       52       82       256       109  
Interest payable, net
    38       (2 )     27       36       13  
Others
    (63 )     (17 )     27       (80 )     9  
Decrease (increase) in assets:
                                       
Accounts receivable
    (472 )     (92 )     (132 )     (564 )     (155 )
Inventories
    (50 )     (20 )     (67 )     (70 )     (82 )
Others
    (187 )     (74 )     67       (261 )     42  
Increase (decrease) in liabilities:
                                       
Suppliers
    142       45       (59 )     187       (84 )
Payroll and related charges
    13       (35 )     (18 )     (22 )     (21 )
Taxes payable
    325       (79 )           246        
Others
    76       (86 )     (12 )     (10 )     135  
 
                             
Cash provided by operating activities
    1,426       431       700       1,857       1,297  
 
                             
Cash flows from investing activities:
                                       
Loans and advances receivable
                                       
Related parties
                                       
Additions
    (27 )           (6 )     (27 )     (6 )
Repayments
    22       3       5       25       46  
Others
          1       4       1       19  
Guarantees and deposits
    (3 )     (17 )     (18 )     (20 )     (42 )
Additions to investments
    (90 )     (1 )     (6 )     (91 )     (15 )
Additions to property, plant and equipment
    (777 )     (661 )     (416 )     (1,438 )     (797 )
Proceeds Others from disposals of property, plant and equipment
    1       2             3        
 
                             
Cash used in investing activities
    (874 )     (673 )     (437 )     (1,547 )     (795 )
 
                             
Cash flows from financing activities:
                                       
Short-term debt, net issuances (repayments)
    216       21       (44 )     237        
Loans
                                       
Related parties
                                       
Additions
    3       4       3       7       6  
Repayments
    (9 )     (17 )     (1 )     (26 )     (7 )
Issuances of long-term debt
                                       
Related parties
    11       4             15        
Others
    114       235       227       349       892  
Repayments of long-term debt
                                       
Others
    (432 )     (156 )     (201 )     (588 )     (671 )
Interest attributed to stockholders
    (500 )           (269 )     (500 )     (269 )
 
                             
Cash provided by (used in) financing activities
    (597 )     91       (285 )     (506 )     (49 )
 
                             
Increase (decrease) in cash and cash equivalents
    (45 )     (151 )     (22 )     (196 )     453  
Effect of exchange rate changes on cash and cash equivalents
    (121 )     24       (2 )     (97 )     (5 )
Initial cash in new consolidated subsidiary
                            26  
Cash and cash equivalents, beginning of period
    1,122       1,249       1,083       1,249       585  
 
                             
Cash and cash equivalents, end of period
    956       1,122       1,059       956       1,059  
 
                             
Cash paid during the period for:
                                       
Interest on short-term debt
                            (2 )
Interest on long-term debt
    (35 )     (82 )     (51 )     (117 )     (131 )
Income tax
    (171 )     (79 )           (250 )      
Non-cash transactions
                                       
Interest capitalized
    (9 )     (15 )     (6 )     (24 )     (11 )
Income tax paid with credits
    (53 )     (27 )     (64 )     (80 )     (61 )
See notes to condensed consolidated financial information.

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Table of Contents

Condensed Consolidated Statements of Changes in Stockholders’ Equity
Expressed in millions of United States dollars (Unaudited)
(except number of shares and per-share amounts)
                                         
    Three-month periods ended   Six-month periods ended June 30
    June   March   June        
    30, 2005   31, 2005   30, 2004   2005   2004
Preferred class A stock (including three special shares)
                                       
Beginning of the period
    1,176       1,176       1,055       1,176       1,055  
Transfer from appropriated retained earnings
    974             121       974       121  
 
                                       
End of the period
    2,150       1,176       1,176       2,150       1,176  
 
                                       
Common stock
                                       
Beginning of the period
    2,121       2,121       1,902       2,121       1,902  
Transfer from appropriated retained earnings
    1,685             219       1,685       219  
 
                                       
End of the period
    3,806       2,121       2,121       3,806       2,121  
 
                                       
 
                                       
Treasury stock
                                       
 
                                       
End of the period
    (88 )     (88 )     (88 )     (88 )     (88 )
 
                                       
Additional paid-in capital
                                       
End of the period
    498       498       498       498       498  
 
                                       
Other cumulative comprehensive loss
                                       
Cumulative translation adjustments
                                       
Beginning of the period
    (3,891 )     (3,869 )     (4,480 )     (3,869 )     (4,449 )
Change in the period
    1,032       (22 )     (277 )     1,010       (308 )
 
                                       
End of the period
    (2,859 )     (3,891 )     (4,757 )     (2,859 )     (4,757 )
 
                                       
Unrealized gain on available-for-sale securities
                                       
Beginning of the period
    116       95       77       95       74  
Change in the period
    (1 )     21       (16 )     20       (13 )
 
                                       
End of the period
    115       116       61       115       61  
 
                                       
Total other cumulative comprehensive loss
    (2,744 )     (3,775 )     (4,696 )     (2,744 )     (4,696 )
 
                                       
Appropriated retained earnings
                                       
Beginning of the period
    4,126       4,143       3,016       4,143       3,035  
Transfer (to) from retained earnings
    362       (17 )     (175 )     345       (194 )
Transfer to capital stock
    (2,659 )           (340 )     (2,659 )     (340 )
 
                                       
End of the period
    1,829       4,126       2,501       1,829       2,501  
 
                                       
Retained earnings
                                       
Beginning of the period
    4,030       3,315       3,119       3,315       2,857  
Net income
    1,630       698       504       2,328       909  
Interest attributed to stockholders
                                       
Preferred class A stock
    (180 )           (48 )     (180 )     (106 )
Common stock
    (320 )           (83 )     (320 )     (187 )
Appropriation (to) from reserves
    (362 )     17       175       (345 )     194  
 
                                       
End of the period
    4,798       4,030       3,667       4,798       3,667  
 
                                       
Total stockholders’ equity
    10,249       8,088       5,179       10,249       5,179  
 
                                       
 
                                       
Comprehensive income is comprised as follows:
                                       
Net income
    1,630       698       504       2,328       909  
Cumulative translation adjustments
    1,032       (22 )     (277 )     1,010       (308 )
Unrealized gain on available-for-sale securities
    (1 )     21       (16 )     20       (13 )
 
                                       
Total comprehensive income
    2,661       697       211       3,358       588  
 
                                       
 
