Memorandum by Mr. Richard F. O’Toole of the Division of Brazilian Affairs to the Chief of That Division (Dawson)


Subject: Application of Cia. Vale do Rio Doce for Additional Loan of $7,500,000 from Export-Import Bank.

The attached copy of a memorandum12 prepared in Export-Import Bank, addressed to the Board of Directors, recommends approval of [Page 442] the above credit. Action on this matter is now scheduled for the Board meeting on Wednesday, February 19 and ED would like BA’s policy decision by Monday afternoon, February 17.

Up to now $46,000,000 has been expended on this project, of which $19,000,000 was loaned to the Company by Export Import Bank,—$5,000,000 of which is guaranteed by the Brazilian Treasury. Of the remaining $14,000,000 one-half represents participation of Lend-Lease funds.

It is now proposed to invest a further $20,000,000 in the project of which about $7,500,000 would represent new money from Export-Import Bank, the Brazilian Government agreeing to advance Cr$240,000,000 from the Brazilian Treasury. Included in the terms governing the proposed $7,500,000, to be furnished by Export Import Bank, are the following:—

Repayment of principal over 15 years to commence three years after date of the contract.
Interest 3–½ percent per annum.
Obligation of the Company for the $7,500,000 to be unconditionally guaranteed by the Brazilian Treasury.
Period of application of proceeds of ore sales towards retirement of existing $14,000,000 loan of Export Import Bank, to be extended five years.

Present construction program of the project is based upon an annual production and export sale of 1,500,000 tons of ore. American steel interests apparently believe that the project could not be made to pay out either on the basis of the present production target or on the amount of the proposed increased capital investment. These same interests, according to Ambassador Pawley’s airgram 1358 of December 27, 1946 and his letter of January 6, 194713 to Mr. Clayton,14 believe that it would require a further investment of $100,000,000 and an annual production and sale of 5,000,000 tons of ore to put the project on a paying basis. I understand that these same interests believe that it would be necessary to construct an entirely new standard-gauge, double-track railway and the abandonment of the present railroad to commercial uses.

In addition, Bethlehem Steel Company is putting $40,000,000 into an iron ore project on the Orinoco River, near seaboard, in Venezuela. The quality of the Venezuelan ore is reputed to be as good as that of Itabira while the hauling distance to Bethlehem Steel’s Sparrows Point plant at Baltimore is only about half the distance from Victoria, Brazil.

[Page 443]

Unless and until it can be satisfactorily established that Itabira ore can be marketed, on a competitive basis, during the life of existing Export-Import Bank loans it is my judgment that a further investment is not justified.

  1. Not printed.
  2. Neither printed.
  3. William L. Clayton, Under Secretary of State for Economic Affairs.