According to Time Magazine (December 16, 1966), foreign investors have gained control of 50% of Brazilian industry since the April 1964 coup which overthrew President Joao Goulart. President Castelo Branco's austerity program, designed by Economics Minister Roberto Campos and his AID, International Monetary Fund and World Bank advisers, created the conditions which enabled this takeover. The austerity program tightened credit available for company day-to-day financing and expansion. Consequently, large global corporations of the major industrial powers, especially those of the United States, with their access to extensive capital resources, were able to purchase capital-starved Brazilian companies for as little as 40% of their assets.
The post-coup rapid foreign take-over of rail's existing productive facilities is accompanied by a similar take-over of her as yet undeveloped mineral wealth. One of Brazil's potentially most exploitable resources is high grade iron ore, of which she holds one-fifth of the world's known reserves, or 35 billion tons. Brazil's deposits, like those of Canada, Australia and Venezuela, have taken on strategic importance for U.S. iron ore producers since the post World War II depletion of their primary domestic source of supply, the Mesabi range in the Great lakes area.
This foreign exploitation of Brazilian mineral wealth, especially her iron ore deposits, was made possible by the mineral code, one of the major decrees promulgated by the Castelo Branco administration. The principal benefactor of the code was the third largest U.S. iron ore producer, the Cleveland-based Hanna Mining Company, which was granted rights to mine Brazil's richest iron ore deposit - high grade hematite - in Minas Gerais.
Hanna's interest in the deposit dates back to 1956 when the company began buying, on the London exchange, the stock of an old British gold mining company which owned the land where the deposit was located - St. John D'el Rey Mining Company, Ltd. Hanna bought 52% of the St. John stock, thus giving her control of the company. At the same time, Leo Model (of the Wall Street investment banking firm Model, Roland & Co., which is closely associated with Rothschild interests) and his associates acquired 23% of the stock. Under an agreement worked out with Hanna, Leo Model became St. John D'el Roy board chairman. St. John then formed a Brazilian subsidiary, Companhia de Mineracao Novalimense, to exploit the iron ore deposit. St. John sold the original gold mine to a new company formed by Brazilian interests, Mineracao Morro Velho S.A., in exchange for 25% of its stock (see accompanying chart).
St. Johnts charter granting mineral exploitation rights to the company, dates from 1833, well before the passage of Brazil's 1954 Mineral Code, which, like most nationalist-inspired Latin American mining codes, classified subsoil rights as public domain. Hanna officials therefore assumed there would be no legal obstacle to its mining the iron ore deposit and did not foresee the outburst of opposition in the Brazilian press and nationalist political circles represented in Congress. The most formidable adversary against Hanna's right to mine the ore was the government-controlled iron ore company, Companhia Vale do Rio Doce. Partly financed by U.S. Export-Import Bank loans, Rio Doce had been established during World War II to help meet Allied iron ore needs and became a lucrative and efficient enterprise operating at a 40% profit.
The nationalist administrators of the company contended that they should develop the Minas Gerais iron ore deposits. As a result of their agitation, the Brazilian congress launched an inquiry into the project. In 1961 the newly-elected president, Janio Quadros, initiated his own investigation which turned up a number of legal points at which Hanna's legal rights to the ore might be challenged. After Quadros' resignation, his successor, Goulart, used these points as the basis of an expropriation decree issued in 1962.
Hanna challenged the decree in the Brazilian courts. By the time of the coup against Goulart, the case had reached the Federal Court of Appeals (the Supreme Court) which was dominated by nationalist judges who, as most observers agreed, were most assuredly going to uphold the government's right to expropriate.
As Fortune Magazine stated in its April 1965 article, "Immovable Mountains," "For Manna, the revolt that overthrew Goulart last spring arrived like a last minute rescue by the First Cavalry." On December 24, 1964, Castelo Branco promulgated a presidential decree which reversed the Goulart administration trend toward a government mineral monopoly by endorsing private development of Brazil's iron ore reserves. The decree also endorsed Hanna's plans to build loading facilities at Sepetiba Bay, an undeveloped deep water harbor 60 miles south of Rio, and to construct a railway cutoff from the government-owned Central do Brasil railroad to the bay. On June 15, 1966, a reconstituted Federal Court of Appeals handed down a decision favoring Hanna's right to exploit the ore deposits.
