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Brazil Mining Co Vale: Losses From Derivatives Ops Minimal

RIO DE JANEIRO (Dow Jones)--Brazilian mining company Vale do Rio Doce (RIO) will suffer only minimal losses from operations involving foreign exchange derivatives, the company's investor relations director, Roberto Castelo Branco, said Friday.

"We are not speculators looking for a profit from our hedging operations," he said.

His comment came on the same day as other Brazilian companies reported losses from foreign exchange derivatives operations. The losses to paper and pulp company Aracruz Celulose SA (ARA) and meatpacker Sadia SA (SDA) stemmed from an abrupt shift in the value of the Brazilian real against the U.S. dollar.

As recently as early August, the real was trading at a nine-year high of BRL1.56 against the dollar. But international financial market volatility drove down the value of the real in August and September. As of mid-afternoon Friday, the real was trading at about BRL1.85 to the dollar.

Castelo Branco said any losses for Vale from its foreign exchange positions were "merely accounting losses."

He added that the company has "a natural hedge" in that 95% of its revenues are in U.S. dollars while 60% of costs are in Brazilian reals.

Nor has Vale expressed much worry about the worldwide credit crunch.

Earlier Friday, Vale's CEO, Roger Agnelli, downplayed the U.S. credit crisis as "a local problem in the United States."

"It is having an effect on the U.S. economy and is worrying Europe," he said. "But countries such as the U.K are already coming to terms with the crisis.

"The rest of the world is less worried," he added. "Brazil's situation is very good and Asia is still growing fast. China is now less dependent on the U.S. market. Russia and India likewise can depend more on their domestic markets.

"My expectation is things will soon be sorted out," said Agnelli. "There was excessive demand before prices rose violently and raised inflation all over the world. There was excessive liquidity in banking, funds and commodities."

He compared the world's financial situation to a badly poured glass of beer. "Now the real world has taken away the excessive froth," he said.

Agnelli said he expected it would take the U.S two years to come out of its crisis and the presidential election would add to market volatility and uncertainty.

"Vale is ready for whatever comes. Brazil is good with good domestic demand. Our projects are accelerating and we are making more investments," he said.

"The effects of the (U.S.) financial crisis on economies can be managed, especially if there's growth in other regions," Agnelli said.

-By John Kolodziejski, Dow Jones Newswires; 55-21-2586-6086; john.kolodziejski@dowjones.com

(END) Dow Jones Newswires

September 26, 2008 15:15 ET (19:15 GMT)


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