RESTRICTED Report No. PI- 17 This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibiity for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION BRAZILIAN STEEL EXPANSION PROGRAM PART II APPRAISAL OF USIMINAS EXPANSION PROJECT March 20, 1972 Industrial Projects Department CURRENCY EQUIVALENTS Except where otherwise indicated, all figures are quoted in Cruzeiros (Cr.$) and U.S. Dollars (US$) of February 1971. Cr.$1.00 - US$0.20 Cr.$5.03 - US$1.00 Cr.$l,000,000 - US$198,800 ABBREVIATICZNS AND ACRONYMS BAHINT Booz, Allen & Hamiltcn International, Inc. ENDE Banco Nacional do Desenvolvimento Economico BOF Conselho Interministerial de Pre9os (Interministerial Price Council) CONSIDER Conselho Nacional da Industria Siderurgica (National Steel Council) COSIPA Companhia Siderurgica Paulista (Sao Paulo Steel Company) GSN Companhia Siderurgica Nacional (National Steel Company) CVRD Companhia Vale do Rio Doce Ecimbank EXport-Import Bank of the United States Government Federative Republic of Brazil 1Cm Imposto Sobre Circula9ao do Mercadorias (State Sales Tax) IPI Imposto Sobre Productos Industrializados (Federal 3ccise Tax) NSC Nippon Steel Corporation Part I IBRD Appraisal of the Brazilian Steel Expansion Program (PI-16 dated 1-10-72) TD Department of Technical Development (USIMINAS) TPY (Metric) Tons Per Year USIME§ Usiminas Mecanica, Subsidiary of USIMINAS USIMCNAS, Company Usinas Siderurgicas de Minas Gerais, S.A. (Steel Mills of Minas Gerais) WEIGHTS AND MEASURES 1 Metric Ton 1,000 kilograms (kg) 1 Metric Ton - 2,205 pounds 1 Kilometer (km) - 0.62 miles 1 Meter (m) - 39.3 inches USIMINAS FISCAL YEAi January 1 - December 31 BRAZILIAN STEEL EXPANSION PROGRAM PART II APPRAISAL OF THE USIMINAS EXPANSION PROJECT TABLE OF CONTENTS Page No. SUMMARX AND CONCLUSIONS ...................... i-iv I. INTRODUCTION e..,........ ,,,,.. 1 II. THE OOMPANY .......,2 A, Ownera .......hip....................... 2 B. History ..... ....................,.. ...... 2 C. Location and Plant Facilities ......... 3 D. Subsidiaries 3 ....................... 3 E. Organization and Management ....... ..... 4 F. Past Growth and Present Financial Position ...... 5 III. THE MARKET .... , 7 A. Recent Sales History and Sales Forecasts 7 B. Georgraphic Distribution of Sales ............... 10 C. Marketing Organization .......................... 10 IV. THE PRDJECT .................... .. ........... 10 A. Scope and Objectives ....... .... ......... 10 B. Ecology ................ 12 C. Labor Force ........ 12 D. Project Execution and Supervision ............... 12 E. Construction Schedule . 13 V. CAPITAL COST ESTIMATE AND FINANCIAL PLAN ............. 14 A. Project Cost ................... ... ..,.. 14 B. Working Capital ................, 15 C. Financial Plan ........ . ................. , , 15 D. Summary of Sources and Application of Funds During 1971-75........ 17 This report has prepared by Messrs. Jaffe, Paschke, and adbAi of the Industrial Projects Department based on nissions to Braxil In November 1970 and Miy/June 1971. It should be read in conjunctl*n with Part I (Report No. PI-16 dated Januray 10, 1972), which will be udated at the time the COSIPA appraisal report is presented to the Board. Table of Contents (continued) VI. PROCURIENT ........................... ................ 18 A. General Procurant ............................. 18 B. Allocation of Bank's Loan ....................... . 18 VII. PRODUCTION COSTS AND SELLING PRICES ................ 0. 19 A. Raw Materials o ............................... 19 B. Production Costs .. ..... ................ ... 20 C. Selling Prices o.-o........ o............................ 21 VIII. FUTURE PROFITABILITY AND FINANCIAL POSITION ........... 21 A. Future Profitability . ........ ....... ....... .. . 21 B. Break-Even Point .... ........ ..... ...... ....... .. 22 C. Financial Rate of Return ....................... 22 D. Financial Position ........... .. .. .. .. ... . ... .. . 23 E. Debt Service Coverage ............... .... 24 F. Future Expansion (State III) .....o .............. 25 JIX. ECONQKIC JUSTIFICATION OF THE PROJECT ..... .......... 26 A. Economic Rate of Return . .... . .... . ... .. 26 B. Competitiveness and Protection Required .o........ 26 C. Estimated Foreign Exchange Savings .............. 26 X. AGREEMNTS AND REACHED DURING NEGOTIATIONS ........... 27 A. CGmmitments by the Covernment and GNDE oo ........ 27 B. Com ituents by the Company .. ...... ............. . 27 ANNEXES 1. Description of Present Facilities 2. Plant Layout 3. Organization Chart of the Head Office 4. Organization Chart of the Plant 5. Historic Profit and Loss Statements and Balance Sheets (1967-1974) 6. Historic and Project Sales (1967-1980) 7. Description of the 2.4 million TPY Raw Steel Expansion Scheme 8. Ecology 9. Project Implementation Schedule 10. Estimated Capital Cost of Phase I Expansion 11. Estimated Capital Cost of Phase II Expansion 12. Estimated Capital Cost of the Project (Phase I and II) 13. Assumptions for Working Capital Requirements 14. Terms of Outside Financing for the Entire Project (Phase I and II) 15. Projected Profit and Loss Statement, Cash Flow and Balauce Sheets (1972-1986) for the 2.4 million TPY Raw Steel Expansion Scheme 16. Equipment to be Financed by the Bank and Disbursement Schedule 17. Raw Materials 18. Production Costs 19. Selling Price Assumptions 20. Break-Even Point 21. Assumptions for Financial and Economic Return and Sensitivity Analysis 22. Sum-arized Projected Profit and Loss Statements, Cash Flow, and Balance Sheets (1972-1986) for the 3.5 million TPY Raw Steel Expansion (Stage III) 23. Estimated Foreign Exchange Savings 24. Flow Chart of Production Process 25. Raw Material and Production Flow Diagram MAPS Map 1 Locations of USIMINAS, COSIPA and CSN Map 2 USIMINAS' Major Raw Material Sources BRAZILIAN STEEL EXPANSION PROGRAM PART II APPRAISAL OF THE USIMINAS EXPANSION PROJECT SUMMARY AND CONCLUSIONS i. This report appraises the proposed expansion of Usias Siderurgicas de Minas Gerais, S.A. (USIMINAS), one of the three leading flat steel producers in Brazil. The plant is situated in Ipatinga, about 210 km northeast of Belo Horizonte, near its source of iron ore, but relatively distant from its prin- cipal markets in the Sao Paulo/Rio de Janeiro areas. the expansion will in- crease USIMINAS' raw steel capacity from 1.0 to 2.4 million tons per year by 1975 and add rolling and finishing capacity, particularly for wide plate and cold rolled sheets. The project is being carried out in two partly overlap- ping phases at a total estimated cost of US$572 million equivalent. Phase I, for which financing had already been arranged, has an estimated cost of US$165 million. Phase II, vhich the Bank has been requested to help finance with a loan of US$63 million, has a total cost of US$407 million, of which an esti- mated US$156 million would be used for imported equipment and services. Pro- curement action on the Bank assisted second phase has started and the project is expected to be completed in 1975. ii. The project is part of an overall program to increase Brazil's raw steel capacity from presently 6 to 20 million tons per year by about 1980. This program was formulated by Conselho Nacional da Industria Siderurgica (CONSIDER), the National Steel Council, and includes simultaneous expansions of the other two Government-owned flat product mills, Companhia Siderurgica Nacional (CSN) and Companhia Siderurgica Paulista (COSIPA). The Bank approved a loan of US$64.5 million to CSN on February 1, 1972, and ha been requested to assist in financing the expansion of COSIPA also. iii. The major objectives of the Phase II are the expansion of basic iron and steelmaking capacity and increase in rolling and finishing facilities. To this end, a third blast furnance will be installed which will provide - together with the two existing ones - sufficient hot metal for both the project and the next planned expansion (Stage III) to 3.5 million tons per year. In addition, a basic osygen furnance (BOF) shop, continuous slabcasting, and a 160-inch wide plate mill will provide the Company vith the umet modern pro- duction equipment. As a result, USIMINAS will produce high-quality steel at lower costs and with less pollution. The other facilities included in the project are auxiliary equipment for the rolling mills and for the power, water, and transportation systems. - ii - iv. Phase II will be financed by US$190 million in foreign exchange loans; US$128 million equivalent in local currency to be provided by Banco Nacional Desenvolvimento Economico (BNDE) about half in loans and half in subscription to new share capital; and US$89 million equivalent fron BSININAS' internal cash generation. The proposed Bank loan of US$63 million and an Inter-American Development Bank (IDB) loan of US$42 million will be used jointly in a 60/40 proportion for internationally bid equipment. An addi- tional US$94 million worth of equipment is to be financed (901) by export credit institutions in Austria, Belgium, Canada, France, Germany, Italy, Japan, United Kingdom, and the United States 1/, after competitive bidding among suppliers in these countries. The export credits will be extended on average for 15 years and at 7.5Z interest, with any difference in terms to be taken into account in bid evaluation. USIMINAS' contribution and BNDE's financing will be used for downpayments, construction and erection, working capital, and interest during construction. The Brazilian Covern- ment has agreed to finance any overrun An project costs or shortfall in financing. v. USIMINAS was formed in 1956 by the Government of Brazil and public institutions of the State of Minas Gerais. Subsequent negotiations with various foreign equipment suppliers led to the decision to accept a Japanese offer for equity participation and technical cooperation in the construction and initial operation of the new steel plant. The plant started producing steel in late 1962 and integrated operation from iron and steel making to the rolling of a wide variety of flat products began in 1966 with a capacity of 570,000 tons per year of raw steel. Minor additional investments in plant improvements gradually increased capacity to 1.0 million tons of raw steel in 1971. Primarily due to the economic recession in Brazil in the mid 1960's, the Company had substantial losses in the early years of operation and was unable to service its debt. In 1967 therefore a financial reorganization took place when BNDE and the National Treasury re-financed some of USIMINAS' loans. In 1970 a modest profit was earned, followed in 1971 by substantially increased earnings of US$19 million. During 1971, the Company received US$122 million through the sales of 6% preference shares enabling it to repay a large part of its debt and place it in a sound financial position. vi. At the present time the Government of Brazil owns 791 of the share capital of USIMINAS principally through BNDE, the National Treasury, and the Companhia Vale do Rio Doce (CVRD). The remaining 21X are held by Nippon- USIHINAS Kabushiki Kaisha of Japan, a company founded by the major iron and steel companies of Japan and its Overseas Economic Cooperation Fund. vii. The basic plant and past minor additions as well as the ongoing Phase I expanision have been executed in close cooperation with Nippon Steel, the technical consultant of USIMINAS, which was largely responsible for engineering, procurement, and construction. The Phase II project will be the first to be carried out under USIMINAS' full responsibility. The Company 1/ Negotiations with Finland are ongoing. - iii - has signed a contract with Nippon Steel to assist it in this task and has also obtained the services of Booz, Allen & Hamilton for advice on strengthening project organization and administration. With this assistance the Company is expected to carry out the project effectively. viii. Over the last two decades, consumption of steel in Brazil has on average increased by about 9% per year. In future, flat steel demand is expected to grow at an annual rate of 10%. Ship plate and autobody sheet, the two USIMINAS' products which already command good markets in Brazil be- cause of their high quality, are expected to contribute a higher portion of the Company's increased sales. After completion of the project in 1975, the Company would have available capacity to temporarily increase its exports; but rising domestic demand should soon absorb such excess capacity and ex- ports be reduced to the targets level of 10% of production, a level already achieved in the past. ix. USIMINAS obtains its iron ore, primarily fines and pellet ore, from nearby CVRD mines under a long-term contract at favorable prices. About two- thirds of the other principal raw material coking coal, is imported, and the rest is obtained domestically at relatively high cost and low quality. It is expected that the share of domestic coal will be gradually reduced to 20% by 1975/1976. The combined cost to USIMINAS of iron ore and coal is comparable to the lowest cost in Japanese and Western European steel mills. The other raw materials are obtained locally. Labor productivity is higher than in other plants in Brazil but slightly lower than in other major steel-producing countries. USIMINAS expects to employ another 3,400 persons upon completion of the project. x. The Company's selling prices, on which the financial projections are based, are on the whole competitive with European domestic prices for similar products with exception of cold rolled steel. Most domestic prices (excluding excise and sales tax) in March 1971 were less than 10% above im- port prices (excluding comparable European taxes and Brazilian import duties), and in the meantime, import prices have firmed up, primarily as a consequence of the recent currency adjustments. Upon completion of the project, it is expected that the Company could meet import prices and still earn an accept- able financial return. In view of the importance of steel prices (which are controlled by the Brazilian Government) both to the steel industry and to the economy as a whole, the Government has agreed to consult with the Bank on steel pricing policy as circumstances warrant. xi. Considering the 1971 issuance of new preference stock and BNDE's commitment to provide its funds on a basis to assure the Company a 50:50 long-term debt/equity ratio during project implementation, USIMINAS will preserve a sound financial position. After completion of the project, the Company will have a low profit break-even point of about 66% of capacity and a satisfactory debt service coverage and liquidity. - iv - xii. The expansion provides adequate financial and economic rates of r turn of around 13Z and 12% respectively which vould be higher for this expansion if it were not for some unavoidable imbalances on plant facilities, particularly on a temporarily oversized blast furnance. However, such im- balance is typical of steel plants owing to the large capacity of modern production facilities and will be relieved and show the full benefit vhen the envisaged Stage III expansion takes place in the latter 1970's. xiii. The principal risks of the project would be a delay of the scheduled project completion, operational difficulties during the start-up of the con- tinuous slab-casting and exports at prices below the projected levels. These risks, however, have been analyzed and do not put in doubt the viability of the project. xiv. Based on the assurances obtained during negotiations, the project is suitable for a Bank loan of US$63 million equivalent for a term of 15-1/2 years including 4-1/2 years of grace. A guarantee fee of 1-3/4 per annum is to be paid to the Government by the Company in addition to the Bank's normal lending rate. I. INTRODUJCTION 1.01 This report appraises the proposed capacity expansion from about 1.0 to 2.4 million metric tons of raw steel 1/ per year (TPY) of Usinas Siderurgicas de Minas Gerais, S.A. (USIMINAS) at Ipatinga in the State of Minas Gerais, Brazil. The expansion is divided into two partly overlapping phases (I and II) which are estimated to cost about US$572.6 million (in- cluding interest during construction and incremental working capital). Bank financing of US$63 million equivalent is sought for Phase II which would cost an estimated US$407 million, some 49% of which (US$198 million) would be in foreign exchange. The Bank loan would be used for internationally bid equipment; the project is expected to be completed in 1975. 1.02 USIMINAS, one of the three principal flat steel producers in Brazil, began integrated operations in 1966. Like the two others, Companhia Siderurgica Nacional (CSN) and Companhia Siderurgica Paulista (COSIPA), USIMINAS' major shareholder is the Government of Brazil. A minority of shares is held by Nippon-LSIMINAS, a Japanese company formed by important Japanese steel companies and equipment suppliers and the Overseas Economic Cooperation Fund of Japan. As described in Part I - No. PI-16, dated January 10, 1972, which discusses the present Brazilian Steel Expansion Program in general, the Bank has also been asked to help finance part of the expansions of CSN and COSIPA. The CSN project was approved by the Executive Directors on February 1, 1972 and it is expected that the COSIPA project will be presented for Board consideration in May 1972. 1.03 USIMINAS, CSN and COSIPA account for approximately one-half of Brazil's present raw steel capacity of 6.0 million TPY, to which USININAS contributes about 17%. USIMINAS and COSIPA produce flat rolled products exclusively, while CSN's output includes both flat and non-flat products. 1.04 USIMINAS' present capacity is 1.0 million TPY of raw steel equivalent compared with 1.6 and 0.6 million respectively for CSN and COSIPA. In 1976, when all three flat steel producers will have completed their expansion to the projected total capacity of 7.2 million TPY of raw steel, USIMINAS will account for one-third of the three plants' total capacity. 1.05 This report was prepared by Messrs. Jaffe, Paschke and Thadani of the Industrial Projects Department, based on findings of a joint mission 2/ of the Bank and the Inter-American Development Bank (IDB), which visited Brazil in May/June 1971 and several subsequent discussions in Washington with repre- sentatives of the Company and the Conselho Nacional da Industria Siderurgica (CONSIDER), the Brazilian Government coordinating body for the steel industry. The valuable constribution of IDB and, in particular, of Messrs. Prado, Pokorny and Meyer in the appraisal of this project is acknowledged. 1/ Raw steel is defined as steel in the first solid state after melting and includes ingots and continuously cast semi-finished products. 