RESTRICTED

Report No.PI- 18

This report is for official use only by the Bank Group and specifically authorized oranizationsor persons. It may not be published, quoted or cited without Bank Group authorization. TheBank Group does not accept responsibility 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

COSIPA STEEL EXPANSION PROJECT - STAGE II

May 5, 1972

Industrial Projects Department

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aJRRENCY EQUIVALENTS

Except where otherwise indicated, all figures are quoted in cruzeiroa (Cr$)and U.S. dollars (US$) of February 1971.

Cr$ 1.00 - US$0.20Cr$ 5.03 a US$1.00Cr$ 1,000,000 a US$198,800

ABBREVIATIONS AND ACRONYM

BAHINT - Booz, Allen & Hamilton International, Inc.BNDE - Banco Nacional do Desenvolvimento EconomicoBOF - Basic Oxygen FurnaceCIP - Conselho Interministerial de Precos (Interministerial Price

Council)CONSIDER - Conselho Nacional da Industria Siderurgica (National Steel

Council)COSIPA,

Company - Companhia Siderurgica Paulista-COSIPA (Sao Paulo Steel Company)CPD - COSIPA - Processamento de Dados, Ltda., a Subsidiary of COSIPACSN - Companhia Siderurgica Nacional (National Steel Company)CVRD - Companhia Vale do Rio DoceGovernment- Federative Republic of BrazilICM - Imposto Sobre Circulacao do Mercadorias (State Manufacturing

Tax)IDB' - Inter-American Development BankIPI- - Imposto Sobre Productos Industrializados (Federal Excise Tax)Mckee - Arthur G. McKee & Company, a U.S. Engineering CorporationMFM - Mineracao Ferro e Manganes, S.A., a Subsidiary of COSIPANSC - Nippon Steel Corporation, Japan 4

Part I - IBRD Appraisal of the Brazilian Steel Expansion Program(PI-16a dated May 5, 1972)

TPY - (Metric) Tons Per YearUSIMINAS - Usinas Siderurgicas de Minas Gerais, S.A. (Steel Mills of

Minas Gerais)

WEIGHTS AND MEASURES

1 Metric Ton a 1,000 Kilograms (kg)1 Metric Ton ^ 2,205 pounds1 Kilometer (km) ^ 0.62 miles1 Meter = 39.3 inches

COSIPA FISCAL YEAR

January 1 - December 31

BRAZILIAN STEEL EXPANSION PROGRAM

PART II

APPRAISAL OF COSIPA EXPANSION PROJECT

TABLE OF CONTENTS

Page No.

SIWMARY A.ND CONCLUSIONS ............................... i - iv

I. INTRODIUCTION ........................................... 1

II. TIIE COMPANY ........................................... 2

A. Background .......................................B. Ownership ........................................ 2C. Management ....................................... 31). Location and Plant Facilities .................... 4L. Subsidiaries ..................................... 4F. Past Growth and Recent Financial Position .... .... 4

III. TIE NARKET ............................................ 6

A. Hiistory and Forecasts ............................ 6B. Sectoral and Geographic Distribution of Sales 8.... C. Marketing Organization and Policies .... .......... 9

IV. 'TE PROJECT ........................................... 9

A. Scope and Objectives ............................. 9B. Observations ..................................... 10C. iicology .......................................... 11I). Labor Force ...................................... 11E. Project Execution ................................ 11F. Project Timing . .................................. 12

V. CAPITAL COST AND FINANCIAL PLAN ....... ................ 12

A. Project Cost . .................................... 12l. Working Capital . .................................. 14C. Financial Plan . .................................. 14

This report lias been prepared by Messrs. Jaffe, Nayar, and Perram of theIndustrial lProjects D)epartment based on missions to Brazil in November 1970,Nly/June 1971, and February 1972.

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TABLE OF CONTENTS (cont'd)

Page No.

VT. PROCURLMENT .......................................... 16

A. General Procurement ............................. 16

B. Allocation of Bank's Loan ....................... 17

VII. PRODUCTION COSTS AND SELLING PRICES ....... .. ......... 17

A. Raw Material Costs .............................. 17

B. Production Costs ................................ 18

C. Selling Prices .................................. 19

VIII. FUTURE PROFITABILITY AND FINANCIAL POSITION .......... 20

A. Future Profitability ............................ 20

B. Break-Even Point ................................ 21

C. Financial Rate of Return ........................ 21

D. Major Risks ..................................... 22E. Financial Position .............................. 22

F. Debt Service Coverage ........................... 23

G. Further Expansion (Stage III) ................... 23

IX. ECONOMIC JUSTIFICATION OF TEIE PROJECT .... ............ 24

A. Economic Rate of Return ......................... 24B. Competitiveness and Protection Required .... ..... 24

C. Estimated Foreign Exchange Savings .... .......... 25

X. AGREEIENTS REACHED DURING NEGOTIATIONS ....... ........ 25

A. Commitments by the Government and BNDE .... ...... 25B. Commitments by the Company ...................... 26

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ANNEXES

1. Organization Charts2. Description of Existing Facilities3. Historical Profit and Loss Statements and Balance Sheets (1967-1971)4. Sales llistory and Forecasts5. Proposed Facilities6. Ecology7. Manpower Requirement Forecasts8. Project Schedule9. Estimated Capital Cost

10. Assumptions for Working Capital Requirements11. Equipment to be Financed by the Bank12. D)isbursement Forecasts13. Raw Materials14. Manufacturing Costs15. Selling Price Assumptions16. Income Statement Forecasts (1972-1981)17. Sources and Applications of Funds (1972-1981)18. Break-Even Points19. Assumptions for Financial and Economic Rate of Return and

Sensitivity Analysis20. Balance Sheet Projections (1972-1981)21. Summarized Projected Income Statements, Sources and Application

of Funds, and Balance Sheets for Stage III Expansion22. Savings in Foreign Currency23. Product Flow Diagram24. Flow Chart of ProcessPlant LayoutMap (IBRD 3662R) Location of the Three Major Flat Steel ProducersMap (IBRD 3893) COSIPA, Location of the Plant and Major Raw Material

Sources

BRAZILIAN STEEL EXPANSION PROGRAM

PART II

APPRAISAL OF COSIPA EXPANSION PROJECT

SUMMARY AND CONCLUSIONS

i. This report appraises the proposed Stage II expansion project ofCompanhia Siderurgica Paulista (COSIPA), one of the three leading Gov-ernment-owned flat steel producers in Brazil. The plant is situated at Cuba-tao, about 70 km from Sao Paulo and about 20 km from the port of Santos, nearthe principal market in the Sao Paulo area, although not very close to themajor raw material sources. The project is designed to increase by 1976COSIPA's raw steel capacity from 1.0 to 2.3 million tons per year (TPY) andits rolling and finishing capacity, particularly for wide plate and coldrolled sheet. Its estimated total cost, including interest during construct-ion and additonal working capital, is US$472 million equivalent of whichabout US$210 million will be for imported equipment and services. Therequested Bank loan is US$64.5 million.

ii. COSIPA was founded in 1953 as a private company, but since 1957has been controlled by Banco Nacional do Desenvolvimento Economico (BNDE),the Federal Government Development Bank. Construction of the initial plantbegan in 1960 and in late 1963 the rolling section began to operate. Inte-grated production commenced by the end of 1965 with a capacity of 500,000TPY of raw steel which has since been increased to 600,000 TPY. The Companyis presently implementing an expansion which is to raise capacity further to1.0 million TPY by early 1973 (Stage I) and which will partly overlap withthe Bank assisted project (Stage II).

iii. In its early years of operations the Company had substantial lossesdue to a heavy debt burden and high operating costs caused primarily byits relatively small-scale operations and the general economic recession inBrazil during those years. Wdhile losses have gradually been decreasingsince 1967, the Company was unable to service its debt which was paid byBNDE and the National Treasury. In 1971, BNDE, through capitalization ofsome of its outstanding loans, increased COSIPA's share capital and thusplaced the Company in a sound financial position. The Company is expectedto show a profit in 1972.

iv. Since the early 1950's consumption of steel in Brazil has onaverage increased by about 9% per year and is expected to grow at an annualrate of about 10% during the current decade, as compared with an annualincrease in COSIPA's domestic sales of flat steel products of about 11.3%.The project (Stage II) introduces no new items to COSIPA's present productline, except for some foundry and metallurgical coke for sale, and the em-phasis is on larger tonnages, especially of cold rolled material and widerplates.

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v. After completion of the project nearly 30% of COSIPA's plateproduction will be oriented towards the shipbuilding industry with theremainder expected to go to the automotive industry and the manufacturersof pipe and structural fabrication. The Company's production program is,to the extent feasible, coordinated with those of the two other Government-owned flat products mills - Companhia Siderurgica Nacional (CSN) and UsinasSiderurgicas de Minas Gerais (USIMINAS). When the new facilities arecommissioned in 1976, there may be some capacity available for exports, butincreasing domestic demand should soon absorb all of COSIPA's production.

vi. The project is part of an overall program to increase Brazil'sraw steel capacity from 6 to 20 million TPY by the early 1980's. Theprogram was formulated by Conselho Nacional da Industria Siderurgica(CONSIDER), the National Steel Council, and includes simultaneous expansionsof CSN and USIMINAS. The Bank approved a loan of US$64.5 million to CSN onFebruary 1, 1972 and another loan of US$63.0 million to USIMINAS on April 4,1972.

vii. The major objectives of the Stage II project are to expand basiciron and steel-making and rolling capacity by the installation of largemodern production facilities equipped with pollution control devices, improveproduct quality and lower operating costs. To achieve this, a second blastfurnace will be installed which is designed to provide - together with the c:x--isting one - sufficient hot metal for both Stage II and the next planned ex-pansion (Stage III) to 3.5 million TPY of raw steel. In addition, the projectincludes two coke oven batteries; a third 100-ton BOF vessel in place ofthe existing 75-ton vessel; a 160-inch wide plate mill; and other necessarysupport facilities; plus alterations and additions to the existing plant.

viii. The financial plan for the project is composed of an estimatedUS$199 million in foreign exchange loans, US$94 million in local currencyloans and US$179 million from share capital increases and internal cashgeneration. The proposed Bank loan of US$64.5 million and an Inter-AmericanDevelopment Bank (IDB) loan of US$43.0 million will be used jointly in a60/40 proportion for internationally bid equipment. An additional US$101million worth of equipment is to be financed (90%) by export creditinstitutions in Austria, Belgium, Canada, France, Germany, Italy, Japan,United Kingdom and the United States. This equipment will be bid competi-tively among suppliers in the above exporting countries. On average thebilateral credits will be for about 15 years and at an interest rate of7-1/2% per annum, with any differences in credit terms to be taken intoaccount in bid evaluation. COSIPA's cash generation will cover part of theconstruction cost, downpayments to equipment suppliers under the bilateralcredits, and interest during construction. The Brazilian Government isprepared to finance any overrun in project cost or shortfall in financing.

ix. To assist COSIPA in the execution of the project and in itsoperations the Company has concluded technical assistance agreements withNippon Steel Corporation of Japan and Arthur G. McKee and Company of theU.S. The Company has also engaged Booz, Allen & Hamilton International Inc.of the U.S. to establish intra-departmental management information and stan-

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dard cost systems,. cost reduction programs and to help in strengthening thedepartment in COSIPA that will have primary responsibility for project execu-tion. With such assistance and the additional assistance for improving theCompany's organizational structure which the Company agreed during negotia-tions to obtain, it is expected that the Company will be able to carry outthe project efficiently and within the budget and construction schedule.

x. COSIPA obtains its iron ore from various sources in the State ofMinas Gerais and, because of the longer distances, at a higher deliveredcost as compared with the two other flat steel producers. However, thishandicap is offset by COSIPA's closeness to the market. The other principalinput, coking coal, is imported with the exception of about 38% of the Com-pany's present requirements that are procured domestically. The combinedcost to COSIPA of iron ore and coal is slightly higher than the lowest costin Japanese and Western European steel mills. Primarily because of the high-er price the Company has to pay for its supply of iron ore and its past in-ability to run the facilities at their full rated capacity, COSIPA's produc-tion costs have been higher than those of CSN and USIMINAS but no major costdifferences are expected once the expansions of all plants have been com-pleted.

xi. The Company's selling prices on which the financial projectionsare based, are on the whole competitive with European domestic prices forsimilar products with the exception of cold rolled steel products. PresentCIF import prices (ex-duties) are less than 5% below domestic prices forCOSIPA's product mix and it is expected that upon completion of the projectCOSIPA could meet such import prices and still earn an acceptable return.In view of the importance of steel prices, which are controlled by theBrazilian Government, both to the steel industry and the economy as a whole,the Government has agreed to consult with the Bank on steel pricing policyas circumstances warrant.

xii. The project has satisfactory financial and economic rates ofreturn of about 16.8% and 14.8% respectively. Sensitivity tests indicatethat a suitable return can be expected even under foreseeable adverseconditions. At full production net foreign exchange savings from theproject would be about US$95 million per year. Finally, after the expansionCOSIPA would have a low profit break-even point at 67% of capacity productionand a satisfactory debt service coverage.

xiii. The shortage of funds, which handicapped COSIPA from its inceptionuntil 1971, was mainly responsible for the imbalance in the existing plantfacilities and the lack of an experienced operating partner, which in turncontributed to the Company's poor past performance. The project envisagesnot only a large expansion of production capacity, but also an all-round im-provement in financial and managerial performance. In this sense the risksinherent in the COSIPA project are greater than in those of the other twoflat steel producers, which have a better record of achievement. But thecontracts with COSIPA's technical and management consultants are expectedto help the Company acquire the necessary expertise in time for it to suc-cessfully implement the expansion and cope with the larger scale of oper-ations.

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xiv. Provided satisfactory arrangements are made for the financing ofthe project and based on the assurances obtained during negotiations, theproject is suitable for a Bank loan of US$64.5 million equivalent for aterm of 15-1/2 years including 4-1/2 years of grace.

I. INTRODUCTION

1.01 This report appraises the proposed expansion project of CompanhiaSiderurgica Paulista (COSIPA), virtually wholly-owned by Banco Nacional doDesenvolvimento Economico (BNDE), the Federal Government Development Bank.

COSIPA is an integrated iron and steel plant located at Cubatao, near theport city of Santos, in the State of Sao Paulo. The Company is presentlyexpanding its production capacity (Stage I) from 0.6 to 1.0 million tons peryear (TPY) of raw steel 1/ by early 1973 and is about to start a furtherexpansion (Stage II) to 2.3 million TPY of raw steel for which Bank financingis being sought and which is expected to be completed by 1976. Totalfinancing required for Stage II, including interest during constructionand additional working capital, is estimated at US$472 million of whichabout US$260 million is in foreign exchange. The proposed Bank loan wouldbe US$64.5 million, to finance equipment which is all to be internationallybid.

