Risk contract

Translated by Christopher Peterson

 versão em português (para assinantes) 

The headquarters of AGN Participações is located on the third floor of a glass-paneled building on Avenida Brigadeiro Faria Lima, in one of São Paulo’s prime business districts. The company, with a still-modest portfolio in mining and energy, was founded in December 2011 by Roger Agnelli, nine months after he was sacked as CEO of Vale, which he commanded for ten years with a virtually imperial hand. Agnelli is attempting to recover the prestige he garnered during his tenure at Vale through his own new company, incorporated with 500 million as startup capital. His current business includes a copper mine in Chile, potash mines in Brazil, and a bioenergy project in Mozambique. In mining, Agnelli teamed up with banker André Esteves of BTG Pactual, one of the country’s keenest business prospectors, to study the acquisition of new mines. All these long-term investments are still a long way from producing a return for shareholders.

While Agnelli was at the helm, Vale’s annual profit increased tenfold from 2001 to 2011, from 3 billion to 30 billion . Iron ore production doubled, and the company leaped from eighth to second leading producer in the world, trailing only the Anglo-Australian giant BHP Billiton. Vale went international under Agnelli’s administration, buying up mines and companies around the planet. In a show of force in 2006, he purchased Inco, the nickel powerhouse from Canada, turning it into a major cash cow for Vale. Agnelli apparently knew no bounds in his plan to turn the company into the mining industry’s leader. Even the 2008 global crisis failed to stop him.

But as often happens with lengthy administrations, people began questioning Agnelli. Relations went sour with some of the board members, worried about his overly daring moves. Some resigned. Others preferred to challenge him, although the tactic had little impact on the CEO’s decisions.

In 2010, despite opposition to the operation by several of its executives, Vale purchased 51% of the shares in a mining project in the Simandou Mountains in the Republic of Guinea, a destitute country on the coast of West Africa. Simandou is one of the world’s largest remaining untapped iron ore reserves. To get in on the deal, the Brazilian mining company had to form a joint venture with Israeli entrepreneur Beny Steinmetz, owner of Beny Steinmetz Group Resources (or BSGR).

Until 2008, the mining rights for Simandou belonged to the Anglo-Australian multinational Rio Tinto, which had acquired them in 1997. Dictator Lansana Conté, then President of Guinea, confiscated half of the Rio Tinto concession shortly before dying and transferred it to Steinmetz, who was a seasoned diamond dealer but unfamiliar with iron mining. The Israeli closed the deal with the Brazilian company two years later, in 2010. Rio Tinto, one of Vale’s main international competitors, was outraged, especially because the rival company had meddled in a business project that Rio Tinto was still struggling to recover.

[In the story “Buried Secrets” (from The New Yorker, July 8, 2013) , reproduced in this edition of piauí, Patrick Keefe provides a detailed report on the struggle for control of the Simandou mining rights. Vale appears in a secondary role, as Steinmetz’s partner, with no explanation for the reasons, terms, or circumstances of its involvement in the deal.]

The negotiation between the Brazilian giant and a neophyte in iron mining resulted in the creation of VBG – Vale Beny Group, a joint venture which has produced nothing but headaches for Vale. The Brazilian corporation has found itself in the uncomfortable situation of having its name attached to a transaction rife with allegations of bribery, with its legitimacy questioned by the current government of Guinea, international anti-corruption agencies, and the United State courts.

The suspicion that Steinmetz used foul play to obtain the Simandou concession first came under investigation by incoming Guinean President Alpha Condé, who took office in late 2010 after the country’s first democratic elections in decades. Condé also planned to review the exploration contracts and alter the country’s Mining Code to give the national government a larger share of the royalties. Mega-investor George Soros, whom the president of Guinea had known for years, began to act as his spokesman on the issue. He advised Condé to hire Scott Horton, an attorney from the U.S. firm DLA Piper and an expert on anti-corruption inquiries all over the world. As Horton stated in an interview with The New Yorker, “There was no way, going up against a guy like Steinmetz, that the Condé government could compete effectively without outside help.”

Roger Agnelli, 54, is a trim, jovial man. His eyes are large, round, and dark, not unlike those of a fish. The curly hair tamed with a brush makes him look like he’s just come from the salon. A few gray hairs appear at his temples and the top of his head. I met him on a sultry early January afternoon in the conference room at agn, furnished with a large table surrounded by colored chairs, the kind of decoration that reminds you more of an internet startup than a stuffy mining company.

The executive is doing his best to fit into these new settings. He looks more laid-back than during his time at Vale. His speech is more relaxed, and he smiles rather frequently. He sports a healthy tan from the days just spent at his beach house in Angra dos Reis, on the coast south of Rio. The suit he used to wear as his uniform at Vale has been replaced by blue jeans, a white linen shirt open at the collar, a navy blue blazer, and sports shoes. He takes his seat casually in one of the chairs. Next to him, more formal, is Fabio Eduardo Spina, a young attorney with a close-cropped haircut, pale eyes, and a broad smile who Agnelli brought along from Vale, giving him a share in agn. Spina was a board member at Vale and legal advisor on the Simandou deal.