2/ Consisting of Messrs. Jaffe (Chief), Paschke, Perram, Thadani, Zaman and Herzog (Consultant) of the Bank, and Messrs. Prado (Deputy Chief), Dragicic, Meyer, Pokorny and Miller (Consultant) of IDB. II. THE COMPANY A. Ownership 2.01 USIMINAS is majority-owned by the Brazilian Government. As of December 31, 19t0, the Company's share capital was Cr$ 365 million. In September 1971 USIMNAS increased the capital to consolidate its financial position and facilitate its expansion program. In so doing, it capitalized Cr$ 160.6 million of reserves and ended 1971 with Cr$ 525.6 million in com- mon stock outstanding. In addition, the Company sold to its shareholders in 1971 Cr$ 525.6 million of 6% preference shares at 130% of par resulting in a Cr$ 157.7 million capital surplus which was capitalized in January 1972 by issuing additional coemon and preference shares in equal amounts. The sale of preference shares resulted in cash proceeds of Cr$ 683.3 million and USIMINAS has now a sound financial position. Presently Government agencies hold 79.1% of the Company's common stock and Nippon-USIMINAS Kabushiki Kaisha of Japan 1/ the remaining 20.9%. The Brazilian owners of USIMINAS are Banco Nacional do Desenvolvimento Economico (BNDE) with 63.3% of the share capital; the National Treasury 12.7%; Companhia Vale do Rio Doce (CVRD) 2.8Z; and others 0.3%. B. History 2.02 When founded in 1956, USIMINAS was entirely Brazilian-owned. Sub- sequent negotiations with several Japanese and European firsm led to the acceptance of a Japanese offer for equity participation and technical coopera- tion in the construction and initial operation of the new steel plant. It also included the financing of Japanese equipment while German and French manufacturers supplied and financed the remaining imported equipment. USIMINAS' investment included not only the steel mill but also part of a new township for 30,000 inhabitants nearby as well as handling and storage faci- lities at the Port of Vitoria on the Atlantic coast. 2.03 The plant started producing steel-in late 1962. During the follow- ing three years, more production facilities were added in accordance with a well-conceived master plan and by 1966 the plant was fully integrated from iron and steel making to rolling of a wide variety of flat products and had a capacity of 570,000 TPY of raw steel. USIMINAS' capacity was gradually increased over the years through improvements of existing facilities to about 650,000 TPY in 1968, 850,000 TPY in 1970 and 1,000,000 TPY in 1971 without additional major investments. 1/ Major shareholders of Nippon-USIMINAS Kabushiki Kaisha are the Overseas Economic Cooperation Fund, Nippon Steel Corporation, Ishikavajima- Harima Industries Co., Ltd., Nippon Kokan K.K., Kobe Steel Corporation, Mitsubishi Heavy Industries, with together 78% of the shares and 11 other Japanese enterprises with together 22%. -3- 2.04 The Japanese steel partners assisted in all phases of planning and construction of the new mill as well as during subsequent operations. This assistance contributed greatly to its success. While the Japanese were responsible for the first three years of plant operations with about 100 of their specialists in key positions, training of Brazilian nationals progressed, and over the years they have gradually taken over all major operating functions. At present only about ten Japanese staff are assist- ing Brazilian management. 2.05 On the whole, initial plant construction and subsequent expansion proceeded smoothly and at relatively low investment costs and no major tech- nical difficulties occurred. Today USIMINAS is a major producer of steel and is recognized in Brazil for the high quality of its products. C. Location and Plant Facilities 2.06 The plant is located in Ipatinga (Map 1), a town of about 70,000 inhabitants some 210 km northeast of Belo Horizonte, the capital of the State of Minas Gerais and the site of the Company's head office. From the plant, road and railway connections exist to Sao Paulo and Rio de Janeiro (Map 2) - the main domestic market centers for flat steel products - and to the port of Vitoria, through which exports of finished products are shipped. The plant is also connected by rail with the large Itabira iron ore mines of CVRD, some 100 km distant, which supply mainly fines to USIMINAS. The steel plant is therefore well located with regard to its source of iron ore, but less so with regard to coking coal. With respect to the major sales markets in the southeast of Brazil (Sao Paulo), USIMINAS is at a transport cost dis- advantage compared with its two major competitors, CSN and COSIPA. 2.07 A full description of the existing facilities is contained in Annex 1. They include two coke oven batteries, one sintering plant, two blast furnances, and one steel making shop with two 45-ton BOF converters. Rolling facilities include a combination plate and hot strip mill and a reversing cold mill. 2.08 The plant layout permits capacity expansion to about 5 million TPY of raw steel (Annex 2). Further expansion is possible but would require modification of the original layout concept. D. Subsidiaries 2.09 Usiminas Mecanica (USIMEC), the Company's only existing subsidiary, was established in October 1970. It fabricates principally steel structures and steel bridges and will soon also contain the Company's mechanical work shop which provides maintenance and repair services to USIMINAS. While receiving general guidance from USIMINAS, it has its own management and staff consisting of about 500 of the Company's former employees. USIMEC from time to time will need additional financing from USIHINAS to expand its operations. - 4 - It was agreed during negotiations that USIMEC, and other possible future sub- sidiaries, would not spend or commit more than US$4 million annually for fixed or capital assets and,during 1972-1980, not borrow, make advances or guarantee debt of more than US$2.0 million in each year without prior consent of the Bank. E. Organization and Management 2.10 The organization of the Company is shown in Annexes 3 and 4. USIMINAS' present six Board members are the President, the Secretary, who acts as Deputy President and also presides over shareholders' meetings, and four Directors responsible respectively for the functions of technical devel- opment, finance, administration and operations. By contract, the Secretary is nominated by the Japanese shareholders (Nippon-USININAS) and the Finance Director by BNDE, as long as BNDE holds more than 20% of the Company's share capital. The other Board members are elected by all shareholders. 2.11 The President of USIMINAS, Mr. Lanari, aged 58, has been with the Company since 1958. A mining and metallurgical engineer by profession, he has been USIMINAS'chief executive since joining the Company, and is con- sidered a good manager. He is assisted by the present Secretary, Mr. Taka- hashi, 61, a Japanese lawyer with wide experience in banking and finance. He joined USIMINAS about six years ago and provides a sound back-up to Mr. Lanari. The average age of USIMINAS' directors and senior executives is below 40 years and the Company has proven itself to be well-managed with good production and sales records. 2.12 All members of the Board are also full-time executives. While such internal directors are the norm in Brazil and this arrangement has also been effective with USIMINAS, the Company is now considering two organizational changes which are designed to meet more fully the increased demands on manage- ment as a consequence of the expansion project. One is the possible enlarge- ment of the Board to include one or two outside Board members and the other is the possible separation of marketing and sales responsibilities from operating responsibilities. 2 13 Apart from the Board of Directors, the Company maintains a Fiscal Council which, in accordance with Brazilian law, reviews the annual financial statements of the Company and recommends their approval to the shareholders. The function of the other formal management body, the Consultative Council, is to supervise and advise the Board of Directors. However, the Consultative Council has not played an active role in recent years, especially after the formation of ODNSIDER (Part I, paras. 2.16 and 2.17). 2.14 The Government of Brazil is considering the possibility of creating a holding company for USIMINAS, CSN and COSIPA at a future date. Agreement was reached during negotiation that USIMINAS' present independent corporate form will not be changed and that it will not be merged or consolidated with other companies without prior consultation with the Bank. A similar agree- ment was obtained as regards CSN. - 5 - 2.15 To supplement its own expertise, the Company has obtained outside assistance both in technical and organizational matters. In 1966 it signed a 10-year contract with a predecessor of Nippon Steel Corporation (NSC) for technical assistance including training of Brazilians in Japan. Between 1965 and 1969, USIMINAS retained Booz, Allen & Hamilton International Inc. (BAHINT) of New York to (a) improve its management organization, (b) improve cost con- trol and maintenance, (c) introduce budget and incentive systems, and (d) formalize procedures for better management reporting and quality control. The results of NSC's and BAHINT's assistance have been very satisfactory. In view of the requirements of the expansion, USININAS has signed additional contracts with NSC for assistance in the execution of all phases of the project and with BAHINT for advice on the organization of the department within USIMINAS responsible for the execution of the project (para. 4.10). These contracts are reasonable and are expected to improve the carrying out the project. F. Past Growth and Present Financial Position 2.16 Historical income statements in both cruzeiros and US$ are given in Annex 5 together with a more detatled explanation. While the official cruzeiro statements show a profit from 1968 on, they understate depreciation and financial charges, and the US$ statements give a truer picture of the Companyis operations. Selected items from USININAS' US$ income statements are given below: Sumnary Analysis of Sales and Income (1967-1971) 1967 1968 1969 1970 1971 --- thousand tons---- Sales 450 520 565 622 803 Of which Exports 161 151 124 94 45 US $ illion -------- 1. Net Sales Value 51 62 76 103 138 2. Operating Profit (11) (3) 5 15 28 3. Net Profit (Loss) After Taxes /1 (29) (9) (4) 7 19 4. Net Profit (Loss) After Taxes Ao % of Net Sales (56) (15) (6) 7 14 As % of Average Net Fixed Assets N.A. (6) (3) 3 8 As % of Average Equity N.A. (8) (5) 7 12 5. Return on Average Capital Employed /2 (Z) N.A. (3) (1) 5 11 /1 Before gains and losses due to currency conversion. 72 Defined as (net profit after taxes plus interest)/(equity plus long term debt and current liabilities). -6- 2.17 Due to the recession in Brazil, USIMINAS' initial operations through 1967 were characterized by below-capacity production and selling prices lower than the Government imposed ceilings. Since then, the strong recovery of the Brazilian economy has permitted near-capacity operations and this, combined with price increases in real terms since 1968 and a better product mix, have resulted in a steadily improving profit picture. After the substantial loss of US$29 million in 1967, deficits were reduced and the Company began showing a profit in 1970. This improvement continued in 1971 and results for the year indicate earnings of around US$19 ilUion after taxes. 2.18 The losses in US1MINAS' initial years created financial difficulties in 1967, when the maturities due to Germany and France were rescheduled and the National Treasury assumed settlement of the debt to Japan. As the poor earnings continued in the 1968-70 period the Company borrowed additional funds from BNDE and the National Treasury to meet its obligations in these years. A summary sources and applications of funds statement for the years 1967-1970 is shown below: Sources and Applications of Funds 1967-1970 (US$ Million) Sources Applications Internal Cash Generation /1 10 Fixed Assets 26 BNDE Loans 68 Working Capital Increase 15 Treasury Loans 35 Loan Repayments 96 Share Capital Increase 11 Deferred Expenses 13 137 137 /1 Comprising accumulated depreciation less net losses. 2.19 With its greatly improved earnings and cash flow in 1971, supple- mented by the funds from sale of preference shares of US$122 Million in the last quarter of the year, USIEHNAS was able to service its 1971 debt maturi- ties in full and repay some US$135 million in loans outstanding to RNEX and the National Treasury, in part ahead of maturity. 2.20 The difference between historical cruzeiro and US dollar accounts is explained in Part I, Annex 3. As can be seen in the historical balance sheets (Annex 5), USIMINAS had net capital outstanding as of December 31, 1970 of US$71.8 million comprising capital stock of US$229.8 million less accumulated losses of US$158 million. In the statements it was assumed that the Company had US$71.8 million in capital shares outstanding on that date and zero accumulated earnings. There was in addition US$27.8 million in -7- Government advances against future share capital increases. This was more than offset by the Company's receipt in late 1971 of US$122 million in pay- ment for preference shares. Including the effect of these changes and operating results for the year, the capital position of USIMINAS at the end of 1971 was, as follows: Equity as at December 31, 1971 US$ Millions Share Capital less Accumulated losses 12/31/70 71.8 Sale of Preferred Shares 93.8 Capital Surplus 28.2 Other Reserves 2.7 Net Profit for 1971 less Dividends /1 15.0 Net Worth 211.5 Ll Net profit after taxes of US$18.6 million less US$3.1 million loss on currency conversion and US$0.5 million preferred divi- dends accrued. 2.21 This gives the Company a healthy 31:69 debt/equity ratio and provides a suitable base for the financing of its expansion program. III. THE MARKET A. Recent Sales History and Sales Forecasts 3.01 The market and prices for flat steel products in Brazil are dis- cussed in Part I of this report. This chapter treats the subject only to the extent that it relates specifically to USIMINAS' operations. The fol- lowing table summarizes the Company's recent sales history (1968-1971) and forecasts through 1977, the year in which USIMINAS expects to achieve ca- pacity sales under the Phase II expansion program to 2.4 million TPY. More detailed information is contained in Annex 6. USIM?IAS' Recent Sales History (1968-71) and Sales Forecasts (1972-77) (in 1,000 tons) Actual Estimate Growth Rate 1968 1969 1970 1971 1972 1975 1977 120t 1 1971-77 A. Domestic Sales Plate 116 182 236 280 221 400 483 34 10 Hot Rolled Coil/ Sheet 130 134 180 308 285 609 624 33 13 Cold Rolled Coil/ Sheet 95 102 118 155 156 345 380 18 16 Bloom/Slab 29 23 36 15 - - 20 -25 - Total Domestic Sales 370 441 570 758 662 1354 1507 2Q 12 B. Export Sales Plate 50 44 46 37 25 140 217 -10 34 Hot Rolled Coil/ Sheet 32 24 31 7 33 122 105 -65 60 Cold Rolled Coil/ Sheet 4 11 11 1 17 74 50 40 100 Bloom/Slab 65 45 6 - - - -- Total Exports 151 124 94 45 75. 336 372 50 35 Total Sales A + B 521 565 664 803 737 1690 1879 16 15 of which Flat Products 427 497 662 788 737 2690 1859 23 15 Raw Steel Equivalent 649 791 850 1050 1000 2200 2400 17 15 3.02 The Company's total flat steel sales increased from about 427,000 tons in 1968 to 788,000 tons in 1971, a compound annual rate of about 23%. During the same period, domestic sales of flat products rose from 341,000 tons to 743,000 tons, or by about 30Z annually, with plate showing the strongest growth at about 34Z per year. Exports of flat products remained stable at about 85,000 tons during 1968-1970 and dropped by about 50% in 1971 which re- flects the high demand for flat steel in the Brazilian market. Semi-finished products (blooms and slabs) decreased sharply in absolute terms during 1968- 1970 and even more so relative to the overall sales growth. In 1971, no semi- finished products were sold. This trend indicates the increasingly full utilization of finishing capacity for more remunerative products. - 9 - 3.03 Because of its reputation in Brazil for quality products, USIMINAS is now the preferred source for ship plate and autobody sheet. As a result, USIMINAS has been able to supply mainly customers buying large quantities on terms favorable to the Company. This position is expected to change to some extent after 1976, when COSIPA should also be able to offer ship plate of a quality comparable to USIMINAS. The projections assume USIMINAS' accounts receivable to increase from 20% of domestic sales to 25% beginning in 1976. 3.04 USIMINAS' projected sales volume shows an annual growth rate of about 12% between 1971 and 1977, while the Bank assumed that the demand for flat steel products in Brazil will only increase by about 10% per year during this period. The main reason for this apparant discrepancy is that the future production and sales programs of the three main flat steel producers in Brazil have been coordinated under the National Steel Plan and that therefore USIMINAS and COSIPA will concentrate on the production of uncoated flat steel resulting in higher sales growth rates for them in these products. CSN, on the other hand, will primarely expand production capacity for coated flat steel (CSN appraisal report PI-15a, January 7, 1972). 3.05 USIMINAS' share of total flat steel domestic sales and exports projected for the three major Brazilian flat steel producers is shown in the following table: UTSIMINAS' Market Share of Uncoated Flat Products (In % of Total Tonnage Supplied by CSN, USIMINAS, COSIPA) 1970 1972 1975 1977 (Actual) A. Domestic Sales Plate 52 54 48 47 Hot Rolled Coil/Sheet 34 61 62 52 Cold Rolled Coil/Sheet 26 27 37 43 Sub-Total 37 45 49 48 B. Exports Plate 86 56 40 49 liot Rolled Coil/Sheet 75 61 80 48 Cold Rolled Coil/Sheet 27 27 38 38 Sub-Total 64 46 48 49 Total Domestic Sales and Exports 40 46 49 48 - 10 - 3.06 On the whole, USIMINAS' market share of uncoated flat products is expected to increase from 40% to 48% between 1970 and 1977. In view of the superior quality of USIMINAS' products, these forecasts are realistic. Deviations in total Brazilian demand or competitive factors within the five main product groups (plate, hot-and cold-rolled coil and sheet) may necessitat minor changes in USIMIENAS' product mix from that projected and the Company's production facilities will have the necessary flexibility to meet such changes in demand. B. Geographic Distribution of Sales 3.07 The bulk of the Company's finished steel products goes to the in- dustrialized southeast region of Brazil, where USIMINAS' sales have increased from 80% of its domestic sales in 1967 to 85% in 1970. The Company has been making successful marketing efforts in the region surrounding its plant, par- ticularly in the states of Minas Gerais and Espirito Santo, and salf§ volume in that region increased 40% during the period; nevertheless, the in6reased volume still represented a smaller percentage of USItINAS' total sales (15% vs 20% earlier) due to the very high growth of demand for flat steel in the southeast region, where sales more than doubled during the 4-year pefiod. USIMINAS' principal customers are the automotive companies in and ar'ound Sao Paulo; the shipyards in Rio de Janeiro and Santos and Petrobras, the Govern- ment-owned petroleum Company (Annex 6). C. Marketing Organization 3.08 The Marketing Department of USIMINAS enjoys the repufAfi6n of being the most aggressive of the three major flat steel producers in Bfazii. The staff of about 55 persons is headed by Mr. Fernandes, who is in hi9 mid-30's. The department is divided into four divisions (1) Sales; (2) Technical Assis- tance and Product Development; (3) Advertisement and Sales Promofion; and (4) Administration. Marketing costs have been kept low by developom6e af sales to large consumers, who usually make payments promptly. The shife of sales through distributors has been deliberately reduced from 46% in 1967 i-6 26% in 1970, and is expected to decline further in the future. As has been mentioned, the Bank discussed with the Borrower during negotiati6fi the pos- sibility of strengthening representation of the sales function in the top management by separating this function from production responsibilities. Such a move would appear desirable especially for the period, Vhn in the mid 1970's Brazilian flat steel production is expected to exceed temporarily domestic demand and internal competition will increase. IV. THE PROJECT A. Scope and Objectives 4.01 The project consists of the expansion of USIMINAS' bAdic iron and steel making capacity from about 1.0 to 2.4 million TPY of raw 4t&el equiv- alent and the addition of major facilities to increase rolling anid finishing - 11 - capacity for the production of plate and hot- and cold-rolled coil and sheet. The project is well conceived technically and forms part of the Company's long-term objective to raise the plant's capacity to 3.5 million TPY of raw steel equivalent by about 1980. 