                                       
Shares
                                       
Preferred class A stock (including three special shares)
    415,727,739       415,727,739       415,727,739       415,727,739       415,727,739  
Common stock
    749,949,429       749,949,429       749,949,429       749,949,429       749,949,429  
Treasury stock (1)
                                       
Beginning of the period
    (14,157,325 )     (14,157,461 )     (14,158,059 )     (14,157,461 )     (14,158,059 )
Sales
    12       136             148        
 
                                       
End of the period
    (14,157,313 )     (14,157,325 )     (14,158,059 )     (14,157,313 )     (14,158,059 )
 
                                       
 
    1,151,519,855       1,151,519,843       1,151,519,109       1,151,519,855       1,151,519,109  
 
                                       
 
                                       
Interest attributed to stockholders (per share)
                                       
Preferred class A stock (including three special shares)
    0.43             0.11       0.43       0.25  
Common stock
    0.43             0.11       0.43       0.25  
 
(1)   As of June 30, 2005, 14,145,510 common shares and 11,803 preferred shares were held in treasury in the amount of US$ 88. The 14,145,510 common shares guarantee a loan of our subsidiary Alunorte.
See notes to condensed consolidated financial information.

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    Notes to the Condensed Consolidated Financial Information
Expressed in millions of United States dollars, unless otherwise stated (Unaudited)
 
 
1   The Company and its operations
 
    Companhia Vale do Rio Doce (CVRD) is a limited liability company, duly organized and existing under the laws of the Federative Republic of Brazil. Our operations are carried out through CVRD and its subsidiary companies, joint ventures and affiliates, and mainly consist of mining, non-ferrous metal production and logistics, as well as energy, aluminum and steel activities. Further details of our joint ventures and affiliates are described in Note 7.
 
    The main operating subsidiaries we consolidate are as follows:
                                 
            %voting        
Subsidiary   % ownership   capital   Head office location   Principal activity
Alumina do Norte do Brasil S.A. — Alunorte (“Alunorte”)
    57       61     Brazil   Alumina
Alumínio Brasileiro S.A. — Albras (“Albras”)
    51       51     Brazil   Aluminum
CADAM S.A (CADAM) (1)
    37       100     Brazil   Kaolin
CVRD Overseas Ltd.
    100       100     Cayman Islands   Trading
Ferrovia Centro-Atlântica S. A.
    100       100     Brazil   Logistics
Itabira Rio Doce Company Ltd. — ITACO
    100       100     Cayman Islands   Trading
Minerações Brasileiras Reunidas S.A. — MBR (2)
    56       90     Brazil   Iron ore
Navegação Vale do Rio Doce S.A. — DOCENAVE
    100       100     Brazil   Shipping
Pará Pigmentos S.A. (1)
    76       86     Brazil   Kaolin
Rio Doce International Finance Ltd. — RDIF
    100       100     Bahamas   International finance
Rio Doce Manganês S.A.
    100       100     Brazil   Manganese and Ferroalloys
Rio Doce Manganèse Europe — RDME
    100       100     France   Ferroalloys
Rio Doce Manganese Norway — RDMN
    100       100     Norway   Ferroalloys
Salobo Metais S.A.
    100       100     Brazil   Copper
Urucum Mineração S.A.
    100       100     Brazil   Iron ore, Ferroalloys and
 
                          Manganese
 
(1)   Through Caemi Mineração e Metalurgia S.A. CVRD holds 60.2% of the total capital and 100% of the voting capital.
 
(2)   Through Caemi Mineração e Metalurgia S.A. and Belém Administrações e Participações Ltda.
2   Basis of consolidation
 
    All majority-owned subsidiaries where we have both share and management control are consolidated, with elimination of all significant intercompany accounts and transactions. Additionally, variable interest entities in which we are the primary beneficiary (FASB Interpretation FIN No. 46 “Consolidation of Variable Interest Entities (revised December 2003)”) are consolidated as from January 1, 2004. Investments in unconsolidated affiliates and joint ventures are reported at cost plus our equity in undistributed earnings or losses. Included in this category are certain joint ventures in which we have majority ownership but, by force of shareholders’ agreements, do not have effective management control. We provide for losses on equity investments with negative stockholders’ equity where applicable.
 
    We evaluate the carrying value of our listed investments relative to publicly available quoted market prices. If the quoted market price is below book value, and such decline is considered other than temporary, we write-down our equity investments to quoted market value.
 
    We define joint ventures as businesses in which we and a small group of other partners each participate actively in the overall entity management, based on a shareholders agreement. We define affiliates as businesses in which we participate as a minority stockholder but with significant influence over the operating and financial policies of the investee.
 
    Investments in unincorporated joint ventures, formed for the purpose of investing in hydroelectric power projects, are proportionately consolidated.

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3   Summary of significant accounting policies
 
    Our condensed consolidated interim financial information for the three-month periods ended June 30, 2005, March 31, 2005 and June 30, 2004 and for the six-month periods ended June 30, 2005 and 2004 is unaudited. However, in our opinion, such condensed consolidated financial information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for interim periods. The results of operations for the three and six month period ended June 30, 2005 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2005.
 
    In preparing the consolidated financial statements, we are required to use estimates to account for certain assets, liabilities, revenues and expenses. Our consolidated financial statements therefore include various estimates concerning the selection of useful lives of property, plant and equipment, provisions necessary for contingent liabilities, fair values assigned to assets and liabilities acquired in business combinations, income tax valuation allowances, employee post-retirement benefits and other similar evaluations, actual results may vary from our estimates.
 
    Exchange rates at June 30, 2005, March 31, 2005 and December 31, 2004 were R$2,3504: US$1.00, R$2,6662: US$1.00 and R$2,6544: US$1.00, respectively.
 
4   Recently-issued accounting pronouncements
 
    In June 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” which sets reporting of a change in accounting principles or errors. We do not expect FASB No. 154 to have a significant impact on our financial position, results of operations or cash flows.
 
    In March 2005, the FASB issued FSP FIN 46(R)-5, “Consolidation of Variable Interests Entities” to address whether a reporting enterprise should consider whether it holds an implicit variable interest in a variable interest entity (VIE) or potential VIE when specific conditions exist. We adopted FIN 46R and we do not expect FSP FIN 46(R)-5 to have any impact on our financial position, results of operations or cash flows.
 
    In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” which refers to legal obligation to perform an asset retirement activity. We do not expect FASB Interpretation No. 47 to have a significant impact on our financial position, results of operations or cash flows.
 
    In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment” which sets accounting requirements for “share-based” compensation to employees, including employee-stock-purchase-plans (ESPPs) and provides guidance on accounting for awards to non-employees. Which did not have a significant impact on our financial position, results of operations or cash flows.
 