Agnelli puffs on an electronic cigarette that gives off a cloud of steam. He explains that the nicotine delivery system is harmless and that it helped him try to quit smoking. “I had already quit cigarettes, but one day while out sailing with a friend in Italy I accepted a cigar from him,” he says, taking another puff. “It was my downfall. After that I started smoking as many as five cigars a day. I was getting nowhere. Now I’m trying this cigarillo to try to kick the habit.” Then he dives straight into the question. “So, what’s our conversation about?” Although I had already explained the reason for the interview in an e-mail in December, I repeat that it is about Simandou and the joint venture between Vale and Beny Steinmetz during his tenure. Agnelli smiles, spreads his arms, and as if referring to a long-lost friend, exclaims, “Great Beny!”

Since the news started to leak that the BSGR concession to explore the mineral riches of Guinea was rife with illegalities, Agnelli has been avoiding comment. He explains this to me. “Vale has nothing to do with this. It’s absolutely clean and proper,” he says. “Besides, I’m no longer CEO. I left the company in 2011, and I know nothing about what happened afterwards.” I remind him that he closed the deal himself, during his tenure at Vale. Agnelli refuses to be criticized for the joint venture. He claims that if there is some problem with the concession, the issue has to be settled between Steinmetz and Guinea. “They’re the ones that have to come to terms,” he says, pounding the table. “Vale did what it had to do, and at the time there was nothing to discredit Beny.”

When he met Steinmetz, or “Beny” as he always refers to Vale’s partner, Agnelli had the impression that he was “a super-intelligent type, well-connected, with a good strategy, plus cordial and very friendly”. He pauses before resorting to a pedestrian line of reasoning to explain the possibility that the mining company’s partner might not be who he initially imagined, although he finds it unlikely that he was fooled on this score: “A guy can marry a former hooker and only discover years later that his wife used to be a prostitute. Or marry a gay and find out years later. I have nothing against either of them, but what can you do?”

Fabio Spina weighs in on the conversation, introducing his formal legalese. “Before we closed the deal, we did our due diligence. Vale hired two international law firms, Cleary Gottlieb and Clifford Chance, to proceed with an independent investigation into the concession. Neither of them turned up anything suspicious,” he explains. The company also hired the American firm Nardello & Co to examine the transaction. According to Spina, all the legal precautions were taken before sealing the joint venture with BSGR. One was compliance with the Foreign Corrupt Practices Act, which demands that companies with shares on the New York Stock Exchange guarantee that their business in other countries has not benefited from malfeasance. Moreover, the attorney insists emphatically, although in quiet tones, Vale answered all the questionnaires from the United Kingdom Bribery Act, even though its shares are not traded on the London Stock Exchange. In his opinion, due diligence was performed “to the greatest possible extent that a purchaser is able.” “Vale has it all on record. We sent a questionnaire for Beny to answer, and he guaranteed there had been no corruption involved, nothing illegal,” Spina claims.

He takes a deep breath and adds another point to his vigorous defense of the deal: “Hindsight is easy.” And he recalls,“At the time there wasn’t a single newspaper article against Beny, nothing to suggest that he might not be an honest businessman. We would never throw our name or Vale’s into a suspicious deal. When Roger took over at Vale, it was an 8-million-dollar company; when he left, it was worth 70 billion. Do you think we’d throw all that away on an illegal deal?”

Before the joint venture between Vale and BSGR, Agnelli and Steinmetz scarcely knew each other. The Israeli’s connection to the Brazilian mining company was limited to one of his companies supplying equipment to a Vale mine in New Caledonia, a French territory in Oceania. Agnelli contends that Steinmetz first spoke of Simandou with the Director of Exploration, Energy, and Projects at Vale, Eduardo Ledsham, who was fired after Agnelli and is now ceo of B&A Mineração, a joint venture with André Esteves. “I believe they met at a mining congress in Canada, where Beny mentioned Simandou and his willingness to sell part of the asset to Vale. He said he owned the iron ore reserve, but lacked the capital to develop the project,” says Agnelli. According to the former CEO of Vale, Ledsham was excited about the proposal, which was also the liking of José Carlos Martins, then as now, Director of Ferrous Metals and Strategy.

Martins wanted to expand Vale beyond iron ore. His idea was to develop the entire production chain, including a steelmaking complex that could turn part of Vale’s ore into steel, with higher added value. This strategy faced two major problems: the first Brazil’s energy shortage, a chronic bottleneck in the country’s infrastructure and especially pernicious for an activity like steelmaking. Second was the need to mine more ore, precisely at a time when Vale was facing difficulties in increasing its output.