1.02 The project is part of an overall program to increase Brazil'sraw steel capacity from 6 to 20 million TPY by 1980 or shortly thereafter,at which time COSIPA's contribution is expected to be 3.5 million TPY. Theprogram was formulated by Conselho Nacional da Industria Siderurgica (CON-SIDER), the National Steel Council, and includes simultaneous expansions ofthe other two existing Government-owned flat product mills, CompanhiaSiderurgica Nacional (CSN) and Usinas Siderurgicas de Minas Gerais, S.A.(USIMINAS). The Bank approved a US$64.5 million loan to CSN on February 1,1972 (Report PI-15a of January 7, 1972) and another loan of US$63 millionto USIMINAS on April 4, 1972 (Report PI-17 of March 20, 1972).

1.03 COSIPA, CSN and USIMINAS virtually control the flat productsmarket in Brazil and account for about half of the country's total steelproduction capacity. COSIPA, which like its competitors uses domesticiron ore and largely imported coal, produces only uncoated flat products(plate, hot and cold rolled coil and sheet) and in 1971 contributed about26% to domestic sales of these products; about 80% of its output is soldin the State of Sao Paulo. Stages I and II introduce no new products tothe Company's existing lines except for foundry and metallurgical cokewhich is to be sold until Stage III expansion is completed.

1.04 This report was prepared by Messrs. Jaffe, Nayar and Perram ofthe Industrial Projects Department, based on the findings of a pre-apprais-al mission in 1970, joint IBRD/IDB appraisal missions 2/ in May/June 1971

1/ Raw steel is defined as steel in the first solid state after melting andincludes ingots and continuously cast semi-finished products.

2/ The May/June 1971 mission consisted of Messrs. Jaffe (Chief), Paschke,Perram, Thadani, Zaman and Herzog (Consultant) of the Bank, and Messrs.

Prado (Deputy Chief), Dragisic, Meyer, Pokorny and Miller (Consultant)of IDB. The February 1972 mission consisted of Messrs. Jaffe (Chief),Nayar, and Perram of the Bank and Messrs. Prado (Deputy Chief) andPokorny of IDB.

and February 1972 and discussions held in Washington with representativesof the Company, CONSIDER and BNDE. The valuable contribution from Messrs.Prado and Pokorny of the Inter-American Development Bank (IDB) in theappraisal of the project is acknowledged.

II. THE COMPANY

A. Background

2.01 COSIPA was founded in 1953 as a private company. When it becameevident that the private sponsors were unable to raise most of the equitynecessary for the realization of the initial plant designed by KaiserEngineers of the U.S., the State of Sao Paulo and BNDE provided a majorportion of the share capital. Suppliers' credits guaranteed by the NationalTreasury completed the financial plan. Construction of the plant began in1960 and by the end of 1963, the rolling section began to operate usingingots and slabs from CSN and USIMINAS. Integrated production commencedin November 1965. The construction phase was slowed down by a shortage offunds and the ensuing delays resulted in higher than expected capital costs.

2.02 As mentioned earlier, COSIPA is currently increasing its rawsteel capacity from 0.6 to 1.0 million TPY (Stage I). This project wasplanned and designed with the help of Arthur G. McKee & Company (McKee) ofthe U.S. and is being financed by BNDE and suppliers' credits. Stage Iis now expected to be completed in early 1973, about one year behind sched-ule due to delays associated with (a) the registration of contracts; (b)the issuance of import licenses; and (c) the supply of data from equipmentsuppliers for the civil works. Capital costs of Stage I are estimated atabout US$112 million, or US$280 per incremental annual toii which, given thesite conditions, is reasonable for the type of facilities added.

B. Ownership

2.03 The Company was founded with an initial share capital of Cr$ 2,170(some US$43,000 equivalent in 1953) all privately held but for reasonsexplained in para 2.01 control soon shifted to the Federal Government.As at December 31, 1971 the share capital of COSIPA was Cr$ 1.3 billion(US$308.4 million) of which BNDE held 97.1%; the State of Sao Paulo 2.4%;and private shareholders the remaining 0.5%. The capital was representedby 394 million shares outstanding, divided into 60% common and 40% preferred(6% cumulative participating 1/). In order to broaden the ownership and tohave a significant shareholder in addition to BNDE, the State of Sao Paulo'sshareholding in the Company, according to the financial plan for the project,would be increased to 15.5% by the end of the construction period.

1/ Participates with common up to 8% in dividends.

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C. Management

2.04 The organization of the Company is shown in Annex 1. The principalmanagement body, the Board of Directors, consists of seven members elected bythe shareholders for a term of four years. The existing Board was elected inApril 1971 and is composed of COSIPA's President, Treasurer, and Controller,and four outside Directors, three of whom represent BNDE, the Ministry of Fi-nance and CONSIDER. The Board's main function is to formulate long-term pol-icy and give guidance to management.

2.05 There are two other formal management bodies, the Consulting Counciland the Fiscal Council. The Consulting Council formerly represented the Gov-ernment in its control of policy and operations at COSIPA; however, most ofits functions have been taken over by CONSIDER and it now serves little pur-pose. The Fiscal Council reviews the annual financial statements and recom-mends them for approval to the shareholders, as required by Brazilian law.The Company lhas an independent auditor, Price Waterhouse Peat and Company.

2.06 COSIPA's management team is headed by Dr. Mario Lopes Leao (age61), who is an engineer by training. Dr. Leao became President of COSIPAin 1967, having previously served three power companies in the same capac-ity. He is considered a good executive and has provided stability andmaturity to COSIPA's management. In his temporary absence, the Controlleracts as President. Most of the department heads were recruited from otherBrazilian steel companies and have been with the Conpany since start-up.The calibre of these individuals is high, but their potential has not alwaysbeen realized in the past due to organizational weaknesses which allowed acertain lack of coordination among the various departments. With the viewto improving this situation BNDE caused the Company's by-laws to be changedin 1971 to provide for an enlarged Board of Directors (para 2.04), whichshortly after its election, commissioned Booz, Allen and Hamilton Interna-tional, Inc. (BAHINT) to study the Company's intra-departmental organizationand information system to reduce costs and maximize profit. During negotia-tions the Company agreed that it will expand the scope of these services tocover the entire organizational structure and management, review the recom-mendations of the consultants with the Bank, implement them as appropriate,and take further action if necessary to improve COSIPA's management organiza-tion.

2.07 On the operational level, COSIPA had in the past obtained assis-tance from McKee in the operation of the plant and in developing stafftraining programs. In order to obtain further help commensurate with thelarge expansion, COSIPA entered in June 1971 into a five-year agreementwith Nippon Steel Corporation (NSC) of Japan to provide operational know-how and technical assistance, including training abroad.

2.08 To maintain COSIPA as an independent entity, agreement was reachedduring negotiations that COSIPA's present corporate form will not be changedand that it will not be merged or consolidated with other companies withoutprior consultation with the Bank.

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D. Location and Plant Facilities

2.09 The plant, called the "Jose Bonifacio de Andrada e Silva Works",is located at Cubatao (Map IBRD 3662R), a town of about 40,000 inhabitantssome 20 km from the port of Santos and 70 km from Sao Paulo. The site isserved by railway lines, roads, and a good dock capable of accepting ves-sels up to 30,000 dwt. This location is close to COSIPA's market area,since Sao Paulo is the center of consumption of flat rolled steel productsin Brazil, and is also convenient for receiving domestic and imported coal.The plant is less well situated with regard to its iron ore which must comefrom the State of Minas Gerais by rail. The site is relatively flat but re-stricted, and permits expansion only up to 3.5 million TPY of raw steel peryear.

2.10 All facilities previously built, or now being installed as partof the 1.0 million TPY expansion, are described in Annex 2. They includeraw material handling; three coke oven batteries; two sinter plants; oneblast furnace; two 100-ton and one 75-ton BOF converter; one plate and semi-continuous hot strip mill and cold rolling and finishing facilities.

E. Subsidiaries

2.11 The Company has at present two subsidiaries, Mineracao Ferro eManganes,S.A. (MFM), acquired in July 1964 at the suggestion of BNDE andCOSIPA Processamento de Dados, Ltda. (CPD), which was created very recent-ly.

2.12 MFM supplies COSIPA with all its limestone and dolomite and inemergency cases, part of its iron ore. Its mines are connected to the COSIPAplant by both railroad and highway. MFM delivers practically all of its pro-ducts to COSIPA on a cost basis and at prices comparable to those from out-side sources. MFM's share capital is Cr$ 600,000, all held by COSIPA exceptfor Directors' shares; its Board of Directors is composed of high-levelCOSIPA management members.

2.13 The prime purpose for the establishment of CPD is to enable it toliave a salary scale in line with those of other similar companies in the SaoPaulo area, without thereby disturbing COSIPA's present salary structure.This subsidiary, which is owned by COSIPA (80%) and MFM (20%), will under-take computer and data processing work primarily for COSIPA, but to theextent that it has excess capacity also for other industries in the area.During negotiations agreement was reached, that the Company will not es-tablish new subsidiaries without the Bank's consent. Moreover, during1972-1980 COSIPA will also limit its lending to, guaranteeing debt foror investing in subsidiaries to US$2.0 million equivalent per year, withaccumulation of this amount possible up to US$6 million in any one year.

F. Past Growth and Recent Financial Position

2.14 Ilistorical dollar equivalent income statements and their analysisfor the period 1967-1971 are summarized below and detailed cruzeiro and

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dollar income statements are contained in Annex 3. The difference betweenhistorical cruzeiros and U.S. dollars is explained in Part I, Annex 3(PI-16a of May 5, 1972).

Selected Income Statement Items-/

Year Ending December 31, 1967 1968 1969 1970 1971

Sales Volume ('000 tons) 351 425 474 474 586(Million of US$)

Net Sales Value 38.4 61.9 66.9 79.7 105.8Gross Profit (loss) ( 8.6) 8.1 12.8 16.3 19.8Income (loss) from Operations ( 30.0) ( 14.0) ( 9.3) ( 2.5) 4.6Net Profit (loss) ( 48.4) ( 19.0) ( 14.2) ( 6.7) ( 5.6)

Net Profit (loss) as % of:Net Sales (126.0) ( 21.7) ( 21.2) ( 9.5) ( 5.3)Average Net Fixed Assets ( 20.0) ( 7.4) ( 5.6) ( 2.6) ( 2.0)Average Equity ( 30.0) ( 12.0) ( 6.6) ( 3.6) ( 2.3)

Cash Generation ( 38.2) ( 6.4) ( 1.4) 6.6 5.5

/1 Audited.

2.15 As can be seen from this table, COSIPA's financial and operatinghistory has been poor. The basic factors which caused such unsatisfactoryperformance have been (i) low steel prices until mid-1970; (ii) shortage ofiron making and finishing facilities in relation to rolling capacity result-ing in high depreciation charges; (iii) the absence of technical assistancefrom an experienced operating company; (iv) certain deficiencies in organiza-tion and cost control; and (v) an excessive labor force and high financialcharges. Reflecting improvements in both operational efficiency and salesvolume, and aided by real price increases granted to the Brazilian steel in-dustry in the later years, COSIPA's income from operations showed steadilydecreasing losses from 1967 through 1970 and a small operating profit in1971.

2.16 The large losses in the early years made it impossible for COSIPAto service its debt, particularly since many of the foreign suppliers'credits had short maturities, and BNDE provided the funds for such pay-ments. In 1967 BNDE converted much of its outstanding loan to equity andthereby reduced financial expenses. Nevertheless, earnings, while improving,were still not sufficient in 1968 through 1970 for COSIPA's debt servicerequirements. As a result, another re-financing took place in 1971 toovercome this problem and to provide COSIPA with a sound equity base tocomplete the Stage I and begin the Stage II expansion. During 1971 BNDEconverted another US$92.9 million of loans into preferred shares. Thehistorical balance sheets are given in Annex 3. Summary sources and appli-cation of funds statements for the years 1967 to 1971 are given below:

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Historical Sources and Application of Funds1967-1971

(US$ million)

Sources Application

From Operations (33) Fixed Investments Stage I 56Loans 156 Other 53Equity Other Investments 6Share Capital 262 Loan Repayments /1 234Advances 1 Other Expenses 19

Others 6 Change in Working Capital 19

Total 392 392

/1 Includes loans of about US$136 million capitalized in sharecapital of the Company.

2.17 Reflecting the capitalization in 1971 COSIPA had a net worth asof December 31, 1971 of about US$266 million composed as follows:

Equity as of December 31, 1970 and 1971

US$ Million1970 1971

Share Capital: Common Shares 210.5 215.3Preferred Shares - 93.1

210.5 308.4Advances for future ShareCapital Increase 85.2 82.3

Other Reserves 1.4 3.6Retained Earnings (Loss) (88.4) (128.4)/-

Total 208.7 265.9

/1 Increase in accumulated losses largely due to writing off ofpre-operating expenses, inventories etc. as well as exchangelosses, which account for about US$34.4 million in 1971.

The advances of US$82.3 million, which are earmarked for future share capitalincrease, consist of US$17 million from BNDE and the remainder from the Na-tional Treasury accounts.

III. TliE MARKET

A. lHistory and Forecasts

'3.01 The Brazilian steel market and prices are dealt with in detailin Plart I. This chapter touches on these subjects only insofar as theyspecifically relate to COSIPA's operations. The following table summarizes

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the Company's recent sales history and forecasts through 1980, the year inwhich COSIPA expects to reach a stable product mix, although capacity salescorresponding to 2.3 million TPY of raw steel are expected to be made in1978. More detailed information is supplied in Annex 4.

COSIPA: Recent Sales History and Forecasts

Year Ending Growth RateDecember 31, 1968 1969 1970 1971 1975 1977 1980 68-71 71-77 71-80

------- Actual--- ----Forecast---- --------%--------('000 tons)

A. Domestic

Plate 51 77 99 120 158 475 610 33 26 20Hot Rolled Coil 128 152 153 216 155 286 236 19 5 1Hot Rolled Sheet 25 30 38 53 50 85 117 28 8 9Cold Rolled Coil 78 76 101 116 147 229 315 14 12 12Cold Rolled Sheet 74 71 66 80 231 252 252 3 21 14Slabs 10 21 1 1 - - - - - -

Total 366 427 458 586 741 1,327 1,530 17 15 11

B. Exports 59 47 16 - 82 263 168 _ _

Total Sales A&B 425 474 474 586 823 1,590 1,698 11 18 12

3.02 During 1968-71, COSIPA's sales increased by about 11% annually,from 425,000 to 586,000 tons, compared with an overall market growth forflat products of about 12% per year. Domestic sales during the same pe-riod increased from about 366,000 to 586,000 tons, with plate and hotrolled products showing the strongest gains, primarily because the coldmill operated close to capacity in 1970. As the domestic market expanded,exports declined, and there were no exports in 1971 when the Company's ca-pacity was fully utilized. Due to limitations in iron and steelmaking,COSIPA has been producing a portion of its finished products by purchasingslabs for its hot and cold strip mills.

