July 21, 2009 - No. 142

No to Demands for Concessions

Victory to Vale Inco Workers!

• July 17 Rally at Vale Inco's Copper Cliff Smelter
• Vale Insists All Units Must Be "Cash-Flow Positive" - K.C. Adams

July 17 Rally at Vale Inco's Copper Cliff Smelter

On July 17, striking Vale Inco workers in Sudbury organized a rally at the entrance to Vale Inco's Copper Cliff Smelter to express their continued opposition to Vale Inco and its demands for concessions on pensions, nickel bonus and seniority. The main speaker at the rally was United Steelworkers International President Leo Gerard who began his working career at Inco's nickel refinery in the nineteen sixties.

Gerard said this strike is not about money and it's not about profit. "This is about a company that wants to come to Sudbury and rob us of our history and our future," Gerard said. Gerard warned strikers to hang tough and to hang together. "It could be long. The snow may come and go, but we'll still be here one day longer (than Vale Inco) until they recognize they can't rob us of our history, they can't rob us of our dignity and they can't rob us of our future," he said.

Members are not prepared to accept a contract that sets them back 30 years, Gerard said. He denounced Vale SA president and CEO, Roger Agnelli, for saying the company's Sudbury operations are not sustainable. "The CEO has got the gall -- the gall -- to say these mines can't be run at these kinds of prices," Gerard said, noting Vale Inco has made more than $4 billion since it purchased the company -- twice as much as the old Inco made in the previous 10 years.

The rally was also addressed by USW Local 6500 president John Fera and former local president Homer Seguin as well as by local MPs and MPPs, Claude Gravelle, Glenn Thibeault and Frances Gelinas.

Vale Insists All Units Must Be "Cash-Flow Positive"

- K.C. Adams -

USW Local 6500 at the Vale Inco Copper Cliff facility, in opposition to concessions and in defence
of the rights of new hires, July 13, 2009.

Don't we all wish to be cash-flow positive.

This expression reflects the narrow outlook of monopoly capitalism and its subjective egocentrism. In business, the expression "cash flow" is generally descriptive of a management practice organizing incoming and outgoing streams of cash. This involves arranging purchase of material inventory and other expenses with income from sales of goods and services. Even healthy companies do not always have a positive cash flow for reasons outside their control, which necessitates a line of credit. Also, emergencies such as the current economic crisis wrecking sales and freezing credit can make a positive cash flow impossible and bankruptcy a possibility for otherwise strong companies.

Vale removes the verb "to have" from the expression and turns a fairly routine management practice organizing cash flow, into an absolute noun phrase or predicate using the copular or linking verb "to be": to be "cash-flow positive."

Vale is or will be cash-flow positive in all business cycles according to its directors. Vale and each of its operations are or will be "cash-flow positive" or else.

This is silly posturing, which even goes against normal business practice. Just imagine every business "being cash-flow positive" in the normal course of buying and selling, without the intervention of credit either in the form of a line of credit or bills of exchange. Capitalism would grind to a halt rather quickly.

Vale's absolute (cash-flow positive) expresses a desire of monopoly right to dominate as an empire and dictate terms to others not just workers but suppliers and buyers of their goods, and demand that all serve its empire as subjects. Vale even hypocritically denies the role of credit in maintaining an effective cash flow that does not damage a company's interests. It also denies the role of credit in the expansion of production (extended reproduction) even though Vale is one of the largest borrowers in the world and an active participant in the financial sector as trader of derivatives, hedger and lender.

Capitalism cannot function with all companies simultaneously "being cash-flow positive." This would require a level of cooperation and planning in contradiction with capitalism's division of the socialized economy into competing privately-owned parts. Originally, credit from industrial capital having been transformed into loanable capital, especially bills of exchange, allowed capitalism to function and extend reproduction. But expansion through credit inevitably gives way to surplus goods and services that cannot be realized because the masses are relatively and absolutely impoverished and incapable of buying them.