One reason for this was the delay in the approval of an environmental license to explore a new iron mine, Serra Sul, in Carajás, Pará State. Vale filed for the license in 2004, but the review was dragging on and denting the company’s capacity to fill its orders, especially from China, its largest buyer. Iron ore had reached a record high of 200 dollars a ton. Vale launched a search for new international opportunities. One involved the frustrated attempt to acquire Alcan, the Canadian aluminum manufacturer, in 2007. Rio Tinto ended up shelling out 38 billion dollars and snatched up the company. At the time, Roger Agnelli’s insistence in acquiring the Canadian company was one of the reasons that some of the top executives left Vale. They thought the project was too risky and that it could hurt the company’s cash reserves.

Reality proved them right. When the crisis struck in 2008, Rio Tinto found itself in trouble because of the Alcan purchase. Tom Albanese, then president of the Anglo-Australian mining company, turned to Agnelli for help. He was desperate to sell some assets in order to recover Rio Tinto’s cash reserve. Agnelli glimpsed an opportunity and went shopping. Vale came away with an iron mine in Corumbá, Mato Grosso, Brazil, and a potash mine in Argentina.

But Agnelli wanted something in exchange for the deals that had made life easier for Rio Tinto: a joint venture with the competitor, buying half of its share in Simandou. “I sat down with Tom Albanese and said, ‘Tom, you have a cash problem, and Simandou interests me. You’re going to lose the reserve. You have no slack to invest there now.’” According to him, the government of Guinea had already been warning Rio Tinto that it might cancel the concession if the company failed to develop the area. The two companies drew up a memorandum of understanding. When the time came to sign the contract, Rio Tinto asked for 4 billion dollars, according to Agnelli. He considered the amount too high and turned them down. “I don’t think they wanted to sell to us,” he said.

Agnelli shrugged his shoulders scornfully, and then immediately said he respected Rio Tinto’s decision. “In business, it’s not about whether you feel betrayed or not,” he said. “You have to respect the owner’s decision. And they were already talking with the Chinese.” Payback time came in April 2010, when Vale signed the contract with BSGR to explore the area expropriated from Rio Tinto. Albanese cut off relations with Agnelli, and Agnelli claims he sees no justification for the former competitor’s reaction. “Rio Tinto lost the concession totally by the rules, according to the prevailing Mining Code in Guinea. The company had no grounds to protest. They’ve been there for twenty years and haven’t done a thing so far,” he argued.

Rio Tinto reached an agreement in 2011, this time with President Alpha Condé, to guarantee exploration of the half of Simandou retained by the Guinean government. The Anglo-Australian mining company’s partner will be the Chinese company Chalco, which paid 1.35 billion dollars to join the deal.

Rubbing his hands on the conference table, Agnelli launches into an analysis of the Guinean case. He claims that the deal made complete sense for Vale at the time. Simandou is geologically akin to Carajás – before the continental plates split apart, the two reserves belonged to the same region. The ore in these mines is considered the best in the world, due to its high iron content: 67% in Carajás, compared to 30% in the mines belonging to Vale’s main competitors. This high quality gives Valea competitive price edge, since its ore can be fed almost directly into the steel mills’ blast furnaces, dispensing with any costly purification. However, the edge is lost in the logistics. It is much more difficult and expensive to ship ore from Brazil to China. The decisive factor in the game is the much cheaper freight cost fromAustralia, where the main competitors’ mines are located, albeit with inferior ore.

For Vale, Simandou could solve two problems at once: the production bottleneck in Carajás and the logistical disadvantage. “Vale would be unbeatable, on an equal footing with its competitors in terms of freight cost and with far superior ore,” according to consultant and mining expert Cláudio Frischtak. While the project made sense theoretically, it proved extremely dubious when confronted with real-life data. Fábio Barbosa, then Financial Director of Vale, was one who questioned Simandou’s feasibility. A man of firm opinions, he frequently clashed with Agnelli and José Carlos Martins, diehard supporters of the joint venture with Steinmetz.

Barbosa raised several issues, starting with the purchase prices and conditions. Vale agreed to pay 2.5 billion to Steinmetz for 51% of the area, 500 million of which paid up front, upon signing the contract. Barbosa suspected that Steinmetz, who had paid nothing for the concession, was simply trying to peddle it. He would reap a fabulous profit from Vale’s down payment alone. Steinmetz would not be a partner, but a profiteering middleman.

The second major issue involved the cost of implementing the project. The ore is indeed excellent, but extremely difficult to mine. Simandou is a mountainous, heavily forested, and difficult-to-access region with no transportation infrastructure to move the ore out, no communications systems or electricity, and no skilled labor. Regional political instability is another complicating factor. In addition to Guinea itself, neighboring countries like Sierra Leone and Liberia live in constant crisis, burdened by different groups vying for power. Factoring all this into the equation, Barbosa did the figures and they failed to add up. If Vale wanted to mine ore from Guinea, the company would have to invest an unforeseeable fortune.