    In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets” an amendment of APB No. 29. We will apply this Statement in the event exchanges of nonmonetary assets occur in fiscal periods beginning after June 15, 2005.
 
    In November 2004, the FASB issued SFAS No. 151, “Inventory Costs” an amendment of ARB No. 43, Chapter 4 that deals with inventory pricing. We have already adopted this new Statement, which did not have a significant impact on our financial position, results of operations or cash flows.
 
    In September 2004, the FASB issued FSP EITF Issue 03-1-1, which delayed the effective date of paragraphs 10-20 of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary

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    Impairment and Its Application to Certain Investments. We do not expect EITF Issue No. 03-01 to have any impact on our financial position, results of operations or cash flows.
 
5   Income taxes
 
    Income taxes in Brazil comprise federal income tax and social contribution, which is an additional federal tax. The statutory composite enacted tax rate applicable in the periods presented is 34% represented by a 25% federal income tax rate plus a 9% social contribution rate.
 
    The amount reported as income tax expense in our condensed consolidated financial information is reconciled to the statutory rates as follows:
                                         
    Three-month   Six-month periods
    periods ended   ended June 30
    June 30,   March 31,   June 30,        
    2005   2005   2004   2005   2004
Income before income taxes, equity results and minority interests
    2,051       730       500       2,781       911  
 
                                       
 
                                       
Federal income tax and social contribution expense at statutory enacted rates
    (697 )     (248 )     (171 )     (945 )     (310 )
Adjustments to derive effective tax rate:
                                       
Tax benefit on interest attributed to stockholders
    131       54       44       185       99  
Exempt foreign income (expenses)
    82       46       21       128       35  
Difference on tax basis of equity investees
    (17 )     (4 )     (16 )     (21 )     (30 )
Tax incentives
    59       22       3       81       12  
Valuation allowance reversal (provision)
                52             52  
Other non-taxable gains (losses)
    5       17       3       22       13  
 
                                       
Federal income tax and social contribution expense in consolidated statements of income
    (437 )     (113 )     (64 )     (550 )     (129 )
 
                                       
    We have certain tax incentives relative to our iron ore and manganese operations in Carajás, potash in Sergipe and relative to alumina and aluminum in Barcarena. The incentives relative to iron ore and manganese comprise full income tax exemption on defined production levels up to 2005 and partial exemption up to 2013. The incentive relating to alumina and potash comprise full income tax exemption on defined production levels which expires in 2010 and 2013, respectively, while the partial exemption incentives relative to aluminum expire in 2013. An amount equal to the tax saving must be appropriated to a reserve account within stockholders’ equity and may not be distributed in the form of cash dividends.
 
6   Inventories
                 
    June 30,   December
    2005   31, 2004
Finished products
               
Iron ore and pellets
    224       205  
Manganese and ferroalloys
    164       156  
Aluminum
    53       54  
Alumina
    22       20  
Kaolin
    19       17  
Others
    31       11  
Spare parts and maintenance supplies
    520       386  
 
               
 
    1,033       849  
 
               

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7   Investments in affiliated companies and joint ventures
                                                                                                                                         
    June 30, 2005   Investments   Equity Adjustments   Dividends received    
                                                                                                                                    Quoted
                                                                            Six-month periods                           Six-month periods   market
                                                    Three-month periods ended   ended June 30   Three-month periods ended   ended June 30   value
    Participation in   Net   Net income for   June 30,   December   June 30,   March 31,   June 30,                   June 30,   March 31,   June 30,                   June 30,
    capital (%)   equity   the period   2005   31, 2004   2005   2005   2004   2005   2004   2005   2005   2004   2005   2004   2005
    voting   total                                                                                                                        
Ferrous
                                                                                                                                       
Companhia Nipo-Brasileira de Pelotização — NIBRASCO (2)
    51.11       51.00       67       28       34       30       11       2       5       13       7                                     n/a  
Companhia Hispano-Brasileira de Pelotização — HISPANOBRÁS (2)
    51.00       50.89       82       32       42       26       14       2       3       16       4       3       1             4             n/a  
Companhia Coreano-Brasileira de Pelotização — KOBRASCO
    50.00       50.00       62       33       31       13       14       3       1       17       2                                     n/a  
Companhia Ítalo-Brasileira de Pelotização — ITABRASCO (2)
    51.00       50.90       69       29       35       18       13       1       3       14       4                                     n/a  
Gulf Industrial Investment Company — GIIC
    50.00       50.00       139       70       70       45       23       12       2       35       6       11             1       11       7       n/a  
SAMARCO Mineração S.A. — SAMARCO (3)
    50.00       50.00       588       182       340       261       56       34       20       90       45       35       20       30       55       49       n/a  
Minas da Serra Geral S.A. — MSG
    50.00       50.00       39       (2 )     19       18       (4 )           (2 )     (4 )     (2 )                                   n/a  
Others
                            26       24       1       (2 )           (1 )     (1 )                                   n/a  
 
                                                                                                                                       
 
                                    597       435       128       52       32       180       65       49       21       31       70       56       n/a  
 
                                                                                                                                       
Logistics
                                                                                                                                       
MRS Logística S.A
    37.23       29.35       261             75       78       12       10       8       22       14       5                   5             n/a  
Others
                                  1                                                                   n/a  
 
                                                                                                                                       
 
                                    75       79       12       10       8       22       14       5                   5             n/a  
 
                                                                                                                                       
Holdings
                                                                                                                                       
 
                                                                                                                                       
Steel
                                                                                                                                       
Usinas Siderúrgicas de Minas Gerais S.A. — USIMINAS
    22.99       11.46       2,013       864       231       140       57       42       16       99       34       34                   34       13       425  
Companhia Siderúrgica de Tubarão — CST (1)
                                                        61             78                                     n/a  
California Steel Industries Inc. — CSI
    50.00       50.00       324       32       162       149       5       11       15       16       14             20       2       20       2       n/a  
SIDERAR (cost $15) — available for sale investments
    4.85       4.85                   130       110                                                                   130  
 
                                                                                                                                       
 
                                    523       399       62       53       92       115       126       34       20       2       54       15       555  
 
                                                                                                                                       
Aluminum and bauxite
                                                                                                                                       
Mineração Rio do Norte S.A. — MRN
    40.00       40.00       362       80       145       171       17       15       14       32       25       30       28       20       58       41       n/a  
Valesul Alumínio S.A. — VALESUL
    54.51       54.51       114       7       62       55       1       3       4       4       7       8             7       8       9       n/a  
 