4.02 In view of the plant's comparatively recent origin, none of the in- stalled facilities needs replacement and the layout of the plant permits the project to be executed with almost no interference with current operations. The expansion will be carried out in two phases which are technically inte- grated and which partly overlap -- Phase I being implemented during 1970-73 and Phase II during 1972-75. The proposed Bank loan would be used only for the second phase. The place of this expansion in the overall program for ex- panding flat products capacity in Brazil during the current decade is de- scribed fully in Part I, primarily in paras. 3.09 to 3.11, and a detailed account of the project's major facilities is given in Annex 7. 4.03 USIMINAS has been studying the expansion of its production capacity to about 1.4 million TPY of raw steel since 1968. This scheme was later modi- fied and integrated as Phase I into the 2.4 million ton project. Financing for the first phase was arranged before the Bank was approached to participate in Phase II but since both phases became closely interconnected the Bank also reviewed Phase I and was satisfied about its technical concept, cost and the mode and progress of its implementation. 4.04 The major facilities included in both phases of the expansion are a new coke oven battery with 55 ovens and a new sinter plant with respective an- nual capacities of 537,000 tons of coke and 2.6 million tons of raw sinter. These are sufficient to meet the iron requirements of Stage II. A new blast furnace will be installed with a rated capacity of 5,050 tons per day (appro- ximately 1.8 million TPY) of hot metal and together with the two existing furnaces, will be able to meet the hot metal requirements of the further ex- pansion (Stage III) to 3.5 million TPY raw steel (para. 8.12). As discussed in Part I (para. 6.09) this temporary oversize of blast furnace capacity is common to all three expansion projects, and the Bank therefore received as- surances during negotiations that the Government will consult with the Bank prior to santioning any new flat steel plants that are primarily oriented to- wards the domestic market before completion of Stage III expansions. USIMINAS' steelmaking capacity will be increased by the installation of a third BOF ves- sel of 70 tons capacity in the existing steel plant and of a second steel plant comprising two BOF vessels of 160 tons capacity each as well as two con- tinous casting machines capable of producing about 1.0 million tons of slabs per year. 4.05 In the rolling mill a new 160" wide plate mill and a 5-stand cold reduction mill, together with pickling and shear lines will be added, while the existing reversing mill will be converted into a temper mill. Improve- ments will also be made in the water and energy systems and in internal transportation movement. - 12 - 4.06 Major installations specifically included in Phase II are the blast furnace, the new BOF steel plant, the two continuous casting machines and the plate mill. Their design incorporates the latest technology for low cost, high quality production of steel. The Company has been operating most of this type of equipment, albeit of smaller size, for some years, except for the con- tinuous slab-casting machines, which are a rather recent technical development. Initial operating difficulties cannot therefore be altogether excluded despite the assistance to be given by the Japanese technical partners. However, such potential difficulties are not expected to take on serious proportions and any foreseeable temporary shortfall of slabs could be largely made up by increased slab production from conventional ingots. Therefore, considering the Com- pany's experience in operating its existing equipment at a high level of per- formance, no major difficulties are foreseen in handling the new equipment. B. Ecology 4.07 The project includes pollution control devices of an estimated cost of US$11 million equivalent, which will effectively minimize the en- vironmental impact of the expansion. In addition, they will help to reduce pollution from existing installations to a satisfactory level. They include equipment designed to upgrade the dust collection and gas purification sys- tems at the existing BOF shop and a newer and more efficient gas collection system for the second BOF shop, facilities to reduce smoke emissions in the coke ovens, and biological treatment of the ammonia liquor from the existing coke oven by-product plant. These installations will provide satisfactory protection of the environment in the operation of the plant (Annex 8). C. Labor Force 4.08 In June 1971, USIMINAS had 6,721 employees, of whom 5,824 were at the plant and 897 at the head and regional offices. At the end of 1971 about 500 persons were transferred to the Company's subsidiary USIMEC. Dur- ing 1972, therefore, USIMINAS will produce about 1 million tons of raw steel with around 5,400 plant employees. This is equivalent to about 15 man hours per ton of finished product as compared to about 13 man hours for the U.S. and Japan in 1970. During project execution employment will gradually in- crease by about 3,400 persons to meet the manpower requirements of the ex- pansion scheme. Satisfactory plans for recruiting, training and for addi- tional housing in Ipatinga exist. At full production, the index of man hours per ton of finished product is expected to fall to about 11. The new employees are expected to come mainly from the State of Minas Gerais where the plant is located. Those without prior experience in large steel works will receive intensive in-plant training of one or two years; present employees selected for promotion to supervisory positions will be sent for training to Japan. D. Project Execution and Supervision 4.09 As mentioned previously, while much of the planning for Phase I, including detailed engineering and foreign procurement, was carried out by Nippon-USIMINAS in Japan, and USIMINAS handled Brazilian procurement, the - 13 - Company's department of Technical Development (TD), will have much broader responsibilities for Phase II. These broadened duties will include detailed engineering, procurement and overall project supervision. Although USIMINAS has staff experienced in project execution and construction supervision, additional staff is required for the Company to cope effectively with the enlarged responsibilities and work load arising from execution of the project. Some senior technical staff will be seconded from NSC and the Company will recruit other Brazilian and possibly expatriate personnel to help carry out procurement and supervise execution. 4.10 The Company is aware of the need to build up its project implemen- tation capabilities, and contracted BAHINT to assist it in determining the organizational and staff requirements of the TD. This study is expected to be completed by April 1972. During negotiations, the Bank received assurances that the Company will give serious consideration to BAHINT's recommendations and discuss their implementation with the Bank. In particular, the Bank feels that the creation of the position of a deputy director and of a division for legal and contractual matters should be included in TD's reorganization. As indicated in Part I, para. 10.02, the Bank and IDB, in order to strengthen their own supervision efforts, will engage an engineering consultant to monitor closely the execution of the project. E. Construction Schedule 4.11 The time schedule for both phases of the project is shown in Annex 9. Phase I started in 1970 and is expected to be essentially com- pleted by the end of 1973. About 70% of equipment orders have been placed and construction is on schedule. With regard to Phase II, procurement action has begun and the new blast furnace, a key item in the project execution schedule, is expected to be awarded in April 1972. The majority of new facilities are to go into operation during the second half of 1974 and the continuous casting machines and plate mill in the first half of 1975. The project implemention period planned for Phase II is short; however, the present market situation for steel mill equipment favors reduced delivery periods. Moreover, USIMINAS has divided its bids into larger packages than CSN and COSIPA in the expectation that procurement and construction can thus be accelerated. In addition, the past performance of the Company indicates its ability to meet construction schedules successfully. Provided therefore that USIMINAS strengthens its Department of Technical Development satis- factorily (para. 4.10), the construction schedule appears achievable. - 14 - V. CAPITAL COST ESTIMATE AND FINANCIAL PLAN A. Project Cost 5.01 Detailed cost estimates of the project (Phase I and II) are shown in Annexes 10, 11 and 12 and are slumarized below: Summary of Capital Costs of Phase I and II /1 (Cr$ Millions)- (US$ Millions) Foreign Local Total Foreign Local Total % Equipment (including spares) 923.5 294.8 1,218.3 183.6 58.6 242.2 42.3 Freight, Insurance, Import Fees /2 54.8 49.3 104.1 10.9 9.8 20.7 3.6 Project Administration and Supervision 2.0 39.2 41.2 0.4 7.8 8.2 1.4 Engineering 45.3 28.1 73.4 9.0 5.6 14.6 2.6 Construction and Installation 33.2 300.3 333.5 6.6 59.7 66.3 11.6 Sub-total 1,058.8 711.7 1,770.5 210.5 141.5 352.0 61.5 Contingencies: Physical 89.0 66.9 155.9 17.7 13.3 31.0 5.4 Price /1 - - - 22.4 15.0 37.4 6.5 Total Fixed Assets 1,147.8 778.6 1,926.4 250.6 16948 420.4 73.4 Pre-operating Expenses - 55.8 55.8 - 11.1 11.1 2.0 Increase in Working Capital - 384.3 384.3 _ 76.4 76.4 13.3 Total Project Cost 1,147.8 1,218.7 2,366,5 250.6 257.3 507.9 88.7 Interest and Financing Charges during Construction 243.4 82.0 325.4 48.4 16.3 64.7 11.3 Total Financing Required 1,391.2 1,300.7 2,691.9 299.0 273.6 572.6 100,O /1 The conversion of the US$ capital cost (excluding 5% per annum price escalation up to incurrence of cost) is based on a rate of exchange of US$1.00/Cr$5.03 as at February 1971. /2 Consisting of merchant marine and port improvement tax. - 15 - 5.02 The capital cost estimates were originally prepared as of February 1971, based on stuidies of N'C and Nippon-USIMINAS and were expressed in February 1971 US dollars. Cost estimates for equipment were based on inter- national prices, and estimates for civil engineering and construction on actual costs taken from the ongoir.g Fhase I, plus a 10% provision for physi- cal contingencies. 5.03 To compensate for the currency changes in the second half of 1971, th?. cost estimates were adjusted upward by 8% except for certain Japanese cquipment for Phase I where the sellers absorbed the first 5% of adjustment and an additional 5% adjustment was considered adequate. To allow for further e:pected price increases during project execution, all yearly disbursement esti.mates were then escalated hy 5% per annum from 1972 r.. As a result, cast estimates contain a price escalation of about 10%. In view o'f the prescnt cnmpetitive market in steel mill equipment, these adjustments apprar .-dequate and the capital cost estimates are con- sidered realfiti.. 5.0' Brazil is cxpected to supply equipment for about US$87 million, or about 29% of total estimated equipment costs of both phases. The foreign currency cost of both vhlPses la estimated at US$299 million or 52% of total projezt cont (AFinex 12;8. B. Working Capital 5.05 Incremental working capital for both phases is estimated at US$76,. mi.llion equivae,cn, primarily in local currency. Of this amount, acme USM$6.1 m4lllrn bwo;id be required by the end of 1973 (completion of Phase I) and the remainder (U3$70.3 rillion) on completion of Phase II. The assumptions on hiich these estimates are based are given in Annex 13. 5.06 The small increase in working capital during 1971-1973 is explained by t:he relatively -.Anor rise in production during that period and by the CvT,pany's intcrpt ion tco. reduce its present stores and raw material inventories. While Zhe Tiank considers the decrease attainable, USIMINAS is expected to be able t.o obtain additional short-term borrowings to finance any foreseeable .vorking capital Deeds in excess of what is now expected. C. Financial Plan 5.07 Financing of Phase I had been arranged before the Bank was asked to participate in Phase II and financing of each phase of the project is therefore described separately. The Company will provide from internal cash generation US$45.2 million for Phase I and US$89.4 million for Phase II totalling US$134.6 million equivalent. The financial plans are shown below: - 16 - Financial Plan % of Total US$ Million Financing Phase I Japanese Loan 67.0 11.7 BNDE Loan I 31.4 5.5 BNDE Loans and Share Capital Subscriptions 21.8 3.8 USIMINAS' Contribution 45.2 7.9 165.4 28.9 Phase II IBRD/IDB Loans 105.0 18.3 Bilateral Agencies (90% of bilaterally- financed equipment) 84.6 14.8 BNDE Loans and Share Capital Subscriptions 128.2 22.4 USIMINAS' Contribution 89.4 15.6 407.2 71.1 Total 572.6 100.0 5.08 At the end of 1971 USIMINAS had equity of US$211.5 million (para. 2.20). BNDE has agreed to provide for both phases US$150 million in addition to the US$31.4 loan already provided for Phase I. To maintain USIMINAS sound financially, it was agreed that BNDE would purchase from the US$150 million shares to the extent necessary to provide a 50:50 debt/equity capital struc- ture with the balance as loan. On the basis of the Company's project earnings, BNDE would provide about US$75 million in shares and US$75 million in loan during 1972-75. 5.09 BNDE's loan portion will include US$9.4 million in foreign exchange to cover the 10% downpayment necessary for bilaterally-financed eqipment. Its loans will carry interest at 5% plus monetary correction and will be re- paid over 16 years, including 4 years grace. Further details on commitment fees, commissions and charges for supervision and inspection on all loans in Phase I and II are shown in Annex 14. The share portion of BNDE's commitment will be used half for common shares and half for 6% cumulative preference shares having no voting rights. These shares will be offered to all existing shareholders and BNDE will purchase any unsubscribed shares. 5.10 Phase I includes a Japanese credit of US$67 million equivalent carrying interest of 6.2% and repayment over 15 years including three years' grace. For Phase IT, a total of TS$105 million is being requested from the Rlank and IDB in a-ratio of 60/40. These loans are assumed to be for 15-1/2 - 17 - years including a grace period of 4-1/2 years with an interest of 7-1/4 on the Bank loan plus a guarantee fee to the Government of 1-3/4X and 8. on the IDB loan, identical to the Bank/IDB loans to CSN. The terms of all bilateral credits 1/ (US$84.6 million) are expected to be for 15 years, including 3-1/2 years grace period with average interest of 7-1/2%. The Government will take all reasonable measures for obtaining such bilateral financing. 5.11 The Company's projected cash generation is expected to be sufficient to meet the needs of the financial plan including incremental working capital. However, assurances were obtained during negotiations that the Government provide funds needed to cover project cost overruns or a shortfall in financ- ing during project implementation. These funds would be provided on terms acceptable to the Bank, and cover requirements both in foreign and local currencies. D. Summary of Sources and Application of Funds during 1971-75 5.12 The following table summarizes the estimated sources and application of funds for both Phase I and II of the expansion during 1971-75, the main period of implementation and start-up. .Further details are found in Annex 15. Summarized Sources and Application of Funds during 1971-75 (Million US$) Sources Application Internal Cash Generation 272 Phase I 157'1 Sales of New Shares 197 Phase II 3791= 469 536 Long-Term Loans Minor Improvements of -Japan 67 Existing Facilities 28 IBRD/IDB 105 Renewals and Power-Deposit 15 Bilateral Agencies 85 Debt Repayment 224 BNDE 94 Dividends 21 Reduction in Working Capital 4 355 288 Total 824 824 /1 Excluding US$8 million equivalent spent in 1970 7F Excluding US$28 million equivalent in working capital needed after 1975, which will be financed from later cash generation. 1/ Austria, Belgium, Canada, France, Germany, Italy, Japun, United Kingdom, United States. Negotiations with Finland are ongoing. - 18 - VI. PROCUREMENT A. General Procurement 6.01 Equipment to be fihanded under the Bank and IDB loans (US$105 mil- lion) will be procured by international competitive bidding, with Brazilian manufacturers receiving a 15% preference, which is less than the prevailing import tariff on steel mill equipment. This is independent of the fact that, as mentioned previously, import duties have been waived for Phases I and II. Financing will be shared between the Bank and IDB on a 60/40 ratio. The baLa -ce of imported equipment, estimated at US$94 million, will be bid among suppliers of the countries providing bilateral credits. NSC as engineering and operating consultant of USIMINAS will not bid under Phase II. The other shareholders of Nippon-USIMINAS, however, enjoy no advantage in respect of technical or other information, are in no way involved in the management of the plant, and would therefore be allowed to participate in the international bidding process. The list of equipment to be financed by the Bank is shown in Annex 16, and further details on procurement are found in Part I, para. 9.01-9.02. 6.02 Construction and installation work will be financed locally and will be bid competitively in Brazil. During negotiations, however, the Bank reached an understanding with the Government and the borrower, similar to that obtained in the CSN project, that for those civil works and erection contracts that are suitable for international competitive bidding, foreign quotations would be solicited if it is apparent that the work load of Brazil- ian construction firms is such that they could carry out the contracts only with substantial increases in cost or unacceptable delays. 6.03 Confirmation was obtained from the Government during negotiations that it will expedite registration of contracts and issuance of import licenses. B. Allocation of Bank's Loan 6.04 Brazilian manufacturers are expected to win under conditions of international competitive bidding up to 38% of the equipment financed by the Bank and IDB loans. This estimate is based on the assumption that Brazilian supplies of equipment to the project qualify for the same incentives as those normally granted for exports. With these incentives, the allocation of the Bank loan would be as follows: - 19 - Allocation of Bank's Loan Expenditures (US$ Million) Brazilian ~~~/1 Brazilian Foreign- Total Equipment (including spares) 22.2 34.5 56.7 Ocean Freight and Insurance - 1.6 1.6 Contingencies 1.8 2.9 4.7 24.0 39.0 63.0 /1 Including an estimated foreign exchange component of Brazilian equipment of US$6 million equivalent. 