According to those who agreed with Barbosa, there was a major mismatch in the joint venture between Vale and BSGR, since one of Steinmetz’s demands in selling half of the concession was that the Brazilian mining company bear the entire weight of developing the project. This meant building not only the railroad to ship the ore out, but also the electric power grid and communications system – from scratch. Even without putting any money into the project, Steinmetz’s49% share would not be diluted. Barbosa was outraged. “Vale promised to carry Beny’s weight,” I heard from one of the Brazilian mining company’s executives. The deal could not have been better for Steinmetz. Having invested only 160 million dollars in a feasibility study onSimandou, he became partner to a 5-billion-dollar deal, considering that he would enjoy a virtually equal share in the ownership.

Agnelli straightens up in the brightly colored chair at his new company. He contends that the obstacles to developing the project’s infrastructure were minor, given Vale’s enormous power. “Vale has a long track record operating in difficult areas,” he says. And he guarantees that the project had everything going for it in its original format. The main difficulty would be solved by building a railroad through Liberia. Simandou is very close to the Liberian coast, which also has the advantage of a port deep enough to receive the iron ore mega-freighters. The alternative, with the iron ore transported out through Guinea itself, is infinitely more costly. It requires building a 650-kilometer railroad across rough terrain. The coast of Guinea is also very shallow, which would require the construction of a 20-kilometerpier out into the sea for freighters to dock.

The Simandou partners were aware that exporting the ore through neighboring Liberia was crucial to the project’s feasibility. That’s where Steinmetz’s contacts came in. To convince Vale, the Israeli told the mining company’s executives that he had secured authorization from the governments of both Guinea and Liberia for the Simandou ore to be shipped out through Liberian territory. The problem was that the guarantee was only verbal, with no document to back it up. Agnelli gets a guileless look on his face when he explains the deal with his partner: “Beny told us everything was okay, that he had spoken with the Liberian and Guinean governments, and that everybody agreed that the Simandou ore would be shipped out through Liberia,” he says, taking another puff on his electronic cigarette.

For Steinmetz to make good on his promise, he would need unprecedented political clout. Guinea had systematically vetoed the alternative route through Liberia, previously proposed by Rio Tinto. The requirement that the Simandou ore be transported by railroad across Guinea itself is explicitly written into the country’s Mining Code. It is one of the main obstacles to the development of iron ore mining in the country.

In early April 2010, just weeks before the contract was signed between Vale and BSGR, a report by government experts from Guinea condemned the deal. The document, to which piauí had access, points out that BSGR did not even have the right to transfer the concession to another company, because it was only authorized to conduct a feasibility study of the reserves. And it reaffirms that, in keeping with Guinean mining laws, the Simandou ore cannot be transported through Liberia as Steinmetz was claiming. The only ore that can be shipped through the neighboring country is that produced in Mount Nimba, another region, where the concession is held by BHP Billiton. “As for the concession between BSGR and Vale, it violates the article in the Mining Code of 1995,” says the document. According to the code, “The license to conduct a feasibility study is not subject to dismemberment, nor can it be ceded or transferred, even on death.” An advisor to Alpha Condé recently told me that these arguments had been discussed exhaustively with the then-Minister of Mines in Guinea during the administration prior to that of Alpha Condé, but that the deal had been authorized nevertheless.

In February I met with a former Vale executive at a café in Leblon, in the fancy South Zone of Rio de Janeiro. He had followed the discussions with BSGR and confirmed that Steinmetz’s word was the company’s only guarantee that the railroad would pass through Liberia. “There was no signed authorization by the two countries’ governments,” he said. I asked him if it was a sign of amateurism to pay 500 million dollars up front, trusting only in a promise from a diamond broker with an incipient relationship with Vale. He replied laconically: “To say the least.”

On April 30, 2010, Steinmetz arrived in Rio with other BSGR executives to sign the contract with Vale at the company’s downtown headquarters. Fábio Barbosa, Financial Director of the Brazilian mining company, refused to sign. He instructed the executives from his department not to shoulder such responsibility. “As the person in charge of signing Vale’s balance sheet for the SEC, the U.S. Securities Exchange Commission, he pointed out that if Vale’s shareholders were hurt by the deal, the first person to go to jail would be Roger, and then himself,” said this executive. In Barbosa’s place, the contract was signed by Executive Director José Carlos Martins, alongside Agnelli, as ceo of Vale s.a. Beny Steinmetz did not put his own name on the document. Legal liability for the deal on the side of BSGR fell to a board member by the name of David Clark.