3.03 In 1971 COSIPA's domestic sales of flat products represented about23% of total flat products consumption in Brazil, including over 500,000tons of imports to supplement domestic output. Of the total 586,000 tonsof the Company's domestic sales, plate, and hot and cold rolled productsrepresented 20%, 47% and 33% respectively. Since Brazilian demand exceededsupply, COSIPA had to allocate its output to selected customers.

3.04 Total domestic sales of COSIPA are projected to grow at an annualrate of 11.3% between 1971 and 1980, about in line with the total domesticdemand for flat products in Brazil, which is expected to increase annuallyby about 10% during the same period. COSIPA would thereby increase itsoverall market share from 26% in 1971 to 33% in 1980. Exports equivalent

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to about 10% of the Company's production are projected. Althouglh there islikely to be some additional capacity available for exports when the newproduction facilities are commissioned in 1976, the exportable surplus isexpected to be absorbed by domestic demand within a few years (Part I,para 3.11). The possible implications of under-utilization of capacity,which, if it occurs, is expected to be short-lived, should not impair thefinancial viability of COSIPA.

3.05 The Company's production and sales projections are based onCONSIDER's guidelines which have the objective of coordinating as muchas possible the production programs of COSIPA, CSN and USIMINAS. In future,therefore, the Company intends to give high priority to sales of plate andcold rolled products, and while COSIPA's products will continue to competewith those of USIMINAS, this will be less so with CSN. With the expectedimprovement in quality upon completion of the Stage I and II expansions andthe advantage COSIPA enjoys due to its proximity to the major markets, it isexpected that the Company will become increasingly competitive with USIMINAS.

3.06 COSIPA's domestic sales of plate are projected to increase from120,000 tons in 1971 to 610,000 tons in 1980, equivalent to an annual growthrate of nearly 20%.. Such an increase is possible since domestic demand in1980 is expected to exceed production capacity of the three companies.Furthermore, in the past, COSIPA's market share for plate was restricteddue to capacity and size limitations in its plant and, with the additionof a new 160-inch wide plate mill, the Company will be able to overcome theserestrictions. After completion of Stage II nearly 30% of COSIPA's plateproduction will be oriented towards the shipbuilding industry which isexperiencing a rapid growth, and 62% towards structural fabrication.

3.07 For hot rolled coil and sheet, COSIPA plans to increase its domes-tic sales from 269,000 tons in 1971 to 353,000 tons in 1980, an annual in-crease of only 3%. This is because USIMINAS will cover the increase in de-mand of these products. On the other hand, in cold rolled coil and sheetCOSIPA expects to increase sales during the 1971-80 period by somewhat over12% annually sharing the demand increase with USIMINAS, while CSN will re-duce production in this line. The quality improvement that COSIPA expectsto attain in cold rolled steel as a consequence of the project should en-able the Company to penetrate further into the autobody sheet market inwhich most of the major automobile manufacturers are already its customers.

3.08 Besides steel products, COSIPA intends to sell foundry and me-tallurgical coke to local foundries and blast furnace plants which presentlyrely on imported coke or charcoal. These sales will amount to about 230,000tons per year from 1977 until a further expansion (Stage III) will requiresuch extra coking capacity to be used in ironmaking.

B. Sectoral and Geographic Distribution of Sales

3.09 The Company's sectoral and geographic distribution of sales between1968 and 1971 is shown in Annex 4. During this period COSIPA has continuously

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increased sales through distributors to about 33% of its total sales in1971 but in future the Company intends to shift more to direct sales. Theautomotive industry and the tube and pipe manufacturers have gradually becomeCOSIPA's two major single customers accounting (in about equal shares) forsome 38% of the Company's domestic market. COSIPA's sales to the shipbuildingindustry are still negligible due to finishing and size limitations but, asmentioned before, are expected to increase substantially with the completionof the project.

3.10 At present more than 80% of COSIPA's domestic sales are made in therapidly growing market of Sao Paulo State; and virtually all of them in thethree States of Sao Paulo, Guanabara (Rio) and Rio Grande do Sul. This con-centration of COSIPA's market is also expected to continue in future, althoughto a somewhat lesser extent.

C. Marketing Organization and Policies

3.11 In view of the strong and growing demand for its products, COSIPAhas not carried out an extensive market development program and recently hasnot taken on any new customers. Instead, the Company has concentrated onachieving a higher market penetration in the automotive industry around SaoPaulo, the only industry with which it has been concluding annual salesagreements. COSIPA recognizes that, after the expansion of the three flatsteel plants, a more competitive market position is likely to develop andthe Company has therefore had its marketing organization and staffingrequirements studied by BAHINT. As a result, COSIPA is now reorganizing itsmarketing department and increasing staff from 80 to about 140 in order toplace more emphasis on market research and development, customer service anddirect sales.

IV. THE PROJECT

A. Scope and Objectives

4.01 The proposed project (Stage II) is designed to increase iron andsteelmaking as well as rolling capacity of the plant and to make certainalterations to the existing facilities, with the overall objective ofraising the Company's raw steel capacity from 1.0 to 2.3 million TPY by1976. The plans, specifications and cost estimates for this expansion wereoriginally prepared by McKee. Subsequently, having concluded a technicalassistance agreement with NSC in June 1971, COSIPA requested this companyto review the project. This review resulted in certain modifications of thenew raw materials handling plant, the blast furnace and the plate mill, andin the decision to transfer the engineering responsibilities for thesefacilities to NSC. In addition, the Company made minor alterations primarilyto provide a better base for further expansion.

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4.02 The major facilities to be installed under Stage II comprise anextension of the existing dock, a primary ore yard, a coal yard, two cokeoven batteries each with 53 ovens, a blast furnace designed for an ultimatecapacity of 5,000 tons per day, a third 100-ton B.O.F. vessel in place of theexisting 75-ton vessel, an oxygen plant, a single stand 4-high 160" wideplate mill, two cold-rolled coil inspection lines, of which one will havea combination stretcher/leveler and all necessary auxiliary equipment.Also, for more reliable and flexible supply, an 88 KV electric power distri-bution system will be added. A detailed description of the project is givenin Annex 5.

B. Observations

4.03 COSIPA's expansion to 2.3 million TPY places emphasis on largertonnages especially of plate and cold rolled flat steel, but introducesno new steel products. The project, however, includes one coke over bat-tery which is required only after completion of the Stage III expansion(para. 3.08).

4.04 Another plant unit which is designed to meet the requirements ofStage III is the No. 2 blast furnace which will be operated initially at arate of 4,000 tons per day, but can be enlarged to 5,000 tons per day. Tilefurnace is designed to operate under top pressure with a fuel rate of 550kg/ton of iron (500 kg of coke plus 50 kg of oil) and with about 70% sinterratio in the burden. This represents efficient blast furnace operation butshould be achievable. The imbalance in COSIPA's iron making capacity is ty-pical of large steel plants and will be absorbed as Brazil's steel demandpermits further expansion of rolling facilities. In view of this, the Bankhas received assurance during negotiations that the Government will consultwith the Bank prior to sanctioning any new flat product capacity before com-pletion of the Stage III expansions of the three companies.

4.05 While the Company has excess capacity in its coke ovens andblast furnaces, the BOF shop and slabbing mill must be operated at theirrated capacity, if COSIPA is to produce 2.3 million TPY of raw steel. Toprevent possible bottlenecks the Company is now making certain modifi-cations designed to facilitate the operation of these two critical units.If COSIPA can, with the help of NSC, approach the standard of operationcurrently achieved by USIMINAS, it will have no serious difficulty inattaining a production level of 2.3 million TPY.

4.06 Finally, the Company will be able to produce much wider platesthan hitherto possible on its new 160-inch plate mill, whose output isprimarily intended for the shipbuilding industry. This plate mill can beenlarged to meet the requirements of Stage III through a second rollingstand and some additional finishing equipment.

C. Ecology

4.07 The new facilities of the project incorporate pollution controlequipment which is estimated to cost about US$9 million.

4.08 The blast furnace, coke plant, BOF shop and hot scarfing machinewill be provided witlh control equipment to keep water and atmosphericpollution within acceptable standards. Since water will be recirculated,only make-up water will be drawn from the tidewater and treated prior todischarge. Major items to minimize air pollution are filters and dustcatchers at the blast furnace, gas washing and ignition burning devicesat the coke oven batteries and venturi scrubbers at the BOF shop. Aftercleaning, the blast furnace and coke oven gases will be used in the powerhouse boilers, soaking pits and reheat furnaces. Details of the project'spollution control devices are given in Annex 6.

4.09 The water treatment plant to be installed under Stage II willalso treat water from the existing facilities before discharge. No newfacilities are proposed to control the pollution from the existing twocoke oven batteries, which can be eliminated only with heavy investments.No. 3 coke oven battery which is being installed as part of Stage I, willhowever, be equipped with the same pollution control devices as No. 4 andNo. 5 batteries which form part of the project.

D. Labor Force

4.10 COSIPA reduced the labor force from 9,850 employees in 1966, itsfirst year of integrated production, to 6,136 at the end of 1971. At thesame time, it increased output by about 65% and thus improved its overalllabor productivity substantially. The Company plans to add about 500 newemployees during the Stage I expansion and an additional 3,000 employeeson completion of Stage II, when its labor productivity is forecast to beabout 13.7 man-hours per ton of finished steel. This compares well withcomparable indices for the U.S. and Japanese steel industries of 13 and13.2 man-hours per ton in 1970, respectively. COSIPA's present and futurelabor requirements are given in greater detail in Annex 7.

4.11 COSIPA is favorably located with respect to the labor market andit is expected that most of the new employees will come from the Sao Pauloarea. No problems are therefore foreseen in attracting the requiredpersonnel for which the Company has well developed training programs. Laborturnover has been small and COSIPA has had no strikes over the past sixyears. The Company's safety record is good.

1. Project Execution

4.12 COSIPA will have primary responsibility for project execution.It will be assisted by NSC which will carry out the engineering of theraw materials handling facilities, blast furnace and the new plate millcomplex. McKee, which is supplying technical assistance for the Stage Iexpansion, will undertake the engineering of the remaining facilities in

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the Stage II project, as well as of the general plant utilities and otheroff-sites. The contracts with McKee and NSC also provide for assistancein procurement and the dispatch of experienced engineers, as needed, forsupervision of construction and start-up.

4.13 Civil construction and erection of equipment will be carried outby Brazilian contractors. During negotiations, assurances similar to thosegiven by CSN and USIMINAS were obtained that, if it became apparent that theuse of local contractors would result in substantially increased costs or de-lays in completion, foreign bids for subsequent contracts would be solicited.hle services of Brazilian engineering firms will be used for the civil andmechanical design and detailed work. The structural design of the platemill building will be carried out by NSC and that of the remaining buildingseither by Brazilian engineering firms or by McKee.

4.14 The main burden of project execution will rest with COSIPA'sExpansion Department which numbers 25 professionals and is headed byDr. Pedro de Souza, formerly the Company's General Superintendent ofOperations who has considerable experience in the steel industry. He isassisted by three superintendents responsible for the technical, planningand construction divisions. To make this department more effective themajor recommendations of a recent BAHINT study are now being implementedby adding to it control and scheduling functions and a new administrativeunit. The Company is also receiving assistance from its consultants(BAILINT, NSC, and HIcKee) in project management, the assessment of staffrequirements and operations, and together with that provided by majorequipment suppliers, in the erection and start-up of the new facilities.With such assistance, the Expansion Department is judged to be capable oflhandling a project of this size and complexity. During negotiations ageneral commitment was obtained from the Company obligating it to engagesuch consultant services as the implementation of the project calls for.

F. Project Timing

4.15 Stage IT is planned to be completed by mid-1976 in accordancewith the construction schedule shown in Annex 8. The schedule was preparedby COSIPA on the basis of its past experience and with the assistance ofMcKtee and NSC. It is considered achievable with such assistance as theCompany has contracted and provided the Government expedites the registrationof contracts and the issuance of import licenses for the project. Confirma-tion oni this point was obtained from the Government during negotiations.Major equipment orders are expected to be placed between the Fourth Quarterof 1972 and the Second Quarter of 1973.

V. CAPITAL COST AND FINANCIAL PLAN

A. Project Cost

5.01 Project cost estimates, based on the technical studies undertakenby McKee and NSC, are detailed in Annex 9 and summarized below:

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Summary of Capital Cost Estimates (Stage II)

Cr$ Million/ US$ MillionLocal Foreign Total Local Foreign Total %

Equipment 119.7 617.2 736.9 23.8 122.7 146.5 31.0Spares 5.0 64.9 69.9 1.0 12.9 13.9 2.9Freight and Insurance 11.6 47.3 58.9 2.3 9.4 11.7 2.5Engineering 16.6 41.7 58.3 3.3 8.3 11.6 2.5Construction 413.5 103.1 516.6 82.2 20.5 102.7 21.8Supervision and

Start-up 0.5 14.1 14.6 0.1 2.8 2.9 0.6Merchant Marine andPort ImprovementTaxes 27.6 - 27.6 5.5 - 5.5 1.2

Total 594.5 888.3 1,482.8 118.2 176.6 294.8 62.5Contingencies:Physical 57.8 82.0 139.8 11.5 16.3 27.8 5.9Price - - - 14.7 16.5 31.2 5.6

Total Fixed Capital 652.3 970.3 1,622.6 144.4 209.4 353.8 75.0

Pre-operating Expenses 98.1 17.6 115.7 19.5 3.5 23.0 4.9Increase in WorkingCapital 193.7 34.2 227.9 38.5 6.8 45.3 9.5

Total Project Cost 944.1 1,022.1 1,966.2 202.4 219.7 422.1 89.4Interest and FinancialClharges during Cons-truction 48.3 203.2 251.5 9.6 40.4 50.0 10.6

Total FinancingRequired 992.4 1,225.3 2,217.7 212.0 260.1 472.1 100.0

/1 Cruzeiros of February 1971. US$ equivalent capital costs, except theprice contingency, were converted to Cruzeiros at the rate of exchangeof US$1 = Cr$ 5.03 prevailing in February 1971.