The business cycle is now global and more destructive given such practices as monopoly control of prices above or below their prices of production, the siphoning of value into the financial sector and its parasitic practice of making money out of money, which draws even more wealth into the financial oligarchy. These practices promote anarchy in the production of goods and services, uneven development or underdevelopment of economies, infrastructure and the delivery of social programs and tend to impoverish the working class and poor countries even further especially in relation to the capacity of modern means of production. This contributes to global and national trends towards a growing gap between rich and poor, the concentration of wealth and power in fewer hands and powerful global monopolies that can even manipulate and dominate states. The most powerful imperialist countries such as the U.S. Empire spend enormous sums on weaponry and waging war to capture sources of raw material, markets and spheres of influence all of which generates more severe and longer-lasting economic crises.

Not all businesses have equal opportunity in the world of monopoly right. The state and the savings of the masses have become the largest creditor and source to manage cash-flow for those with political power. This results in business winners and losers according to who benefits from pay the rich schemes. The investment bank Goldman Sachs is a winner because it had its chairperson and significant shareholder Henry Paulson as secretary of the U.S. Treasury doling it billions of Troubled Asset Relief Program (TARP) dollars, a pay-the-rich scheme that has continued under President Barack Obama's Treasury Secretary Timothy Geithner who as former president of the Federal Reserve Bank of New York comes from the same monopoly capitalist cabal.

Looking at Vale's 2008 Financial Report

For a time, monopolies can manipulate market prices to generate positive cash flows beyond a capitalist's wildest dreams. Vale had a positive cash flow of almost $20 billion in 2008 mainly from high market prices and despite paying $2 billion in interest and fees, losing over a billion dollars in trading derivatives, and being in an industry that is subjected to extreme tension from a falling rate of return on invested capital because of industrial productivity.

Vale's 2008 report gives general details of the claims of "personnel," those who produce and deliver its social product. The claims of Vale workers on the added-value they produced in 2008 are quite small compared with the enormous costs of circulating and fixed capital (material consumed during the production process plus expenses from such items as contracting out machinery repair), which are called transferred-value. Using capital-centred accounting, Vale lumps together workers' claims on added-value with costs of production (transferred-value) into one category it calls "costs of goods sold (COGS)." Of the total "costs of goods sold," "personnel expenses" or claims of workers on added-value accounted for only 12.1 percent ($2.139 billion) out of the total COGS ($17.641 billion).

Added-value is the value contributed by Vale workers transforming raw material into use-value. Added-value is the additional value generated by the work-time of workers from which workers can claim their wages, benefits and pensions, owners of capital can claim profit of enterprise, interest, fees and rent, and governments can claim taxes.

Added-value claimed by Vale workers = $2.139 billion. To review added-value claimed by owners of capital and government see Vale's 2008 report.

Transferred-value is the already produced use-value that is consumed in the production process. The use-value is transferred to the new social product and recouped when the new social product is realized (sold). Transferred-value does not represent new value and consequently cannot be the object of claims. Capital-centred accounting has no categories for transferred-value and added-value.

A partial view of Vale's transferred-value can be obtained by deducting workers' claim on added-value (personnel) from COGS: $17.641 billion minus $2.139 billion = $15.502 billion.

This shows the enormous amount of capital employed to activate the working class and generate added-value from which owners of capital can claim profit. This is a major cause of crisis within the capitalist system as the rate of return on invested capital trends in inverse direction to the development of industrial productivity. Monopolies try to overcome this trend in many ways such as pressuring workers to make concessions, directing the state to give them public funds, setting market prices for their social product above prices of production, forcing down market prices of those products and services consumed during the production process and using the pooled savings of workers as a source of investment capital and credit under the control of monopoly capital. All these monopoly practices contribute to causing recurring economic crises.

To gain a feel for how capital-intensive mining and refining has become compare workers' 2008 claims on added-value with Vale's gross annual income of $38.509 billion. Workers' claim of $2.139 billion out of a gross income of $38.509 billion is but 5.6 percent. However, it is important to keep in mind that Vale's 2008 gross income is distorted upwards by the wildly inflated market prices for basic commodities, which continued for most of 2008 based on prior sales contracts. Those inflated prices have caused economic disruption and extreme friction around the world as can be seen in the bitter dispute between China and Rio Tinto, the Anglo-U.S. global mining and financial monopoly.