Agnelli takes another puff and continues his story. He emphasizes that although there was no formal guarantee by the two governments, the contract included a clause according to which the 2-billion-dollar balance would only be paid after the railroad issue was settled. Furthermore, he made this clear in his meetings with the company’s Management Board. “I spoke with the board members,” Agnelli tells me, looking absolutely calm. “It was recorded in the minutes, and all the shareholders were aware that we would pay the500 million dollars to have the option to buy 51% of Simandou. If we couldn’t get the railroad to go through Liberia, we wouldn’t pay the balance. We would lose the 500 million for not developing the mine, but we would remain partners in Simandou.” And he justifies once more, as if repeating a mantra, “It was strategically important for Vale not to leave Rio Tinto alone with all that ore.”

When the deal was closed, the Chairman of the Board at Vale was Sérgio Rosa, who was also the CEO at Previ, the pension fund for employees of Banco do Brasil and the largest shareholder in the mining company. Rosa confided to friends that he had endorsed the project, as had all the other board members, who considered it a good deal. Agnelli’s argument that they would be on equal footing with Rio Tinto was sufficient to convince the board members. “It was very hard for them to challenge Roger,” one company executive told me. “He was the man on the ground, and the company had been reaping fabulous returns. I think the board members were afraid to question his ideas.” In fact, according to this executive, the board never even knew what was being signed. “They were only informed of the strategy, but had no idea as to the details of the contract.”

However, the contract did not guarantee that Vale would retain ownership of the 51% if it failed to pay the remaining 2 billion dollars in case the logistics issue was not solved. In other words, if Vale failed to pay its debt to the Steinmetz by 2011, regardless of the outcome of the railroad negotiations, its share of Simandou would be reduced to only 10%, the equivalent of 500 million out of a total of 5 billion. In short, the mining company paid a half billion dollars to Steinmetz with no guarantee that the railroad would run through Liberia. And it further agreed to have its share significantly reduced in case it failed to keep its promise.

An attorney that examined the nearly 200-page contract questioned how the Brazilian company had approved the deal. “It’s odd that the board authorized Vale to make a half-billion-dollar down payment before the railroad problem was settled,” he said during a lunch in Rio de Janeiro in mid-February. “Considering that the deal would only be economically feasible with the railroad running through Liberia, it’s only logical that these conditions would have to be worked out first.” His assessment is that the contract should have contained a clause requiring Steinmetz to return the money in case he was unable to solve this logistical hurdle. “At the very least, Vale should have imposed payment of a fine by their partner,” he suggested.

It was not long before Vale’s problems with the Israeli partner began to appear. Bills for expenditures on construction in Simandou started reaching the office of VBG – the company resulting from the joint venture – in Conakry, capital of Guinea. It was Vale that had to pay all the bills, since the contract failed to provide for a single cent in outlay by BSGR. One day Vale executives received a bill for millions of dollars for the leasing on Beny Steinmetz’sprivate jet, which he uses to globetrot. The people in charge of reimbursing expenses refused to pay up.

“We told Beny that spending on his private jet wasn’t Vale’s responsibility, that it wasn’t part of the project,” an executive involved in the case told me. Steinmetz reacted badly. He said either Vale covered the expense or he, as partner, would not authorize any other expense by Vale (in fact, the signature was always by a BSGR representative; Steinmetz himself never signed anything). In a joint venture, the expenses have to be approved by the partners. If the BSGR representatives refused authorization, the mining project would come to a standstill. “He always pushed things to the limit. He’d say, ‘Okay, so we’ll stop.’ He never went through with it, but he was cocky enough to intimidate us,” said this executive. “It’s not the best way to do business.”

In the real world of project construction, things were not working out either. When the Vale technicians arrived in Simandou to take stock of the project, they realized how difficult the implementation was going to be. “Martins had argued that Rio Tinto had failed to develop Simandou because it had been inefficient, but that Vale could do it,” said another executive, referring to Agnelli’s ally on the board. Things weren’t that simple. There were no skilled workers for the job in Guinea. They considered the possibility of using the same “fly-in, fly-out” as on oil rigs, with rotating work teams. Every two weeks a Brazilian work crew would fly to Simandou and the other would fly back to Brazil, returning to Guinea two weeks later, and so on. The system works well on oil rigs, with distances no greater than 300 kilometers from the coast. In the case of Guinea, thousands of kilometers from Brazil, the solution would require hiring a Boeing 747, which would have to land in Liberia, and from there the workers would have to be transported to the iron ore mountain on makeshift roads. The idea was unfeasible and was eventually dropped altogether.

There were also problems with the equipment’s safety. Material was often pilfered. “It was maddening. There was nothing in Simandou: no infrastructure, no power, and no security. There was no way to communicate with the office in Conakry in case something had to be hired urgently,” said a Vale employee who participated in this first stage of the project.