5.02 Tlie equipment cost estimates were originally prepared by McKeeand subsequently revised by NSC and are based on prices prevailing inSeptember 1971. They have been adjusted for the currency realignmentsof December 1971 and take into account the expected effect of interna-tional bidding. Further revisions were incorporated as a result of theminor project modifications introduced by COSIPA (para 4.01). Also in-cluded in the equipment cost estimates is a provision of US$5.2 millionto cover possible cost increases due to the 15% margin of preference toBrazilian suppliers. As for the two other steel expansion projects, noimport duties on equipment are payable.

5.03 The civil construction and equipment erection cost estimates arebased on unit costs experienced by COSIPA in its ongoing Stage I expansion,

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and on international experience. Finally, a physical contingency of 9.5%has been added on all project costs except pre-operating expenses, additionalworking capital and interest during construction as well as a 5% per yearprice escalation from January 1, 1972 to the expected dates of disbursement.The above estimates and contingencies are considered adequate.

5.04 Brazilian suppliers are expected to win about 20% of the equipmentcontracts for the project. This is a lower percentage than that foreseenby CSN and USIMINAS in their projects, because COSIPA expects that in someinstances Brazilian suppliers may not be in a position to accept orders forCOSIPA in view of their limited capacity, the tight delivery schedules, andthe fact that they will already be doing work for the other two companies.Of the total project cost of US$422 million excluding interest duringconstruction, the foreign exchange component is estimated to be about US$220million or some 52% of total project cost. Including interest during cons-truction on foreign loans total foreign exchange requirements are estimatedat about 55% of total financing requirements.

B. Working Capital

5.05 The incremental working capital required for the project is esti-mated at US$45.3 million. While COSIPA's current ratio in the past 11as gen-erally been better than 1.5:1, this ratio is misleading because it does notreflect COSIPA's excessively large inventories, particularly in raw materials,nor the fact that cash has been very low in relation to the level of sales andaccounts payable. McKee has studied these problems and has made recommend-ations on how to improve the Company's working capital position. Theserecommendations are currently being implemented and are expected to enableCOSIPA to reduce its working capital by about US$7 million at the completionof Stage I (1973) from the 1971 level. Moreover, during negotiations, theBank has received the assurance that the Company will take all steps toreduce its inventories to more reasonable levels. The increase of US$45.3million after 1973 therefore pertains to the Stage II project and furtherdetails on this are given in Annex 10. The Company should be able to fi-nance any additional requirements either by short-term loans or discountingaccounts receivable.

C. Financial Plan

5.06 The financial plan to cover the expansion project's total costof US$472 million consists of US$179 million in the form of equity (capitalincrease plus internal cash generation) and the remaining US$293 millionin loans and credits.

5.07 All nmachinery and equipment, except for the downpayments neededfor the bilaterally procured equipment, will be financed by loans fromIBRD/IDB and foreign bilateral agencies. Since local currency requirementsfor the project are closely Interlaced with COSIPA's other financialrequirements such as those for the Stage I expansion and repayment of exist-ing debts, the following summary of the sources and applications of funds,during the implementation of the project has been prepared:

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Summarized Sources and Applications ofFunds During 1972-1976

(US$ Millions)

Sources Applications

Cash from Operations 212.7 Stage I 66.6Share Capital 41.9 Stage II:Long-term loans: Investments 353.8

Stage I Financial Charges 50.0Suppliers' Credits 17.8BNDE 24.8 Minor Improvements of

42.6 Existing Facilities /2 14.1Stage II Loan Repayments 58.0IBRD 64.5 Pre-operating Expenses /3 25.7IDB 43.0 Dividends on PreferredBilateral 91.1 Shares 28.0BNDE 93.7 Net Increase in Working

292.3 Capital 23.8Other Loans BNDE /1 31.4 Imported Slab Payments (net) 0.9

Total 620.9 620.9

/1 Relending of preferred dividends plus interest during constructionperiod.

/2 Includes relining of blast furnace.13 Includes pre-operating expenses of US$2.7 million for Stage I.

5.08 The Bank and IDB loans would be jointly disbursed in a 60:40proportion and are proposed to be for 15-1/2 years, including 4-1/2 yearsof grace at the prevailing interest rate of 7-1/4% for the Bank and 8% forIDB. The Government of Brazil would charge the Company a 1-3/4% per annumguarantee fee on the outstanding amount of the Bank loan, thereby bringingits cost to the Company to 9%. The bilateral credits will on average cover90% of the CIF value of equipment from suppliers in the respective coun-tries 1/ and will be for 15 years after signing (or 12 years following com-missioning of the equipment) at an average cost to COSIPA of 7-1/2% perannum. The 10% downpayment for this equipment would be paid out of COSIPA'scash generation. The bilateral credits can only be used for importedequipment, but the IBRD/IDB loans are also available for local equipmentpurchases after international competitive bidding.

5.09 In addition to the amounts committed for the Stage I expansion,BNDE has agreed to provide, together with the eventual contributions byothier shareholders, during the construction period funds estimated to total

1/ Austria, Belgium, Canada, France, Germany, Italy, Japan, United Kingdomand the United States.

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about US$170 million equivalent. The funds are to be in the form of equityor loan depending on the Company's debt/equity ratio (para 8.10) at thetime the funds are needed. This new commitment is assumed in the financialprojections to be (i) a loan of US$93.7 million and equity participation ofUS$41.9 million for the project and (ii) relending of preferred dividendspaid by the Company during the construction period, totalling US$31.4 million.

5.10 BNDE loans are expected for a period of 16 years including 4 yearsof -race and at an interest rate of 5% per annum plus monetary corrections 1/.The Sao Paulo State Government has indicated in a letter to COSIPA that itintends to invest annually in shares of COSIPA, through 1975, an amountequal to 50% of its 1CM tax receipts from the Company, which is estimatedto be US$40.2 million equivalent. A first such investment was made in 1971.This equity participation is forecast to increase the State's shareholdingin the Company from 2.4% to 15.5% at the end of 1975. During negotiationsBNDE agreed to the financial plan, including the State of Sao Paulo's parti--ipation.

5.11 The cash generated from the operations will cover part of theconstruction cost, downpayments for equipment purchased with bilateralfinancing, and financial expenses during the construction period. COSIPA'scash generation appears adequate to meet the projected needs. Ilowever,during negotiations the Government has agreed to provide, on terms satis-factory to the Bank, whatever additional resources - foreign as well aslocal - may be needed to complete the project and bring it into operation,in case of a cost overrun or shortfall in financing.

VI. PROCUREMENT

A. General Procurement

6.01 The Bank and IDB will jointly finance on a 60:40 basis equipmentand spares totalling US$107.5 million to be procured under internationalcompetitive bidding with Brazilian manufacturers receiving a 15% preference.This preference is less than the normal import tariff which has, however,been waived for the steel expansion program. The remaining equipment andspare parts to be-imported (approximately US$101 million) will be bidcompetitively among the countries which have agreed to join the bilateralfinancing scheme. Construction work will be executed by local contractors,provided they can meet completion schedules and their prices remainreasonable (para 4.13); it will not be financed by IBRD/IDB. Furtherdetails on general procurement are dealt with in Chapter IX of Part I.

1/ This involves revaluation of loans in accordance with indices (ORTNmonetary correction indices) published by the Ministry of Planning andGeneral Coordination.

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B. Allocation of Bank's Loan

6.02 Brazilian manufacturers are expected to win under internationalcompetitive bidding up to 40% of the equipment financed by the Bank andIDB loans (para 5.04). This estimate is based on the same assumption asthat used for CSN and USIMINAS, that is to say that Brazilian suppliers ofequipment to the project qualify for export incentives. With these incen-tives, the allocation of the Bank loan is estimated as follows:

Estimated Allocation of Bank's Loan

Expenditures (US$ millions)Brazilian Foreign /1 Total

Equipment (including freight) 14.4 34.9 49.3Spares 0.6 3.3 3.9Commissioning of Equipment - 0.8 0.8Contingencies 2.8 7.7 10.5

Total 17.8 46.7 64.5

/1 Including foreign exchange component (20%) of local equipmentand spares.

6.03 The equipment to be financed by the Bank is shown in Annex 11.The disbursement schedule for the Bank loan is based on the estimates oforder placement and expected delivery times for each equipment package andis in conformity with the construction schedule discussed in para 4.15.The forecast disbursement schedule is given in Annex 12.

VII. PRODUCTION COSTS AND SELLING PRICES

A. Raw Material Costs

7.01 One of the major factors in the development of a competitive steelindustry in Brazil is the availability of high quality iron ore at low cost.hlile its location does not give COSIPA as low cost iron ore as CSN and

USIMINAS, the Company can compensate for the increased ore costs by higherex-factory prices for its finished products due to the proximity of majorcustomers (para 7.06). The cost of iron ore delivered to COSIPA is US$9 perton, which is about twice that of CSN and USIMINAS and includes a rail freightelement of about US$5.20 per ton. Nevertheless, the ore cost per ton offinished steel produced by COSIPA is US$17 which compares well with a typi-cal ore cost of US$17-24 in Japanese and Western European plants. Brazilhas virtually unlimited iron ore and hence an assured supply. AlthoughCOSIPA's contracts with four or five mines are short-term, no difficultiesare foreseen in covering its future iron ore requirements.

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7.02 Brazil's need to import large quantities of high grade cokingcoal and thie Government regulation, which presently requires COSIPA toconsume about 38% of its total coking coal requirements in the form ofhigh cost and poor quality national coal, tend to offset the Braziliansteel industry's cost advantage stemming from relatively low iron ore andlabor costs. Assurances have been obtained from the Government duringnegotiations that COSIPA will not be required to obtain more than 20% ofits coking coal requirements locally after 1976 as long as the domesticcoal remains of low quality. To protect its position with regard to foreigncoal sources, COSIPA intends to enter into long-term contracts (eight years)with at least two suppliers; negotiations are well advanced.

7.03 The Company's coal cost per ton of finished steel in 1971 amountedto about US$27 and is expected to decline to about US$24 after completionof Stage II as a result of a reduction in coke rate and improvements inoperating efficiency. COSIPA's coal cost would thus remain somewhat higherthan those of around US$18 per ton in Japan and US$22 in lWestern Europe.The combined cost per ton of finished steel for the principal raw materials -

iron ore and coal - is estimated at US$41 in 1978, which is slightlyhigher than the lowest cost in Japanese and Western European steel mills.

7.04 The other two principal raw materials, limestone and dolomite,are obtained from the mines of MFM, a COSIPA subsidiary (para 2.12), locatedapproximately 200 km and 450 km from the plant. The quarries are beingenlarged to meet the Company's increased needs. Further details regardingraw miaterials, including quantity and sources, are given in Annex 13 andMan -IBRD 3893. COSIPA's transportation and shipping facilities will alsobe expanded and improved to support the planned growth in production. Waterand electric power supply are available in sufficient quantities to meet theincreased requiremnents.

B. Production Costs

7.05 COSIPA's direct manufacturing costs for representative productsare shown below for 1971 (actual); 1973 (1.0 million TPY) after completionof Stage I, and 1978 (2.3 million TPY) after completion of Stage II. Fur-ther details are given in Annex 14.

Direct Manufacturing Costs-(US$/Ton)

liot Hlot Rolled Cold RolledYear Metal Slabs Plate Coil Sheet Coil Sheet

1971 (Actual) 53 87 114 108 113 132 1541973 45 72 88 92 96 103 1111973 42 65 77 82 92 94 101

1978 as ,' of 1971 79 75 68 76 81 71 66

/1 Excludes ICM, depreciation and financial charges. The manufacturingcosts of end products vary slightly between 1978 and 1980 due tochanges in product mix.

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7.96 In 1971, of the total direct manufacturing cost of about US$71million, raw material costs accounted for about 60% or some US$42 million.The raw material costs in that year were unusually high because of excep-tional circumstances in the supply of iron ore 1/. The economies of scaleto be achieved by the expansion plus the improvements in operatingefficiency, which can reasonably be expected as a result of the NSC assist-ance, should take place at all stages of production - from hot metal tofinished steel. The manufacturing cost of slabs is expected to drop byabout 25% between 1971 and 1978 and that of cold rolled products by some31%. Raw material cost per ton of finished steel in 1978 would be aboutUS$46.5 and operating cost, excluding depreciation, administrative and sell-ing expenses and financial charges about US$40.0, giving a total direct man-ufacturing cost of US$86.5 per ton of finished steel - about 70% variableand 30% fixed cost. The input prices, operating costs and efficiencies areconsidered realistic and achievable and are consistent with those projectedby CSN and USIMINAS.

C. Selling Prices

7.07 COSIPA's selling price assumptions, shown in Annex 15, are basedon February 1971 prices. The weighted average selling price of the Company'sfinished steel products (excluding ICM and IPI taxes) is about US$159 perton and, on a product-by-product basis, is in line with Western Europeanprices except for cold rolled products. Maximum prices are establishedtwice a year after approval by the Interministerial Price Council (CIP),based on increases in costs outside the steel companies' control, i.e.,raw materials, fuel and power, labor contracts and depreciation. CIP'spolicies are discussed in Part I (para 2.19). Since CIP's steel pricecontrol applies to a "delivered Sao Paulo" basis, COSIPA's ex-plant pricesare higher than those of CSN and USIMINAS due to its nearer location.

7.08 As discussed in Part I (paras 5.10 and 5.11), the Government hasgiven the Bank satisfactory assurance as to the aims of its steel pricingpolicies and has agreed to consult with the Bank if the return on the aggre-gate operating assets of CSN, USIMINAS or COSIPA should fall below 10% orrise above 15% in any year. This should permit the companies to (a) earnan adequate return on capital under efficient operating conditions, (b) meettheir financial obligations, and (c) contribute to the financing of furtherexpansion, while being reasonably competitive with imports. A detailedstudy on the future price structure for steel products will be carried outby the Government.

1/ The delivered cost of iron ore per ton of finished products was aboutUS$11.5 (about 25-30% higher than normal) because of the collapse ofa railway bridge which necessitated the transportation of iron ore byship, which, in the case of COSIPA, is a more expensive mode of trans-port.

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7.09 Moreover, the Bank has reached an agreement with COSIPA during

negotiations that the Company would take all reasonable steps to ensure

that the average February 1971 prices of its domestically sold products

will not be reduced in real terms prior to 1977.