6.05 The estimated disbursement schedule for the Bank's loan is shown in Annex 16. It is based on detailed estimates of order placements and ex- pected delivery times for equipment in line with the construction schedule. VII. PRODUCTION COSTS AND SELLING PRICES-/ A. Raw Materials 7.01 The availability of domestic iron ore of good quality has been an important factor in the development of Brazil's integrated steel plants. As the delivered cost of iron ore to industrialized countries may contain a freight element as high as 60%, USIMINAS' costs of iron fines are very favor- able. Based on delivered prices of US$3.2 per ton of iron ore fines and on US$5.0 per ton of natural pellet ore, the ore cost per ton of finished steel produced by USIMINAS is US$6.0. In contrast, plants in Japan and Western Europe have a typical ore cost per ton of finished steel of US$17 to 24. Offsetting this inherent advantage is Brazil's need to import large quanti- ties of high grade coking coal over relatively long distances and the Govern- ment's insistence that a certain quantity of the total coal requirements be obtained domestically, the cost of which is above that of better grade im- ported coal. As pointed out in Part I of the report the Government of Brazil will not require USIMINAS to obtain more than 20% of its coal requirements from domestic sources after 1976 as long as they remain of low quality. 7.02 USIMINAS7 coal cost per ton of finished steel now amounts to about US$35 but is expected to drop to US$27 after 1976 due to a reduction in coke rate resulting from the use of the large, ne-e blast furnace with oil injection and due to the reduced share of local coal consumed. Both figures are higher than indicated cost of around US$18 per ton in Japan 1/ All values are expressed in US$ of 1971. - 20 - and US$22 in Western Europe. Overall, USIMINAS's combined cost per ton of finished steel for the principal raw materials, iron ore and coal, would be reduced to about US$35 including US$2 fuel cost for oil injection. This is about equal to the present lowest costs in Japan or Western Europe. 7.03 Brazil has virtually unlimited iron ore and hence an assured supply. Moreover, USJMINAS hao a long-term supply contract with CVRD. A full discussion of Brazil's i.-on ore resources is contained in the appraisal of the Mineracoes Brazileiras Reunidas S.A. Iron Ore Project (PI-10) dated June 16, 1971. The Bank has reviewed the outlook for coking coal over the next decade and concluded that while short and medium-term imbalances in the market cannot be ruled out, there are no serious long- term problems in the availability of coking coal, particularly for the Company which has long-term supply contracts for both domestic and imported coal. The other principal raw materials are limestone and dolomite. These are available from sources about 320 km and 220 km distance, respectively, from the plant. No difficulties in their supply are foreseen. Further de- tails regarding raw materials, including quality and sources, are given in Annex 17 and Map 2. Transportation and shipping facilities used by the Company are adequate and are being improved and extended. Water and elec- tric power supply are sufficient, and together with some expansions, will meet the increased requirements after completion of the Bank-financed project. B. Production Costs 7.04 USIMINAS' production costs for representative products are shown below for 1970 (1.0 million TPY) and for 1976 (2.4 million TPY) after com- pletion of the expansion. Direct Production Costs /1 Actual and Forecast (US$/Ton) Hot Coil Year Pig Iron Slabs Plate (As rolled) Cold Coil 1970 45.3 65.9 87.7 76.4 95.3 1976 39.1 54.8 71.8 65.1 80.7 1976 as % over 1970 86 83 82 85 85 /1 Including raw materials, labor and supplies, but excluding general overhead expenses, depreciation and ICM tax. 7.05 The economies of scale achieved by the expansion and the impact of new technology are seen in all product stages, from pig iron to finished steel. Variable costs per ton of finished steel, exclusive of excise and sales taxes, will be about US$63 at full production after expansion. Fixed - 21 - costs are estimated to be about US$58 per ton on average, giving a total average production cost of US$121 per ton of finished steel. The unit in- puts and operating costs are considered realistic and are competitive with those obtained in steelworks of similar size in industrialized countries. Further details on the Company's production costs are given in Annex 18. C. Selling Prices 7.06 USIMINAS's selling price assumptions, shown in Annex 19 are based on February 1971 prices. The average selling price ex-plant of USIMINAS's flat steel products (excluding sales tax) is about US$147 per ton and, on a product-by-product basis, is in line with Western European prices. Minor price decreases for domestic sales have been assumed from 1976 on, when full production of 2.4 million TPY is reached. Maximum prices are established periodically by the Interministerial Price Council (CIP), based on cost increases beyond the Company's control, i.e. for raw materials, labor, depreciation, etc. The policy of CIP is discussed in Part I, para. 2.19. 7.07 Also as discussed in Part I, paras. 5.10 and 5.11, the Government agreed during negotiations on the loan to CSN that steel prices should re- main at levels which would be reasonably competitive with imports and permit the Company to (a) earn an adequate return on capital under efficient operat- ing conditions, (b) meet their financial obligations, (c) contribute to the financing of further expansion, and (d) be reasonably competitive. It was also agreed that savings in production costs as a result of the steel expan- sion program might be shared by Brazilian consumers by a reduction of in- dividual steel prices in real terms. To this end the Government and the Bank will consult as necessary to determine whether steel prices are appro- priate. 7.08 Moreover, the Bank reached agreement with USIMINAS during nego- tiations that the Company should take all reasonable steps to ensure that its average February 1971 price for finished products sold on the domestic market would not be reduced in real terms prior to 1976 without prior con- sultation with the Bank. VIII. FUTURE PROFITABILITY AND FINANCIAL POSITION A. Future Profitability 8.01 Detailed income and cash flow forecasts through 1986 are con- tained in Annex 15. The projected income statements for 1972-1980 are summarized below: - 22 - Selected Income Statement Items (Millions of US$) 1971 1972 1974 1976 1978 1980 (Actual) Net Sales 138 131 176 300 307 311 Operating Profit 28 34 39 83 89 90 Profit before Income Taxes 20 28 27 54 61 67 Income Tax 1 2 2 4 5 6 Net Profit after Taxes 19 26 25 50 56 61 % of Sales 14 19 14 17 18 20 %6 of Equity 9 11 8 13 13 12 Cash Generation 47 40 48 95 102 108 3.02 After completion of Phase II, net sales will increase by about US$162 million (or by 117%) between 1971 and 1976. During this period, profit before taxes is expected to increase (by 170%) and net profit after taxes by about 163%. The Company's net profit after taxes in 1976 will account for a satisfactory 17% of sales. Reflecting both the increase in profit levels from the expansion as well as the higher depreciation charges, internal cash generation will increase from US$40 million in 1972 to US$102 million in 1978, an increase of 155%. The technical and com- mercial assumptions underlying the forecast are considered sound and the projected profit levels realistic. B. Break-Even Point 8.03 After completion of the project, the Company's profit break-even point is about at 66% of production capacity or 1.2 million tons of finished steel per year. Alternatively, prices at full capacity could fall by 17% before the Company would show a loss. During the subsequent year, assuming full production, prices could fall about 21% before the Company's cash generation would be zero. Durther details on the break-even levels are found in Annex 20. C. Financial Rate of Return 8.04 The 2.4 million TPY expansion scheme (Phase I and II) provides a satisfactory financial rate of return (after taxes) of 12.6%, despite the fact that the blast furnace capacity installed in Phase II will not be fully utilized until the further Stage III expansion takes place. Details on the assumptions used and on the sensitivity tests are found in Annex 21. - 23 - Sensitivity Tests on Internal Financial R-te of Return Case Description Rate of Return (%) 1 Base Case 12.6 2 Sales Revenue Decreases 10% 8.6 3 Operating Costs Increase 10% 10.4 4 Operating Costs Decrease 10% 14.7 5 Project Costs Increase 10% 11.3 6 Delay in Completion of one Year +15% Project Cost Increase: 8.5 7 Sales Revenue Decrease 5% 9.5 Operating Costs Increase 5% 8 Project Costs Increase 10% 9.2 Operating Costs Increase 10% 9 Project Costs Increase 10% 7.5 Sales Revenue Decreases 10% 10 Exports Prices Covering Variable Cost only during 1975, 1976, and 1977 11.7 8.06 The principal risks facing this project are a delay in project completion due to the tight construction schedule, and the possibility tfhat7 due to the technical complexities of the equipment, the new continuous sLab casting equipment will run at reduced capacity in the early years of opera- tion. An overall delay of one year in project completion, together with a 15% project cost increase, would reduce the return to 8.5%. Considering the timely completion of prior projects by the Company and the outside as- sistance to be obtained, delays in project completion should be minimal. While it is recognized that the new continuous slab casting equipment may operate at below capacity for some time, such an event would not reduce the return to an unacceptable level and, with the technical assistance to be provided by NSC, it is felt that production difficulties can be overcome reasonably quickly. Other than this, the project is most sensitive to a com- bination of adverse circumstances such as an increase in project and oper- ating costs of 10% each. Such an event will result in a yield slightly in excess of 9% which, while marginal is acceptable. Thus, on an overall basis, the project shows satisfactory financial returns under foreseen circumstances. D. Financial Position 8.07 Forecast balance sheets through 1986 are contained in Annex 15. Significant data from these are shown below: - 24 - Selected Balance Sheet Items (Million February 1971 US$) 1971 1974 1976 1978 1980 Current Assets 84 63 167 217 275 Current Liabilities 34 36 57 56 56 Net Working Capital 50 27 110 161 219 Current Ratio 2.5 1.8 2.9 3.9 4.9 Long-Term Deb/Equity Ratio 31:69 51:49 43:57 36:64 25:75 8.08 The above figures reflect the situation as projected before loan negotiations assuming BNDE's part of the project financing at a fixed pro- portion between loans and capital. Based on these assumptions, a slight squeeze in available cash would have occurred in 1974 when Phase I is expected to be completed. A short-term credit which would have become necessary in 1974 could have been repaid during 1975. Except for 1972 when projected equity is still higher than long-term debt as a result of the 1971 financial consolidation of USIMINAS during subsequent years of project implementation, the long-term debt/equity ratio would have been close to 50:50. 8.09 Negotiations resulted in an agreement between USIMINAS, BNDE and the Bank that (a) BNDE's total financial contribution to USIMINAS' expansion project will be US$181 million of which US$31 million were already disbursed before 1972 and US$150 million will be disbursed according to the Company's requirements during 1972-75, and (b) during these years, a long-term debt/ equity ratio of not less than 50:50 will be maintained. It was also agreed that the current ratio after preference dividends should not fall below 1.3:1 and that common dividends should only be declared if, after such divi- dends and after preference dividends, the current ratio would not drop below 1.5:1. Finally, the Company agreed to invest in fixed assets - other than the project - not more than US$8 million equivalent per year including not more than US$4 million in USIMEC and other possible future subsidiaries. New subsidiaries can only be created with the prior consent of the Bank. During 1972-1980, USIMINAS will also limit its lending, advancing money, guaranteeing debt or investing to US$2.0 million equivalent per year. Accumulation of this amount is possible up to US$6 million in any one year. Limitations on addi- tional long-term borrowing by USIMINAS are described in para. 8.11. E. Debt Service Coverage 8.10 Based on the original financial plan for the expansion, USIMINAS showed the following debt service coverage forecasts: - 25 - Long-Term Debt Service Coverage Forecasts Year 1972 19 176 1978 1980 Times Covered 1.4 1.4 2.3 2.0 2.6 Though the debt service coverage is low through Phase I, substantial improvements are expected to take place during subsequent years. Once Phase II is completed, a satisfactory coverage of 2.0 and above is reached and maintained. The debt service coverage that is expected to result from the minor change in the Company's capital structure as negotiated will only be slightly lower than shown above; however, that is fully acceptable in the light of the assurance that at end of cons- truction the Company's capitalization will contain at least 50% equity. 8.11 During negotiations agreement was reached that the Company will not contract additional long-term debt if (consolidated with sub- sidiaries) as a consequence total long-term debt exceeds equity and, after project completion the debt service coverage (again consolidated with subsidiaries) is less than two times. F. Further Expansion (Stage III) 8.12 USIMINAS plans a further expansion of its steelmaking and rolling capacity to meet the expected increase of steel demand in Brazil. Stage III would increase the production capacity from 2.4 million TPY of raw steel to 3.5 million TPY. The timing of this stage depends on the actual future demand for flat steel products in Brazil; however, completion is tentatively scheduled for 1980. Total capital costs for this stage, including additional working capital are estimated to be about US$220 million including roughly US$50 million equivalent for estimated price escalation until 1980. To meet these outlays USIMINAS expects to borrow about US$76 million and to provide the balance from internal cash generation. To assure that the financing of this expan- sion will also be carried out on a sound basis, restrictions on long- term borrowings as mentioned in para. 8.11 were agreed on. Annex 22 shows summarized financial statements superimposing costs of and bene- fits from Stage III on the financial projections for the 2.4 million TPY expansion scheme. - 26 - IX. ECONOMIC JUSTIFICATION OF THE PROJECT A. Economic Rate of Return 9.01 Based on estimated import prices of steel for domestic sales and export prices (excluding taxes) for export sales, over an assumed 18-year life of assets, the project yields an internal economic rate of return of 11.5%, despite the fact that the blast furnace capacity installed under Phase II will not be fully utilized until further expansion takes place. The underlying assumptions and details of the economic analysis (including sensitivity tests) are given in Annex 21. The economic return is affected greatly by changes in the sales price. A 10% decrease in sales price reduces the return to 8.3%. The project is less sensitive to changes in project and operating costs. A 10% increase in the former reduces the rate of return to only 10.2%, while a similar increase in operating costs reduces the return to 9.6%. A combination of selling prices 5Z lower than assumed and operating costs 5% higher will still produce an economic return of 9.0%. Thus, the project provides a satisfactory return under foreseeable circumstances and a marginally acceptable return under adverse circumstances. B. Competitiveness and Protection Required 9.02 As indicated in para. 7.06 and discussed in greater detail in Part I of this report, selling prices for finished flat rolled steel products in Brazil are in line with those prevailing in Western Europe. A comparison has been made of the CIF import prices and the domestic prices used in the financial analysis. It reveals that the domestic price of plates and hot rolled products, the principal steel products to be produced by USIMINAS, is lower than the equivalent import price, while that of cold rolled products is somewhat higher. Since the import price for USININAS' overall product mix is on average similar to domestic prices, the project is economically viable even if the present tariff protection of about 20% on the Company's product mix in Brazil were not given. Of late steel ex- port prices in dollar terms have increased primarily as a consequence of the recent currency realignements. These changes will be discussed in more detail in the revised Part I report which will be issued at the time the loan to COSIPA is presented to the Executive Directors. C. Estimated Foreign Exchange Savings 9.03 The present net foreign exchange savings in 1971 without expan- sion are about US$74 million per year. At full production after completion of the expansion scheme, annual net foreign savings will increase to about US$153 million. Thus, the estimated foreign exchange cost of the project of about US$300 million will be offset by the project's incremental net foreign exchange savings of about US$80 million annually during less than four years of full operation. The project, therefore, will have a bene- ficial impact on Brazil also in terms of foreign exchange. Further details are given in Annex 23. - 27 - X. AGREEMENTS REACHED DURING NEGOTIA7 EUNS 10.01 Agreement was reached on the following principal points during loan negotiations: A. Commitments by the Government and BNDE (a) The Government will consult with the Bank prior to sanctioning any new flat steel production capacity primarily oriented to- wards the domestic market before completion of Stage III (para. 4.04). (b) The Government and the Bank. will consult on future steel pricing policy (para. 7.07), (c) The Company will remain an independent corporation and will not be merged or consolidated prior to approval of the Bank (para. 2.14). (d) The Government will cover project cost overruns or a short- fall in financing of the project, whether in foreign or local currency, on terms satisfactory to the Bank (para. 5.11). (e) The Government will take all reasonable measures required to enable the borrower to obtain bilateral financing on terms satisfactory to the Bank (para. 5.10). (f) BNDE will make funds available to USIMINAS of not less than US$150 million equivalent to be disbursed during 1972-1975 according to the Company's financial requirements in the form of capital subscription and/or in the form of loans on terms satisfactory to the Bank to maintain a long-term debt/equity ratio of at least 50:50 during project implementation (para. 8.09). (g) The Government will expedite the registration of contracts and the issuance of import licenses for the project (para. 6.03). (h) The Government will not require USIMINAS to use low grade, high cost, coking coal for more than 20% of its requirements after completion of the expansion project (para. 7.01). B. Commitments by the Corpany (i) The Company's investments in, or loans to and guarantees for its subsidiaries during 1971-1980 will be limited to US$2 million equivalent per year with the possibility of accumulation up to US$6 million except with Bank approval (para. 8.09). - 28 - (j) The Company will limit its additional investments for fixed and capital assets (including by its subsidiaries) to US$8 million equivalent of which only up to US$4 million equivalent may be made by its subsidiaries, except with Bank approval (para. 8.09). (k) No new subsidiaries will be created by the Company without prior consent of the Bank (para. 2.09). (1) The results of the study on reorganization and improvement of the borrower's department responsible for project implementation, carried out by an experienced consultant, will be discussed with the Bank prior to implementation (para. 4.10). (m) Agreement on maintaining a current ratio of 1.3:1 (para. 8.09). (n) The Company will not contract additional long-term borrowing if (consolidated with subsidiaries) the total long-terr del't e).ceeds its equit,, nrnd, t' e se rvt svic e cover ge (consolidatod w-itll sulsi0iaries) Is ] eSs tlar tlA- timles pra...1 . (o) Dividends on common stock will be declared only if, after these dividends together with preference dividends, the Company maintains a current ratio of 1.5:1 (para. 8.09). (p) The Company will not reduce, prior to 1976, the average price in real terms of its finished products sold on the domestic market without prior consultation with the Bank (para. 7.08). (q) In the event there is evidence that the local construction industry is becoming overextended, foreign contractors will be invited to quote for subsequent contracts (para. 6.02). 