Squeezing that 5.6 percent or 12.1 percent relative to Vale's COGS is not going to solve the problem of a falling rate of return on invested capital. But importantly for owners of capital, lowering workers' claims does transfer revenue from workers' pockets to profit of enterprise, and for owners of capital that is a big deal. It does not solve any problem related to the economic crisis or the problem of a trend towards a lower rate of return on invested capital but for owners of Vale capital it would transfer workers' money directly into their already bulging pockets and that is good even though it will have a negative effect on the socialized economy generally.

Workers' claims of $2.139 billion in 2008 comes directly out of realized added-value which is the only source of claims for workers, profit of enterprise, interest, fees, rent and taxes. (See Table 4 in attached Vale 2008 Report for itemized claims)

Reducing the actual costs of production (transferred-value) may be considered important at times but generally, a reduction in transferred-value only results in an equivalent reduction in the value of production. Better productivity can reduce costs per unit of production, which helps a monopoly compete, but results in an accelerated lowering of the rate of return on investment. The trend of rising relative costs of production (the percentage of transferred-value per unit of production compared with added-value from workers) through increased productivity is a well established capitalist trend, which results in fewer workers producing an equivalent social product and the unintended consequence of less added-value per unit of investment. The relative size of added-value is reduced compared with the actual costs of production resulting in a drop in the rate of return on invested capital even if workers' wages and benefits were slashed to near zero.

Note also that under capital-centred accounting costs for fixed capital other than repair work that is contracted out is not reported in the total of "costs of goods sold." The transfer of value from machines and buildings to the social product and returned as a realized cost of production is listed under "income" not as an expenditure returned.

"Depreciation, amortization & exhaustion = $2.807 billion for 2008."

This is the amount (of transferred-value) returned to the monopoly when social product is sold to compensate for the original purchase of machines etc. Fixed means of production are consumed little by little and their original purchase price is returned as the machines transfer their value to the new social product. The transfer of value is income only in the sense of being part of the gross income but should not be considered income in the same sense as realized added-value, which is new value contributed by the work-time of Vale workers. Fixed transferred-value does not represent anything in addition to the value of plants and machines transferred to the social product.

The original purchase price of fixed capital goods such as machines is reported as "Cash flows from investing activities -- Item: Additions to property, plant and equipment (2008) = $8.972 billion." The total amount is listed as a deduction from gross income and as it is transferred to new production in coming years, it is listed as "income."

Note that the 2008 reported total of depreciation, amortization & exhaustion of fixed capital (fixed transferred-value of $2.807 billion) is greater than the claims of personnel on added-value ($2.139 billion).

In its 2008 report, Vale describes the "miracle" of the explosive growth of its empire and "Net cash provided by operating activities" (almost $20 billion) with these self-serving words:

"During the expansionary cycle, maximization of production was key to maximizing value and we had managed to grow our aggregate output of bulk and non-ferrous mineral products by a compound annual average rate of 11.2% since 2003."

Vale here fails to mention that most of the "compound average rate of" growth resulted from leveraged acquisitions (Inco etc.) and the spike in basic commodity prices. Vale partially hints at these phenomena admitting that remarkably high market prices contributed to its positive cash flow in 2008:

"In 2008, our gross operating revenues [gross income] achieved a historical high of US$38.509 billion, 16.3% up on the US$33.115 billion reached in 2007.

"Higher prices of products contributed with US$4.932 billion, 91.4% of the total increase of US$5.394 billion over 2007, while sales volume growth added US$462 million."

The power of positive pricing! Of course, those monopoly prices played a significant role in wrecking the socialized economies of many countries and other sectors but all is for the best when it serves the empire and its drive to be "cash-flow positive."