VIII. FUTURE PROFITABILITY AND FINANCIAL POSITION

A. Future Profitability

8.01 Detailed income and cash flow forecasts through 1981 are shown

in Annexes 16 and 17, respectively, and selected items are summarized below:

Selected Income Statement Items(Million of US$)

1971 1972 1973 1975 1976 1978 1981(Actual)

Net Sales 106 137 143 159 264 336 338

Operating Profit 5 19 24 30 49 79 82

Net Profit (loss) (6) 14 17 19 31 54 64

% of Sales (5) 10 12 12 12 16 19

% of Average Equity (2) 5 6 6 8 12 12

Cash Generation 6 28 37 40 69 99 110

8.02 COSIPA is expected to show a net profit of US$14 million in 1972

compared with a loss of US$6 million in 1971. This substantial improvement

would come about as a result of (i) a reduction in financial charges by

about US$5.6 million due to the capitalizatLon of BNDE's loans (para 2.16);

(ii) a decrease in operating cost due mainly to a temporary reduction, al-

ready achieved, in thie Company's labor force by about 150 people and a

decrease in raw material costs from the exceptionally high level of 1971

(para 7.06); (iii) an increase in operating efficiency; and (iv) an antici-

pated increase in sales of finished products by processing slabs purchased

at favorable contract prices on some of the Stage I equipment already

installed. These results are considered reasonable and achievable.

8.03 After completion of Stage I, net sales in 1973 would increase

marginally over 1972 and so would net profits. Once the Stage II project

is completed and running at capacity in 1978, net sales are expected to

increase by US$193 million or by about 135% above 1973 and net profits would

go up by US$37 million over the same period. In 1978 net profit would

amount to a satisfactory 16% on sales and 12% on average equity. Reflecting

the increased profit levels as a result of the Stage II expansion, the

Company's internal cash generation is forecast to rise from US$37 million in

1973 to US$99 million in 1978, an increase of 167%. The technical,

commercial and financial assumptions underlying the forecast are considered

sound and the projected profit levels attainable.

- 21 -

B. 3reak-Even Point

8.04 Break-even points are calculated only for flat steel production,i.e. excluding the costs and benefits attributable to foundry and metallur-gical coke production. The nrofit break-even point is at about 67% of capac-ity or 1.14 million TPY of finished steel, after completion of Stage II,and at about 73% after Stage I. Differently expressed, once the Stage IIproject is operating at full capacity, steel prices could fall by 19% be-fore the Company would show a loss. The cash break-even point will belower than the profit break-even point for all of the projected years,since the annual depreciation is higher than the debt amortization of eachyear. Hlowever, the additional debt incurred for Stage II will move thecash break-even point from 55% of production capacity in 1973 to 64% in1978. Further details on the break-even levels are given in Annex 18.

C. Financial Rate of Return

8.05 The project - Stage II - provides a financial rate of return of16.8%o. Details on thie assumptions used are contained in Annex 19. However,given the same standard of operating efficiency at the completion of Stage Ias that assumed for Stage II, the Stage I production capacity with minoradditions and alterations of equipment would be about 20% higher thanforecast, or 1.2 million TPY of raw steel. Taking this higher base casewould thus reduce the incremental rate of return of the project to 13.6%.

8.06 Sensitivity tests have been conducted to determine the effect ofvarious events on the financial rate of return and are provided in Annex 19,a summary of which is shown below:

Sensitivity Tests on Internal Financial Rate of Return

Case Description Rate of Return (%)

1 Base Case 16.82 Sales Revenue decreases 10% 12.63 Operating Costs increase 10% 14.44 Operating Costs decrease 10% 19.15 Project Costs increase 10% 15.36 One-Year Delay in Completion plus 15% of

Project Costs increase 12.77 Sales Revenue decreases 5% and Operating

Costs increase 5% 13.68 Project Costs increase 10% and Operating

Costs increase 10% 13.09 Project Costs increase 10% and Sales Revenue

decreases 10% 11.0

8.07 Thle project is Imiost sensitive to changes in sales revenue. Ifrevenues drop by 10% without corresponding reduction in operating costs, the

- 22 -

return will decrease to 12.6%. The project is more sensitive to operatingcosts increases than similar increases in capital costs. For instance, anincrease of 20% in operating costs will decrease the return by 30% ascompared with a 17% reduction with a 20% increase in capital costs. Acombination of circumstances would have an effect on return to the extenteach cost and revenue stream varies from the expected values. As an extremecase, if both operating costs as well as capital costs are increased by10% while revenue is reduced by 10%, the return would drop to 8.6%. lHence,even with such combinations of adverse conditions, the project is expectedto provide a marginally satisfactory financial return. In comparison withthe expected financial returns on the CSN and USIMINAS projects, that ofCOSIPA's project is considerably higher. This is not due to any basicdifferences in the projects per se, but rather to the slim base againstwhich the incremental return of the COSIPA project is measured.

D. Major Risks

8.08 Apart from factors largely beyond the control of the Company suchas (a) possible delays caused by the simultaneous implementation of threelarge steel projects in a rapidly expanding economy, and (b) a slowing downof the predicted growth of demand, the major technical risks inherent in th1eproject are the attainment of the planned production in the expanded BOFshop and revamped slabbing mill (para 4.05) and the projected reductions inoperating cost. While the Company may have difficulties in the beginning inachieving and maintaining its production targets, it is expected that, withthe operating assistance to be provided by NSC, any such difficulties willbe shortlived. The other potential risk stems from COSIPA's lack of a suc-cessful record of achievement. However, the ongoing studies of the Company'sorganizational structure and management and the implementation of the recom-mendations emerging from this study are expected to help the Company tocope with the increased scale of operation.

E. Financial Position

8.09 Balance sheet projections for 1972-1981 are contained in Annex 20and significant data and ratios from these for selected years are givenbelow:

Selected Balance Sheet Items(US$ million)

1971 1972 1973 1975 1978 1981(Actual)

Current Assets/ 84 81 62 69 145 146Current Liabilities/1 51 33 34 54 103 102Net Working Capital- 33 48 28 15 42 44Current Ratio 1.6 2.4 1.8 1.3 1.4 1.4Long-Term Debt!Equity Ratio 23/77 26/74 32/68 50/50 39/61 23/77

/1 Excludes surplus cash.

- 23 -

8.10 The nresent long-term debt/equity ratio of the Company is strongand is expected to remain satisfactory during the implementation of theproject. COSIPA's debt position would build up to a maximum of 50,Z of totalcapital in 1975 and then decrease rapidly, reflecting the good profitabilityof the expanded plant. Also as discussed in para 5.09 the debt/equityratio would not rise above 50/50 during the implementation of the project,since any additional financing needed to complete the project would have tobe provided in a form satisfying such requirement. As mentioned before,the liquidity position of the Company at the end of 1971 is burdened byexcessively high inventories, but this situation is expected to improve by1973. The current ratio is lowest in 1975 and thereafter would be kept atabout 1.4:1, exclusive of excess cash, assumed to be earmarked for furtherexpansion (Stage III).

8.11 The Company's liquidity position will not allow payments ofdividends to common shareholders during the construction period. In orderto keep the Company in a sound financial and liquidity position, assuranceswere received during negotiations that COSIPA will pay no dividends oncommon shares if the current ratio would fall below 1.5:1 and also that theCompany should maintain a current ratio of not less than 1.3:1. It was alscagreed that COSIPA will not borrow additional long-term funds if its long-term debt would exceed equity, or if projected debt service coverage wouldbe less than two times. Finally, the Company agreed that it will not under-take additional capital investments (other than the project and Stage I)whether in COSIPA or in its subsidiaries in excess of US$8 million equivalenannually, including not more than US$4 million equivalent in any of its sub-sidiaries, during the life of the Bank's loan without the Bank's approval.

F. Debt Service Coverage

8.12 Based on the projections and the proposed financial plan, COSIPA'slong-term debt service forecasts indicate the following:

Long-Term Debt Service Coverage Forecasts

Year 1972 1973 1974 1975 1976 1978 1981

Times Covered 2.1 2.4 1.8 1.2 1.3 1.9 2.3

Long-term debt service coverage is unsatisfactory only in 1975. Hiowever,since the project will not hiave been completed by then, the Government/BNDE, would have to meet any possible shortfall in COSIPA's loan repaymentability as part of their commitment to provide whatever funds are requiredto complete the project.

G. Further Expansion (Stage III)

8.13 As mentioned in para 4.04, COSIPA will need additional steelmakingrolling and finishing facilities to meet the expected increase in demand

- 24 -

for steel in Brazil. The Company plans to undertake a further expansionof its raw steel capacity to about 3.5 million TPY which is tentativelyscheduled to be completed by 1983. The timing of this expansion and thecomposition of the finished products will depend on the findings of themarket study, which CONSIDER will commission, and the timing of thefurther expansions (Stage III) of CSN and USIMINAS. The project cost (in1971 prices), including interest during construction, working capital andpre-operating expenses, is roughly estimated at US$350 million, of whichUS$170 million will be in foreign exchange. COSIPA tentatively plans toimplement this project with US$120 million in loans and thie remainder inequity. The financial covenants mentioned in para 8.11 are designed toassure that these investments will be carried out on a soundl basis. Thefinancial statements superimposing costs and benefits of this expansion onithe forecasts of Stage II are summarized in Annex 21.

IX. ECONOMIC JUSTIFICATION OF THE PROJECT

A. Economic Rate of Return

9.01 The prices used for the economic rate of return calculations are(i) for domestic sales the European export prices that prevailed in February-August 1971 1/ for comparable products plus the actual cost of transport frommain European ports to Sao Paulo, and (ii) for exports the prices used forthe financial calculations. Based on these prices and an assumed life of18 years with no scrap value remaining for the assets added in the Stage IIexpansion, the project yields an economic rate of return of 14.8%. Theunderlying assumptions and details of the economic analysis as well as thesensitivity tests are given in Annex 19. The economic return is generallysensitive to changes in costs and benefits to the same extent as the finan-cial return. A decrease of 10% in the revenues reduces the return to 11.1%.If the project is delayed one year and project costs go up by 15%, the returnwould drop to 11%. A combination of revenues 10% lower and operating costs10%o higher than assumed will still produce an acceptable economic return of10%. Thus, the project provides a satisfactory return under foreseeablecircumstances and an acceptable return under adverse circumstances.

B. Competitiveness and Protection Required

9.02 As mentioned in para 7.07 and discussed in greater detail in PartI, selling prices for most finished flat products in Brazil are in linewith those prevailing in Western Europe. A comparison of COSIPA's domesticselling prices assumed for the financial analysis and the CIF price ofequivalent imports reveals that the domestic prices of plate and hot rolled

1/ The currency realignments in late 1971 have tended to increase Europeansteel export prices.

- 25 -

products, which represent about 65% of COSIPA's projected domestic sales,are lower than equivalent import prices, while the prices of cold rolledproducts are about 12% 1higher than import prices. As a weighted average,the import price for COSIPA's product mix is 5% lower than the domesticprice. Since the project would yield a satisfactory 15% return if domesticprices were decreased by 5%, the project is financially viable even withoutthe nominal tariff protection.

C. Estimated Foreign Exchange Savings

9.03 The project will have a beneficial impact on Brazil in terms offoreign exchange, since the calculated incremental net foreign exchangesavings of US$95 million per year at full production after the completionof Stage II would offset the estimated foreign exchange costs of theproject of US$260 million in about three years. At full production uponcompletion of Stage II, the net foreign exchange savings resulting fromthe operations of the Company are calculated at US$171 million per year.Further details of the calculation of foreign exchange savings are shownin Annex 22.

X. AGREENENTS REACHED DURING NEGOTIATIONS

10.1 Agreement was reached on the following principal points during loannegotiations:

A. Commitments by the Government and BNDE

(a) The Government will consult with the Bank prior tosanctioning any new flat steel production capacitybefore the existing plants have been expanded to theirStage III capacities (para 4.04).

(b) The Government and the Bank will consult on futurepricing policy (para 7.08).

(c) The Company will remain an independent corporation andwill not be merged or consolidated without prior approvalof the Bank (para 2.08).

(d) The Government will expedite the registration of contractsand the issuance of import licences for the project(para 4.15).

(e) The Government will take all reasonable measures requiredto enable the Company to obtain bilateral financing onterms satisfactory to the Bank (para 5.08).

- 26 -

(f) BNDE shall make new loans and/or subscribe to increases ofcapital stock of the Company on terms and conditionssatisfactory to the Bank; such loans and subscriptions toprovide, together with funds from others, sufficient funds(estimated to be about US$170 million equivalent includingfinancial changes) to COSIPA to enable the Company to carryout the project and cover the preferred dividends paid bythe Company during the construction period (para 5.09).

(g) Confirmnation that BNDE agrees to the financial plan, includ-ing the purchase of the Company's shares by the State of SaoPaulo to the extent of half the latter's 11CM tax receiptsfrom COSIPA through 1975 (para 5.10).

(h) The Government will cover project cost overruns or shortfallin financing of the project, whether in foreign or localcurrency, on terms satisfactory to the Bank (para 5.11).

(i) The Government will not require COSIPA to use low gradehigh cost coking coal for more than 20% of its requirementsafter completion of the expansion project (para 7.02).

B. Commitments bV tyhe Company

(j) The Company will expand the scope of the consultants' presentservices and review their recommendations witht the Bank, im-plement them as appropriate and take further steps, if neces-sary, to strengthen the management of the Company (para 2.06).

(k) The Company will limit investment in, or loans to andguarantees for, its subsidiaries to US$2 million equivalentin any one year with the possibility of accumulation of upto US$6 million, through 1980 (para 2.13).

(1) No new subsidiaries will be created by the Company withoutprior consent of the Bank (para 2.13).

(m) In the event there is evidence that the local constructionindustry is becoming over-extended, the Company will takeremedial action including utilization of contractors(including foreign contractors), who shall be in a positionto provide such services on reasonable terms and in accord-ance with the construction schedule for subsequent contracts(para 4.13).

(n) The Company will promptly obtain additional assistance, asneeded, for the proper implementation of the project(para 4.14).

- 27 -

(o) Agreement that the Company will take necessary steps,satisfactory to the Bank, to reduce its inventories toreasonable levels (para 5.05).

(p) The Company will not reduce before 1977 the averageprice in real terms of its finished products sold on thedomestic market without prior consultation with the Bank(para 7.09).

(q) The Company will maintain a current ratio of not less than1.3:1 (para 8.11).

(r) The Company will limit additional capital investments forfixed and capital assets (including by subsidiaries) toUS$8 million equivalent annually, of which only up to US$4million equivalent may be made by its subsidiaries exceptwith Bank approval (para 8.11).