President Alpha Condé took office in December 2010. The whole negotiation with Steinmetz had taken place during previous administrations that were politically opposed to the new president, so Agnelli thought it would be a good idea to visit Condé with his partner to discuss their plans inGuinea. They arrived in Conakry the day after the inauguration and went to meet Condé at his home. The timing was not exactly ideal. While the three were talking on the upper floor, people were attending the wake of the President’s brother on the ground floor. Agnelli claimed it was a friendly meeting and that Condé showed great interest in meeting then-President Luiz Inácio Lula da Silva, who in less than a month, in January, would be replaced by Dilma Rousseff. Condé avoided giving guarantees as to the future of the operation underway, but during the conversation he demanded that Vale and its partner contribute further to the deal by adding an urban railway linking the capital Conakry to neighboring districts (no small job in a country where most of population gets around on foot).

Agnelli agreed and flew to Washington, where he met with the World Bank to discuss financing for the urban railway in Guinea. The bank turned him down. Agnelli phoned Lula on the spot, mentioning Condé’s wish to meet him and asking the Brazilian president to intercede in the deal. He believed that Lula’s prestige could help the Guinean president take a more sympathetic view of Vale’s presence in Guinea. He took advantage of the opportunity to ask that Brazil’s Economic and Social Development Bank (BNDES) approve financing for the Conakry railway.

On January 1^st, 2011, Lula passed the presidential sash to Dilma. According to the contract between Vale and BSGR, that same day was the deadline for resolving the clause on the railroad through Liberia. Ten days later, Vale would have todeposit 2 billion dollars in the Israeli’s account. But the imbroglio was not settled. Steinmetz failed to keep his promise. In late February, less than two months after leaving office, Lula flew to Guinea with Agnelli, in the Vale jet. The local population greeted him enthusiastically. The former president stayed at Condé’s home. Agnelli, accompanied by his wife, checked into the Novotel, where the top foreign executives normally stay. He walked up the stairs to his room on the 4^th floor, avoiding the elevator because of the country’s frequent blackouts.

The following day, February 22, there was a ceremony to lay the cornerstone for Vale’s project in Simandou. Sweating in the scorching heat, Lula was there at Condé’s side. Next came a luncheon for the authorities. Sitting at the table with Condé (surrounded by bodyguards) were Lula, Agnelli, and his wife. Soon after they had taken their seats, Beny Steinmetz walked over and stopped in front of them, as if inviting himself to sit. He stared insistently at President Condé, who looked the other way. The guests all sensed the embarrassing situation. A member of protocol ushered Steinmetz to another table. Condé had given the order for the Israeli not to be seated at the head table.

“That’s when I realized that President Condé was not on good terms with Beny,” Agnelli says. I ask him if he knew why. Agnelli replies that the ill-will stemmed from the fact that Steinmetz had failed to pay taxes to Guinea on the amount he had received from Vale. “I went to speak with Soros. I said: ‘George, tell me what it is, I’ll try to work it out. I’ll tell Beny to pay,’” Agnelli says, adding that Soros never got back to him after that.

The cornerstone ceremony gave the Brazilians hope that the project would prosper. But with the well-connected partner in disgrace, the guarantee that the railroad would run through Liberia seemed increasingly far-fetched. Steinmetz made this clear to Vale executives. In March, he suggested that they look for some other way to solve the railroad issue, since he could not help them anymore. He left them dangling, with Vale on the hook to settle the impasse.

In any business deal, of whatever size, if one of the parties feels jeopardized it presumably turns to the courts to obtain some form of reparation. Vale would normally have taken this path. However, this possibility did not exist in the joint venture with Steinmetz. According to people that read the contract, Vale committed not to prosecute BSGR or any other company in the Steinmetz Group (or any board member, employee, agent, or consultant of BSGR or the Israeli’s group) in case it felt jeopardized by the deal. “It’s unbelievable that a corporation the size of Vale, with its excellent position in the market, would have agreed to let a junior company that was absolutely irrelevant in iron mining impose such a condition,” stated an attorney with expertise on the subject. “I’ve never seen anything like it.”

All this left Roger Agnelli in a vulnerable position. During the global crisis in 2008, he had already fallen into disfavor with President Lula for having fired 1,300 employees, claiming cost cuts. He also annoyed Lula by ordering ships from China when the Brazilian government was trying to boost shipbuilding in the country. “Roger was right,” one of the company’s executives told me. “Vale has shares on the market and cannot be hostage to unbridled demands or government attempts to meddle in the company’s administration. Vale is not Petrobras, where the government intervenes all the time.”

Relations with Lula normalized, but Agnelli never got along with President Dilma. In March 2011, during a trip to Africa, he told journalists that he couldn’t take so much corruption in Brazil. That comment sealed his fate. His position in the company deteriorated day by day.