The "expansionary cycle" has ended and Vale has changed its tactics to meet the economic crisis, which it helped create. Market prices have come down considerably but not to previous lows but still that way of achieving a positive cash-flow is now temporarily blocked. The expansionary cycle left Vale with a stupendous positive cash-flow but also with a large debt. The big positive cash flow is now gone but the debt must be serviced whatever the prices of basic commodities may be in the coming years. And word from Vale is that it is going to use its cash reserves as collateral to borrow more to acquire even more properties to grow its empire (e.g., its planned acquisition of U.S. fertilizer monopoly Mosaic Co. for $20 billion now controlled by Cargill).

During what Vale calls the current "contractionary" period, the report says: "The priority has moved to cost minimization as an important tool for value creation [sic] and we are seeking that goal through several initiatives to reduce operational and investment costs."

"Value creation" for owners of Vale equity will come from reducing the claims of Vale workers on the added-value they produce during this "contractionary" period. Interesting conception of creating value by stealing the claims of workers on the added-value they have produced. This parasitic idea comes from the same monopoly capitalist minds that think money can be expanded in the financial sector without going back into the goods producing sectors or that something can be consumed without having been produced.

Also, "value creation" is impossible through reducing the costs of production unless monopoly control of market prices forces them above the prices of production. "Value creation" by stealing workers' claims on added-value is what is behind Vale's insistence on all business units being "cash-flow positive" during all business cycles. It is propaganda to fool workers and middle strata that do not consciously unite and defend their rights and the rights of all in the class struggle against monopoly right. This propaganda ties in with the unscientific insistence that concessions are somehow solutions to the economic crisis, which they are not. An opening round in this battle is Vale's demand for concessions from Vale-Inco miners and refiners. Defeating Vale's anti-worker anti-social campaign for concessions under the hoax of "being cash-flow positive" is extremely important not just for Vale-Inco workers but all Canadians and their socialized economy.

To be continued: The other issue of each business unit being "cash flow positive" is reminiscent of the Brookfield gang's division of Stelco into competing units when it emerged in 2006 from the bankruptcy fraud. Either Brookfield would sell each unit individually for this or that scheme such as liquidate Hilton Works or sell rump Stelco to the highest bidder, which it did to U.S. Steel. Each business unit of Vale is told that it must stand on its own and be "cash-flow positive" or else it will be liquidated. The anti-Canadian part of the campaign has begun with words in the Vale 2008 Report that the Thompson Mine in Manitoba is "not cost effective" and the Sudbury operations, according to Vale CEO Agnelli are "not sustainable."

For Your Information
Selection from Vale 2008 Report

[...] Vale is well prepared to weather the down cycle given its world-class low-cost assets and financial strength. Minimizing costs, maintaining flexibility, and reconciling cash preservation with the pursuit of profitable growth options have assumed paramount importance for dealing with the current recessive scenario.

During the expansionary cycle, maximization of production was key to maximizing value and we had managed to grow our aggregate output of bulk and non-ferrous mineral products by a compound annual average rate of 11.2% since 2003. Now the priority has moved to cost minimization as an important tool for value creation and we are seeking that goal through several initiatives to reduce operational and investment costs.

Given the high level of uncertainty still prevailing, preventing the elaboration of a clear view of market trends in the near future, flexibility in managing production and capex execution is also a priority.

We have maintained the minimum dividend for 2009 at the same level as 2008[5], a year of record cash flow generation, in an effort to satisfy the short-term aspirations of our shareholders, especially in face of a much less liquid world.

On the investment front, we are executing organic growth projects whose development had begun in the past years and which are strategic priorities.

Simultaneously, we are taking advantage of our large cash availability to exploit the acquisition growth path to acquire new platforms of future value creation in iron ore, coal, copper and potash, such as the transactions announced over the last couple of months.

We remain strongly committed to maintain financial flexibility to continue to pursue long-term growth and shareholder value creation. Our goal is to remain at the forefront of shareholder value creation, having our world-class assets generating returns far beyond the industry.

The global economy is under great strain but it is important to realize that despite the depth of the recession it is a cyclical phenomenon. Recovery will follow the contractionary cycle and the long-term outlook for minerals and metals remains very promising.