(s) The Company will not contract additional long-termborrowing if its total long-term debt exceeds itsequity or if projected debt service coverage would beless than two times (para 8.11).

(t) The Company will declare dividends on common shares onlyif, after such dividends, it maintains a current ratio of1.5:1 (para 8.11).

10.02 Concurrent effectiveness of the IDB loan will be a condition ofeffectiveness of the Bank's loan.

10.03 Based on the above agreements reached during negotiations, theproject is suitable for a loan of US$64.5 million equivalent, for 15-1/2years including 4-1/2 years of grace period.

Industrial Projects Department

May 5, 1972

BRAZIL - COSIPA STEEL EXPANSION PROJECTORGANIIZATION CHART

! OLOEFRS

FISCAL CO'NCIL |CC SCLTATIVE COUNCIL

…OARD CF DIRECTORS------…--…-----------------------

PRES:DE.NT

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ASS:STAN!T TO THE__ ASS;STA'47TS TO^-RD OF O -T)E $ THE Z

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ANN 1Page 2

CONTROLLER

DIRECTOR

ASSISTANT TO

THE CONTROLLER

DIRECTOR

SUPERINTENDENT OF 1,CONTROL

ASSISTANT TO T14E SUPERINTENDENT

FINANCIAL INDUSTRIAL COST FIXED ASSLT

ACCOUNTING AND ANALYSIS ACCOUNTING

DEPARTMENT DEPARTMENT DEPARTMEN1

ACCOUNTS !COSTS EVALUATION] _ T

PAYABLE AND SERVICES - FIXED ASSET AND,

SECTION OTROL SECTION STCKS SECTIO

BILLING AND CO't CflNROL AFI'ROPRIATIONACCOUNTS RECEI- - AND ANAY Y9 _ AND ANALYSIS

OF EXPANSIONVABLE SECTIGN j - SEC! GN S E IN

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ACCOUNTING

SECT ION

AM 1PageX3

TREASURER

DIRECTOR

ASSISTANT TO THETREASURERDRECCTOR

SUPERINTENDENT OFFINANCIAL OPERATIONS

ASSISTANT To THE SUPERIrTENNT

I __ ~I ._.PLANNING AND CREDIT AND

BUDGETING COLLECTIONS TREASURYDEPARTMENT DEPARTMENT DEPARTMENT

BUDGET ~~~~~~~~~~~CASHIERSUEDGET SAO PAULO

SECTlION SECTION

FINANCIAL CASHIERPLANNING AND PIAQAGUERA

I NSURANCESETOSECTION S_ECT_ION

FOREIGN

EXCHANGESECTION

~7NERAL SUPERINTENDENT

OF OPERATIONS

ASSISlANT TO THEGENERAL

L SUPERINTENDENT

S U P E R I NTE N D E N T SUPERINTENDENT OF SUPERINTENDENT SUPERINTENDENT OF SUPERINTENDENT OF0 F S A L E PURCHASES RAW MATER I0 F INDUSTRIAL RELATIONS ITECHNICAL SERVICES ANOI

AND TRANSPORT PRODUCTION AND ADMINIST. SERVICES BNDUSTRIAL ENGINEERINOASsJSTANT TO THE SUTPERINTNT SSSTA ERTENDET RINTNDENT AS9STANT TO THE SUPERINTENDENT

_T TO THE SUP IT_To _____ IJIASSSTANT TO THE 3UP%RINTEWDCNT

ANNEX 1- -~~~~~~~~~~~~~~Pg

SUPERINTENDENT OFTECHNICAL SERVIES ANDINDUSTRIAL ENGINEERINGASSISTANT TO THE SUPERINTENDENT

METALLURGICAL P OESN

CONTROL1OF ENGINEERINGLDEPARTME NT CETRDEPA RTrMENT

PRI MA R Y M 1 E T H O D S

MET TALLURGICALAND

CON TROUCTSL P ROC EDURESS E C T I ONI N

NSPECTION AND PRODUCTIONMETALLURGICAL

_CONTROL OF _ENGI NEE RIN OPOLLED PRODUCTS S E C T I O N

SPECIFICATIONS

ANDP R OCESSESS E C T I ON

CH E M I CA L

LADO RATORY

S E CTION

ANNEX 1Page

SUPERINTENDENT OFPURCHASES RAW MATER.

AND TRANSPORTASSISTANT TO THE SUPERINTENDENT

PURCHASING PURCHASING RAW MATERIALS WAREHOUSE

DEPARTMENT PLANNING AND AND TRANSPORT DEPARTMENT.A TCONTROL DEPART DEPARTMENT

D O M E S T i C STUDIES A N D P po RT G E N E R A L

_M AR KE T _ P L A N N iA N G SERVICES S T O RESPU RCHAS ES

S E C Ti ON S E CT I ON S E C T I O N S E C T ION

F O R E I G N C T O C K DECENTRALIZ EDM ARKECT C | N T R OL N 7 R A FFIC S TRE SPURCHASES CONTRLCSECIONS E CTION SE C T ION S E C TION

ARN 1Page 7

SUPERINTENDENT OFINDUSTRIAL RELATIONSAND ADMINIST. SERVICESASSISTANT To, IE SUPERINTENDENT

PESONL N GENERAL AND SOCIAL I OCCUPATIONAL

P E RSONN EL LAE

PERSONNEL ADMINISTRATIVE ASSOTC!AL

SERVICE ASERVIACESr

AEDbNISTRsATIONE

DEELP E NT T 5 h E C T I o N | E LC T 10 NS

PSYCSOLONICAL DMI E N E R A L i A L

A N ALYSIS S E R V ICES

S E C T I ON S E C T IO N | E C

ANNEX 1: age 8

SUPERINTENDENTOF SALES

ASSISTANT TO THE SUPERIN'ENOENT

| E X P ORT D ME S T I C M A-R K E r N GS A LES SA L ES S ER VI CE S

DEPARTMENT DEPARTMENT DEPARTMENT

T EC H N I C A L M A R K E T

_AN D CLAIWS R E 5 E ARCH5 E C T . ON S E C T I o N

S A L E 5 O R D E R

_ S E C T I ON _ADINISTRATIONSA^O PAULO S E C T I ON

S A L E 5 STUDIES AN D

_ S E C T i O N _S T A T ISTrc sR 1-0 S EC T ION

ANNEX 1Page 9

GENERAL aLEFrENOF EXPANSION

AND DEVELOPMENTI

ASSISTANT TO THEGENERAL

SUPERINTENDENT

SUPERINTENDENT SUPERINTENDENT SUPERINTENDENTOF PLANNING OF ENGI NEERING OF CONSTRUCTION

ASSIST TO THE SUPRINTENOEMT ASSIST TO THE SUPERtNTENDENT ASSIST TO THE SUPERINTENDENT

Industrial Projects DepartmentMarch 1972

ANNEX 2BRAZIL - COSIPA STEEL EXPANSION PROJECT

DESCRIPTION OF EXISTING FACILITIES

The integrated plant at Oubatao,with installations and moderni-zation encompassed in the one million ton plan of expansion (Stage I), consistsof facilities necessary for raw materials handling, coke and by-products pro-duction, iron and steelmaking, and conversion of ingots into marketable flatrolled products.

Transportation Infrastructure

At the present time the plant is serviced by railroad, ocean vesselsand trucks. Several significant projects currently underway will provideimproved service to and from the plant, as follows:

Railroad trackage has been laid which will shorten thedistance from the ore mines to the plant. Furthermore, theCity of Sao Paulo will be completely by-passed.

At present, the movement of railroad cars to and fromPiacaguera is limited to the capacity of steam locomotiveswith a cable tow arrangement for movement up the slope of theSerra do Mar mountain. This system is being augmented byelectrically driven locomotives equipped with cog wheels arran-e-ment. One track system, including bridges, is being rein-forced to handle heavier loads. It is estimated that thecapacity of total system will be increased by some four tofive fold.

A new railroad track is being built into the plant whichwill permit direct railroad delivery of limestone and dolo-mite from the mine site. At present these materials arebeing delivered by truck.

A new highway is being constructed from Santos to SaoPaulo which will more than double the capacity of thepresent one. Trucks from Piacaguera will have easyaccess to the new system.

A new highway is being contructed along the coastwhich will connect Santos with Rio de Janeiro. This wilLfacilitate movement of traffic to Rio de Janeriro

All the above mentioned programs are expected to becompleted between 1973 and 1975.

Delinition of Existing Facilities

For the purpose of this Annex, all facilities previously built, orscheduled to be built as part of the one million ton expansion plan, are con-sidered as existing facilities. The description which follows is written inthe present tense as though all of the facilities were completed and inoperation.

ANNEX 2Page 2

Dock

Dock installations consist of one pier 200-meter long equipped withan unloader rated at 600 tons per hour maximum when unloading coal.

Raw Materials Handling

Imported and national coal, and part of the iron ore are receivedover the dock. Some iron ore, limestone and dolomite arrive by railroad.Facilities for raw material unloading, storage and handling consist at araw materials conveyor system from the dock to the raw materi. als and coalstorage yards; two car dumpers; and storage areas equipped with three stackers,a ore rotary wheel reclaimer, and associated conveying systems. Crushing andscreening facilities for iron ore and stone are available in thie vicinity ofthe iron ore storage yard.

Sintering Plants

Sintering facilities consist of sintering plants No. 1, No. 2with nominal capacities of 2,100 and 3,000 tons of sinter per day, respectivey,.

Coke PlantCoke-making facilities consist of 97 ovens, in three batteries, coal

storage and preparation system, coke crushing and screeening equipment. Faci-lities are used for the recovery of coke oven gas, tar and tar distilla-tions products, ammonium sulphate, and benzol products.

Blast Furnace

Facilities for the production of pig iron consist of one blastfurnace and associated equipment, which, after the reline and enlargementprogram scheduled for 1972, will be able to produce about 3,000 tons of hotmetal per day.Torpedo cars are used to transport hot metal from the blast furnaceto the steel plant.

BOF Steel Plant

The basic oxygen steelmaking shop has two 100-ton furnaces, oneoperating at a time in normal sequence, and a third furnace of 75-ton capacitymaintained as an emergency stand-by facility. The shop is self-contained andis complete with all necessary auxiliary facilities.

Foundry

The foundry is equipped with two cupola furnaces for cast iron, oneelectric arc furnace, two crucible furnaces for nonferrous metals, and therequired auxiliary equipment. Capacity is adequate to supply the ingotmolds and stools and spare parts required for the one million ton level ofoperation.

ANTNEX 2Page 3

Slabbing Mill

The 4h-inch high lift slabbing mill, driven by twin 4,000 hp DCmotors, permits the rolling of slabs 1,600 mm (63 inches) wide. This millis capable of rolling about 2,300,000 ingot tons per year, with some altera-tions. Soaking pit facilities consist of six 2-hole pits with a capacityto process 1,000,000 tons of ingots yearly.

Hot Strip Mill

Existing facilities for rolling plate and strip for hot and cold-rolled product consist of the following major units:

Two slab reheating furnaces of 100 tons per hour capacityeach.

One 72-inch 2-high rougher/ scale breaker driven by a 1,000hp motor.

One 110-inch 4-high reversing plate mill driven by twin3,500 hp DC motors.

six 66-inch 4-high finishing stands with main driveshaving a total connected horse-power of 23,500 hp.

Two downcoilers capable of handling coil weights up to700 pounds per inch of width. The mill is equipped withautomatic devices for control of gage, strip shape and width.

The present hot strip mill is estimated to have a capacity ofabout 1,100,000 tons yearly when rolling coils only.

lot Rolled Product Finishing Facilities

The principal hot strip finishing facilities are a heavy duty 60-incihot rolled strip shearing line with a capacity to shear 120,000 tons of sheetsyearly, and a 66-inch 2-high skin pass mill capable of processing 415,000 tonsof product per year. Plate finishing facilities consist of a continlos in-line110-inch shear line, crop shear, roller leveler and two guillotine type sideshears.

Continuous Pickling

Facilities consist of one 63-inch sulphuric acid type continuouspickling line with a capacity of about 443,000 tons per year, and one 54-inchhydrochloric acid type continuous line with a capacity of about 570,000 tonsper year. Aside from processing product wider than 54 inches, which accountsfor less than 20 percent of total production, the 63-inch line is maintainedonly on a stand-by basis.

Cold Teduction Mill

Ihe cold reduction mill is a 4-stand, h-high, 66-inch mill withi re-quired anxiliaries and equipment including automatic gage, shape and qualityzzcontrols. This mill has an annual rolling capacity of about 711,000 tons.

ANNEX 2Page 2

Annealing

Facilities consist principally of 18 single stack furnaces, for62-inch diameter coils; 24 single stack furnaces for 72-inch diameter coilsand 110 bases. Production capacity is about 696,000 tons per year.

Temper Mill

The single stand 4-high 6 6-inch temper pass mill and auxiliary equip-ment has a capacity of about 635,000 tons per year.

Cold Strip Finishing

Facilities consist of a 62-inch coil inspection and build-up linewith an annual capacity of approximately 150,000 tons, and two 62-inch sheetstrip shearing lines with a combined annual capacity of 260,000 tons.

Maintenance Shops, Utilities and Services

Maintenance shops, various services, and utilities are provided asrequired for the administration, operation and maintenance of the plant.