10.02 Concurrent effectiveness of the TDB loan will be a condition of effectiveness of the Bank's loan. 10.03 On the basis of these assurances, the proposed project constitutes a suitable basis for a Bank loan of US$63 million equivalent. Industrial Projects Department March 17, 1972 ANNEX 1 DESCRIPTION OF PRESENT FACILITIES Coke Oven Facilities Coke-making equipment consists of 100 ovens, in two equally sized batteries. The dimensions of each oven are 400 mm x 4,000 mm x 13,200 mm, and they have a dry charge capacity of 13.14 tons of coal. The coking time is about 19 hours. Oven machinery includes two coal-charging cars, two coke- pushers, two coke-guide cars, two quenching cars, two electric locomotives and two sets of coke cutters. Facilities are available for the recovery of coke-oven gas, tar and tar-distillation products, ammonia liquor, as well as the lighter aromatic hydrocarbons. Two coal yards, one of 409000 tons and the other of 90,000 tons capacity, are available, equipped with two sets of stackers and two aets of jib loaders. Typically coal stocks are sufficient for about 60 days of operations, with approximately another 25 days' coal supply available at the port of Vitoria. about 10 railroad hours away from Ipatinga., Blast Furnaces and Sinter Plant Facilities for the production of hot metal consist of two blast fuzrnaces and associated equipment which includes a sintering plant and three ore yards of 200 x 20 m each, one being for lump ore going directly into the blast furnace and two for ore fines for sintering. All ore is received dixectly from Companhia Vale do Rio Doce and discharged by a 1 car-dumper of 700 t/h capacity. The sintering plant is a Dwight-Lloyd McKee type manufactured by Mitsubishi. with 89.0 mW of grate area. During 1970, it produced an average of 3,230 t/d of screened sinter, i.e.> almost 50% over its rated capacity. Each of the two blast furnacees was originally designed with the following characteristics: Hearth diameter 7,000 mm Working volume 891 m3 Tuyeres 16 Iron notches 1 Cinder notches 2 Total heating surface 60,144 m2 Available blast temperature 960°C Each blast furnace haa three hot blast stoves, and there is a total of thtiree sets of electrostatic precipitators with a capacity of 60,000 Nm3/h each. Under these conditions, the hot metal production per furnace was limited to an average of 1,170 tons per day by the capacity of the three existing blowers which have a maximum blast volume of 1,1400 Nm3/in. at a ANNEX 1 Page 2 pressure of 1.2 kg/cm2 and .are driven by electric motors of 4,400 HP. This hot metal production correrponds to a raw steel production rate of 900,000 IPY. However, as part of Phase I, the No. 1 furnace has been modified, by increasing its hearth diameter from 7.0 to 7.3 meters, resulting in a working volume of 957 m3. This is one of the contributory reasons for the plant's reaching an output of one million TPY of raw steel in 1971. The modifica- tions to blast furnaces No. 1 and 2 are discussed further in Annex 7. Steelmaking Facilities These include wo'B0F converters of 45 tons nominal capacity now producing at the rate of 68 tons per charge. This larger erpacity was obtained through a small increase in the hight of the converters -vd'thinging of the refractory lining, resulting in a productivity of 1.5 tons per m. The converters are supplied from two 800 tons mixers. Ingots-are teemed from any one of 8 teeming cars and strip- ping is carried out in the'same building. The calcining plant consists of a limestone-receiving station, a stockyard with a capacity of 30,000 tons and three coke-fired shaft furnaces of 50 t/d nominal capacity. At present, because of good opexating practice. these furnaces are productng an average of 70 t/d. The brick plant, has a capacity to manufacture'MO0 t/month of tarred magnesite brick. Some air pollution is at present caused at the steelmaking plant, since the above-capacitymperation of the converters precludes effective use of the original fume cluning equipment. This problem will be overcome wit s the execution of the proJect (Annex 8). Oxygen Plant Two oxygen genemstofs of a capacity of 2,800 Nm3/h each are resently installed. They deliver at 99;6% purity. Two oxygen holders of LL0mJ each, storing at a pressure of .22 atmospheres, are also part of this plant. The oxygen supply system hs a a:mum flow rate of 11,000 Nm3/h. Slabbing Mill Present installations consist of 3 batteries of soaking pits, one 2-high slabbing mill, one 4lab Rhear and two hot-bed units. The present slabbing mill capacity is'mated at about 960,000 ingot TPY due to the limited capacity of the soaking Fitis srnd hot beds. Plate and Hot Strip Mill A 2-high roughermeale breaker and a 4-high x 120 inch reversing -roqghLng mill Are usod to-raduwe both 'heavy plate and strip breakdowns for furtbker proeev*a.'ss1 to'hot r6led coil in the hot strip mill. The six stand, .4high tandem hot strip mill of 8&4 inch width has a yearly capacity of about 1.8 million tons of hot strip. Downstream of this mill there are two dawn- ANNEX 1 Page 3 coilers for coils up to 10 tons and 1.9 m diameter and a shearing line for hot rolled sheet. Cold Strip Mill The existing equipment is capable of producing 150,000 t/year of cold-rolled sheets, ranging from 0.4 to 2.3 am in thickness and 500 to 1,550 mm in width. It consists primarily of a 66" pickling line and a b-high x 66" reversing mill capable of cold-rolling and skin-passing at a speed of 2,000 FPM. Annealing furnace capacity of 180,000 t/year is available, with 10 furnaces of the radiant type and 3 furnaces of the direct-firing type. A DX generator of 280 Nm3Oh and another HNX gas generator of 140 NW3/h provide the required atmosphere. The mill also has a 66" cold-shear line, with a capacity of 160,000 t/year and a speed of 300 FPM. Rol Mcka ehicles At present the plant has 13 diesel locomotives with a tractive force of between 25 and 35 tons and 200 railioad care moving over a rail system about 65 km long. This system, at the present production rate of one million raw nteel TPY, transports about 530,000 t/month. Heayy Oil-and Gas System Blast furnace gas is stored in a 40,000 m3 gas holder, and used at the hot blast stoves and mixed with coke-oven gas and heavy oi2 at the soak- ing pits. Coke-oven gas is stored in a 30,000 m3 gas holder and desulphurized. It is used in the sintering and steelmaking plants, as well as in the anneal- ing furnaces. 5team System At present, two 35.6 t/h waste heat boilers are installed at the steelmaking plant, producing at a pressure of 36 kg/cm2 and superheated to 2500C. Tio small auxiliary boilers are also available. Electrical System The plant presently receives all its electric power from the CEMIG system at 154 KV. This voltage is reduced to 69 KV, 11.5 KV and 3 KV, depending on requirements. The receiving substation has 3 primary transformers of 30 MVA each that step down to 69 KV, with an additional transforming capacity of 6 MVA to u.S5 KV. Page4 FurtJw frait pinsw ' talled at the blat ruace substation that taken aboutV4I9 NXV # pump house substation that coin_s about 15 MVA, the convert plant thmt pswFme about 4.5 NVA, and the oxygen plant that taker, about 9 NIV. Tran*org capacitieS are also installed in tlhe coke oven plant. (6 MVA), the slabbXm ai plate JLlls (9 NVA) aid the hot strip ai11 (9 VrVA). Industrial Projects Dqpirtmwnt March 1972 Brazil USINAS SIDERURGICAS DE MINAS GERAIS - USIMINAS PLANT LAYOUT- PRESENT AND FUTURE 4-T ~~~~~~~~~~~~~ iLi~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I - Dl @ olR yH1 / 1t £)10 1 v X PAN s1 1 L~~U *11ON / EXPANSiOAI Industrial projects Department March 1972 BRAZ IL USINAS FPnEPUtFlWI(AS DE MINA5 G;RAI.- UGf4IdNAZ r R3 J;I .M7'TJ JIAPT C" O(FP' C [ k 1 |[ ~~~~~~~~~~~~~~~~~GENRL COORDINATOR 11ov ADHINITR.TI5!1 | r - - - - -~ -- - - T - -r - - - - -r- - - - - - -T - - - - - - - - -- - - - , r 1 ' 1 '- -i , - 1 GENERAL SUPERTI.-tT1I T IWJRER EC 'CAL 'N- EAL PUBLIC LEGAL LTEDOIACI SAI IN RIO DE OIGANITION OF 'Er ELOWD Iw AITITTOR zDe/l^b I L mr L Lel° EN JI FE 1OFFICE IL2loA I ISERVICEI SUPEIRM1ET OF OPERATIONS SUPERINrE2DE:lT OF SUJPFElRINTNT OF | PERINENDENT SUPERINTENTDENT TPANSPORrATION SYSTE7.S i, CONTROLS | R.LATTS | OF SALES OFPUlIHSING I See Freeld-xn in AppeniixX |ENERAL .AlWCER 'iF FLAJIrT No-e: UJnits in, d-.Sltl frsme alr, Dre-enfD ,el ei:alrrd r:mr.er Industrial Projects Departaent March 1972 RPAZI L TSINAS SIDMIMCICAS 1& 5I1NAS CEhAIS - JSLIAJ7AZ O.PANIZATION CiHART OF PLANT (.PATIPNA) | OF PLAN.T OFFICE OF TE |JRBA AFFAIRS SECHETAY ADVISORk PRODUCTION PANMNG P= O TRIAL EEIMRINS InTaAL RELATIONS INJ8TR1AL ACCOUIS G iA ,, PTRCESSIN G CETEn MPPARTMENTMETALUJ1Y OFD'npREuw DEAM2W QUALITY COW~ OjAhERRHUsCETE MfICAL SERVICEN DIVISION PRlODUCTION MA3ER | DEPARIIWT OF | S4TEEL PLANT ROLLIIIO MILL5 l PN1 TION I I n. ra.Aia NIMRN s COK OVTFUNACE |m | DEPARRINT DEPARIMZNT N DPRlSNT DLAf Ml Tb DEPARTMENT l see appendix 2 Industrial Projects Department March 1972 8811* LIRICICA3 mUM I U L.A. (U11311345 K8?TMICAL 2T1 M1D LOS ACOII i T, Ylt IN= 0Et6Z 31et., .L"Z 11*1 Ill .@40 1971 5949 5970 11S1 St-,l lsot- (000 ToO.) "70 649 7U *o 9IS 57t0 l49 791 850 450 0.1.. of finished Products (000 T...) l 427 497 520 go 395 427 497 620 0o0 --------------- ---.. ONe j tr$ ..... .... .... ........... oco / us$ ........................ 1. (2042 SdlS 7144.I 21S6.49 S32.133 S03.307 744.319 53.439 n4.442 81.702 108.811 145.738 LUSI, Toct.. Tee ... .-. 10.S23 13.645 27110 *-- ... 2.595 3.647 51A43 Distributoc, Coat Coll,ctd fro, Custw. 6 .24 6.964 11.34S 9.282 12,196 2. 34 2.041 2.78T 1.90F 2.313 2. WNT SA18 134.0A 207.735 310.281 4u0.300 728.913 511.313 41.621 7n.29 103.470 138.282 3 CtlST O1' COODSOIp 122.212 66.831 224.402 3SI.Otl 492.593 *3.9et 49.1*4 1 S.11 70.835 75.720 R.. d 107391 7 1 I0 S" 115.279 248. #0 99. De 40.319 41.34 45. S0 S 7.511 75.'20 Sale Te 14.821 24.443 39.12 62.274 91.356 5.547 7.792 9.609 11.324 17.729 4. GR055 7POFIT 15.822 40. 904 95.879 149.296 2364S20 5.407 123.443 21.211 32.643 44.833 s. cmca re ! es 11.717 11.180 1 7IS. 22.014 30,673 4.417 S.719 4.243 5.176 6.067 tAdoidtUratfon R np,,,, *.957 10.705 13.20t 1U.125 25.193 3.343 I.154 3.244 31878 4.754 9a1.s .rpeaa, 2.403 161 1.927 3.396 6.762 978 t7 473 727 903 Amortisatlcon 157 314 314 491 643 274 526 $28 S71 410 6. DEPRECIATION 7."2' 11.191 12.234 24.66 3s.ti88 11.67 11.840 17.138 123.03 10.671 7 OM7AT7NiC P8O2S1 (4-5.S) 1 3.407) U9.333 47.898 100. 59 170.39 (t0. 69) ( 2. 90 4.*828 14.964 28 095 8. OER 7NCtJII 4.637 17.473 29.410 3.1i4 59.474 1.*2 U.149 7.224 7.717 11.283 Fnlcal Inco_ 1.312 6.041 19.778 23.126 3t.S44 493 1.740 4.858 4.947 6.93L Other 3.345 11.432 9.632 13.036 2. 794 1.331 3.369 2.366 2.79D 4.352 9. 0Th 68 15is 9.332 10.747 11.426 235.72 3.513 3.147 5.264 5.504 1.86 10. 9INAIICAL 118P6834 31.714, 13.394 23.364 29.777 49.180 13.6"1 7. 661 10.534 9.679 17.JD3 bot eoct 6926 18.071 8.031 7275 . 4.7e6 7.345 4.377 4.778 or else t Short-Tr- Debt *. 4,2 4.449 6.S73 7.121 3.231 1.3*2 5.415 1.524 Other 3.043 674 863 323 1.J94 199 242 359 Adjostents ... ... ... - ... 3.964 3.*6 4.30 3.018 4"79 11 NSRT PROFIT J " * ~iROVSSION tl t 8-9-101 (39.618) 11.tS 30.4e 6 1.237 10.514 (S2.419) t 8.7t4) t 3.746) 7.058 20.189 12. 7P0VISION FM 0aunT1 ACII18 137 655 1.244 1.26 1.00 2 1t 193 435 277 199 13. N6T 1R2F7T (laSS1) B3( TAXU (39.955) 11U210 284730 79.961 149.t64 (28.470 ( *.9591 f 4.181 7.241 i9.990 14. NCOM6 TAX ---- _ - 1.123 3.104 7.382 --- - 276 664 1.400 15. 9eT PlOFrT NM18 TAIS (39.955) 11.210 27.607 76.657 142.082 (28.470) t .9*9 ( "4.657 6.577 14 590 Note: The figures expressed in erustVoe d6 noet lud. edeluest ont "do rbthe dollar stattemnt (e pag 3p S of theh lnol ANNEX 5 Page 2 87kAZ1 MQI 0 K II180 , S.A. (0W070 WAM SO= AS CV 1XE 3185 I rON00 m 19W1 19070at 1971 AS 3 I* T Curt A.8tc 121.11 U7.81 1U1.774 256.005 *43.49n 41._ 3S.4D 40.348 S2.595 8401 C..h 88d B.o.8 -2.471 - 7'-6 9.AI9 20.132 25.7W0 N4 - 1.9U2 2,089 4.071 4.590 F.-L-0bl88 n.. t.. . .827 s1.291 100.263 132.6" 18.076 104 90 18.681 20.256 23.648 1.8881 Co0or 4e.075 65.880 no.260 106,406 134Go67 17.265 17.201 18,410 21.537 23,962 Fnr ilo C _.t~o. te,ri8 11.ff 13.340 4.810 2.170 3,750 3. 12 3,068 72 386 iOts NWM8I6ble 1,A $401 7.7i2 * 273 *.212 724 lOIP 1,787 1.671 750 1.00,7 84..i.8 6 *. SO , 4.88S 8.4 0 16.3io 26.720 3,179 0.080 _ 1.677 3. 09 5.114 97.651 96.122 109.11D 136.069 169.713 24,918 23,530 25,242 27,489 30,212 L.-. Pnr.l08 f-0 Ddbtfil A400tm ( 137) ( 653) ( 2.425) ( 5.713 ( 4,76S) ( 50) ( Il) ( 557) ( 751) 1 856) 70840 81118 880 848 00iuntud.0 ( 15.775) ( 26,3487 ( 27i116) ( 30.087') ( 35,i02) ( 5,792) ( 56.60') ( 6,004) ( 6.482) ( 5,708) ft-o 0 "A 104.024 1.440 21.087 5.21 19.260 22.052 26,664 r-0 -1. 268 08 26 3W 39*.80 52.336 69.390 9,.11 7.407 10,011 11.363 13,333 i.dr t.1. 8 -C.. 5 282 '.90 O."47 17t,52 27,149 ,94' 2. 3,78 2,76 3.606 4.833 Finit- r.dooe 8nd Ct 08 . . 2.584 U.575 20,370 27,300 42,71U 7,95 3.2 6,522 5,556 0.1 Iq.ortl.iom nd0 Mot.oIaI Sn TiSuto 3,5ff 4.376 2,243 71.36 2.183 1,76 1.2W 5 551 1.527 41 8okot-bl 110010100 _ _- 28.213 149.334 - - 5.701 267584 Otbr.r 74858 1,202 1.,3i 7.551 14.094 094 3t 318 516 2,510 lbo.g-30 68880 ..1W54 33.421- 4p.pt7 52.381 8a.42 4.940 %71 135.63 14.255 19,237 081.1.88.10. 0.. ftopb0ti0810 id b 6.894 122,26 15.713 23,737 33 1.860 2.808 3.175 4.226 P087..ot008 10r 0.1. _ 11.251 9.752 9,89 11.834 - 8.34O 7.329 7.507 6.642 C 1ul nr0 7 1.8.88 nd8 08788110 8.57 9.81.4 9.725 9.764 4. 042 3.071 .252 2.2497 2.500 1th..~o. 786 1.217 1.278 9.954 1:6.6 790 32 9.1197 2.900 0f.8d 2Ch22 4 446 12.918 7.864 16 256 946 1.160 2,970 1.589 2,894 040f8080 h 8r808 834.526 164.867 222.727 269.3D5 38.08" 27.114 T4.147 U,382 15.390 4-181 Oor..10r0d 2888.888. 1888 140.2 141.831 205.909 250.157 2ff.895 D.f.rr d 72..og.8 to 6. ~8t0880 2.905 3.145 2.7ff 3.62S 3.516 57.21 4,827 4.307 4.019 3.1,.9 rsep id 1.... 4.69 13.71i 11.987 9.6s 7.511 20 545 18.442 13.621 10.185 0OS 008.A,t 2.562 3.361 1.975 5.871 2.159 944 878 454 1.1U6 384 FiDd mill MAN 90.8902 1.095,642 1.185.744 1.21.041 245.478 2W3872 225.722 224.314 233,0 1-.t1 8l 11 240 ,12 263.05 312.434 363.7n 541.427 242,86 242.01O 243.205 245.895 OiDn.1. 010048. 21,277 11,17s 14,0ff 14.768 7.038 21.35 10.258 10.790 10.095 008...s - * m.21 28 i520 4.200 580 2. 0.34 2.826 2,847 S1b-..11 263,674 277.72s 330,052 382,919 553,853 2f6.09 23,452 256.901 258.037 6o.100 C.notgtiss in. P-. .rn80 nf 8t.41 0 1 Ft 12,196 30.8" 45.731 - - 2.996 7.07t 36.143 0Ad-0 Cf8tf 488 2,182 1,227 2,094 1,234 183 676 401 5S9 234 R.- . fn - - 47 S9 78 757 - - 11015 15.911 81n ti_ 4.i .7 77 76 f - "I,3 8..lo.1088 ~~~~~~~~ ~~~~~431 311. 66.721 772.762 802 983 882.293 -- 696.473 976.622 1.167,154 1.297,622 1.494,21 267.091 237.U12 271.313 22,400 08 408d t tolp r8imL7 0 1:17- ( 2.18 4 71.512) (111-9781 (213 15 ( 21.46V3 1 88.483- (45.591t ( 8,0943 ( 60,745) TOMhZ A5S 9178. .7232.....12600 1.764J342 ..-1813 32.13 4Ji.M.. 300.005- 204,464 . 3~4.174 LIAOLfmU AND MM1 C-t Li bilit-. 15830 25"9." 2S4.934 277.533 211.8 9I.5Sn 41.774 58.855 56,069 34.255 Ar1. 0 76.275 118*903 134,170 152.254 32039 2.1 31.07 3104 30,758 9.222 P.,1.b58.80 47.522 60.1t8 b5 708 62.489 71.ff2 17.27 181.372 15.105 12.624 9.380 8.b8.. P87.8.18 33 1. 58 988 3 8.703 21 413 2.158 1 72S i:S4. Aco. . F.8bl. nd A. end8 _ 21.772 J, 0D 23,fff 30.421 5i.43 8.019 7.45 3509 '.966 10.547 006T- 1.ubil t5.3eO 21,702 14.811 20.080 7.329 5.dit 4.989 2,993 3.55e L.00.T8r L' bilirle 5llr _ - . 1.1614 629.326 740.331 01 u2.84 1413 148.741 149 438 95,410 g1 FL.- 124.97 248.8 371.949 516 95 34.801 41.9 73.28,* 91.617 8.14na.08 0.91 781.888 7/nti0 5223.06 261.311 246,683 220.731 2051941 82,754 46.277 56.505 44.410 32.555 0e8.8-8 306 4,905 2.694 2.671 4.301 112 121 619 540 764 94".01- . .51,00 .- 651.830 746.473 1.36.140 IUA.48 t *lb.0 - 92.40 1tO3.947 211.509 pit01 l1S18 345.00 36f3.000 385.000 363,000 1.031.260 229.775 22.7m 229.775 229 7'S 145.697 A40 . f1 7ntt8 C1t.l 288t8 101.7ff 86.44 137,835 156.620 37,404 27.943 27,892 27,. s 1.51 Jb0 - - - 1,261 2,35f _ _ - 200 s. ..1t0in S. of "8 48.4" 113,4 1 1 13.448 . Spt 11l .Ie_ 8 _ - - - 26.346 13,774 _ _ _ OtobiB.- l . 2.735 3.482 3,904 4.737 6.2a2 1.376 1.473 1.977 2,6s: I.IIS 00480 r.80ie08 2,52 .3433 4.036 2,204 3.836 828 863 928 46 1 02. 841.0880 fd 801940 Ei .o.1.48i Io.0) t4 3 5 11. - 210 - 27.007 70.857 1P 5 764 (141.0353 (t170.8 (168,0735 (158,o02i 14.095 T O TA* L 7 P. ... 647 , 1 .342 , 2.1 >..318.673 ... , 500095 3.0655.- , 8 31.17. m06: 7. flo 08 ..fi 8 .. dn t 1i_It1 d. by tb. u04 to0 . ANNEX Page 3 USIMINAS Remarks on Historical Financial Statements 1. Amex 3 of Part I gives details on the conversion of the historical financial statements in cruzeiros into historical 13S$. Apart from the proper conversion from cruzeiros into US$, the financial statements in US$ also in- clude three major adjustments: a) The depreciation of fixed assets shown in the cruzeiro statements is increased due to the higher actual purchase value of equipment, since imported equipment was partly paid in foreign currency at preferential exchange rates. b) The depreciation rates varying between 1% and 11% following the Gauss-curve in the cruzeiro statements have been changed in the IJS$ statements to straight 4% from the start of opera- tion to 1970. c) The equivalent of about US$47 million of interest on loans for equipment purchases after completion of the plant erection were capitalized in the cruzeiro statements; the corresponding US$ statements show these interest payments of costs. 2. These adjustments are the reasons for the differences in profit- ability between the cruzeiro and the US$ income statements. The cruzeiro income statements show profits since 1968, while the adjusted US$ income statements show profits from 1970. The adjusted financial statements in US$ of 1970 are the basis for the financial projections. 