                                                                                                                                       
 
                                    207       226       18       18       18       36       32       38       28       27       66       50       n/a  
 
                                                                                                                                       
Coal
                                                                                                                                       
Henan Longyu Resources Co. Ltd(4)
                            86                                                                         n/a  
Shandong Yankuang International Company Ltd(4)
                            10       10                                                                   n/a  
 
                                                                                                                                       
 
                                    96       10                                                                   n/a  
 
                                                                                                                                       
Other affiliates and joint ventures
                            10       10                               (1 )                                   n/a  
 
                                                                                                                                       
 
                                    836       645       80       71       110       151       157       72       48       29       120       65       555  
 
                                                                                                                                       
Total
                                    1,508       1,159       220       133       150       353       236       126       69       60       195       121       555  
 
                                                                                                                                       
 
(1)   During 2004 we sold its interest in CST;
 
(2)   We held a majority of the voting power of several entities that were accounted for under the equity method in accordance with EITF 96-16 due to veto rights held by minority under shareholders agreements;
 
(3)   Investment includes goodwill of US$45 in periods presented;
 
(4)   Preoperating investiments.

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8   Pension costs
                                         
                            Six-month periods
    Three month periods ended   ended June 30
    June 30,   March 31,   June 30,        
    2005   2005   2004 (*)   2005   2004 (*)
Service cost — benefits earned during the period
    1                   1       1  
Interest cost on projected benefit obligation
    60       56       47       116       94  
Expected return on assets
    (75 )     (69 )     (53 )     (144 )     (106 )
Amortization of initial transitory obligation
    2       3       2       5       4  
Net deferral
    (4 )     (4 )     (6 )     (8 )     (12 )
 
                                       
Net periodic pension cost
    (16 )     (14 )     (10 )     (30 )     (19 )
 
                                       
 
(*)   Based on 2004 annual periodic pension cost.
    In addition to benefits provided under the Pension Plan, accruals have been made relative to supplementary health care benefits extended in previous periods as part of early-retirement programs. Such accruals included in long-term liabilities totaled US$229 and US$215, at June 30, 2005 and December 31, 2004, respectively, plus US$44 and US$34, respectively, in current liabilities.
 
    The cost recognized for the three-month ended June 30, 2005, March 31, 2005, and June 30, 2004 relative to the defined contribution element of the New Plan was US$2, in each period.
 
    We previously disclosed in our consolidated financial statements for the year ended December 31, 2004, that we expected to contribute US$16 to our defined benefit pension plan in 2005. As of June 30, 2005, US$9 of our contributions have been made. We do not expect any change in our previous estimate.
 
9   Commitments and contingencies
 
(a)   At June 30, 2005, we had extended guarantees for borrowings obtained by affiliates and joint ventures in the amount of US$6, as follows:
                                         
    Amount of   Denominated           Final   Counter
Affiliate or Joint Venture   guarantee   currency   Purpose   maturity   guarantees
SAMARCO
    5     US$     Debt guarantee     2008     None
VALESUL
    1       R$     Debt guarantee     2007     None
 
                                       
 
    6                                  
 
                                       
    We expect no losses to arise as a result of the above guarantees. We charge a commission for extending these guarantees in the case of Samarco.
 
    We have not provided any significant guarantees since January 1, 2003 which would require fair value adjustments under FIN 45 — “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”.
 
(b)   We and our subsidiaries are defendants in numerous legal actions in the normal course of business. Based on the advice of our legal counsel, management believes that the provision made against contingent losses is sufficient to cover probable losses in connection with such actions.

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    The provision for contingencies and the related judicial deposits are composed as follows:
                                 
    June 30, 2005   December 31, 2004
    Provision for   Judicial   Provision for   Judicial
    contingencies   deposits   contingencies   deposits
Labor claims
    256       127       221       109  
Civil claims
    204       95       185       72  
Tax — related actions
    814       390       473       341  
Others
    44       10       35       9  
 
                               
 
    1,318       622       914       531  
 
                               
    Labor — related actions principally comprise employee claims for (i) payment of time spent travelling from their residences to the work-place, (ii) additional payments for alleged dangerous or unhealthy working conditions and (iii) various other matters, often in connection with disputes about the amount of indemnities paid upon dismissal.
 
    Civil actions principally relate to claims made against us by contractors in connection with losses alleged to have been incurred by them as a result of various past government economic plans during which full indexation of contracts for inflation was not permitted.
 
    Tax — related actions principally comprise our challenges of certain income tax, revenue taxes, Value Added Tax and of the tax on checking account transaction – CPMF.
 
    We continue to vigorously pursue our interests in all the above actions but recognize that probably will incur some losses in the final instance, for which we have made provisions.
 
    Our judicial deposits are made as required by the courts for us to be able to enter or continue a legal action. When judgment is favorable to us, we receive the deposits back; when unfavorable, the deposits are released to the prevailing party.
 
    Contingencies settled in the three-month period ended June 30, 2005, March 31, 2005 and june 30, 2004 aggregated US$56, US$4 and US$14, respectively, and additional provisions aggregated US$44, US$14 and US$39, respectively.
 
    In addition to the contingencies for which we have made provisions, we have possible losses in connection with tax contingencies totaling US$843 at June 30, 2005, for which, no provision is maintained.
 
(c)   We and BNDES entered into a contract, known as the Mineral Risk Contract, in March 1997, relating to prospecting authorizations for mining regions where drilling and exploration are still in their early stages. The Mineral Risk Contract provides for the joint development of certain unexplored mineral deposits in approximately two million identified hectares of land in the Carajás region, as well as proportional participation in any financial benefits earned from the development of such resources. Iron ore and manganese deposits already identified and subject to development are specifically excluded from the Mineral Risk Contract.
 
    Pursuant to the Mineral Risk Contract, we and BNDES each agreed to provide US$205, which represents half of the US$410 in expenditures estimated as necessary to complete geological exploration and mineral resource development projects in the region. We will oversee these projects and BNDES will advance us half of our costs on a quarterly basis. Under the Mineral Risk Contract, as of June 30, 2005, the remaining contributions towards exploration and development activities totaled US$44. In the event that either of us wishes to conduct further exploration and development after having spent such US$205, the contract provides that each party may either choose to match the other party’s contributions, or may choose to have its financial interest proportionally diluted. If a party’s participation in the project is diluted to an amount lower than 40% of the amount invested in connection with exploration and development projects, then the Mineral Risk Contract provides that the diluted party will lose all the rights and benefits provided for in the Mineral Risk Contract and

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    any amounts previously contributed to the project.
 