Notwithstanding its severity, the global cyclical downturn will hardly disrupt longterm economic development of emerging market economies and the structural changes that have been taking place over the last years and which caused a rapid expansion in the demand for minerals and metals.

On the supply side, financial conditions, until recently supportive of project development, will become another constraint to a more meaningful future production growth in addition to geological and institutional factors.

The current crisis has a transformational nature primarily as a consequence of the probable reshaping of the financial industry through consolidation, stricter regulations, emergence of new institutions with new roles and lower risk tolerance. These structural movements are expected to cause permanent changes in other businesses such as the mining business. In the short-term, the combination of poor business confidence plus lack of financing is leading to the postponement and cancellation of projects. The recent global exploration boom led by junior mining companies is expected to come to an end in a similar way to in the aftermath of the Asian financial crisis.

Even after normalization in financial markets functioning, we expect liquidity to be much more scarce than it had been until last year, making cost of capital higher and access to capital more limited.

In this likely future scenario, large scale, high-quality low-cost assets, internal availability of growth options, efficiency, and financial strength will be even more important to determine the success of mining companies.

Vale is best positioned to thrive in such an environment and to benefit from the exposure to a future expansionary cycle given its financial strength, world-class assets and the wealth of growth options deriving from its large project pipeline and global multi-commodity mineral exploration program.

Record Revenue

In 2008, our gross operating revenues achieved a historical high of US$ 38.509 billion, 16.3% up on the US$ 33.115 billion reached in 2007.

Higher prices of products contributed with US$ 4.932 billion, 91.4% of the total increase of US$ 5.394 billion over 2007, while sales volume growth added US$ 462 million. Higher iron ore and pellet prices were responsible for a revenue increase of US$ 5.807 billion and US$ 1.711 billion, respectively, more than offsetting the negative impact of lower nickel prices, which was equal to US$4.373 billion.

In 4Q08, revenues totaled US$ 7.442 billion, compared to US$ 12.122 billion in 3Q08. The drop of US$ 4.680 billion is explained by: (a) reduction in sales volumes equal to US$ 3.078 billion - iron ore US$ 2.338 billion, pellets US$ 292 million, and other products US$ 448 million; and (b) US$ 1.602 billion due to lower prices, of which US$ 566 million arising from the decrease in nickel prices.

Ferrous minerals sales represented 64.0% of the 4Q08 gross revenue, non-ferrous minerals 27.8%, logistics 4.2%, coal and others being responsible for the remaining 4.0%.

In 2008, Asia continued to be the main destination of our sales, responsible for 40.9% of our revenues, followed by the Americas at 31.1%, Europe 24.5% and the rest of the world with 3.5%.

On a country basis, China (17.4%), Brazil (17.3%), Japan (12.3%), Germany (6.5%) and the US (6.4%) were the most important markets for our products in 2008.

Costs

Maximization of production was key to maximizing cash generation and shareholder value and we have managed to increase our aggregate output at a compound annual average rate of 11.2% from 2003 to 2008. In the current environment our priority has changed to cost minimization to cushion the negative effects of the global recession on our profitability and cash flow.

In a very proactive response we are undertaking several initiatives to minimize operating and capex costs involving mainly: (a) shutdown of the higher cost operational units; (b) negotiations with labor unions seeking more flexibility in labor contracts to preserve jobs and to reduce costs; (c) restructuring of the corporate center, to maximize efficiency through a leaner structure; (d) cut in administrative costs; (e) renegotiation of existing contracts with service providers entailing the cancellation of some contracts and the reduction of prices and scope of others; (f) renegotiation of existing contracts with suppliers of equipment and engineering services; and (g) reduction of working capital.

These initiatives are expected to generate an important contribution to diminish costs primarily during the next quarters, but as expected their effect was not felt yet in 4Q08.

Another important point to observe is that while financial asset prices and commodity prices tend to anticipate cyclical changes the reaction of prices of goods and services to a recession occurs at a slower pace. These prices have already begun to decline but more significant decreases are expected to take place over the next few months.