In March 2011, Agnelli also lost an important ally on the Board of Directors. Sérgio Rosa was replaced as CEO of Previ and in the board of Vale by Ricardo Flores, a career executive from Banco do Brasil. Shareholders welcomed Flores. He was much more familiar with the stock markets than his predecessor, who built his career in the bank workers’ trade union movement and as a militant in the Brazilian Workers’ Party (PT). From that point on, Agnelli’s relations with the board changed radically. Unlike Rosa, Flores began to demand that Agnelli send him the board meeting agenda at least two weeks in advance, plus the documents on all matters up for discussion. Until then, board members had learned of the business of the day at the last minute. “Roger held a heavy hand over the board,” a top executive at Vale told me. “That all changed with Flores.”

I met with a former board member on a December afternoon. He told me that Flores had gotten annoyed with Agnelli in one of the meetings because he had not received the agenda ahead of time. The same thing happened before the next meeting, and Flores cancelled it. But the relationship really derailed over Simandou. The managing director asked to see the contract with Steinmetz. After analyzing it, he concluded that it was contrary to the company’s interests. He questioned it clause by clause. He was furious to learn that Vale had paid 500 million dollars without any guarantee, that it would bear all the financial liability for the project, and that it had formally waived its right to prosecute the partner.

During the meeting on the matter, some board members tried to argue that they had no prior knowledge of all the “details”. Flores raised his voice. “What do you mean, you didn’t know? Nobody here’s a baby. Everybody is liable for this contract.”

Agnelli was informed in March 2011 that he would no longer be heading the company. Neither Flores as Managing Director or President Dilma wanted him there anymore. Although it had been privatized in 1997 under the Fernando Henrique Cardoso administration, Vale had never totally disengaged itself from the Brazilian government. Its largest shareholders are Previ, the pension fund of the Banco do Brasil employees, BNDES par (the shareholding arm, with shares in companies, of the government development bank), and two other government-related pension funds, Petros, for Petrobras employees, and Funcef, from Caixa Econômica Federal (the Brazilian Federal Savings and Loan Bank). In other words, even though Vale was privatized, the Brazilian government is still its main shareholder. Other important shareholders are the Bradesco bank and the Japanese trading company Mitsui. The other 46% of the shares are traded on the open market.

Agnelli came to Vale at age 38, soon after the privatization, as Bradesco’s representative on the board, where he remained until he was promoted to CEO. His work on the board soon catapulted him to head of the mining company. Bradesco always backed him, but after his relations with Dilma soured, the bank was pressured into accepting his dismissal from Vale.

In late April, Flores seconded Murilo Ferreira for the position. Scouted out by headhunters, Ferreira had been a career employee at Vale itself, where he had also been a board member, and had served as CEO of the Canadian corporation Inco. He had left Vale in 2008, on the outs with Agnelli after having opposed the attempt to buy Alcan in 2007. During the transition period between the two CEOs at Vale, Agnelli refused to let Ferreira use any space in the CEO’s office.

Soon after taking office in May 2011, Murilo Ferreira flew to Conakry for a meeting with Condé. He heard from the president that Guinea wanted no business with Steinmetz. If Vale wanted to stay in Simandou, the company would have to get rid of its partner. Condé also demanded that the iron ore railroad run through Guinea itself, not Liberia.

Surprised, Ferreira asked Condé if he had changed his mind about the railroad’s route, since he had confirmed the country’s agreement on this matter in Lula’s presence. He had even laid the cornerstone for construction of the urban railway in Conakry, as a condition for the project’s approval. Condé replied that the cornerstone ceremony had been for show, out of respect for the former president of Brazil, whom he admired, but that as soon as Lula had left he had proceeded to review all the country’s mining contracts. Taking advantage of this loophole, Vale claimed force majeure and suspended enforcement of all contractual clauses with BSGR, including the possibility of having its share in the joint venture reduced from 51% to 10%. The company also called the project to a standstill and cancelled all payments to Steinmetz. Even so, Vale continues to pay maintenance costs in Simandou in order to keep the license valid.

I met with Murilo Ferreira on a January morning on the 16^th floor of the Vale headquarters. Ferreira has an affable smile. Soft-spoken, his accent is typical of the hinterlands of Minas Gerais. He tends to skirt the more sensitive matters, arguing that he needs to analyze them case by case. He sat at the head of a long hardwood table in the conference room. Next to him was the young attorney Clóvis Torres, the company’s head legal advisor, whose anxious, tense appearance was a contrast to that of his boss.

Ferreira said he was not used to speculating about the future of Vale in Simandou. After much insistence, he admitted that logistics are crucial to the project. He began his pitch calmly: “Iron mining depends on both ore and logistics. The combination of the two allows you to calculate whether the project iscompetitive.” And he continued in a measured voice: “What makes the difference with ore, in addition to its specs, is the runoff capacity. There may be good reserves, exceptionally good ones. But you need to add in a number of factors to determine how you classify the ore. It’s not enough to say the ore is very good. If you need 700 kilometers of railroad to transport it out, forget about it. It you have to build a 50-kilometer pier, forget about it. The iron ore may be excellent, but it will continue to go untapped.”