The Castelo Branco administration's endorsement of Hanna's right to exploit Brazil's richest iron ore deposits constituted one of the central issues precipitating the post-coup split in the ranks of the anti-Goulart politicians and businessmen who, with U.S. backing, had organized the coup. Carlos Lacerda, governor of Guanabara, and Jose Magalhaes Pinto, governor of Minas Gerais (where Hanna holds its concessions) represent the nationalist right-wing small businessmen (whose major organization, Instituto do Pesquisas e Estudios Sociais - Institute of Social Research and Studies - resembles and keeps in touch with such U.S. counterparts as the Foundation for Economic Education in Irving-on-Hudson, N.Y.). Though opposed to socialist organization of the economy, as seemingly advocated by Goulart and his leftist-controlled labor constituency, the nationalist right wing is antagonistic to further foreign penetration which is resulting in the take-over of their businesses. Those Brazilian business leaders who preside over large industrial complexes, such as Antunes in mining and Clabine in paper manufacturing, tend, on the other hand, to welcome foreign capital. They can reap greater profits by incorporating their industrial holdings into oint ventures of foreign investors.
One of the more wealthy Brazilian businessmen, Augusto Tranhano de Azevedo Antunes (worth 100 million), has amalgamated his iron ore holdings with those of Hanna Mining to form a joint venture, Mineracoes Brasileiras Reunidas (MBR), of which he owns 51%. Antunes also includes in his mineral empire a similar joint venture with Bethlehem Steel Corporation, Industria e Comercio de Minerios S.A. (ICOMI), which mines manganese in the state of Amapa. While Antunes holds 51% of the stock in both joint ventures, he has yielded control by signing management contracts with the American firms.
Antunes is further involved with both Hanna and Bethlehem (also with Thyssen and Furst, two Austrian concerns) in a consortium organized to invest $200 million in an ore port at Sepetiba Bay and $400 million in a steel smelter at Tubarao, a deep-water harbor north of Rio in the state of Espitito Santo. The hematite mined in Minas Gerais will be shipped by rail to the two ports. At Sepetiba Bay the ore will be loaded into ships for export to the industrial nations. At Tubarao, the ore will be processed into steel also intended for export.
Both projects are designed to make Brazil a major supplier of steel and iron for world markets, thus offsetting her dependence on coffee exports as a source of foreign exchange. The combined steel and iron ore operations are expected to yield export earnings of $300 million a year by 1970 (in 1965, Brazil's total export earnings were $1.6 billion). Brazil currently exports 10 million tons of iron ore and three million tons of steel annually. The consortium projects at Sepetiba Bay and Tubarao are expected to double both figures.
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The story of Hanna's capture of control over one of Brazil's most valuable resources is incomplete without a study of the large Cleveland-based industrial complex of which Hanna Mining Company is a part. This complex includes not only the third largest U.S. iron ore producer (Hanna), but also the fifth largest steel company, National Steel, the largest coal producer, Consolidation Coal, and the third largest automobile producer, Chrysler (fifth largest U.S. corporation). Furthermore, it is necessary to study the two men, George M. Humphrey and George Love, who have assembled this empire to enrich themselves and their families. This industrial complex is one of the bulwarks of a mid-west Republican political power base more-or-less independent of East Coast control. The political connections made by George Humphrey when he was Secretary of the Treasury in the Eisenhower administration (a post he gained as a financial backer of Taft, who lost the Republican presidential nomination to Eisenhower) were crucial to Hanna's success in acquiring control of the Minas Gerais hematite deposit. John W.F. Dulles, son of Eisenhower's Secretary of State, and John J. McCloy, at that time board chairman of the Rockefeller-controlled Chase Manhattan Bank, as well as Humphrey himself, made strategic visits to Brazilian officials at critical moments in Hanna's struggle to gain the iron ore concession. Part II of this series will examine the Hanna Mining power base in the United States.
* The difference in outlook between those two business sectors is further reflected in their attitude towards the formation of a Latin American Common Market. Unable to compete against large global enterprises with their sophisticated technology, marketing facilities and access to capital, the small Brazilian businessmen prefer high tariffs to protect their fledgling industries.
Most of the documentation for the above article was taken from the following sources: "Brazil's Chief Miner," Fortune, April 1966; "Immovable Mountains," Fortune, April 1965; "Iron Ore Deal Raises Squabble," Business Week, July 23, 1960; Juan de Onis dispatches to The New York Times, May 6, 1966 and December 22, 1965; "This is Why Huge Brazil May Some Day Become Another Vietnam," IF. Stone's Weekly, March 7, 1966; Hanna Mining Company and St. John Del Rey, Ltd. annual reports; Oglesby, Carl and Shaull, Richard, Containment and Change, Macmillan, 1967, pp. 83-97.