Cost of goods sold (COGS) totaled US$ 17.641 billion in 2008, showing a 7.2% increase relatively to 2007. COGS in 4Q08 was US$ 3.520 billion, 31.2% lower than in 3Q08, at US$ 5.116 billion.

In line with our cost evolution dynamics, the cost decrease in 4Q08 was mainly produced by the currency volatility determined by the appreciation of the US dollar against the currencies in which our costs are denominated. From the first quarter of 2009 onwards we expect to see a downward trend influenced by our own initiatives to minimize costs and the natural decrease of input, equipment and service prices.

The exchange rate variations[6] contributed with US$ 921 million to the cost reduction in 4Q08 -- all other things being equal, COGS would have fallen by 18.0%. The decline in sales volume reduced COGS by US$ 741 million. Prices of inputs and services still produced an increase in costs in 4Q08 even though a relatively modest one, of US$ 66 million. Given the long cycle of production of nickel products, their sales costs still reflected the price environment prevailing in mid-2008 and were the main source of this result.

In 4Q08, expenses with energy were the main item in COGS, accounting for 17.3% and reaching US$ 610 million. These costs decreased by US$ 277 million compared to 3Q08, being the largest contributor to the COGS decrease.

Fuel and gases costs reached US$ 379 million, showing a US$ 190 million decline compared to 3Q08. US$ 127 million was due to the appreciation of the US dollar, US$ 57 million to the reduction of our activities, and only US$ 6 million to lower prices, since there was no reduction in Brazil.

The cost of electricity in 4Q08 was US$ 231 million. It decreased US$ 87 million relative to the previous quarter. Currency price changes and lower consumption contributed with US$ 61 million and US$ 36 million, respectively, while tariff hikes added US$ 11 million.

In 2008, our electricity consumption reached 22.291 GWh, 44% of which was taken up by the aluminum operations, 25% by nickel, 18% by iron ore and pellets, and 7% by the ferroalloy operations. We generated 7.186 GWh in our power plants in Brazil, Canada and Indonesia, meeting 32% of the total consumption.

Costs for outsourced services, making up 16.8% of COGS, reached US$ 591 million in 4Q08, compared to US$ 828 million in 3Q08. The cost reduction was caused mainly by the US dollar appreciation (US$ 182 million) and lower sales volumes (US$ 151 million). This was partially offset by higher prices (US$ 96 million), driven in particular by the previously mentioned nickel production cycle.

The main outsourced services are: (a) cargo freight, which accounted for US$ 173 million; (b) maintenance of equipment and facilities, US$ 137 million; and (c) operational services, US$ 176 million, which include US$ 52 million for ore and waste removal. Expenses with railroad freight dropped to US$ 100 million, with a 49.0% reduction relatively to the previous quarter, at US$ 196 million. A major part of the cutback in iron ore production was made in the Southern System mines, where transportation to the maritime terminals is made by the MRS railroad, a nonconsolidated affiliated company.

Costs with maritime freight services totaled US$ 29 million, in line with the US$28 million spent in 3Q08, as there was no reduction in bauxite volumes moved from the Trombetas mining site to the Barcarena alumina refinery.

Expenses with truck transportation services increased to US$ 42 million from US$ 26 million in 3Q08, due to higher sales volume of nickel products which use this service.

The cost of materials -- 16.8% of COGS -- was US$ 590 million. There was a decline of US$ 195 million against 3Q08, of which US$ 185 million was influenced by the appreciation of the US dollar and US$ 155 million by sales reduction, partially offset by higher prices which contributed to increase the cost of materials by US$ 145 million. Costs of material were adversely impacted by the maintenance of the Thompson operations in Canada.

The main materials items were: spare parts and maintenance equipment, US$ 167million (vs. US$ 264 million in 3Q08), inputs, US$ 169 million (vs. US$ 221million in 3Q08), tires and conveyor belts, US$ 31 million (vs. US$ 50 million in 3Q08).

Personnel expenses reached US$ 487 million, representing 13.8% of COGS. The decrease of US$ 72 million relatively to 3Q08 reflected the effect of exchange rate changes (US$ 96 million) and lower sales volume (US$ 32 million). On the other hand, the 7% wage increase in November 2008, as part of the two-year agreement signed with our Brazilian employees in November 2007, contributed to add US$ 56 million to the costs.