Since he took office, Ferreira has been searching for a solution in Simandou, but he declines to comment on his predecessor’s initiative in buying the concession. “Who am I to question the deal? If the board approved the project at the time, they thought it was a good deal.” Besides, he said, circumstances have changed. The price of iron ore fell from 200 dollars a ton to 130. The world entered a recession, and China no longer demands so much iron. In the meantime, the Serra Sul mine in Carajás received its license to operate, and it is expected to produce 50 million tons a year. That does not mean, however, that Vale does not need to develop new reserves, as he added. I remarked that the world was anxious to know whether Vale planned to develop Simandou, since this would very likely have an impact on iron ore futures. Ferreira folded his hands and smiled: “I’m a mineiro from Uberaba [in the State of Minas Gerais, where people are famous for keeping their cards close to the vest]. I only say something when I’m very sure. This kind of pressure comes from people who want to see me slip on a banana peel.”

Indirectly, however, he criticized Agnelli’s behavior in the company’s business projects. “The studies we demand today for the board to approve projects are much more detailed. The market was upset that Vale was submitting projects without much for detail. I go to the other extreme. I like to see highly detailed projects. They’re only submitted if it’s possible to execute them.”

In 2012, a year after leaving Vale, Agnelli gave another sample of his style. According to a story in Exame magazine, he and André Esteves, at the head of B&A, were attempting a takeover of Vale’s concession in Simandou. Asher Avidan, Steinmetz’s right-hand man at BSGR, even came to Brazil to expose the strategy. Agnelli denies that this ever happened and claims he was slandered. “Asher Avidan is a nutcase, a wacko,” he protests. I ask him why he had not sued Avidan. “What for? He doesn’t even live here in Brazil,” he explains.

It had been a tense moment for Murilo Ferreira. “The news really put me on edge,” he confessed. “André Esteves later called me and said it wasn’t true,” continued the current CEO. According to word around the halls at Vale, an intermediary from the Office of the President contacted Esteves and made it clear that President Dilma did not want him meddling in Vale.

The question now is what Ferreira will do to get rid of the inconvenient partner. He denies any intention to dissolve the joint venture with Steinmetz – with whom he only communicates through the lawyers– until he has proof that the Israeli bribed Guinean government officials. “I can’t say whether he bought off the government people or not. That’s for the courts to decide. Only afterwards will Vale be able to decide whether to dissolve the joint venture or not. Let’s wait for the trial.” I asked him whether he considered Steinmetz a good partner, in light of all the contract’s unfavorable clauses for Vale. Ferreira dodged the issue. “The contract has a confidentiality clause. No comment.”

The attorneys involved in the case are waiting for the trial of Frenchman Frédéric Cilins, set for late this March in the United States. Cilins, who worked for Steinmetz in Guinea, was caught by the FBI trying to convince one of dictator Lansana Conté’s widows to destroy evidence of a bribe she had received for BSGR to win the Simandou concession.

On February 11, Murilo Ferreira and head legal advisor Clóvis Torres had a secret meeting with Alpha Condé in Conakry. They went to ask that the inquiry committee (in charge of determining whether BSGR committed bribery to obtain the Simandou concession) postpone its report for sixty days. Condé had determined that if the committee found solid evidence of corruption, the concession could be cancelled. According to a Condé advisor, the committee has evidently found such evidence. According to this same advisor, Ferreira confirmed that Vale filed a petition with the U.S. courts requesting authorization to dissolve the joint venture with BSGR, claiming just cause.

Murilo Ferreira has asked the government of Guinea to wait for the court ruling. If the joint venture is dissolved, Vale will be left as sole owner of the Simandou project. Condé told him that he hopes Vale will stay in Guinea and agreed to wait longer for the company to solve the joint venture issue with Steinmetz.

Agnelli coined a neologism for the debate about whether bribes were paid to the government of Guinea: bullshitagem, an Anglicism in Portuguese for bullshitting. “People say this, people say that,” he complains, annoyed. “The fact is that if this iron ore reserve were already being mined, the money would be flowing into Guinea. The project is at a standstill, and the country is still destitute.”

Agnelli is convinced that he made the best deal for Vale. He says that Africa is the future, and that he wants to be there with his company. “I love Guinea. I want to be there to help those people develop. I love those black dudes.” His joint venture with André Esteves is attempting to negotiate with BHP Billiton for part of the concession in Monte Nimba, in southern Guinea.

Showing me to the door, Agnelli walks down the long hallway of his company, whose installations he showed me before the interview. The middle of the office features a large room, also decorated in bright colors, with work stations for all twelve employees of AGN Participações. The end of the hallway features a smaller conference room and a pantry. I remark that the office is spacious. He looks surprised, almost doubting my opinion: “You think so?” I say yes, and then add jokingly, “But it’s not a Vale.” “Not yet,” he replies without blinking, and smiles.