    Under the Mineral Risk Contract, BNDES has agreed to compensate us through a finder’s fee production royalty on their share of mineral resources that are discovered and placed into production. This finder’s fee is equal to 3.5% of the revenues derived from the sale of gold, silver and platinum group metals and 1.5% of the revenues derived from the sale of other minerals, including copper, except for gold and other minerals discovered at Serra Leste, for which the finder’s fee is equal to 6.5% of revenues.
 
(d)   At the time of our privatization in 1997, we issued shareholder revenue interests known in Brazil as “debentures” to our then-existing shareholders, including the Brazilian Government. The terms of the “debentures”, were set to ensure that our pre-privatization shareholders, including the Brazilian Government, would participate alongside us in potential future financial benefits that we are able to derive from exploiting our mineral resources.
 
    On March 22, 2005 we declared a distribution on these “debentures” in the amount of US$3, paid as from April 1, 2005.
 
(e)   We use various judgments and assumptions when measuring our environmental liabilities and asset retirement obligations. Changes in circumstances, law or technology may affect our estimates and we periodically review the amounts accrued and adjust them as necessary. Our accruals do not reflect unasserted claims because we are currently not aware of any such issues. Also the amounts provided are not reduced by any potential recoveries under cost sharing, insurance or indemnification arrangements because such recoveries are considered uncertain. The changes are demonstrated as follows:
                                         
    Three-month periods ended   Six-month periods
    (unaudited)   ended June 30
    June 30,   March 31,   June 30,        
    2005   2005   2004   2005   2004
Environmental liabilities beginning of period
    137       134       82       134       81  
Accretion expense
    10       4       4       14       6  
Liabilities settled in the current period
    (4 )                 (4 )      
Cumulative translation adjustment
    16       (1 )     (4 )     15       (5 )
 
                                       
Environmental liabilities end of period
    159       137       82       159       82  
 
                                       
10   Segment and geographical information
 
    In 1999 we adopted SFAS 131 “Disclosures about Segments of an Enterprise and Related Information” with respect to the information we present about our operating segments. SFAS 131 introduced a “management approach” concept for reporting segment information, whereby such information is required to be reported on the basis that the chief decision-maker uses internally for evaluating segment performance and deciding how to allocate resources to segments. Our business segments are currently organized as follows:
 
    Ferrous products — comprises iron ore mining and pellet production, as well as the Northern and Southern transportation systems, including railroads, ports and terminals, as they pertain to mining operations. Manganese mining and ferroalloys are also included in this segment.
 
    Non-ferrous products – comprises the production of non-ferrous minerals, including potash, kaolin, copper and research of others minerals, mainly nickel.

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    Logistics — comprises our transportation systems as they pertain to the operation of our ships, ports and railroads for third-party cargos.
 
    Holdings — divided into the following sub-groups:
    Aluminum — comprises aluminum trading activities, alumina refining and aluminum metal smelting and investments in joint ventures and affiliates engaged in bauxite mining.
 
    Steel — comprises our investments in joint ventures and affiliates operating in the steel industry.
 
    Others — comprises our investments in joint ventures and affiliates engaged in other business.

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Consolidated net income and principal assets are reconciled as follows:
Results by segment — before eliminations (Unaudited)
                                                                                                                                                                         
    As of and for the three-month periods ended  
    June 30, 2005     March 31, 2005     June 30, 2004  
                            Holdings                                             Holdings                                             Holdings              
            Non                                                     Non                                                     Non                                
    Ferrous     ferrous     Logistics     Aluminum     Others     Eliminations     Consolidated     Ferrous     ferrous     Logistics     Aluminum     Others     Eliminations     Consolidated     Ferrous     ferrous     Logistics     Aluminum     Others     Eliminations     Consolidated  
Gross revenues — Export
    3,539       206       17       422             (1,476 )     2,708       2,059       153       20       445             (1,001 )     1,676       1,875       81       22       398             (923 )     1,453  
Gross revenues — Domestic
    679       42       318       81             (107 )     1,013       386       49       228       93             (104 )     652       364       35       219       47             (85 )     580  
Cost and expenses
    (2,580 )     (203 )     (210 )     (392 )     (12 )     1,583       (1,814 )     (1,792 )     (162 )     (158 )     (397 )           1,105       (1,404 )     (1,591 )     (89 )     (142 )     (308 )           1,008       (1,122 )
Depreciation, depletion and amortization
    (97 )     (17 )     (10 )     (12 )                 (136 )     (97 )     (13 )     (9 )     (10 )                 (129 )     (57 )     (6 )     (8 )     (8 )                 (79 )
 
                                                                                                                             
Operating income (loss)
    1,541       28       115       99       (12 )           1,771       556       27       81       131                   795       591       21       91       129                   832  
Financial income
    78             11       3       1       (66 )     27       69       1       8       2             (51 )     29       63             2       20       1       (67 )     19  
Financial expenses
    (159 )     (4 )     (4 )     50             66       (51 )     (129 )     (1 )     (3 )     (10 )           51       (92 )     (139 )     (2 )     (5 )     (26 )     (1 )     67       (106 )
Foreign exchange and monetary gains (losses), net
    201       3       (7 )     107                   304       (5 )     3                               (2 )     (202 )     (2 )     (1 )     (42 )     2             (245 )
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    128             12       18       62             220       52             10       18       53             133       32             8       18       92             150  
Income taxes
    (390 )     (1 )     (5 )     (40 )     (1 )           (437 )     (67 )     (2 )     (5 )     (39 )                 (113 )     (87 )     (4 )     (1 )     31       (3 )           (64 )
Minority interests
    (105 )                 (99 )                 (204 )     (24 )                 (28 )                 (52 )     (31 )     1             (52 )                 (82 )
 
                                                                                                                             
Net income
    1,294       26       122       138       50             1,630       452       28       91       74       53             698       227       14       94       78       91             504  
 
                                                                                                                             
 
                                                                                                                                                                       
Sales classified by geographic destination:
                                                                                                                                                                       