The cost of purchasing products from third parties amounted to US$ 372 million -- 10.6% of COGS -- falling by 36.4% vis-à-vis 3Q08, when it reached US$ 584 million. This reduction was mainly determined by the lower purchase volumes of all products.

The purchase of iron ore and pellets was US$ 206 million, against US$ 286 million in the previous quarter. The volume of iron ore purchased came to 2.110 million metric tons in 4Q08 compared with 3.801 million in 3Q08, while the acquisition of pellets from joint ventures totaled 582,000 metric tons - against 856,000 in 3Q08.

The purchase of nickel products reached US$ 84 million, compared to US$ 189 million in 3Q08 and US$ 245 million in 4Q07. Lower volumes and prices contributed 81% and 19%, respectively, to the quarter-on-quarter cost reduction.

Depreciation and amortization -- 15.3 % of COGS -- amounted to US$ 541 million, US$ 135 million below the amount recorded in 3Q08, impacted by the effect of exchange rate variation.

Other operational costs reached US$ 283 million compared to US$ 734 million in 3Q08.

The deceleration in our activities in the last quarter of 2008 through production cutbacks explains most of the decrease in other operational costs to the extent that it led to lower expenses with the lease of pellet plants, mining royalties and demurrage costs.

In 4Q08, demurrage costs -- fines paid for delays in loading ships at our maritime terminals -- amounted to US$ 0.66 per metric ton of iron ore shipped, totaling US$117 million. It was the lowest level since 3Q07, when it reached US$ 0.54. Overthe year, our average demurrage cost was US$ 1.34 per metric ton (US$ 322 million) against US$ 0.61 in 2007 and US$ 0.26 in 2006, characterizing an upward trend determined by the strong global demand growth for iron ore.

Given the lower shipment volumes in 4Q08, we took the opportunity to replenish iron ore inventories at the maritime terminals. The lack of stocks caused by the fast pace of shipments was the main factor behind the rise in demurrage costs in the past.

Sales, general and administrative expenses (SG&A) came to US$ 708 million, against US$ 374 million in 3Q08. Lower personnel and travel expenses were more than offset by higher expenses related to the global integration of the IT infrastructure, advertising, brand management and an extraordinary price adjustment of previous copper sales.

Almost all of our copper sales are made of concentrates and anodes. Under the long-established sales contracts in the copper industry, all sales of copper concentrates and anodes are provisionally priced at the time of shipment. Under the MAMA (month after month of arrival) pricing system, final prices are based on the LME quoted prices in a future period, generally one to three months from the shipment date. Due to the substantial downward volatility of copper prices in the last quarter of 2008 - average prices in 4Q08 fell 48.8% against 3Q08 -- we made an adjustment to reflect the effective sales prices, amounting to a charge of US$ 316 million against sales expenses.

Research and development (R&D) amounted to US$ 295 million[7] in the quarter, in line with the US$ 331 million invested in 3Q08, to support our global mineral exploration program and feasibility studies.

Other operational expenses reached US$ 719 million, against US$ 383 million in 3Q08 showing a significant increase due to some one-off events.

In the nickel business there was a write-off of patent rights (US$ 65 million) and a negative charge of US$ 77 million generated by the fair value assessment of inventories.

Finally, US$ 204 million was accounted as other operational expenses in 4Q08 due to a payment related to use of railroad transportation services by our iron ore operations in the past. [...]

Notes

5. Minimum dividend announced in January 2008 for 2008 was US$ 2.5 billion.
6. COGS currency exposure in 2008 was made up as follows: 62% in Brazilian reais, 20% in Canadian dollars, 14% in US dollars, 2% in Indonesian rupiah and 2% in other currencies.
7. This is an accounting figure. In the press release issued in January 21, 2009 about investments made in 2008, we disclosed a figure of US$ 302 million for research & development, computed in accordance with financial disbursements in 4Q08.

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