Industrial Projects DepartmentApril 1972

BRAZIL - COEIPA bTkiL EXPANSION PROJECT

HISTORICAL pROFIT AND LOSS STATEMENTS(Million Cr$ - US$)

1967 1968 1969 197 r 1 971D e s c r i p t i o n Cr$ US$ Cr$ US us$ Cr

Gross Sales 105.8 39.8 219.2 64. 6 284.o 69.7 391- 3 83.7 585.9 110.5

Less - IPI 3.2 1.3 8.9 2.6 1l.1 2.7 i6.3 3.5 25.0 4.7- Distribution Ccst O.4 0.1 o.4 0.1 o.4 0. 1 2.5 0.5 __

Net Sales 102.2 38.4 209.9 61.9 272.5 66.9 372.5 79.7 560.9 1o5.8

Cost of Goods Sold 112.5 43.0 152.6 45-0 182.3 45.1 237.4 51.2 367.7 69.4ICM Taxes 10.8 4.o 2).8 8.8 36.8 g.0 60.6 12.2 88.o 16.6

Gross Profit (Loss) ( 21.1) ( 8.6) 27.5 8.1 53.4 32.8 74.5 16.3 105.2 19.8

Administration Expenses 23.1 10.2 s8.5 7.4 32.9 7.2 26.4 4.6 12.4 2.3Sales ExponsSs 6.8 8.8 7.3 2.1 8.5 2.1 4.3 0. 9 9. 5 1.8Depreciation-6 Amortization 8.4 2.4 7.3 i2.6 10.3 12.8 14.8 13.3 20.6 11.1

Operating Profit (Loss) ( 59.4) ( 30.C) ( 15.6) ( 14. ) 1.7 ( 9.3) 29.0 ( 2-5) 62.7 4.6

Other Iiicno¶e ]. 6 o.6 2.9 o. 8 9.5 2.3 22.9 4. 9 17. 7 3.3Financial Expenses 50. 6 2 19.0 19.3 5.6 28.9 7. - s12. 1 9. 0 72. 0 1-3. 5

Net Profit (Loss) before Provisions (108.4) ( 48.4) ( 32-0) ( 18.8) ( 17-7) ( 14.1) 9.8 ( 6.6) 8.4 ( 5.6)

Provision for- Bad Debts __ __ o.6 0.2 0.2 0.1 o.4 0.1 0.3

Nct Profit (Loss) before Taxes (103.4) ( 48.4) ( 32.6) ( 19.0) ( 17.9) ( 14.2) 9.4 ( 6-7) 8.1 ( 5.6)

Income Taxes

NET PROFIT (LOSS) AFTER TAXES (100.4) ( 48.4) ( 32.6) ( 19.O) ( 17-9) ( 14.2) 9.4 ( 6-7) 8.1 ( 5.6)

Prior Years Adjustment ( 9.6) ( 4.4) 4.8 ( -1.) ( 0-5) ( 0.2) ( 3.6) ( 0.9) - ( 28.7) 3,

Exchange Differerice in Convertion -- __ __ 18.3 2.3 -- 1.5 -- 5.7)Retained Earnings or (Loss) (118.0) (52.9) ( 27.8) ( -.8) ( 18.4) ( 12.1) 5.9 ( 6.1) 8.1 ( 40.0)

ACCUMULATED RETAINED FRABRINGS OR (LOSS) (118.0) ( 68.4) ( 27.8) ( 70.2) ( 18.4) ( 82.3) 5.3 ( 88.4) 8.1 (128.4)

L/ Cruzeiros statements are based on "Gauss C,urve" where as us$ a .atements are based oLn 43g: straight linie depreciation.

About Cr$ 33.8 milliorn (uS$ 12.7 million) was due to the renegotiations of BNDE loarn.

,/ This includes writing off of us$ 17.0 million pre-operating expernses and of Us$ 5.5 milliorn in inventories. The cruzeiro equivalents have been adjusted against ><the monetary correction reserve (Annex 3, page 2).

ANREX 3Page 2

HISTORICAL BALANCE SHEETS(Million Cr$ - uS$)

1 9 6 7 191 9 6 1 9 70 9 7 1Cr$ usrCr C r$ us Cr$ us$

A S S E T S

Current Assets

Cash and Banks 3.1 1.2 14.4 3.8 8.0 1.8 4.9 1. 15.1 2.7Accounts Receivables (Net) 25.4 9.3 35.8 9.3 57.3 13.2 79.3 16.o 144. 0 25.3Inventories 72.8 38.5 68.2 32.9 90.l 36.5 157.7 47.9 256.6 55.6

101.3 49.0o 118.4 46.o 155.4 51.5 I241.9 64.9 415.7 7_T. 7z

Marketable Securities - - - - 36.3 8.3 57. 3 11.6 42.3 7-5

l'et Fixed Assets

Gross Assets 546.7 265.7 813.3 278.3 1,098.4 281.6 1,356.0 294.4 1.917.0 354.8Less: Depreciation 19.3 10.2 24.5 20.9 42.3 31.7 60.0 42.7 80.4 53.8

527.4 255.5 788.8 257.4 1,056.1 249.9 1,296.0 251.7 1.836.6 301.0

Other Assets 1/ 7.8 3.0 12.0 3.4 18.6 4.5 25.7 5.5 28.8 5.4

Deferred Charges 118.7 20.3 110.2 19.1 182.2 19.2 1-08.7 15.8 91.9 1.7

TOTAL ASSETS 755.2 327.8 1,029.4 325.9 1,448.6 333.4 1,729.6 349.5 2.415.3 399.2

L I A B I L I ' I E S

Current Liabilities

Accounts Payable 33.6 12.4 4o.5 10.6 81.o 18.6 86.9 25.3 242.5 43.1Current Portion of Long

Term Debt 55.4 20.4 77.1 20.1 45.2 10.4 125.5 17.6 43.3 7.689.0 o 3.- 117.6 30.7 126.2 29.0 212.4 42 9 2 5.8 50.7

Long Term Debt

BNDE 106.0 39.1 260.0 67.9 354.2 81.5 440.2 88.9 268.6 47-7Foreign Debt 65.2 24.0 24.9 6.5 20.8 4.8 26.3 5.3 167.7 29.8

171,2 63.1 284.9 74.4 375.0 66.3 466.5 94.2 436.3 77.5

Other Liabilities 2/ 8.9 3.3 12.8 3.4 17.3S 3 .9 18.0o 3.7 28.3 5.1

Equity

Share Capital 312.0 158.8 312.0 158.8 514.8 158.8 750.8 210.5 1.300.0 308.4Reserve for Capital Increase

National Treasury & FUNAI 151.2 86.4 151.2 77.0 200.0 85.5 217.4 85.2 222.4 82.3BlDE 138.0 50.8 138.0 50.8 221.1 50.8 - - - -l4onetary Correction - - 37.0 - 6.4 - 52.3 - 114.7 3

Technical Legal Reserve 2.9 1.0 3.7 1.0 6.2 1.4 6.7 1.4 20.1 3.6Retained Earning or Loss 118.0) (68.4) (27.8) (70.2) (18.4) (82.,) 5.5 (88.4) 7.7 (i28.4'

486.1 228.6 614.1 217. 930.1 214.2 1,032.7 . ______

TOTAL LIABILITIES 755.2 - 327.8 1,029.4 -,325.9 1,448.6 -3..4 5 1,729.6 349.5 2.415.3 399.2

Current Ratio 1.5 1.5 1.8 1.5 1.6LTD: Equity Ratio 22:60 25:75 29:71 31:69 23:7l

1/ Including obligatory investments, funds for employee separation & subsidiary

2/ ,ncluding provis-on for employee separation and other provisions

This figure has been adjusted to compensate for the items written off (See Annex 3, Page 1, footnote 3).

Industrial Projects Department?riI 1572

BRAZIL - COSIPA STEEL EXPANSION PROJECT

SALES HISTORY AND FORECASTS-/(000 Tons)

Actual Forecast

1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980

A. Domestic

Plate 51 77 99 120 158 158 158 158 427 475 533 598 610

Hot Rolled Coil 128 152 153 216 279 150 170 155 271 286 365 299 236

Hot Rolled Sheet 25 30 38 53 32 56 29 50 57 85 91 103 117

Cold Rolled Coil 78 76 101 116 80 115 128 147 152 229 280 310 315

Cold Rolled Sheet 74 71 66 80 134 200 230 231 252 252 252 252 252

Slabs 10 21 1 1 - - - - - - - -

Total Domestic 366 427 458 586 683 679 715 741 1,159 1,327 1,521 1,562 1,530

B. Exports

Plate 13 14 3 - 18 18 18 18 73 85 87 82 70

Hot Rolled Coil 10 * - - 30 15 18 15 27 30 - - -

Hot Rolled Sheet 19 13 1 - 6 5 - 5 22 76 43 3 37

Cold Rolled Coil 8 3 2 - 12 12 13 15 24 44 30 30 30

Cold Rolled Sheet 9 17 10 - 15 20 20 29 28 28 28 28 28

Total Exports 59 47 16 - 81 70 69 82 174 263 188 143 168

C. Total Sales (A+B) 425 474 474 586 764 749 784 823 1,333 1,590 1,709 1,705 1,698

Foundry Coke (DomesticOnly) - - - - - - - - 191 229 229 229 229

1/ Including the use of purchased slabs.

*Negligible.

.ANNEX 4Page 2

GEOGRAPHICAL DISTRIBUTION OF SALES-1/

State 1968 1969 1970 1971

Sao Paulo 69.0 68.4 71.8 80.9Guanabara 9.5 12.5 17.2 10.2Rio Grande do Sul 4.8 4.8 5.8 6.oRio de Janeiro 0.6 1.2 0.3 1.7Parana 1.1 0.9 1.2 1.2Minas Gerais 0.3 1.6 0.1 *Santa Catarina 0.2 0.1 0.1 *

Other States 0.3 0.1 0.1 *

Sub-Total (Domestic Market) 85.8 89.6 96.6 100.0Exports 14.2 10.4 3.4 0.0

TOTAL 100.0 100.0 100.0 100.0

Total Sales (000 Tons) 415.3 452.9 473.4 585.0

SECTORAL DISTRIBUTION OF DOMESTIC SALE;/

Sector 1968 1969 1970 1971

Automotive 15.4 17.4 13.6 19.1Home Appliances 2.8 4.2 5.0 3.5Civil Construction 6.2 8.5 4.0 5.2Machine and Equipment 4.7 2.9 2.9 3.1Tubes 7.9 8.3 20.2 19.3Vessel and Cylinders for Gas N.A. N.A. 1.2 1.7and Liquid

Metallurgical 6.6 6.o o.6 0.2Containers and Drums 0.2 1.2 9.5 3.0Rerolling N.A. N.A. 3.5 5.2Railroad 0.4 0.2 0.3 0.3Shipbuilding * 0.1 0.1 0.1Miscellaneous 30.6 27.7 5.7 3.4Distributors 25.2 23.5 33.4 35.9

TOTAL 100.0 100.0 100.0 100.0

Sales (000 Tons) 356.2 h06.1 457.2 585.9

N.A. - not available*Negligible

1/ Excluding sales of slabs.

Industrial Projects DepartmentMarch 1972

ANNEX 5BRAZIL - COSIPA STEEL EXPANSION PROJECT

PROPOSED FACILITIES

The new facilities and alterations to existing equipment and systemscomprised in the 2.3 million TPY expansion project (Stage II) are described below.The layout of the plant is attached after Annex 24.

1. Dock and Raw Materials Handling

The existing dock will be extended by 100 meters and a second unloaderrated at 600 t/h will be installed. The turning basin will be enlarged to 170-meter radius and 10-meter depth to allow for 30,000 DWT carriers to dock at theterminal.

On the assumption that the entire quantity of coal will be unloaded atthe dock, the two unloaders will operate at about 30% of their capacity only andwill, if necessary, be able to handle about 50% of the ore consumed by the planitat the completion of the 2.3 million TPY project.

In addition, the Company is considering the installation of a separate125 m long x 37 m wide dock provided with a 15-ton loading crane to facilitateshipment of about 20% of the planned production of plate, coil and sheet. Thepreliminary location of this loading dock is shown in the plant layout. However,whether or not it will become necessary and its precise location will be studiedfurther. Nevertheless, the capital cost estimates include the construction ofthe dock.

The addition of a primary yard to complement the existing raw materialshandling facilities will enable the materials received either by ship or via thecar dumpers to be adequately stored in individual piles prior to blending. Theyard will be connected to the dock and to the present raw materials facilities bymeans of belt conveyors.

The primary yard will cover an area of about 39,000 sq m for Stage II.Provisions will be made to allow for the addition of two more 300 m x 60 m berthswhich will be required for Stage III. Depending upon NSC's further investigationrequired in connection with the final design and location of the primary yard,some changes in the original concept may take place and it is possible that thethird berth may have to be provided in Stage II to serve as a site for temporarystorage of various materials such as coke, sinter return, coke breeze, dolomitefines, limestone, manganese ore and others, since the area allocated for this pur-pose at the east end of the present yard may not be sufficient. The plant lay-out shows, among other items, the proposed primary yard arrangement and location.Test borings will be carried out in this area to provide supporting data for itsdesign and specification. Each berth will have a storage capacity, based on 30-day storage, of about 128,000 tons of sized ore or 142,000 tons of ore fines.File height will be kept at a maximum of 10 m.

The yard will be served by two 840 t/h wheel-loaders. In the exist-ing blending yard one stacker will be added to operate on the gravel and lime-stone piles. To improve reclaiming operations one additional 1,000 t/h double-wheel rotary type unit will be added.

ANNEX 5Page 2

2. Coke Plant

This will consist of two 53 oven batteries of the underjet type withcoking cells of 6,000 mm high x 16,000 mrnm long x 430 mm wide. The batterieswill be served by two sets of oven machinery. The three existing batteriescomprising 97 ovens and one of the new batteries will be operated for the pro-duction of metallurgical coke. The new No. 5 battery will be reserved duringStage II for the production of merchant blast furnace and foundry coke.

On the assumption of a bulk density of coal (dry basis) of 730 kg/rn',total coke yield of 73.5%, blast furnace coke yield of 63.5%, normal workingrate of the existing ovens of 135% and that for the new ovens of 145% and oper.!-tion rate of 99%, the following production figures are obtained:

Tons/YearBattery Battery Battery Battery Battery

No. 1 No. 2 No. 3 No. 4 No. C

Total Coke 178,600 178,600 201,600 552,782 312,167B.F. Coke 154,300 154,300 174,200 477,575 57,439Coke Breeze 24,300 24,300 27,400 75,207 25,2e5fFoundry Coke - - - - 229,443

Total B.F. Coke = 1,017,814 t/y (coke rate = 500 kg/ton).

The coal mix will be as follows:

(a) For metallurgical coke production:

US-LV US-HV Others National Pet. Coke Total

% 20 30 20 20 10 10(% Volatile Matter 18 35 36 32 1i 29.1

(b) For foundry coke: US-HV - 40%US-LV - 40%National - 20%

Coal consurption will be as follows:

(a) For metallurgical coke:

Tons/YearDry 'ge t

Imported HV coal 756,200 804,468Imported LV coal 302,480 321,787National 302,480 321,787

Total 1 448,042

ANNEX 5Page 3

(b) For foundry coke:

Tons/YearDry Wet

Imported HV coal 247,097 262,869Imported LV coal 16h,731 175,246National 82,375 87,623

Total 525,738

Coal consumption has been computed considering that petroleum cokeequivalent to 10% of the wet coal requirements will be purchased from Petrobras.The unit for the production of such by-products is being installed at Cubataorefinery.

The coal yard has been arranged and sized to satisfy the requirements ofStage 1II. It will cover a total area of about 110,000 sq.m.with space for stor-ing approximately 335,000 tons of coal.

The basic arrangement comprising four berths, four lines of piles, fourstack wheel-loaders (1,200 t/h stacking, 400 t/h reclaiming capacities) providedwith 50-meter booms will be installed.