Export market
                                                                                                                                                                       
America, except United States
    334             11       81             (144 )     282       216             11       106             (145 )     188       172             18       41             (98 )     133  
United States
    166                   42             (89 )     119       126             3       78             (109 )     98       121                   7             (70 )     58  
Europe
    1,518       125       6       185             (685 )     1,149       824       50       6       132             (359 )     653       857       68       4       212             (435 )     706  
Middle East/Africa/Oceania
    277       34                         (75 )     236       124       38             6             (51 )     117       87       1                         (19 )     69  
Japan
    353       6             98             (133 )     324       192       6             97             (79 )     216       187       4             105             (99 )     197  
China
    641       10                         (220 )     431       399       28             26             (174 )     279       300       5             33             (135 )     203  
Asia, other than Japan and China
    250       31             16             (130 )     167       178       31                         (84 )     125       151       3                         (67 )     87  
 
                                                                                                                             
 
    3,539       206       17       422             (1,476 )     2,708       2,059       153       20       445             (1,001 )     1,676       1,875       81       22       398             (923 )     1,453  
Domestic market
    679       42       318       81             (107 )     1,013       386       49       228       93             (104 )     652       364       35       219       47             (85 )     580  
 
                                                                                                                             
 
    4,218       248       335       503             (1,583 )     3,721       2,445       202       248       538             (1,105 )     2,328       2,239       116       241       445             (1,008 )     2,033  
 
                                                                                                                             
 
                                                                                                                                                                       
Assets:
                                                                                                                                                                       
 
                                                                                                                                                                       
Property, plant and equipment, net
    7,511       1,478       827       1,572       126             11,514       6,192       1,403       690       1,255       1             9,541       4,542       1,020       483       826       1             6,872  
Additions to Property, plant and equipment
    525       46       52       153       1             777       368       29       42       109                   548       165       62       153       35       1             416  
Investments in affiliated companies and joint ventures and other investments, net of provision for losses
    597             75       207       629             1,508       466             66       217       473             1,222       330             56       195       385             966  
 
                                                                                                                             
Capital employed
    6,468       1,001       827       1,079       22             9,397       5,275       918       682       975       (27 )           7,823       4,307       679       449       816       26             6,277  

F-16


Table of Contents

Operating income by product – after eliminations (unaudited)
                                                                                                                                                                                                                         
    As of and for the three-month periods ended  
    June 30, 2005     March 31, 2005     June 30, 2004  
                            Value                             Depreciation,                                     Value                             Depreciation,                                     Value                             Depreciation,        
    Revenues     added     Net     Cost and             depletion and     Operating     Revenues     added     Net     Cost and             depletion and     Operating     Revenues     added     Net     Cost and             depletion and     Operating  
    Export     Domestic     Total     tax     revenues     expenses     Net     amortization     income     Export     Domestic     Total     tax     revenues     expenses     Net     amortization     income     Export     Domestic     Total     tax     revenues     expenses     Net     amortization     income  
Ferrous
                                                                                                                                                                                                                       
Iron ore
    1,694       472       2,166       (81 )     2,085       (682 )     1,403       (87 )     1,316       865       225       1,090       (30 )     1,060       (529 )     531       (84 )     447       732       211       943       (38 )     905       (394 )     511       (55 )     456  
Pellets
    462       107       569       (27 )     542       (333 )     209       (4 )     205       267       74       341       (11 )     330       (237 )     93       (3 )     90       251       68       319       (11 )     308       (207 )     101             101  
Manganese
    14       5       19       (1 )     18       (14 )     4             4       16       4       20       (2 )     18       (9 )     9             9       8       3       11       (2 )     9       (7 )     2             2  
Ferroalloys
    98       56       154       (14 )     140       (96 )     44       (5 )     39       102       51       153       (14 )     139       (82 )     57       (3 )     54       103       50       153       (13 )     140       (72 )     68       (3 )     65  
 
                                                                                                                                                                 
 
    2,268       640       2,908       (123 )     2,785       (1,125 )     1,660       (96 )     1,564       1,250       354       1,604       (57 )     1,547       (857 )     690       (90 )     600       1,094       332       1,426       (64 )     1,362       (680 )     682       (58 )     624  
Non ferrous
                                                                                                                                                                                                                       
Potash
          31       31       (2 )     29       (15 )     14       (2 )     12             30       30       (3 )     27       (14 )     13       (2 )     11             31       31       (6 )     25       (13 )     12       (1 )     11  
Kaolin
    38       7       45       (1 )     44       (24 )     20       (6 )     14       34       5       39       (2 )     37       (20 )     17       (10 )     7       34       5       39       (1 )     38       (21 )     17       (4 )     13  
Copper
    89       4       93       (1 )     92       (44 )     48       (9 )     39       61       14       75       (3 )     72       (40 )     32       (8 )     24       24             24             24       (4 )     20       (2 )     18  
 
                                                                                                                                                                 
 
    127       42       169       (4 )     165       (83 )     82       (17 )     65       95       49       144       (8 )     136       (74 )     62       (20 )     42       58       36       94       (7 )     87       (38 )     49       (7 )     42  
Aluminum
                                                                                                                                                                                                                       
Alumina
    94       16       110       (11 )     99       (95 )     4       (6 )     (2 )     114       22       136       (8 )     128       (98 )     30       (6 )     24       83             83       (4 )     79       (66 )     13       (5 )     8  
Aluminum
    194       10       204       (1 )     203       (93 )     110       (6 )     104       191       9       200       (1 )     199       (90 )     109       (4 )     105       197       1       198       (1 )     197       (67 )     130       (3 )     127  
Bauxite
    13             13             13       (12 )     1             1       10             10             10       (9 )     1             1       8             8             8       (8 )                  
 
                                                                                                                                                                 
 
    301       26       327       (12 )     315       (200 )     115       (12 )     103       315       31       346       (9 )     337       (197 )     140       (10 )     130       288       1       289       (5 )     284       (141 )     143       (8 )     135  
Logistics
                                                                                                                                                                                                                       
Railroads
          232       232       (37 )     195       (124 )     71       (9 )     62             159       159       (27 )     132       (91 )     41       (8 )     33             153       153       (25 )     128       (81 )     47       (4 )     43  
Ports
          60       60       (10 )     50       (33 )     17             17             46       46       (9 )     37       (26 )     11       (1 )     10             45       45       (3 )     42       (21 )     21       (1 )     20  
Ships
    12       12       24       (2 )     22       (19 )     3       (2 )     1       15       12       27       (2 )     25       (25 )                       10       12       22       (7 )     15       (25 )     (10 )     (1 )     (11 )
 
                                                                                                                                                                 
 
    12       304       316       (49 )     267       (176 )     91       (11 )     80       15       217       232       (38 )     194       (142 )     52       (9 )     43       10       210       220       (35 )     185       (127 )     58       (6 )     52  
Others
          1       1       3       4       (45 )     (41 )           (41 )     1       1       2       (3 )     (1 )     (19 )     (20 )           (20 )     3       1       4       (2 )     2       (23 )     (21 )           (21 )
 