3. The historical income statements on page 1 of this Annex indi- cate annal net profits after taxes which need to be adjusted as follows: a) 1967 cruzeiro statement The shown loss of Cr$39.955 million has to be reduced by Cr$13.897 million excess depreciation during previous years resulting in a loss of Cr$26.058 million in 1967. b) Statementa in Historical US$ (1967-1970) The necessary adjustments of the annual net profit after taxes are (a) the accumulated financial cost, capitalized during the years of operation prior to 1967 totalling US$ 31.601 million equivalent was charged to the 1967 net profit, and (b) imbalances resulting from the conversion into his- torical dollars of assets and liabilities were balanced by transferring a translation loss or profit for the respective years to the income statements. The historical dollar income statements for 1967-1971 have therefore to be adjusted as follow:s ANNEX 5 Page 4 1967 1968 1969 1970 1971 -- Million Historical US$ -------- Amnual Net Profit Ati f& (28.470) (8-959) (4-457) 6.577 18.590 Financial Coat CapWit1ed Before 1967 (3l.61) franslation Pirofit *t (t"g) (Si.oiM ) (20.009) 6.437 3.494 (3.129) Net Profit After A4usttts 1iQ (28J -. 1.980 -j. &71 15d461 4. In ordoP t6 simplify the US$ statew4ntsa, particular]$ tif balance sheet pi'jectiois, it Vd5 Rasutdd that Usiminas hid outstandit* i* bapital shares ag of Ja11ug4 1, 1971 US$71.8 million whith was quivalmft to the net equity, (US$229.8 tillion in abAres less US$18 il-lion in &addwlated losses) 6on Decemb!6 3i, 1970 At the same time the accuaulated 168l was eliminated from the Statents. Industrial Projects DepAk t March 1972 INTEAS 8IMUTGCAS DE MIMAS GERAIS - EDGWA.Z SAX"2 PR0JEII0S BY M0DICT LINE AIII WEAPU - A2SSUE IRLIVI 29CES ASSUITS ?RI=E ___ PD 0 J E C T E D SA LES : St1 .1..: 1.1 1.2 1.3 1.4 - 11.2 - 121.130 - 121. 427 - 161. 6o1 239.367 - 21.2.1.1.4 256.11 - 6.65__ p62,963 267.6~70 ?'A.1el Pro0lcts DMS17TZc lpiCE3 611 66 u696 _§ 1±~ 88 1 i4. 5' 26'7 7 0.2-rolled ~~~~~~~~~~,1 ~~139.70 139.70 132 la 18,0 1.0 25,146 11.8 20. 676 218 30,.455 16.1 67,196 1.,79 66,916 518 72,365 536 74,879 21? 72.223 1.97 69,1.31 H.t-rol1,d ohet 165. 12 133.12 '6 12,87e 1.0- 17. 336 78 12.676 127 20, 968 126 21,133 102 16, 226 106 16,865 128B 20.365 11.5 23,070 165 26.252 mod-roIlod to21 163.70 163.70 27 4,960 27 41.960 1.3 7,899 73, 13,1410 92 16-,,0 116li 21,677 119 a1.860 106 19,4.72 117, 21,.9 119 21.862 cold-rolI.d .1.t 282.50 222.22 119 30,01.8 129 32,573 11.0 35, 35,0 193 1.8,733 253 63.883 276 61, 327 261 57,99'. 261 57,991. 261 57,31. 261 57,99'. 1.2 !;o-Polle! Product, 1_ qa ..1. 2.9 i43 1.008 11. 1.0we 20 ,'L ..2 I. 564 1. 3.628 ..7 3. 4 50 4.067) 5 ,4 ~~~~~.1.. ~ ~ ~ ~ ~ ~~~~~~9-0 50, - I,3 A) -D . . - . 20 3,90 991 0 2 D 2.0 72.00 72.20 13 936 3.1 792 11. 1,206 1 1. 1,006 20c 1,14'0 2-, 1,364 24 .788 27 1. 91. 30 2.160 31. 2,W.. ~c-~ot.1 DAt.11'.wgcal: 1.1 * 1.2 - 6'. 109,896 693 119658 ~ 122.955 895 59,716.65371,9337,2329551.V, 239,798 ,53132532377031,62 2791795 .531 2503332016iD2 a 585,21 1.3 to.1 77..z1,s1 '9y~~~~~~~~~~~prodo.ts) - ~~~~ 1,139 - 1,266 . 1,266 l ,61. - 2,216 - 2,31.6 - 2, 316 2,316 . 2,316 - 2,316 1.. 11.5 - ~~~~ ~ ~ ~~~~ ~ ~ ~~~~ ~ ~ ~~~~~~~~~165 - 06 - 206 - 237 - 319 - 333 - 333 -333 333 -333 2 lollot Sales VP? MM 68 9.612 75 10.1.31 .12 10.651 103~ 14.517 336 .81.442 1.39 6o. 512 37 0.3k 8 I 359 209 27.861 183j 242 191a. 241 9 1UO OD 25 1.065 25 3,61.8 30 4,377 30 11,377 11.0 2o.1a2 269 37,660 217 30, 38 158 22.120 93 13,020 70 9.800 Hot-rlele col 113.20 113.20 15 1,6953 21 2,377 16 1,81.1 24 2,717 22 2,1.90 2*. 2,73.2 58 6,554 60 6,780 57 6,1.1. ss 6,205 Hot-rolle ."ee 137.90 130.20D 9 1,21.1 12 i,655 9 1,21.1 20 2,756 102 13,790D .1 5,720 1.7 6,110 13 1, 69D 15 1,980 16 2,060 ColA-rolled ..1I 153.60 11.0.00 3 4.61 3 1.61 5 766 8 1,209 37 5,683 s8 12,320 a0 2.9*40 26 3,61.0 15 2,100 13 1,888 Cold-rolled ohet 163.6o 180.00 13 2,137 14 2.290 15 2,1454 21 3,4.36 37 6,0 53 11. 21.100 29 4,350 0-9 1.,35 29 4.,38 29 4,350 3 t.1 E121.4 PrOdw. ,3*10 1.1.2 679-IIP '74. 737 127, 5 556 2 ,984 44 1 42 3D 1. 31 L85 30.&31.55 3. 3 Hot-roll edoil 1.7 20,138 201 27,523 161. 22.1.67 21.2 33,172 503 69,686 503 69,628 576 78,919 596 ft61,5 571. 78,666 552 75,61.6 Hot-rolled sleet P7 14.119 117 18,991 87 14.119 11.7 23,726 228 34,923 11.6 21,91.8 153 22,975 11.1 22,05 160 25,088 161 88,332 cold -rolled colIl 30 5,1.21 30 5,12.2 1.6 8,667 61 14,639 129 22,523 206 33,9T 11.0 21.,8DO 132 23,112 132 23,593 132 23,68D Cold-rolled ooeet 132 32.175 14.3 34,863 155 3780 211. 52.169 2g 69.93 29D 63.1.27 2g 62,341. 29 62.344 29 62.344 29 62,3144 4 Total 7...1 * 2 - 12,831. . 131,561 - 135,078 - 76,118 - 268,1.09 . 302,986 - 306,1.53 - 302,10 " 312.81.2 - 312,135 5 Rb.c1.e la (riPji)2) - 2V - 5.693 - 5,818 7.595 II,.27 . U.39 12.038 - 12.662 .-. 13. 530 6 Ttval, !Iftnglo E.C0a '. 126iL,361 . 137.251. 140,926 . 163,783 - 299,687 . 314. 351 - 316.191 321,067 . 2.12 - 356,665 7 1* ale (vo1), .nl. i 16.127 . 7, 561 111,042 - 3,432 . 31,795 - 5154 - 37,1t7 - 39,12 - 41,032 - 11,7k1 x) Before Tax Credits for Exports os. US rIM INAS Historical Sales by Product Group, and Region -9,-_1970) Sales by Product Group Sales by Regions Year 1967 1968 1969 1970 1967 _ _ 1970 -('000 ToniFT -('00 - - - (000 Tons)- - - - - Production (Raw Steel Equivalent) 570 649. 791 850 Sales Domestic Markets 1/ Domestic Markets Southern Northern.c/ Southern Northern Product Group Region Region Region Region Plcte 82 116 182 236 74 8 210 26 Sot kolled Coil 6b 75 91 123 67 1 107 16 got Rolled Shoet 28 5$ 43 § 26 2 52 5 Cold Rolled Cdii 30 t3 31 31 29 1 29 2 Gold Rolled Sheet 37 62 71 8? 33 4 80 7 Sub-Total Fiat Steel 245 341 418 534 229 16 478 56 Bloom and Slab 44 29 23 36 2 42 - 29 Sub-total 252 370 441 670 231 58 478 85 Export Markets Export Markets Latin Other Latin Other America Regions America Regions Plate 92 50 44 46 N.A. N.A. 44 2 Hot Rolled Coil 1 1 - 21 "" 21 - Hot Rolled Sheet 37 3i 24 -10 i" 9 1 Cold Rolled Coil 1 1 1 1 nt 1 Cold Rolled Sheet 10 3 10 10 ,i 8 2 Sub-Total Flat Steel 141 86 79 88 " " 83 5 Bloom and Slab 20 65 45 6 Sub-Total 161 151 124 94 61 IPO 89 5 Domestic and Export Markets Total Flat Steel 386 427 497 622 Total Bloom and Slabs 64 94 68 1i2 X I Grand Total 450 521 565 661, ;/ Southern Region of Brazil comprises the States of Guanabara, Sao Paulo, Rio de Jane-o, -arana, Santa Catarina, Rio Grande Do Sul. 2/ Northern Region of Brazil comprises the Statea of Minas Geraie, Esprzito Santo 2 a,L- at' S further ir. the r.ort).. USI1INAS' YAIN DONESTIC CUSTOME-GROUPS FOR FLAT STEEL (1967/1970) 1967 1970 Customer-Groups Customer-Groups ---------- % of Sales --- -------% of Sales -----__ * 2 k Total rA * g Total . OH Domestic I Domestic , g Sales S a l m le ('000 tons) i ('O tons) Product Group Plate 82 38 1 2 35 24 100 236 22 4 29 25 20 100 Hot Rolled Coil 68 - 8 14 57 21 100 123 - 22 5 40 33 100 Hot Rolled Sheet 28 1 13 4 57 25 100 57 2 34 18 17 29 100 Cold"Rolled Coil 30 - 24 39 33 4 100 31 - 3 36 28 33 100 Cold Rolled Sheet 37 - 15 - 46. 39 100 87 - 63 1 11 25 100 Total 245 13 9 10 46 22 100 534 10 21 18 25 26 lOG 1/ Distributors included re-rollers. Industrial Projects Department March 1972 ANNEX 7 Description of the 2.4 Million TPY Expansion Scheme Overall Concept The description and comments that follow refer to both phases of the expansion, of which phase II is the subject of the loan application. Some reference is also made to the further expansion stage to 3.5 million raw steel TPY (Stage III) expected to become operational at the beginning of the next decade. Annex 1 describes the principal existing production facilities and their capacities. The main factors that characterize tho overall expansion project of lUSIMINAS are the following: a) increased production of coke from a mixture of imported and domestic coals, in which the latter component will be reduced from the present 1/3 to about 1/5 by 1975; b) expansion of sintering capacity to permit the use of a 100% sinter burden in the blast furnace; c) expansion of hot metal capacity by the addition of a large, modern blast furnace with provision for high top pressure operation and fuel injection; d) expansion of the existing BOF steelaikdng plant and instal- lation of a second larger BOF steelmaking plant; e) slab production by continuous casting supplemented by ingot casting and primary reduction in the existing slabbing mill; f) installation of a new single-stand, h-high 160# plate mill; g) a substantial increase of cold-rolling capacity through the installation of a new 5-stand tandem mill. At the completion of the project there will be an excess of hot metal capacity and No. 2 blast furnace will be blown out. Increases beyond the 2.4 million raw steel TPY capacity will require the relightinig of No. 2 blast furnace and the installation of a third BOF converter in No. 2 shop, together with ad- ditional oxygen generation capacity. A flow sheet of the plant, as it will be after the completion of the project is shown in Annex25. A long-term sales and production plan is provided in Annex 14 which however disregards the increased production planned under the Stage IfI expansion wh?ch may-be implemented from 1977 onwards. Furthermore, a general layout of the plant is shown in Annex 2, in which the existing facili- ties are distinguished from those to be added under the project. ANNEX 7 Page 2 New Ins tallations The new facilitite to be installed under the project are described below with some reference to provisions made for Stage III. Coke Oven Facilities In Phase I a battsry of 55 six-meter-high ovens, 45 cm wide and 15.7 m long, with a dry charge cxpecity of 27.3 tons will be added. The coal yard will be increased by 15,000 m. , bringing its total area to 55,000 m2. No additional coke ovens are requited for Phase II, but the coal yard will be subject to a further incrrvase of 25,000 m2 aid one moft ttapker-wheel loader will be required. hk addition, some 700 m of belt convbyors wi]l be installed. For Stage III, a we* battery of 55 ovens, similar to the ones described above is foreseen, togethwr with additional coal handling equipment and yard space. Ore Yards and Sinter Plant The existing thrus ore-yards will be enlarged and us4d fqr ore blending, by the introductian of a new double-wheel reclaimer. Furthermore, b twen the car-dumper and the yards, a new ftin ore yard and blending bins wt31i be installed. Phase I entails the MM9tlltaUM of a second sintetibg plant of 1T0 m 2 grate area. This will prst-d'e 00sugh sintering capacity to pWft*t the use of lOQ% sinter in the blast fumnace charge. Biast Furnace The existing No.. 1 t*~*t has alrwady been enlarged, Oheae_s No. 2 blast furnace will be blown out atter the start-up of the proposed No. 3 furnace and rebuilt as part of the Stage rII expansion. The following sunmarizes the present. and future characteristics of each of the two existing blast furnaces: ANNEX 7 Page 3 Ultimate fe Present Rebuilt Stage III Unit No. 2 Furnace No. 1 Furnace Both Furna Hearth Diameter mm 7,000 7,300 7,300 Working Volume m3 891 957 957 Iron Production t/d 1,170 1,210 1,775 Blast Temperature °C 960 960 1,100 Maximum Wind Nm3/min 1,400 1,400 1/ Top Pressure Range Kg/cm2 g. atmospheric atmospheric 0.7/1.0 Hot metal/working vol. t/d/m3 1.31 1.27 1.85 Heating surface m2 60,144 60,144 2/ Fuel injection kg/ton hot metal 0 35 35 Coke Rate kgZt hot metal 570 535 535 Oxygen Enrichment Nm'/hr 0 2,000 2,500 1/ Not yet designed in detail, but new blowers of about 8,000 KW will be required. 2/ Not yet designed in detail. It can be seen that the rebuilding of the two furnaces includes the addition of oil injection equipment for a rate of about 35 kg/t of hot metal, with a peak capacity of 70 kg/t. This will bring about an appreciable reduction in coke rate. The hot metal requirements of the 2.4 million TPY phase necessitate the building of No. 3 blast furnace. Its main characteristics will be: Hot metal production, maximum per calendar day 5,500 t/d Hot metal production, maximum per operating day 5,800 t/d Hearth diameter 11,200 mm Working volume 2,5DO m3 No. of tuyeres 28 Blast temperature 1,100°C Wind (at maximum blast pressure) 5,300 Nm3/min Wind rate 2.1 Nm3/mJn/m3of working volume Maximum blast pressure 3.6 Kg/cm Maximum top pressure 1.0 Xg/cm t hot metal/d/m3 of working volume 2.20 Number of stoves 3 Total heatirg surface 210,000 m2 The furnace is designed to operate at a fuel rate of 520 kg. per ton of hot metal. Of this total, 60 kg. (with a maximum of 90 kg.) will consist of oil, resulting in a coke rate of about 460 kg. As shown, the maximum output of iron from the No. 3 blast furnace is expected to be 5,800 t/d, when operating under optimum conditions. Thus, there is need for two sets of blowers of 29,000 KW each, driven by a steam turbine. ANNEX 7 Page 4 At the compietion of the project, hot metal production has to attain a.level of 2,167,4O0 t/year, equivalent to about 6,200 t/d. It will be seen that., after completion of Na. 3 blast furnace, excess iron making capacity will be available. Consequently, No. 2 furnace will be blown out and rebuilt in the same manner as No. 1. It is planned to put No. 2 furnace back into production at the start of Stage III, for which no additional hot metal capacity will have to be installed. Steelmaking Facilities As part of Phase I, an additional BOF converter with a nominal capacity of 70 t/cbarge will be installed in the existing steeltaking plant. This- will allow the-plant to ope.rate on a 3/2 pattern, i.e., two converters operating at any one time with the third one down for relining. The capacity of the overhead travelling cranes is to be increased and 13,000 PN3th of oxygen generating capacity and a.200 t/d rotary kiln for lime production will also be added. This will permit this steel plant to reach its ultimat* capacity of about l. million raw st.eea The new No. 2 BOF pleat will be designed for an annual capaci.ty of 1.75 million tons of raw steel. It will consist of two 160-ton converters, and an oxygen system to supply 32,000 NmP/h. Hot metal will be rece&ved in ten to.pedo cars of 250 tons each. The plant will b -prow,4ed with an OG system to recover the waste gas. It will also have a bay for conv_wntional ingot casting, using, teeming wagons of 240 t capacity. A scrap baling pres with a capacity of 10,0W tV/o.nth will be provided. There will be a 1^41 _and tundisb repair bay. Strip Jng will be carried out in a separate buildi.g, between the No. 2 steel plant and the slabbinri, Mill. Two 2-strand continuoy slab casting machines are designed to operate in the following production ranges: THICKNESS: In mm 160 250 WIDTH: In mm 940 1,750 LENGTH: In mm h,000 7,500 A maximum preduction of 500,000 t/year per machine wiwd, be possible based on the projected mix of 12 slab thicknesse, as long as the plant operates with two converters. A new brick plant for the large new converters will be required; its capacity will be 700 tVwnth, with.1provision far future expansion. A new rotary kiln of 300 t/day capacity will be added to the calcining plant. Two fuarther genera1ori of(l'l ,000 AN3/h each will be added to the present oxygen generating capacity of 49,400' Yb/h under each of the two staps. This cvygen will be used not only for steolmaking, but also for blast enrichment to No. 1 and No. 3 blast furnaces, and various miscellaneous applications. ANNEX 7 Page 5 'ilabbing Mill U1nder Phase I, it is planned to install two more batteries of soaki1g pits, one ingot weighing scale, one slab weighing sca_.e, and one slab cooling unit an' conditioning unit. This will increase slabbing capacity and bring about an improve- ment in yield and quality. The above will be complemented in Phase II by a further battery of soak- ing pits, an additional charging crane of 20/30 tons capacity for the soaking pits and one hot scarfing machine for surface dressing. In this manner, the capacity of the soaking pits, slabbing mill and cooling beds will be raised to a level of 1,800,000 t/year. Plate and Hot Strip Mill Under Phase I, a further slab-reheating furnace will be installed to increase the hot-strip mill capacity. In addition, one hot-skin pass line will be installed to improve the surface quality of the hot-rolled coil and sheet which are sold as such. Both plate and hot-strip will continue to be produced on the existing hot strip mill until the new plate mill included in Phase II will start production in 1975. The addition of a third slab-reheating furnace, under Phase II, will bring the capacity of the existing mill to 1,526,000 t/year of hot strip only, since the production of plate mill will be transferred to the new plate mill. The new plate mill facilities will include one slab reheating furnace, one hydraulic scale breaker, one 160" 4-high reversing mill, a 4-high leveller and hot shear, a 160" shearing line, one (existing) 120" shearing line, and one normalizing furnace. Its initial capacity will be 800,000 t/year of plates. The single 4-high stand will be used for both roughing and finishing operations. At the initial level of plate production the cheaper single-stand installation is considered preferable to a two-stand arrangement, even though the latter is said to provide yearly economies of US$200,000 in roll consumption, and some reduction of crown on the plates. USIMINAS expects the quality of the plate produced on the new mill to be at least as good as that presently manu- factured. The second 4-high stand is projected for Stage III, together with a fourth slab reheating furnace. In addition, slab and plate shipping yards will be installed, as well as corresponding materials-handling equipment. Cold Strip Mill Under Phase I a 66" 5-stand, tandem cold-rolling mill with a runout speed of 2,500 FPM will be installed, providing a rolling capacity of 540,000 t/year. This mill will be able to roll strip of thicknesses down to 0.4 mm. In the layout, the future installation of an electrolytic cleaning line has also been considered. At the same time, a second, 56" pickling line with 300,000 t/year capacity will be installed, together with an additional 10 annealing furnaces with a capacity of 168,000 t/year. Another part of this Phase will be a 56" shear line with a capacity of 138,000 t/year. Under these conditions, the bottleneck would be annealing capacity which is in the order of 470,000 t/year. ANNEX 7 Page 6 Thus, while Phase I will bring cold rolling capacity to the deL.ired level, the cold mill facilities will only come into balance with the addition in Phase II of 3 more annealing furnaces, together with an HN gas generator with a capacity of 1,090 Nm3/h, and a 56" recoiling line, with a capacity of 10,000 t/month. At the completion of Phase II the present reversing cold mill. will be modified in order to function strictly as a skin-pass mill with the i-apabilitiy of processing coils of up to 30 tons. A production of 540,000 t/year of cold- rolled coil and sheet is envisaged. Thicknesses would be in the rarge of' 0. mm to 2.3 mm, and widths from 500 mm to 1,550 mm. Rolling Stock and Vehicles As the output of the plant increases, corresponding additions will have to be made to the rolling stock. Thus, four diesel locomotives of 70 t.onz tractive force, plus another 41 railroad cars and about 5 moree kilometers ot rail will be added under Phase I. Phase II includes the addition of 10 torpedo cars for the transport.s-- tion of hot metal, 12 teeming cars, 7 diesel locomotives with a tractive forc. between 40 and 70 tons, 180 railroad cars, and about 