                                                                                                                                                                 
 
    2,708       1,013       3,721       (185 )     3,536       (1,629 )     1,907       (136 )     1,771       1,676       652       2,328       (115 )     2,213       (1,289 )     924       (129 )     795       1,453       580       2,033       (113 )     1,920       (1,009 )     911       (79 )     832  
 
                                                                                                                                                                 

F-17


Table of Contents

Results by segment — before eliminations (Unaudited)
                                                                                                                 
    Six-month periods ended June 30,  
    2005     2004  
                            Holdings                                             Holdings              
            Non                                                     Non                                
    Ferrous     ferrous     Logistics     Aluminum     Others     Eliminations     Consolidated     Ferrous     ferrous     Logistics     Aluminum     Others     Eliminations     Consolidated  
Gross revenues — Export
    5.598       359       37       867             (2.477 )     4.384       3,437       115       41       761             (1,658 )     2,696  
Gross revenues — Domestic
    1.065       91       546       174             (211 )     1.665       651       63       403       106             (155 )     1,068  
Cost and expenses
    (4.372 )     (365 )     (368 )     (789 )     (12 )     2.688       (3.218 )     (2,960 )     (142 )     (270 )     (612 )           1,813       (2,171 )
Depreciation, depletion and amortization
    (194 )     (30 )     (19 )     (22 )                 (265 )     (135 )     (12 )     (15 )     (16 )                 (178 )
 
                                                                                   
Operating (loss) income
    2.097       55       196       230       (12 )           2.566       993       24       159       239                   1,415  
 
                                                                                                               
Financial income
    147       1       19       5       1       (117 )     56       107             6       3       2       (87 )     31  
Financial expenses
    (288 )     (5 )     (7 )     40             117       (143 )     (255 )     (3 )     (9 )     (67 )     (1 )     87       (248 )
Foreign exchange and monetary gains (losses), net
    196       6       (7 )     107                   302       (234 )     (2 )     (6 )     (48 )     3             (287 )
Equity in results of affiliates and joint ventures and change in provision for losses on equity investments
    180             22       36       115             353       65             14       32       125             236  
Income taxes
    (457 )     (3 )     (10 )     (79 )     (1 )           (550 )     (141 )     (4 )     (3 )     22       (3 )           (129 )
Minority interests
    (129 )                 (127 )                 (256 )     (45 )                 (64 )                 (109 )
 
                                                                                   
Net income
    1.746       54       213       212       103             2.328       490       15       161       117       126             909  
 
                                                                                   
 
                                                                                                               
Sales classified by geographic destination:
                                                                                                               
Export market
                                                                                                               
America, except United States
    550             22       187             (289 )     470       330             33       111             (201 )     273  
United States
    292             3       120             (198 )     217       228                   45             (136 )     137  
Europe
    2.342       175       12       317             (1.044 )     1.802       1,516       90       8       361             (747 )     1,228  
Middle East/Africa/Oceania
    401       72             6             (126 )     353       176       1                         (45 )     132  
Japan
    545       12             195             (212 )     540       337       12             185             (166 )     368  
China
    1.040       38             26             (394 )     710       538       9             59             (232 )     374  
Asia, other than Japan and China
    428       62             16             (214 )     292       312       3                         (131 )     184  
 
                                                                                   
 
    5.598       359       37       867             (2.477 )     4.384       3,437       115       41       761             (1,658 )     2,696  
Domestic market
    1.065       91       546       174             (211 )     1.665       651       63       403       106             (155 )     1,068  
 
                                                                                   
 
    6.663       450       583       1.041             (2.688 )     6.049       4,088       178       444       867             (1,813 )     3,764  
 
                                                                                   
 
                                                                                                               
Assets:
                                                                                                               
 
Property, plant and equipment, net
    7.511       1.478       827       1.572       126             11.514       4,542       1,020       483       826       1             6,872  
Additions to Property, plant and equipment
    1.007       75       94       262                   1.438       322       133       285       57                   797  
Investments in affiliated companies and joint ventures and other investments, net of provision for losses
    597             75       207       629             1.508       330             56       195       385             966  
 
                                                                                   
Capital employed
    6.468       1.001       827       1.079       22             9.397       4,307       679       449       816       26             6,277  

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Operating income by product – after eliminations (unaudited)
                                                                                                                                                 
    Six-month periods ended June 30,  
    2005     2004  
    Revenues     Value                             Depreciation,             Revenues     Value                             Depreciation,        
                            added     Net     Cost and             depletion and     Operating                             added     Net     Cost and             depletion and     Operating  
    Export     Domestic     Total     tax     revenues     expenses     Net     amortization     income     Export     Domestic     Total     tax     revenues     expenses     Net     amortization     income  
Ferrous
                                                                                                                                               
Iron ore
    2,559       697       3,256       (111 )     3,145       (1,204 )     1,941       (178 )     1,763       1,384       385       1,769       (61 )     1,708       (779 )     929       (125 )     804  
Pellets
    729       181       910       (38 )     872       (570 )     302       (7 )     295       434       120       554       (19 )     535       (379 )     156       (3 )     153  
Manganese
    30       9       39       (3 )     36       (23 )     13             13       14       6       20       (3 )     17       (14 )     3             3  
Ferroalloys
    200       107       307       (28 )     279       (178 )     101       (8 )     93       194       81       275       (21 )     254       (158 )     96       (7 )     89  
 
                                                                                                           
 
    3,518       994       4,512       (180 )     4,332       (1,975 )     2,357       (193 )     2,164       2,026       592       2,618       (104 )     2,514       (1,330 )     1,184       (135 )     1,049  
 
                                                                                                                                               
Non ferrous
                                                                                                                                               
Potash
          61       61       (5 )     56       (29 )     27       (4 )     23             54       54       (9 )     45       (22 )     23       (3 )     20  
Kaolin
    72       12       84       (3 )     81       (51 )     30       (9 )     21       68       10       78       (3 )     75       (43 )     32       (7 )     25  
Copper
    150       18       168       (4 )     164       (84 )     80       (17 )     63       24             24             24       (4 )     20       (2 )     18  
 
                                                                                                           
 
    222       91       313       (12 )     301       (164 )     137       (30 )     107       92       64       156       (12 )     144       (69 )     75       (12 )     63  
 