20 km of track to the rail- road network. Heavy Oil System As already mentioned, heavy oil and oxygen injection facilities are foreseen as part of the rebuild of the existing blast furnaces ana as origina.l equipment for the new blast furnace. No additional gas holder and compressor capacity will be required for Phase II. However, two sets of pumps for oil injection in the No. 3 blast furnace will be provided, each delivering 30 t/h, at 10 atm discharge pressure. Pue to the use of HN gas instead of -NX, there will be no need for a further desulphluri- zation unit. Steam System A third waste heat boiler of similar charact.eristics to the ones already installed will be added to produce steam from the third ROF converter as part of Phase I. Some additional steam will also be required for the rolling mills and pickling line as well as for the heavy oil firing of the top zone of the con- tinuous slab reheating furnaces. A significant proportion of the steam will come from the B30 wa.ste heat boilers. Thus, in order to avoid a steam or coke- oven gas deficit, the periodic repairs of the slabbing mill will have to coincide with a shut-down of No. 1 steel plant. The blowers of No. 3 blast furnace will be driven by a steam turbine, which will use high pressure steam from two boilers at the rate of 120 t/h, at a pressure of 65 kg/cm-, and a temperature of h85°C. These boilers will be fired by heavy oil and blast furnace gas. They will have spare capacity of 30 t/h, to be used to make up any deficit in the steam system when No. 1 steel plant iF down. ANNEX 7 Page 7 Electrical System As part of Phase I, one of the primary 30 MVA transformers of the receiving substation will be replaced by one of 50 MVA. A transformer station of 3 MVA will be installed at the sintering plant and the transforming capacity at the oxygen plant will be increased to 24.5 MWA and that at the cold mill to 34.5 MVA. Under Phase II an additional 9 MVA of transforming capacity will have to be added for blast furnace No. 3, with a similar installation to be provided at the No. 2 steel plant. Furthermore, 2h.5 MVA of transforming capacity will have to be added to the oxygen plant and another 4.5 MVA to the hot strip mill. Industrial Projects Department March 1972 ANNEX 8 ECOLOGY New facilities for pollution control, including additional devices for the existing plant, will be installed under the 2.4 million expansion scheme at an estimated cost of US$11 million equivalent. Water Management USININAS' steel work sewer goes into the river "Rio Doce". The exist- ing facilities for re-using water will be extended under the expansion scheme. The sewer contains sulphuric acid, ammonia, phenol and cyanogenliquor. Sulfuric acid, mainly originating from the pickle line, is neutralized. Ammonia liquor from the final gas coolers has a concentration of about 0.15% and does not create any pollution problem. However, ammonia liquor from the tar tanks, containing phenol (about 2,000 ppm)ad cyarrgen (100 ppm) at present, pollutes the river water. To avoid further damage, biological treatment of about 300m3 per day of ammonia liquor will be installed. Air Manarement At present, a severe air pollution problem exists in the steel plant No, 1. This plant was originally equipped with a combined dust collection/steam generating system. As it is working at 142% of its nominial capacity, the plant is facing the problem of inadequate capacity of the water feeding system to the boiler, of the boiler safety system a" ofthe boiler discharge. Therefore, the gas-cleaning system is presently by-passed. But by 1972, the bottlenecks in the steam generating system will be eliminated and the existing gas purifying and filtering systems will operate normally. The new steel plant will be equipped with a gas recovery system to cool, filter and recover the converter gases without combustion of CO to CO. The waste gas wili be filared off at the top of a 75 in high stack in Phase II, but will be stored in gasholders for use as fuel in Stage III. The new coke oven battery will use smodeless charging by injection of h-igh pressure ammonia liquor into the ascension pipe. This will help reduce smoke emissions to about %20. Industrial Projects Department March I9Th I'S INATS !,1ERVRC ICA.S [It '¶1NA CUJAi -SIMINA0 P-nJ-a Ivap.... -- inh.diIo ..aen ad il) PLAprr ~~~~KAIXEQU*3IPMENTS -G- 1971 1 9 72 VIAi 14% l975 BLAST 1.1Inn anc.RlnIIg RIJUNACE4___ OVEN Rn., 3 Cok. lI,en Iaae-y I z m SIINTEIES KACHIIE no. 2 S,nt-ring Elin i- 1,- - -1- Nn. I STEEL mm ISC K.. 3 Ln C-nenr Ho. 2 STEEL N,. 4LD Coannrno MAKIING CTETINLOUS En. 1Co-ntn-- Coa- n CASTlING No. 2Co-li-no- C-nnIng N.. 4 Soakiog Pi-n- SLABBING No. 55-nk-ng Pins MULL No. 6So-kIng lnI Slab Cooling SYann HOST STRIP go, 3 Fooai ...aroc MILL Slot SkIn Pa-sE PLATE, MILL InTPIt- Mall II No. 2 Pickaliag Li-n OS' 1Tanide Mill m COLD 10 Ann-Illg F--oo STRIP j 13 Annoilln F.n,onI MILL N.. 2 Sla-irlg LIon N,. I Ro-iliog Lo N-.2lnR-ilnnL.i- i BiLASI S- 4 IITI-on and B-a1- BLiSILOS '10 5 iiios- and Boiler a I S~~~~~~~~~~~~~~~~~~~~, d A d 1, I I Industrial Projects Department M4arch 1972 AN1EX 10 USIMDLOS: Estimated Capital Costs of the 2.4 Million TPY Ingot Expansion Scheme, Phase 1 (Thousand US$) Construction Equipment & Installation Total Prolect Cost Direct Direct Direct Items Japanese Brazilian Total Brazilian Foreign Local Total 1. Blast Furnace 180 221 401 217 180 438 61O 2 Sintering Plant 6,976 1,720 8,696 2,293 6,976 4,013 10,989 3. Coke Oven Plant 8,855 1,337 10,192 4,401 8,855 5,738 14,593 4. Steel Plant 3,702 5,792 9,494 2,541 3,707 8,333 12,035 5. Slabbing Mill 6,511 855 7,366 506 6,511 1,361 7,872 6. Platen Mill 190 3,540 3,730 4,018 190 7,558 7,740 7. Hot Strip Mill 4,423 1,167 5,590 878 4,423 2,045 6,468 3. Cold Strip Mill 15,680 9,302 24,982 6,704 15,680 16,006 31,686 9. Water System 1,557 895 2,452 1,012 1,552 1,907 3,464 10. Energy System 3,360 402 3,762 1,095 3,360 1,497 4,857 It. Power System -- 1,126 1,126 207 -- 1,333 1,33j 12. Transport Facilities -- 3,148 3,148 124 - 3,272 _3272 13. Sub-Total (1-12) 51,434 29,505 80.939 23,996 51.434 53,501 104935 14, Contingencies 5,143 2,951 8,094 2,400 5,143 5,351 10,4',4 15. Cost Increase due to Exchange Rate Changes 2,829 2,596 5,425 __ 2,829 2,596 5,425 16. Ocean Freight and Insurance 3,499 -- 3,499 -- 3,499 __ 3,499 17. Price Increase During Disbursement Period 4,075 2.214 6.289 998 4,075 3,212 7,287 18. Sub-Total (14-17) 15,546 7,761 23,307 3,398 15.546 11,159 26 705 Local Equipment Free Plant Brazilian Manufacturer 1/ 37,266 37,266 -- -- 37,266 37,266 Foreign Equipment CIF Porto Vitoria 66 980 66,980 -- 66,980 -- 60,980 Construction and Installation -- 27,394 -- 27,394 27,394 Sub-Total (13+18) 104.246 -- 66980 64.600 131.64o Other Project Cost 19. Merchant Marine and Port Improve- ment Tax -- 1,958 1,958 2Z-. Cost of Port Handling and Inland Transport -- 1,296 1,296 21. Engineering 3,476 2,192 5,668 ,2. Project Administration -- 4,210 4,210 23. Interest During Construction 6,826 7,030 13,856 24. Working Capital Increase -- 5,838 5,838 25. Price Increases During Diebursement Period 227 717 944 26. Sub-Total (19-25) 10.529 23,241 33,770 27 Grand Total 77,509 87 !90 16j,410 1/ Japanese loan (contracted) rTdustrial Projects Department December 1971 t'SISfNAO7 E.tl..tnd Cptito1 Cone, of 2.4 M81-1lO TPY In-t tpE...to. SI6e-. Ph... 1I (Thocoand 1.49) E073UIENT5 Coe.trctton 6 Fore(in . Er,7111,' | eoto 0I a-i Oroellion |c Scurmo-t Flnanced by IeDtltDB l drbila n DDIect IoieI-t t Di-ect Local Craod ,o1 8ilateral lORD IDII Total IB2 073 Totol IBID Total 7Da Totol IBRDR7D0 Total 1. DIont Fotnrc. _ 8.596 5,656 14,275 4,.80 3,173 7,981 22,236 13,377 8,829 22,206 6,046 14,225 14,027 28,252 2. onCc.OPat- 360 238 599 239 159 397 995 599 396 995 443 598 840 1.438 3. SeIe Pla-t nti-dg 1 .. 34,698 1.813 1,19 37,739 2,223 1,4698 3,6971 61400 4,036 2666 6,702 12 709 37.709 16.399 54,74G 4. S0i bbr3111 936 688 453 1 977 35O 224 564 2,541 1,028 677 1.705 967 1.977 1,431 3,408 5. Plate 3151 2 ,052 3,440 2,270 30.762 3,279 2,165 5,444 36,206 6,719 4.435 11,154 13,946 30.762 19390 50,S152 6. Uot StIp 37111 158 1004 262 282 186 461 730 440 290 730 675 262 1,143 1.405 7. Cold Sttip 3ill 234 1,469 970 2,673 1,157 763 1, 920 .593 2,626 1.733 4,359 1.622 2,673 3.542 t,215 8. faInt Svste - 1.796 16 196 2,982 1,295 855 5 ,150 5 132 3. 091 2,041 55 132 1,915 2,982 4,065 7,047 9. 7n-.e vt -- 3950 250 11500 450 29 7 747 1,32 g00 527 1.327 242 11590 g89 15 9 t1. E oOgc SyetOe 5,446 3,483 2,298 11227 1.987 1.312 3,299 14,526 5,570 3,610 9,080 3,073 11,227 6.372 17,299 I1 tatltnOtt. . - 2048 136 339 539 214 338 60 __ 399 39 12. TI-np-ot FoelittO. -- 1.492 985 2 477 3,53 2 ,334 5,870 8,347 5,028 3.319 8,347 675 2,477 6,545 '.07z 13. Scb-Tot.1 (1-12) 65,266 23.618 15,5kS 1054 72 19,°0 32,69 139,371 43 418 286657 72.075 42.272 105.472 7Z),41 s v 14, P-ovi,ton fo- Ptetrence of tOtal Tqulp00nt 2,970 1 960 4,930 4 930 2,970 1,960 4,930 -- -- 4,930 4.930 15, Cnncinctcleo 6,627 2,362 1,559 ID,548 2,277 1,503 3,7a 146328 4,639 3 062 7,701 4,227 10,549 8,007 18,535 16. Cc.. Inete-a- da. to Exchaeg. Rt. Ch ng S,831 2,078 1,372 9.281 2,004 1,322 3,326- 12,607 4,082 2,694 6,776 __ 9,281 3,326 12.607 57, OCeo itIg 14,699 5642 1,053 7.413 .- .7,3 1,642 1.0863 20,723 1-7413 7,3 17. P,,re Dc I tg D.bcr. .t P-olod 10,594 3,222 2t126 15.932 3,027 1-,999 .025 20,927 6,249 4,124 10.373 6,016 15.932 11,041 26.973 19. iT C f..ro 2ot lcperni.ion , __ _ 217 217 -- 203 203 420 -- 420 420 -- 420 __ 410 20. S.b-Totel (14-19) 27,730 9 304 67357 43.391 10 279 6,586 17.265 60,625 19,582 13.343 32,925 10,243 43.594 27,304 70P "A L-oe1 Eqtlp ent Fto. P1.0t 5r-ili.n Na-ft t ..e.1 30.078 26.055 50,133 49,930 50.133 FT.,lgn ig Fionent CIr Pcta vito-t. _,996-, 32.922 21,945 148,863 1482863 14. 603 Corstructlol nd Instal 52,515 1493066 52.515 52,515 Sut-Tctt..t- I , (13- It 10 198,996 8 23 42.000 10 100 19066 102 445 251,511 OcT-T.to1 (139205 0,0 Cebet Prc.'eOt Cost 21. 5,-rtcicrt '7.ctlno and Port lptevenov- t Sao l .. 4.'37 4.007 ::. 20,9 cf Tori Oandllog .od oloe1 d Tr-nop-et -7 2.4 9.440 7 -. EnfIneerIng 6,296 3,960 IG,75e 26.. Prorcot AdrilnTotralltlon -- 4.030 73 8. reAopot. tng T-penoe -- .9612 9 t1l 26. lnterec Dutlns CooitrctteoD 4.1,630 9,272 50,902 27. lorkiltO Col,ltOl ItteaO. 56,420 56.420 28. Oo Incr.. 0urlng . i.b.4t 75 17.19 17 973 29. Sn6-Tot.1 (21.28) 1D7,s7 15 775 30. Grnd Total .7714 1i '07.746 1/ RIlater fl tinol..i: 00084.6 niltlD oqatnatent. 8ta.ilac On.tit.tloi M9S9.4 .Olo1 to Ln. f-o1o .Cthog. foe 107. do_np-a.mnt (to b.e oot-eted), 2/ Vropo7od look loon, _/ letet-eAOcae De-lop-enet B.k loan (tob. conbe.cted). l.d.ottrjl t.jo.l.t Dtpot_nt D_ocbe.. 1971 S1o I-C fr ANNEX 12 USIMINAS: Summary of Estimated Capital Costs of the Two Phases of the 2.4 Million TPY Ingot Expansion Scheme (Thousand US$) Construction Total Project Cost Equipment $ Installation Direct Direct,, Grand Items Foreign Local Total (Local) Foreign Local - Total 1. Blast Furnace 14,405 8,202 22,607 6,263 14,405 14,465 28,870 2. Sintering Plant 6,976 1,720 8,696 2,293 6,976 4,013 10,989 3. Coke Oven Plant 9,453 1,734 11,187 4,844 9,453 6,578 16,031 4. Steel Plant (including Contin. Casting) 41,411 9,483 50,894 15,249 41,411 24,732 66,143 5. Slabbing Mill 8,488 1,419 9,907 1,373 8,488 2,792 11,280 6. Plate Mill 30,952 8,984 39,936 17,964 30,952 26,948 57,900 7. Hot Strip Mill 4,685 1,635 6,320 1,553 4,685 3,188 7,873 8. Cold Strip Mill 18,353 11,222 29,575 8,326 18,353 19,548 37,901 9. Water System 4,539 3,045 7,584 2,927 4,539 5,972 10,511 10. Energy System 14,587 3,701 18,288 4,168 14,587 7,869 22,456 11. Power System 580 1,873 2,453 449 580 2,322 2,902 12. Maintenance __ 338 338 60 __ 398 398 13. Transport Facilities 2,477 9,018 11,495 799 2,477 9,817 12,294 14. Sub-Total (1-13) 156,906 62,374 219,280 6 156,906 128,642 285,548 15. Provision for Preference of Local Equipment -- 4,930 4,930 -- -- 4,930 4,930 16. Contingencies 15,691 6,731 22,422 6,627 15,691 13,358 29,049 17. Cost Increase due to Exchange - - Rate Changes 12,110 5,922 18,032 -- 12,110 5,922 18,032 18. Ocean Freight and Insurance 10,912 10,912 -- 10,912 -- 10,912 19. Price Increase During Disbursement Period 20,007 7,239 27,246 7,014 20,007 14,253 34,260 20. IDB Charge for Supervision and Inspection 217 203 '20 -- 420 -- 420 21. Sub-Total (15-20) 58,937 25,025 8396 13,64 59,140 3 97,603 Local Equipment Free Plant Brazilian Manufacturer 87,399 87,399 __ __ 87,196 87,196 Foreign Equipment CIF Porto Vitoria 215,843 -- 215,843 -- 216,046 -- 216,046 Construction and Installation __ -- 79,909 -- 79,909 79,909 Total -- 303,242 216046 167,105 383,151 Other Project Cost 22. Merchant Marine and Port Improve- ment Tax 6,095 6,095 23. Cost of Port Handling and Inland Transport - 3,736 3,736 24. Engineering 9,772 6,152 15,924 25. Project Administration 8,240 8,240 26. Pre-operating Expenses - 9,612 9,612 27. Interest During Construction 48,456 16,302 64,758 28. Working Capital Increase - 62,258 62,258 29. Price Increases During Disbursement Period 969 17 913 18,882 30. Sub-Total (22-29) I9i197 3C,30 L89,505 31. Grand Total 275,2l3 297,U13 572,656 1/ Including Us5$23.b million equivalent in direct foreign currency cost. Industrial Projects Department December 1971 ANNEX 13 AStS'hPTIONS FOR WORKING CAPITAL REQUIREMENTS A. Receivables 1971-1975: 20% of annual domestic sales and 9% of exports 1976-1986: 25% of annual domestic sales and 9% of exports Stock, expressed in daily input/output B. -Finished Products: (average over all individual products) 18 C. Semi-Finished Products (Major Items) Coke 2 Sinter 2 Steel ingots 2/3 Slabs 3 2/3 Hot- Rolled Coil 1 1/5 Pickled fIot Rolled-Coil 20 D. Raw Materials_(Major Items) Domestic Coal 52 Imported Coal 26 Fine Iron Ore 9 Limestone 8 Industrial Projects Department March 1972 ANNEX 14 Terms of Outside Financing for the USIMINAS Expansion Scheme Loan Commitment Amount Annual Fee/ Grace Amortization US$ Million Interest Commission Period Period Loans Equivalent % % (Years) (Years) Japan (Phase I) 67.0 6.2 3/ 0.5/0.25 3 12 IBID (Phase II) 63.0 7.25 _/ 0.75 4½ 11 IDB (Phase II) 42.0 8.0 7/ 1.5 4i 11 Bilateral (90) (Phase TT)2/ 84.6 7.5 1.0 3½ 12 BNDE (Phase I) 31.4 5.0 0/ .5/0.75 4 12 BNDL (Phases I and 2/ 2/51 1X1)1/ 75.o- 5.0 2 4 12 2./ These loans have Btill to be contracted. 2/ This amount represents an estimated 50% loan portion of the US$150 million equivalent to be made available to USIMINAS by BNDE during 1972-1975 as agreed during negotiations. The loan amount includes US$9.4 million equi- valent (10% downpayment) for bilaterally financed equipment and financial chargea to be added to the principal during the construction period. 3/ During grace period 0.5% and thereafter 0.25%. L/ Payable flat together with first disbursement. 5.' In addition: fees for inspection and supervision (1% on outstanding balance during grace period, 0.5% thereafter). 6/ In addition: guarantee fee (1.75% on principal outstanding). ,:' In addition: fee for supervision and inspection (1% over loan amount, payable during L years in equal quarterly installments. Fic.k. itrial Projects Department Y3rc,- i192 U S I N A S S I D E R U R G I C A S D E MI NA S 0 E R A I 0 S. A. (U S I M I N A S) P 0 J7 E C T E D P BRO F I T A N 1 L O S S 24 Million Too Ingot Prxgtn= DE3 1,0 0 1972 1973 1974 1975 1976 1977 1978 1979 1I80 1981 1992 1983 8984 1985 1986, T T E M S 1,090,00G tn 1,0 0,000 tn 1,90,000 ts 2,40,0 tn 2,4G,0 En 2,4,0o0 tn 2,4oo tn 2,400 to o,4oo 24 t,= En 2,440 tn 2,44 En 2.4oo En 2,400 tn ,400 tn .0TAL 08201 EALEd 117,I254 140,926 103,713 099,687 314,7 31 313 ,490 121,787 324,111P 32S,665 25,665 25,66S 325,665 125,665 325,645 025, 465 4.445,367 Lass Excise T- 4,650 11,783 6,143 6,434 5,344 7,005 8,B24 10,514 11,103 11,103 11,103 ll,13 11,103 11,103 11,103 135, 0 Distrobo,0o- Costs 1,500 1,500 2,o6o 6,20 8,780 7,440 5,720 4,180 3.660 3.660 3,660 3o,60 3,660 3,660 3,hO 65.880o 4NT SAoES 131,104 134,643 175,510 206,533 300,227 304,046 306,543 090,448 310,902 310,902 310,902 310,902 310,902 310,902 310,902 4.244.803 T-ss: Cost of Good, Sold 63,396 63,510 87,195 121, 122 133.354 133,354 133,354 133,35. 133, 354 113,1354 133, 351 133,354 133, 354 133,354 133,354 1,862,01E SGls. Tax 10,303 17,776 21,069 33,984 33,641 35.879 38.160 40, 33 11,134 41,114 41,134 41,134 41,134 41,134 41.134 543,572 5N000 P1OFIT 50,405 53, 349 65,256 131,777 133,^32 134,813 135,029 135,753 136,414 136,414 136,114 136,411 136,414 136,1b4 136,414 1,839,215 A=imtIstrsli2o E80000.. 4,215 4,E3B 5,503 5,'303 5 5h3 5,553 5,563 5,563 5,563 5,563 5,503 5,533 563 5,563 5,563 P0,380 0,1-, Expesss- 740 014 976 976 976 976 916 970 976 976 976 976 976 976 976 14,982 lApre iia n 10,943 ii,954 03,508 37,337 37,504 37,671 37,838 18,005 38,172 38,339 38,5o6 38,673 38,840 39,137 39,174 510,533 Amortizetl00 402 402 729 1.235 1,509 1,509 1,509 1,503 1,508 1,107 1,107 1,198 780 223 - 15,089 INCOME FM OPE0AT10N 34,105 36,443 39,480 30,616 87,000 09,094 39.143 89,706 90,19S 90,429 98,262 90,094 90,255 98,515 90,701 1,213,226 other ln-o F-InncIal i,861 1,985 2,41o 3,413 4,953 5,276 5,538 5,792 4,.056 4,058 b.O5 6,09 6,010 6,078 6,050 (5,274 Sales of Foxed A-o,t, 774 724 724 024 '24 724 724 724 704 724 724 024 '24 724 724 11,5R4 - Oth-Or 1,661 1,674 2,304 2,862 7,144 3,144 3,144 3.144 3,144 3,i44 3,144 3,144 3.i44 '144 9.144 44, 72C Other Expeones: - Correct Ins -It-erest i,OOb 2,041 1,264 754 216 82 23 5 1 - - - _ 12,398 E lpsIsion loans (Ph se 7) Tnterest 104 33 7.311 A,A04 6,453 5,86o 5,242 4,b24 4,0t 3, 389 2,7f2 2.175 1,569 9(3 309 51,963 - Exngnsion lns, (Pass II - I n esrest _ - _ 10 1,97 1, 498 15,315 14,129 13,445 10,75 3,070 7, 388 562 3,944 2,290 1,7,967 Oth-rn 3,975 i,033 5,422 8,308 10,240 3,911 9.677 9,501 9,140 9,533 9,790 10,091 lo,b4O 10,737 10,784 135,910 NET INCOM2E 000000 2000100 1,24h; 34, 779 30,917 77,189 60,507 ;4,R86 67, 792 71,197 74,509 70,705 70,546 80,366 82,579 84,797 OtOSO E,02t,06e - 1 1 1.0 0 0 0e fo e D o ob of ol o ooA- o t n 2 00 2 9 5 98 4 5 7 1 S 9 r 02 9 6 6 2 6 94 7 06 7 G 6 7 0 6 70 6 7 06 7o 6 ,0 6 9 , 3 2 6 - OtO,r Octrartororn 2,569 2,509 3, 340 5, 6S2 o bS ,15 4,165 3,105 6, i65 6, 165 6,165 6,1I5 6,165 t,165 5, lb5 84,257 0T INCOM3 0020E0 IdC(t3 rAr 2E,409 il,915 27,193 70,936 53,825 56,G92 60,965 64,248 67,638 69,834 71,6(5 73,495 75,708 77,926 79,98t 72,98t boonea Tao 2,598 _7.,10 2,471 5,845 4,063 4,808 5.701 5.788 0, o2 4,334 6.542 4,778 6,910 /,113 7.371 057709 NET rNCOME AFTE3 147U3E1TAT 25,819 29,005 04,722 65,121 49,562 53,284 55,684 58,4to 61,440 69,460 65,133 160787 61,798 0Q.0813 ',10 350, 276 Remark: See note on page 4, ANNEEX 15. U 9 I b A  S Z D E R B G I C A S D E M I P E-0 J E C T E D F L 0 W 0 F F U N D S ,4 HILLO. - TNOO (uq 1. 055y- 1971 1 1972 12L 1974 1975 1976 1977 1978 1979 l9ko 1981 1283 1984 1985 1986 V.-t-.1 900, 000 _J.OMOW 1.OOO,OUO T 1.300,002 T 2.200.000 n 2.WO,000 2.4xcoc 2.4wcoo 2. 4ou, oco 2. 4oo, ooo T 2. 4oo, " 2. 400_ 000 T 2. 4co, ow SOURCE OF 17INDS INTERNAL CA 11 GETTON N - 1 477 2 : 8 9 29, 005 i 24, 722 65, 121 49, 562 53, 284 55, 684 48, 46c 6i, 464 63, 46o 65, 133 66, 787 68, 7913 70, 81 3 72, 687 85c, 276 191: 234 115 3"15 Li, 456 19, 23, 38,622 39,013 39, 1BO 39, 347 39, 514 39, 68o 39, 46 39, 613 39, 781 39,6 39, 360 9, 174 525, 62 2. 576 2 657 2 3, 724 6. 223 6- 762 6,794 6, 827 6871 6. 871 6, 8,71 6. 87 6 871 6, 87 _6 871 93, 583 I-I.C 1-b G-1.1j- 33, 26 4O: - 1'2 5 41 IC9, 966 95, 337 99, 258 -1, (15U IO4,833 136, "5 IO'), 7 r7 III, 617 3,4 1 CAPITAL --- --- --- --- --- --- 119, 874 559 7 L6, 946 153, 027 13, 39 34 - - 156 "I '6 --- --- --- - 3 TOTAL CAPITAL INC.E&SE 133, 183 8, 90, 11 201 11, 052 16, 946 --- --- --- --- --- --- --- 183, 283 CREDITS An LOANS PHASE I J.p -ig. '- -y 2, 449 4, 433 22, O98 --- --- --- --- --- --- --- --- --- 66, 98. -Z= C--y (C..t-td) 9, 543 --- --- --- IME --- --- --- --- --- --- RDME : I- I - ,y (T. b C..tl-t,d) - --- IO. 16 I. 181 1 1. 253 1. 328 1 695 --- --- --- --- --- --- --- 9 543 ftb-t.t FL- I U, 992 42, 433 41, 48i 1, 18i 1, 25 1, 328 --- --- --- --- _695 ioo, 36i PHASE II TERD ii,464 5 10,531 ;:710 --- --- --- --- --- --- --- --- 63,000 1 6102 D 7,861 3: 7, 129 398 --- --- --- --- --- 42,000 Bil=-l ((90%)) 12,549 15,619 41,023 5,415 --- --- --- --- --- --- --- --- 84,600 H, l 1.% T 1, O..t--) 1, 394 ,847 6ol --- --- --- --- --- --- --- --- --- --- --- 9, 4- BME (T. b. C...t-td) 22,981 4' 5r --- 55. 6413 --- --- 25,. 2 923 3 10- 1 i.621 --- --- --- --- --- --- Nb-t.t.1 Ph- I: --- 33IP62 Lio, 364 8B,263 0 37 3,101 i,62i --- --- --- --- --- --- --- --- --- 254,648 TOTAL OF MEDITS AND LOANS 12,992 75,695 151,845 89,444 19,290 4,429 2,316 - --- --- --- --- --- --- - 355, 01.1 rOTAL SOURCE OF FONTS 178,462 124,617 208,371 i48,i7g iV,202 99,766 101,574 101,858 104,833 108,015 109,777 M,6i7 113,439 U5, 289 1-17,044 118.732 2. 007, 775 APPLICATION OF FMS FIXED rNWSTWIFrS PHASE I Eq.i,.-t 6,424 56,582 42, 271 --- --- --- --- --- --- --- --- --- --- --- --- 105,279 C-e-ti- d I-tllti- 5,633 18,c66 1,230 794 --- --- --- 25,723 -d 785 4,848 3,48o 100 9,213 I.t-..t I-ig C-t-ti- i,B06 3,71L 7,487 - --- --- --- --- --- --- 13, OV7 W-ki., Cpit I-.- 2.102 3.237 :__ --- --- - -- --- ---- - --- 6,.59 TOTAL PUASF T 16,750 86,447 55,190 894 --- --- --- --- --- --- --- --- 3.59,281 PHASE 11 I Epip-t --- 90,D47 67 808 1 oo6 --- --- 206,044 ":81"51 W, 754 2443 52, 515 I 5: '2:463 :_: A,i,tlltlll d ",191--1.9 2,827 6, qI 4,829 1, 13 --- --- --- --- --- 15,96h IDB -.-tI.r_d g 236 71 34 --- --- 42o ",P",",g "'t --- --- 3, 271 5,56. 2,239 --- --- --- --- --- --- --- U, 070 .m., T- -,  ,687 I.,927 17, 5M 6,78I --- --- --- --- --- --- 50,902 .-klE CpitU 1. --- --- 11,572 30, 242 18 49_ 8 2,989 2,912 2,944 1,174 --- --- --- --- --- --- 70.331 T I TOTAL PMSE 11 --- 43,631 132,2o6 32,790 70,102 1,491 2,989 2,912 2,944 1,174 --- --- - - --- 4017, 246 I-- -t f ftfttig F.,iliti- 2, OX 2,000 2, 00O P, OM 2, OW 3, COO 3,000 3;000 3, DOG 3,000 3,000 3, OOO 3,000 3,000 3, 000 3,000 113, OOD rOTAL OF FIM INVES11ENTS 18,750 132, 078 169,396 135,684 72,102 PA, 498 5,989 5,912 5,944 4,174 3, OGO 3, COO 527 07im -80 -79 COD 3' COO -79 El-t,.b.. D,b-t- 4 115 1, 1;9.2 71 3 579 3, 57 -tg- 579 3 MTAL OTHER INW.STMENTS 4,275 1,602 i,602 4,965 3, 28 3,579 3,579 3,579 6,579 3,579 3,579 6,579 8,579 3,579 3,579 3,579 ',6,09 DlVlDENDS 559 7,585 8,063 i6,946 , 36,P85 3285 36,285 36,285 36,85 36,P55 6,285 36,85 36,285 36,P85 36, 21,-, 1132, 2M OF 1- M Mnl-T.1 Fl.t P-Ati- Oblig.ti- 131,128 18,269 13,629 10,830 7, 811 2 921 1,078 426 95 22 --- --- --- --- --- --- IA6, I igi igi 192 5, 51)4 8, 385 8: 386 10,371 10,371 10,37P 10,371 10,180 10,180 10,180 10,180 iu,196 4,773 I -m I., Ph- TI - --- --- 3. 917 1 22,ol8 22,018 22,018 2 1: 101011 .018 22,018 '31, 7 2,607 '18 1 32 11, Oll 11. Oll 22 rML OF  TTMTION 131-319 18, 46c 13,821 16,424 20, 1-13 23,gi4 33,467 117 32: 1. 1 2,19M 32,196 32,2i4 26,791 5 3, TOTAL APPLICATION OF 154,344 99 a2, W4 165,136 u2, 441 65,276 7 , 3 A. '93 76,449 75.062 78.062 80, 0-62 75,062 _ 75D78 -69,655 1. 650, 4,033) 16,957) 33,761 i4,49o 22,254 21,26 11,510 31,116 34,711 13, :111  31, 31 1 40,227 41,966 49,077 356, IX ITIIII LINT T 1 1270 25,685 --- --- --- --- --- 2% 6" 17, 88 731 34, 492 7.,236 94,50- 1 .0, O41 142,607 Ia4,322 I -7, 877 1 251254 1 i2i,48i 333,447 3&. 5T4 38 54 Remark: Spp note on page. 4, ANNEX 15. 11 S I N A 1 S I D E R U R G IC A B D E A I N, A. A. (USIN NA3) PROJECTEED B ALANCE SHEEDS M2L. 11194 TON INBGT FPOGPC.A 1972 1973 9774 1975 c 1976 1977 197. 1979 1980 1991 1902 190' 1984 1985 1906 ASdESE I COBRENT ASSET 70, 073 66, 465 62,925 ,13l, 03l 166,916 191,530 217, 045 _42, 49 274, q6s 30, 87B 341 727 374, 396 413, 919 459,179 520, 550 Cash sd BaAs 21,721 17. 69 791 34, 491 46, 901 71, 236 94, 521 iiS, 041 149, 607 164, 327 217, 077 750, 754, 291, 46i 333, 447 907, 524 Bsh n (Nt) 23, 956 24, 631 32, 792 54, 209 70, 29A 72, 658 74, 908 77, 15 77, 676 76, 920 76, 214 75, 5oS 7o, 02 74,4096 73, 390 Iovsfto, Ass 23,99 29,633 21,09937 11,93? 7 122 A7613 123 47 175 47,173 47123 67 17 23231 47 123 , 47 123 4717 Stores 17, 017 07, 017 03,977 19, 997 '2Tt7~~3 ½3'703 -sitrr 93~70t 9t76Y 73t883 91t09T 417 261814 4 ' '6 7 5Y4 7t 8T RB tlaterlslt 3,693 7,89 4,70 0,777 7,994 7,6834 7,34 73 7,834 7 8,4 7,834 7,834 7, 834 Flntshed Pro -nsOs asS Goods o ProOsS 6,325 6,327 3,177 13,457 14,712 14,712 14, 712 14,712 4, 1112 14,712 14, 712 14712 14712 14,712 14, 712 leporlatoess bqd Osserlal inoTranss,sAoitg! 1,6448 _,70 6 3 ,C90 93 316 3 316 1 3.,316 3.316 3914 39 16 3.316 3 316 3316 3 16 Oter 313 513 313 313 313 513 513 577 519 513 513 519 513 31 513 Lqng Dora AtEets 91932 20 774 77 699 25 979 79 5973 33137 ,367T3± J(3513,3 43,6074 47 453 51,332 54, 6ii 58,90 763 65 940 Ioveshmeohent9s' Tt596- , 455 11,733 15T314 10,89 77,2477 26,051 79,490 33,209 36,1, 4 6 49 946 41, 7,9 5 1 1 04 14. 244 14, 248 11 -"4 14, 14 144 i4 44 14, 244 14, 744 14, 244 i4, 244 14, 244 14, 244 14 744 I4 244 14 244 14, 244 Deferred Ctsges 3 641 41 11,2.15 17,193 10 666 9 517 7 666 6,157 4,651 ;63. 2,4 37 1,379 5429 396 326 Beferrod C got to lerhlzo 9 215 10,915 773A96 "33t363 0,011 t257- 5,09' 4,325 3,710 2,1114 1,003 279 ILI11 W3 -2 aE ns On I - d will Blast --------o...-- Btlses 326 326 926 326 336 926 326 3?6 326 326 326 376 326 326 926 _______-211 5(46 60479 57 23 53~9671 53141 709 469. 778 434, 604 39026 368741 3201 0002 7740 72 ii DLIII ASSETS 392 117 s04446 604,317 - ________ 3 3. 79, .9 91~~~~~~~~~~~~~~~~~(a 74 29 - 90 26.19.9~ Olsot, E1t5lDotont, 5 c. - 590, 991 715T93 5,5 75? 5 b 4 741;5 5639 6DIt5L'4 76 7,7 564 770, 564 ~77t30?9 5A369176 2,5, 0 7536 79 S4 205, S6 Lena: Oiepreoios. 79.6696 . 909_23 179,431 14, 176PF 1_ 4 772 221,943 259,781 297,766 395,9q0 374.297 41293 431 476 490,316 59 59 453 56,627 424, 663 600, 077 703, 337 77, 710 781, 452 773, 465 766, 712 759, 067 758, 000 759, 142 754, 057 750, 4? 764, 906 773, 985 769, 16 LI A B IL I T I E S A ND EQUTO Y 710 T001 I400117707 §3252 I79,15L7 7, "I 56,645 316 5679I-I 5656 26 66,026 56,0o26 54, ol' 50,619' 2 CUos3 BENTss L I(CreerS lasolLecnt of o-g Te DTot) 31 27516 4 773 9 1,09 32, 45 90,011 _ 56 ' o - G _ 32,190 32, 3, 26:791 t Foreign Otonooiog(agrrool Ilstsoa7Sest of L og Iton Oslotl I A -mg Toss LiP3ii eo 134,500 7036982 93,93 1313, 3 O 1 075 157 5 72317 8o-3 22 464 23, C045 p St }. 263,049 3_0.733 { 8 6b'4 | tt}RI 413 499 4| 1 14 .3 _7 _ 27 49,567 176,263 149,55 056 _ 255 L 61 r 01; 959 '9 9 _ 2,5 56 6 Advb=ces r_ r F ture ___itbl In 342 _ _ 320,204 __ | ___ ___ ___ _ ___ ___ 523,90 __ 21 -_ ___3___ ____ '24,9;03 300,077 32Ds,/ Pb "Iz,1 1 b,5 7,6 1 76,212 1 7 ,6, -K9 - 75,. 5,4 589,95 1.9.4:$ 3 109, 73351 /91 55 221,44 25 0 25 5 256 53 0: 9. 554 60 81 95 0 00 41 6 C.P't~~~~~~~~ st-h ,5 255':1525,23,10 57 55 2o 55 75,05525,05 75,5 55 Oo 5557 75,9 CapsOal 10400 6,942 I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~3,12 '15 -5 55 1 Remark: Seeono noterv onp , NE 5 1. 'I 14 --- --- --- --- ---~~~~~~~~~~~~~~~~~~~I T shlos Bsra--, 700 6,po 4,482 I lb, 74706 994 4,9,4,6 949 50 9 479 672,924 69, 260 34227 8,72,11 9 5,Al 10,4 7 690 0,0 20, 507 32, 157 35,025 39,690 43,04 409 __ ___ <66~~~~~~~~~~~~~~~1 1 64 3,9~ , ___~ 46 __ 64 49 _4 AoooealeO.eO hastIest 9:- 745 ~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~67 C71 70 372 -6 - -,H7 16_61 252-1 46-0-N 71 4"4,%,3 00, 77 71~, 1 1 78 173,46 56 16 7 0 96, 079 '738 ,67 2 413s6 75949 94142376 - 763p3j - ~~ L J2Zt'~~ 72.30 £ ___________ 4, 59046670,0 212 5095 75, 42.6- 76,0 7335 Remark: See note on page 4, ANNTEX 15. CD ANNEX 15 Page 4 NOTE ON THE PROJECTED FINANC IAL STATEMENTS OF THE PROJECT The financial projections are based on the assumption that BNDE's future contribution to the financing of the project totals US$lb5.5 million equivalent of which 4h4 are to be in the form of equity and 56% in loans, including deferred financial charges during construction which will be added to the principal. During negotiations, however, agreement was re.ched between the Bank, BNDE and USTMTIAS that BNDE should mpke available funds to USIMTNAS of not less than US'150 million equivelent during project implementetion. To give more flexibility to the Company it was also agreed that: 1. The Company will be free to determine the amounts to be disbursed annually accordirg to its latest forecast of financial requirements. These require- ments can be estimated with greater precision at the end of the fiscal year preceeding the year during which disbursements will take place. 2. The annual disbursements will be devided into capital subscription and loans in such proportions as to achieve and maintain a long-term debt/equit-y ratio of not more than qO: 46.9 ˇ3 3,9 49.4 59.3 eOorll9o7I0 4009401 025 1. -.5 055 1.50- 1.1645, .0 .0< 15 sS 0.0 T.si 1.301 1.03.670 221F' 7l0l031.10R5 36.443, 3940 l 7.4P0 97'71l 115. '1715.5 154.121 I-s 99, 09.48o105. 0..." 1 5- 159110105 - 2o~~~~~~~~~~aoc1el l~~~~~~~~~~~~~. 86i 1.505 2. 400 k a L.55 9 0.5016 5..sCo 1.234 1 sl 6.204 .'.60k10*0.0 - FaIre of Flood boot' ~~~~ ~~~~ ~~~~ ~~~~~70ˇ 70 74 7o4 721 70 00I 7; 724 704 7011, 02' 721 04 1564 - thorn i.66o 1.~~~ ~ ~~~~~~~ ~~~~~~ ~~~~~~~~~~~674 .5' 2.648.k. 14 35 4.5 4.7356 ..s 2 15.56 54ˇ400 Cornt 1oo- tnero 3.61.. 2.66 6s4 126 82 2 -- - 12. 356 - 1,ofoslon ln,no-(Ftaoe 05 -11115005 104 0~ ~ ~~~~~~ ~ ~ ~~~~3 7.312 5.611453 5.660 s.0. 4.624 4.,xk 3.30`9 0.707 7 1. 569 963 769 51.963 - 0002111101 koans.(19~~~~aoo 10' -Interest . - . - 10.903 17.190 15.01 12.445 10.758 9.077 79 ".0 '4.627 53.941627.3 2.295 117.9767 -Ez2.. l- Ton-yono0.oon - -T. -..5 101 1631 4.i56 .i' 2.731 2362013.t - "Oboso 5.~~~ ~ ~~~~~~ ~~~~~~ ~~~~~~~975 3.035 5.2 2.24 I,o4 9.1 11534 , 12.2ˇ 216~6 10.175 1217' jol 479... 12.194., 1551.755 - 111,~~~~~sSo0oF07007l0100o2osl11 1036 ~~~~~~~~~~~~-g,' 6 7 < 29 07 5090 9 97 907 997 990 fl.670 - 1,Ferao,e 2.569 _ 2'169 'kfl,4 505~ ('.0 165 7150 I 796 L.5 .990 0.990 '.00 950 0.590 0.990 106.852 102151214' 7ˇ51254' 2911940 100 ~ ~ ~~~~~~~~~2B 09 2195~ 77-79f 7"Y"i t4' 3092 k5 4 Wo707 97 029 I IW',50V 77676 "T7.52s7 26 13077 7990 1 40376e, 'IG 0 .370.M2 'nocar so 2 5 ~~~~~ ~ ~~~~~ ~ ~~~~~ ~ ~ ~ ~~~~~~2.905 2 474 5 k 4- 480 6 7.72 ~ 0 0.59 11 31 0 1.50ˇ4 ii.p30 4,2305 1. i2 2.066 12.6 1 17 125.61 0'- 70010 1979/86 coal of Gods Id - 12% of 'st sales /For 7-0 d10 939(86 lAl-,slstioe e-pso - o.t of oet soles Remark: See note on page h, ANNhEX 15. 'so CD ::It_ 5 s~r~ a 0S__r___4III Dvv Ro 0_Sgh¢ShY l_ ,_c _rw _Lwr_§o CD4 '4>. 9 s0 8 _ X < _ @I-, g UM 1i' # go U ~ ~ ~ ~~|2 ts 4| | |rll i | |S u | USINAS SIDERG1ICAS DIE MINAS GERAIS S.A.(USIMINAS) PE4OJ1xCrD BA LANCE S1EWrS 3.5 MILLONS TON INGOT PROCRAm4 (us- 1.00c) ___________________________________________ 1972 ~~~1973 1974 = 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 CUJRRE74T ASSTSF 70.073 66.465 62.925 128.940 153.817 143.423 186.890 241.486 331.437 422.319 512.732 603.673 702.1979 8103.0153 911.303 Cash and Banks 2171 TI 3 032 35.83 23.129 506979 6.6 5362 35.5 ~536.43 ~~ .1 Re~'elvables (Net) 23.956 24.381 32.792 54.289 70.298, 72.6581 83.653 95.243 108.235 107.238 106.241 10D5.244 104.247 103.250 102.253 Invent-'riez 23.883 23.B83 28.889 43.746 471.123 47.123 52.065 55.911 60.926 60.926 6o.926 6o.926 60.926 60.926 6o.926 (t4~erz 513 513 513 513 513 513 513 513 513 513 513 513 513 513 513 Long T-rz A2csets 19.132 20.734 22.699 .25.979 29.558 33.137 37.270 .41.8993 47.08P 52.283 57.478 62.673 67.868 73.063 78.25,8 __ ~~~~~~~~~~~~~~~~~~~~~ ~~~~~ .455 11.735 15.3,14 18.893 23.026 27T649 32.844 38.039 43.234 48.429 53624 5881 64.014 C 1~~~~~~~~~~~~~~~~~~~4.244 14.244 i4.244 14.244 14.244 14.244 14.244f 14.244 14.24) 14.244 14.244 14.244 14.244 14.244 14.244 0eferr~~~~~~ '"-~~~~~ e~~~ '.541 ~~~~~~~78 1~~1.241 12.9 5 106) 1 12. 53F, 143- 15.899 1331 194 *~ 3~8 6-i.757 --799 - -3.598gT 2.520 Flx~l 332.1117 1506.468 606.512 615-506 629.344 690.865 678.9(5 637.675 593.-571 549.244 504.694 459.921 414.925 369.576 324.134 <.t., ~~~~~~~ eta. '11.~~~~~~~~936 597.391 715.943 77' 1.1692 q0 4'2.337 5-3 949.337 953.337 957.337 961.337 ---5 3-3 89-953-7 973.337 :~:-,e-lation 79.869 90.923 109.431 146.768 184.272 221.94-3 263.372 307.662 355.766, 404.0193 452.643 501.416 550.412 599.761 649.203 424.863 600.077 703.377 782.6,05 823_.405 7991917T.528 936.953 98.0 .3.7 .8.4 .3.2 .8.7 1 24929 136.215 _______________ ~~~~~~~~~~~~~27.252 29.855 35.773, 46. ;257 57. -)' 59.812 (4.495 65.805 (,7.461 C7. VS1 67.461 67.46i 67.477 62.?3L 57.727 13.821 16.424 20.11' 23,.914 43..7 35.984 4.81- 9 38.-745 -8. 532 38.-53 38.532 38.532 38.-544, 33.305 28.798 P. s -,I 3.41 13.431 15.666 23 43 ~2'.8 23.8 F28 25.676, 27.075 28.9)29 25.929 28.929 98.92; 28.929 28.929 28.929 1002L 1~-54.5). 523,9-P 339.322, 3'7.10r ~2 426) 205 30(9.171 270.426 2 31.6914 193.362 15.80 -r-775 77.750 45ii,:; Eg' )1ty 2(63.043 300. 233 '-28.-286 399. -5-7 L-36. 662 1477.9149 543.66,8,' 600.707 686-054 774.151i 861.556 949.265~ 1.o44.644 1.142.611 1.242.841 205;515 221.442 23512 55756 257' 255.05'. '78-05, -2353--T~,- -257)-5.05 -2-55-.05r 255.056 255.o5 55056------05U 2P5-5.056 2555 . re 2~~~~~~~pita1 8~~~~F.3142 5.616 2.99 - - ---- ---ca e R-e v - -----. a- --erye I.1 .8 .2 221 1.3 46) '1.-794 -36.754 J45.-744 54. 7-4 60.724 64.714 73. 704 82.694 9164 r ~~~~~~~~~ ~~~~~~ 3~~~~-.227 4.822 6.1i82 9. 76) 1249 15,.421 19.649) A~.49P8 -,0.693 37.040 13.514 50.Il4 56.86i 63.750 70.764 ~~~~~':nss ~~~~~~~~~42. 2V4 62.071 77.370 121.9(3, 150.657 I1P6P. F8(, 237.3631 284.-399 3154.561 427.3--21 502.262 579. 381 659.023 74i.111 825.337 4724. 863 60.77 1703.377 1 f2.62 82.0 P79.9(1 97589.93 8.09134.97T4 1. Ce3.847 1.1313.024 .1.189.8'71 1.2149.290 1.316.215 Remark: See Note on page I4, ANNIEX iS. lnijstrial Projects DePartmnent Yarc.. -L$72 FOREIGN CURRENCY SAVINGS 1. Gross Savings in Foreign Currency Due to Steel Production 1/ Present Facilities Completion of the 2.b Million TPY Raw Steel Products Average Feb. 1971 Gross Savings (1971) Exoansion Scheme (1977) CIF Price Output Savings Output Gross Savings (US$ I ton) (1,000 tons) (US$ Million) (1,000 tons) (US$ Million) Plates 148 263 4,b4700 103,6.00 Hot Rolled Coils 126 147 18,552 576 72,576 Hot Rolled Sheets 143 87 12,bhl 153 21,879 Cold Ro3led Coils 1.53 30 4,590 140 21,420 Cold Rolled Sheets 163 132 21 516 290 47 270 -67-9 159 __ Total 2. Foreign Exchange Expense and Fore- goings Incurred in Operation Items February 1971 Present Facilities (1971) After CoTpletion of the 2.4 Million TPY CIF Price Input Foreign Currency Raw Steel Expansion Scheme (1977) (US$ 1 ton) (1,000 tons) Cost (US$ Mill.) Input Foreign Currency Cost (1,000 tons) (US.$ Million) Iron Ore Exp,prts Foregone- 4.75 1,121 5,325 3,406 16,179 Imported High Volatile Coal 24.60 357 8,782 855 21,033 Imported Low Volatile Coal 27.80 160 4,448 454 12,621 Other Raw Mate2)als and Supplies- 4,200 - 13,100 Debt Repayment - 191 - 5,773 Pbase I - - - 16,596 Phase II Interest on Debt _ 201 - 3,375 Phase I - - - 13,902 Phase II 23,147 102,579 3. Net Foreign Exchange Savings: (1) - (2) 75,836 161L,166 1/ F.O. B. Europe price plus freight charges 2/ Includes 30% of "other consumption materials", 100% of "refractory costs", 25% of fuel costs, 50% of "working roll" costs 3/ Estimated net foreign currency earnings in case of iron ore exports Industrial Projects Department March 1972 Brazil USINAS SIDERURGICAS DE MINAS GERAIS-USIMINAS FLOW CHART OF PROCESS G~ 8._- Lb 5u, l-_ _ A_- y 000 METRIC TONS (1976) 6 . ....... _,__,._ _c_ E_; rPlates 700 Sheets . _ _ Z s s FwoIo_ _ _ _ I -i ~~~~~~~~~~~~ kaL~~~~~~~~~~Kii C~~~~~Ho ollRed 506 LI___ L' So., C o l . Cors/B*w_xIs A,C 4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 4 k _ ^ 1 , .- ~~~~~~~~~~~~~~~~~~~~~~~~C o ld R ol lecl 29 0 _ {.,. _ _r i/ s _ et .zn *]- ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Sheets a | L 4 5 _ t To-rbfB t . Sisng >*J l qL Coll PrepoIulso oe C RJ.!@d 206~~old R,!ed 20 _r C ods: zr Go. To Go. To 01 5 ,SX2 cBy products 1 84n Industrial Projects Department Marca `972 ANi-X 25 IISI\ XS SII)ERUR(GI(AS I)E UINA (;R XIS i1SIN4IN S Nf 1XI 51 r\ RI' 14LS *XNII PROI)tll( 1iS l'l f)W 1)1 X(;R XM1 "'e 1 SlabOrr 106 ".I I i 20 (000 SI0 SINTFRIN( I'[ %NI | OKL O}VEN likl T IRILS 89t 2- 1 4n in x I 0 0 ~\i1hm S 4 ni I 100 v ; = I 0i00 o-13c =7 t;y Il\N-'k%t (.1 NI,R \ IORS BLAS1' Ft RNA( IS 2 800 11 t,h x 2 ' 80-0 zzl'h x 2 h 9S7dCilj .295' 13 y 70 .000 ! I I 1, ; .N 2c1 2,67e00(Ot 1100 N"l I STEEl MAKIN( Ii 1'N1N| LIME CALf'lNING PLANT N'l 21 Sl'f tI M %KING ' N bN t th v 2 os | h x 2 ~~~~~~SO I d t 3, S0 IN J%_11 Sl e l 700 rI 20100 1 PrelIId Col 50OAKING PI | CONTINUtl1 S AS 1[ING I'lAN'I ) |4 Pit' , S hbl .i \b a 1 Stee lyl h , - Sem.s Fhmzhed 'lh SlANBBIN(M oILL I ! H I 2 111 G I ~Sa 00,000 Slab 1, ; 1060006I SI b s I' sIl S1.1, 2 1 *o.noo 1/y IT Sl,ib s5s 000 e Co f Slal 16275000000 N RtlSii , UlNG I DRNA('I REHEATINNi FtI RN ICt OI'LAT SHEA RINC LINE 1 |HOT STbIP MILL _| b (D3~~~~~~~~~ " , I L- ColdoileoHot Rolled Coil 1 1215000 t0y 4 2 230,000 t/v | | H,)I Rolled C,,.1. l00.000 ' y 700000 iRy LE S N LIKNLINCi LINEI 6 6' x 1 6665 HOTROLLEDSIIEFI 66' xl ~~~~~~~~~~~~~ ~~~~~~~~~56' 56s' l56S 146.000 fpkyd .,I 611 noo v WWI 2 v00 y 5 i 515000' I ly HOT SKIN PASS LINF I I o Sale = 0 iJ b66-(5,) N i| b6"(''1t I I| - I | Hot Rolled|f od Rollfoo Sale l 9R6l000 le h ffi ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~O6OO' 2q.o 1000.y , r *000 I *i I ANNEALING' FLIRNACtS .3.000 l/y -1fi00 I/ 23 fI -e 3 6 f NO SHE I IE I5.0tY61 fbuasne, | 916 -rAc L 0 S0' I I 0'I I I -stra Projects DepartmPassednt Cold Rolld Cod 972.000 ly l ~~~~~~~227.000 t/y I 210001! I 02 0001,y l | jf ~~~~~~~~~~~~~~~~~~~~~RECOILiNO LINE _ k;SHEARI LIN HOT ROLLED SHEE T t L 146,000 1/y ~ ~~~~~~~~~~~Cold Rolled I Coil for Sale odRo d She't 206.000 i/y 290.000 I iv 0 Y ielil Industrial Pro jects Depasrtment March 1972 46 2- BRAZIL L LOCATION OF THE THREE MAJOR FLAT STEEL PRODUCERS A Plonts of Major Flat Steel Producers |SAO RAULO |Principal Domestic Markets for Flat Steel Products rVII=FiA 1 Seaports for Dispatch of Exports Roads for Flat Steel Transport Railways for Flat Steel Transport (Broad Gauge) Railways for Flot Steel Transport (Narrow Gauge) _ Z2ˇz~ Rivers X ~~~~~~State Boundaries 2O^ 20 a 20 4u 60 so ( 00-- k < <4'\ h / < | J ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~E S P I R I T O 22I / s9 (/ S J ,/ 2 J~~~~~~~~~~~~~~~~~~~ A N T I 0 P A U/L O £/ S > . - - : RI N A S G E R A I v o COPJ E - N E R n \ q2v ~~~~~~~~~~~~~~~~~A t a n t S c ea nt-0 4eI%tEMBER 1971 ~ ~ t ' S ;'; ^ 44e 42 \0VEMBER 1071 IBRD-3662 412 46' 44' BRAZIL USIMINAS, LOCATION OF PLANT AND RAW MATERIAL SOURCES LIMESTONE Matosinhos ----Railway 320 KM A USIMINAS Plant IRON ORE Itabira------ Railway 100 KM - - - l | RailwaysINarrow Gauge) COAL (Domesthc and ~Impo rtIed Rad Parto Vitaria--- Railway 440 KM State Boundaries (USIMINAS) DOLOMITE Belo Horizonte--- Road 225 KM 4)METONE MANGANESE ORE Rio Acima---- Railway 360 KM Itbir- Lafaiere-----Railway 375 KM DOLOMITE HORIZONTE /f -20- > ~~~~~~~20 0 20 40 00 ao 155>i MMANGAANENSEGCORE E - \ a < 1 ~~~~~~~~~~~~~~~~~S A N T 0 \ M I N A S G E R A I I , -22- ( ~ 2 22- '' r-<\ ~~~~~~~~R I O D E J A N E I R O 0 S A O P A U L O 0 JA-ER C .--'8w PWSAO PAULO (,r 40 u-~~~~~~~~~~~A 42- ,.IR-6. NOVEMBER 1971 IR-6