                                                                                                                                               
Aluminum
                                                                                                                                               
Alumina
    208       38       246       (19 )     227       (193 )     34       (12 )     22       181       6       187       (9 )     178       (156 )     22       (9 )     13  
Aluminum
    385       19       404       (2 )     402       (183 )     219       (10 )     209       347       12       359       (1 )     358       (121 )     237       (7 )     230  
Bauxite
    23             23             23       (21 )     2             2       23             23             23       (21 )     2             2  
 
                                                                                                           
 
    616       57       673       (21 )     652       (397 )     255       (22 )     233       551       18       569       (10 )     559       (298 )     261       (16 )     245  
 
                                                                                                                                               
Logistics
                                                                                                                                               
Railroads
          391       391       (64 )     327       (215 )     112       (17 )     95             286       286       (44 )     242       (147 )     95       (12 )     83  
Ports
          106       106       (19 )     87       (59 )     28       (1 )     27             83       83       (6 )     77       (44 )     33       (2 )     31  
Ships
    27       24       51       (4 )     47       (44 )     3       (2 )     1       21       21       42       (10 )     32       (52 )     (20 )     (1 )     (21 )
 
                                                                                                           
 
    27       521       548       (87 )     461       (318 )     143       (20 )     123       21       390       411       (60 )     351       (243 )     108       (15 )     93  
Others
    1       2       3             3       (64 )     (61 )           (61 )     6       4       10       (2 )     8       (43 )     (35 )           (35 )
 
                                                                                                           
 
    4,384       1,665       6,049       (300 )     5,749       (2,918 )     2,831       (265 )     2,566       2,696       1,068       3,764       (188 )     3,576       (1,983 )     1,593       (178 )     1,415  
 
                                                                                                           

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11   Derivative financial instruments
 
    Volatility of interest rates, exchange rates and commodity prices are the main market risks to which we are exposed — all three are managed through derivative instruments. These have the exclusive aim of reducing exposure to risk. We do not use derivatives for speculation purposes.
 
    We monitor and evaluate our derivative positions on a regular basis and adjust our strategy in response to market conditions. We also periodically review the credit limits and credit worthiness of our counter-parties in these transactions. In view of the policies and practices established for operations with derivatives, management considers the occurrence of non-measurable risk situations as unlikely.
 
    The asset (liability) balances and the change in fair value of derivative financial instruments are as follows (the quarterly information is unaudited):
                                                 
    Interest                                
    rates                                
    (LIBOR)     Currencies     Gold     Alumina     Aluminum     Total  
Unrealized gains (losses) at April 1, 2005
    (12 )     3       (31 )     (50 )     (113 )     (203 )
Financial settlement
    4             2       9       9       24  
Unrealized gains (losses) in the period
          (1 )     3       24       59       85  
Effect of exchange rate changes
    (1 )           (4 )     (5 )     (9 )     (19 )
 
                                   
 
                                               
Unrealized gains (losses) at June 30, 2005
    (9 )     2       (30 )     (22 )     (54 )     (113 )
 
                                   
 
                                               
Unrealized gains (losses) at January 1, 2005
    (17 )     4       (37 )     (55 )     (127 )     (232 )
Financial settlement
    3             2       8       10       23  
Unrealized gains (losses) in the period
    2       (1 )     3       (3 )     4       5  
Effect of exchange rate changes
                1                   1  
 
                                   
 
                                               
Unrealized gains (losses) at March 31, 2005
    (12 )     3       (31 )     (50 )     (113 )     (203 )
 
                                   
 
                                               
Unrealized gains (losses) at April 1, 2004
    (48 )     1       (37 )     (36 )     (43 )     (163 )
Financial settlement
    11             1                   12  
Unrealized gains (losses) in the period
    5             9       4       4       22  
Effect of exchange rate changes
    2             2       2       2       8  
 
                                   
 
                                               
Unrealized gains (losses) at June 30, 2004
    (30 )     1       (25 )     (30 )     (37 )     (121 )
 
                                   
 
                                               
Unrealized gains (losses) at January 1, 2005
    (17 )     4       (37 )     (55 )     (127 )     (232 )
Financial settlement
    7             4       17       19       47  
Unrealized gains (losses) in the period
    2       (2 )     6       21       63       90  
Effect of exchange rate changes
    (1 )           (3)       (5 )     (9 )     (18 )
 
                                   
 
                                               
Unrealized gains (losses) at June 30, 2005
    (9 )     2       (30 )     (22 )     (54 )     (113 )
 
                                   
 
                                               
Unrealized gains (losses) at January 1, 2004
    (46 )     5       (32 )     (18 )           (91 )
Initial consolidation of Albras
                            (20 )     (20 )
Financial settlement
    14       (2 )     1                   13  
Unrealized gains (losses) in the period
    (1 )     (2 )     4       (14 )     (19 )     (32 )
Effect of exchange rate changes
    3             2       2       2       9  
 
                                   
 
                                               
Unrealized gains (losses) at June 30, 2004
    (30 )     1       (25 )     (30 )     (37 )     (121 )
 
                                   
    Unrealized gains (losses) in the period are included in our income statement under the caption of financial expenses and foreign exchange on liabilities.

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Final maturity dates for the above instruments are as follows:
     
Interest rates (LIBOR)
  October 2007
Currencies
  December 2011
Gold
  December 2008
Alumina
  December 2008
Aluminum
  December 2008
* * *

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Supplemental Financial Statements
The following unaudited information provides additional details in relation to certain financial ratios.
EBITDA – Earnings Before Interest, Income Tax, Depreciation and Amortization
(a)   EBITDA represents operating income plus depreciation, amortization and depletion plus impairment/gain on sale of property, plant and equipment plus dividends received from equity investees.
 
(b)   EBITDA is not a US GAAP measure and does not represent cash flow for the periods presented and should not be considered as an alternative to net income (loss), as an indicator of our operating performance or as an alternative to cash flow as a source of liquidity.
 
(c)   Our definition of EBITDA may not be comparable with EBITDA as defined by other companies.
 
(d)   Although EBITDA, as defined above, does not provide a US GAAP measure of operating cash flows, we use it to measure our operating performance and it is commonly used by financial analysts in evaluating our business.
Selected financial indicators for the main affiliates and joint ventures are available on the Company’s website, www.cvrd.com.br, under “investor relations”

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CVRD’s Consolidated Debt Indices (Additional information — Unaudited)
 
                                         
    As of and for the     As of and for the six-month  
    three-months periods ended     periods ended  
    June 30,     March 31,             June 30,     June 30,  
    2005     2005     June 30, 2004     2005     2004  
Current debt
                                       
Current portion of long-term debt — unrelated parties
    685       711       853