Pile height will be about 8 m. In order to improve stanking efficiency,a 3-m high wall will be built between the two inner berths. It is expected thatthe revamped coal yard will have a high efficiency.

When No. 5 battery reverts to the production of metallurgical coke inStage 11I the overall B.F. coke production (5 batteries) will total 1,437,950 t/ywhich, in turn, will afford the equivalent raw steel production of 3,220,000t/y at a coke rate of 500 kg/t and 3,437,000 t/y at a coke rate of 470 kg/trespectively.

3. Blast Airnace Plant

The hot metal production required in Stage II will be about 5,600 t/day.

It is assumed that the existing No. 1 blast furnace will participatewith an average of 2,000 t/day and a maximum daily production of 2,40o t. Thenew No. 2 furnace will produce initially an average of 3,600 t/day (1.1h t/day/rm3

of inner volume) and a maximum of )4,000 t/day with a sinter ratio of 67% to 70%in the burden. The furnace will, however, be designed as free standing withprovision for future enlargement of inner volume by about 20g. The hearth dia-meter will be 10.9 meters and the inner volume abou-t 2,540 m. Inner volumeis defined as the volume between the iron notch and the stockline. The furnaceis designed for an ultimate top pressure of 1.5 kg/cm 2 . The fuel rate is assLmedto be 550 kg/t of hot metal (500 kg of coke + 50 kg of oil).

ANNEX 'Page 1

The furnace will comprise two cast houses and three hot stoves wiLhprovision for addition of a fourth stove in the future. A hot blast tempera-ture of 11000 C is to be obtained. Gas cleaning equipment and charging eu pTne.l t,will be sized for a production of 6,000 t/day with a fuel rate of 550 kg/t,.Centralized control will be located at the furnace control room. One turbo-blower rated to operate in the ranges of 3,000 to 4,600 Nm3/min. of wind voliumeand 1.5 to 3.2 atg of wind pressure will be sufficient for the Stage II prodiuc-tion of No. 2 furnace. For production beyond 4,000 t/day, a second blower will.be installed to operate in parallel with the one included in the initial blastfurnace installation. Stand-by service will be provided by one of the presetlt.units.

4. B.O.'. Plant

The present B.O.F. shop initially modified and extended can attain aproduction of 2.3 million tons of ingots per year. The major alterations are asfollows:

(a) Install a third 100-ton vessel complete with hood to replace theexisting 75-ton unit.

(b) Extend the teeming aisle 36 m.

(c) Install a third 150/40/10 ton ladle crane in the teeming aisle.

(d) Extend the mold preparation yard 80 m.

(e) Install a third 50/25 ton crane in the mold preparation yard.

(f) Install a second 300/25 (50) ton stripper crane in the stripperbuilding.

(g) Install a second 250 t/day rotary kiln at the calcining plant.

(h) Install a second gas cleaning plant to supplement the presentfacilities.

The production of 2,300,000 t/year is to be attained on the basis of:

192,000 t/month (good ingot)76.7% hot metal ratio80% good ingot yield110 t/heat26.6 working days/month41 min tap to tap time61 heats/day2c,940 heats/year.

These figures are conservative in comparison with NSC's actual operat-ing practice in Japan. Having regard to COSIPA's technical assistance agreementwith NSC for the operations in the metallurgical area, no serious problems areforeseen in achieving the forecast production.

ANNEX 5Page 5

5. Oxygen Plant

In order to meet the requirements of oxygen for steelrmaking and mis-cellaneous uses totalling about 22,000 Nm3/h (16,680 Nm3/h max for the B.O.F.shop), a third air separation plant for the production of 8,000 Nm3 /h of gaseousoxygen will be added. Two oxygen compressors for 8,000 Nm3/h each will beinstalled at the new plant. In this way, one of the 3,000 Nm3/h existing com-presssors will serve as a standby unit. No. 1 and No. 2 blast furnaces will notrequire oxygen enrichment of the blast for Stage II, but additional liquid oxygenstorage of about 300 m3 will be provided to support supply of oxygen to the B.O.-W.shop during regular maintenance work of the air separation plants. Existinggaseous oxygen storage totalling 500 m3 will be increased to 900 m3. Pipingwill be extended to the new plate mill and No. 2 blast furnace.

The oxygen producing facilities in Stage II will thus comprise:

Air Separator °2 Caovgressor

(a) No. 1 Air Separation Plant (existing) 2 x 3,000 Nm3/h 2 x 3,000 Nm3/h(b) No. 2 Air Separation Plant (Stage I) 1 x 8,000 Nm3/h 1 x 3,000 Nm3/h(c) No. 3 Air Separation Plant (Stage II) 1 x 3,000 Nm3/h 1 x 8,OOO Nm3/h

1 x 8,000 Nm3/h

Wnether to install the second 8,000 Nm3/h oxygen compressor in the newair separation plant or to split this capacity between two units and install themin the No. 2 air separation plant which has been designed with provisions toreceive two additional oxygen conpressors, is a matter that will be furtherinvestigated during the engineering stage of the plan.

6. Slabbing Mill Plant

The required alterations to be carried out at the slabbing mill in orderto process 2.3 million tons of ingots annually are as follows:

(a) Installation of four soaking pit batteries of the top-one-wayrecuperative type, four-holes per battery, 120-ton capacity per hole, in sequencewith the present six batteries comprising top-two-way recuperative type pitswith two holes per battery. The pits proposed are more efficient than the exist-ing ones and, furthermore, require less building area. One soaking pit cranewill be added. The existing ingot buggy is considered sufficient to take careof the additional handling.

(b) Replacement of the slabbing mill drives by more powerful motors.NSC has investigated this matter and has indicated that with the present 2 x3,000 KW drives the mill has a capacity of 290 t/h, whereas the use of 2 x 1h,250KW motors would raise its capacity to the minimum requirement of 326 t/h. Thismatter is to be further studied with the electrical manufacturer to determine thealterations, if any, required on the existing twin-drive foundation and anchorbolts, as well as the most suitable way to increase the present motor-generatorcapacity and respective control changes.

ANNEX 5Page 6

(c) The installation of one high capacity hot scarfing machine usingLPG as fuel, between the mill and the existing shear.

(d) Installation of a slab cooler on the transfer to the slab yardprovided with water sprays and recirculating cooling tower. Hand scarfing willbe carried out on two transfers separated by one slab turner.

(e) Installation of one 3-ton crane provided with a grab bucket overthe scale pits; and two 37.5 x 2/15 t cranes in the existing slab yard.

7. Plate Mill Plant

The new 160-inch plate mill complex will be designed for a productionof 600,000 t/y of plates during Stage TT and, for subsequent expansion to about1,000,000 t/y for Stage III. The product mix as envisaged at the present timehas the following distribution;

Plate for %

Shipbuilding 29Mechanical structures 27.1General structures 15.8Civil engineering structures 19.2Piping 2.9Vehicle 4.-Others li.6

The building area will cover about 74,000 sq.m. Major items comerrsedin the installation will include:

(a) One [-high reversing stand with back-up rolls of 2,P,00 mm dia andwork rolls of 1,000 mm dia x 4,064 mm in length. The stand will be driven bytwo 4,500 KW motors and will be provided with automatic gauge control and X-raygauge for width measurements and control.

(b) One slab yard with two 35-meter spans totalling about 11,500 sq.m.in area. Slabs will be transferred with the aid of one 100-ton transfer car.The yard will be provided with three 4O-ton cranes equipped with tongs.

(c) One 140 t/h continuous reheat furnace of the pusher type to pro-cess slabs of 160-ton maximum weight and one double chamber in-and-out furnacewith a capacity of 20 t/h capable of receiving slabs with a maximum weight of20 tons, served by one 20-ton crane.

(d) Scale breaking equipment of the high pressure water jet type withdescaling pressure of 15 kg/cm 2 .

(e) Following the mill runout table one 4-high reversing hot levellerwill be installed.

ANNEX 5Page 7

(f) In the mill bay, one 210/40 t crane will be installed for rollchanging and other services and one 20-ton claw crane for picking up heavy platesfrom the mill roller tables and laying them on the floor for cooling.

(g) Two cooling beds 40 m wide x 30 m long of the walking beam orcarrier chain type will be installed in separate bays. Space for a third cool-ing bed required in the future is provided in the layout.

(h) One finishing line following the second cooling bed, comprisingroller tables, one double side shear of the down-cut type for thicknesses upto 40 mm; one dividing shear for rolling cut up to 40 mm in plate thickness pro-vided with shear gauge appropriate for the range 2,400 to 25,o00 mm in platelength; and one cold level]Pr.

(i) The finis}/ing bay has space for the installation of a second shear-ing line in the future. IThe bay will be served by two 30-ton and one 16 -tonmagnet cranes. Install d transversely at the end of this bay there will be two30-ton magnet cranes w' Jch will be used to pile the plates in the area besidethe finishing line anc/return the piles to the roller table for transfer to theshipping yard. Flameputting will take place in the area beside the future sidetrimmer. /

(j) The/,hipping yard will be transverse to the mill buildings in aneast-west directiF,.. It will comprise three aisles totalling about 1,500 sq m.In each aisle, o-/ 30-ton magnet crane will be installed to store the plates andto move them fry shipment.

(k/ One roll shop provided with one roll grinder and space for a secon8unit to be / stalled in the future. The roll shop and the motor room will beserved by .,e 210/40 t crane.

(1) Plate treating equipment (grinder) will be provided in the areabeside> ,he dividing shear. Maintenance of the first cooling bed will be donewn <-•Ž,ie aid of one 5-ton hoist crane, whereas servicing of the second coolingkfi and of the continuous reheating furnace will be by means of one 5-ton andm,ne 7-ton hoist crane, respectively. Additional areas have been provided in thelayout for heat treatment, jet blast and shipping yard.

8. Hot Strip Mill Plant

The company was originally planning to increase the capacity of thetwo existing 100 t/h reheat furnaces and to install one additional 100 t/h roh-eati' rnrace. After discussions with M*cKee, the Company has decided to install a new200 t/h furnace instead of replacing the old furnaces and installing a new 100th furnace. However, this change does not warrant any revisions in the capitalcost estimates.

Slab sizes will be 105 x 1,400 x 5,8oo mm. The reduction in thicknesswill result in a gain of about 6 sec in rolling time. A greater saving in roll-ing tirrLe (plus 20 sec) could be accomplished by revamping the present scalebreaker to make it reversible and by replacing its 1,000 HP AC drive motor by

ANNEX 5I ape t

one DC 2,000 HP unit designed to provide mill speeds in the range 71.8-143.6mrmin. This, however, is not considered essential for Stage Il. The capitalcost estimates do not include this alter'Aion nor the replacement of the 3,500HP No. 1 stand motor of the finishing train by a 4,500 HP motor.

The present hot strip mill runout table has a standard lengthi. Onlythe volume oL cooling water will be increased.

A second hot rolled shear line will be installed for a capacity of 20,00!0t/rnonth since the capacity of the existing line is regarded as of 10,000 t/monthdue to the up-cut shear. A Hallden type shear will be used in the new line. Ahot rolled coil conveyor about 65-meter in length will be installed ir the presen,plate finishing building.

One additional grinder will be provided in the roll shop. Grinding timefor the finishing train work rolls is expected to be 66 min.,for the back-uprolls 2)40 min.and the changing time 50 min. The existing hot rolled shear linebuilding will be extended 56 meters to provide for additional storage and ship-ping areas. Two 35-ton cranes will be installed. One will serve the mill aisleand the second one will operate in the hot rolled shear aisle.

9. Cold Mill Plant

The mill has sufficient rolling capaci.y for Stage II. The existingtemper pass mill capacity is about 55,000 t/month. The tonnage to be processedthrough this mill in Stage II (58,000 t/month) can be achieved by improvemen-lof operational technique.

The additional equipment to be provided in the Cold Mill Plant forStage II is as follows:

(a) Four stack annealing furnaces with ten bases with external, cool-ing, of the size purchased in the Stage I expansion.

(b) Two additional cold rolled coil inspection lines, the second ofwhich will be a combination stretcher/leveller. One line will process material0.305 - 3.38 mm thick x 510 - 1,575 mm wide and, the second unit 0.305 - 1.6mm thick x 510 - 1,280 mm wide. Both lines will be prepared to handle coils upto 24. tons in weight. One -welder will be installed in the cold stripmill.

(c) No. 1 cold rolled shear line will be revamped to comprise twopilers instead of one.

(d) One additional 35/5 ton crane will be installed in the new anneal-ing aisle which is being built as part of Stage I.

10. Electric Power Receiving and Distribution System

The plant will consume an average of 371 KWh/t in Stage II. This repre-sents an average demand of 9E,390 Kw. The 88 Kv system within the plant wrll be

ANNEX -Page 9

made into a double-loop system to afford the required reliability and flexibj iity.The loop will embrace the oxygen plants, the power house, the existing rollingmills and the new plate mill. The loop will not be extended to the raw materialsarea due to the presence of dust and other elements that may harmper the conti-nuous operation of the overhead lines. The area will continue to be fed throughunderground ducts.

The receiving station electrical arrangement will have to be modifiedto include a substantial number of additional disconnecting switches. The doubleloop within the plant site will be wired with 410 mm cables.

The existing 88/13.8 Kv substations at the powerhouse and air separationplant will undergo the necessary changes to receive each one rnore 15/20/25 IVAtransformer and the necessary 88 Kv circuit breakers and disconnecting swi-tches.

The present rolling mill. substation will be revamped to receive twoadditional transformers rated at 30 MVA each and, due to space limitationi, aswitching yard will be built on the north side to establish the connection withthe double-loop system and concurrently with the transformers at the substation.

A new 88 Kv switching yard and a new substation will be built for theplate mill plant. It will comprise two 15/20/25 MVA - 18/13.8 Kv transformersand the required disconnecting switches and circuit breakers.

Transformers rated at 5,000 KVA - 13.8/w.4 Kv (3 or 4 units) will beinstalled in the raw material area substation and slabbing mill. One 3,750 KVA13.8/2.4 Kv unit will be added to the existing switching station. Other miscella-neous power transformers will be installed as required.

11. Power House and Utilities

A new 12,650 Kw turbo-generator will be installed in the powerhouse comi-plete with boiler to burn the excess by-product gases that waill be generated bythe new facilities. This turbo-generator will be installed at the north end ofthe existing building. The turbo-blower for the new No. 2 blast furnace wilI beinstalled at the south end of the powerhouse by extending the building accordingly.

Two new 110 t/h - 43.5 atg - 440°C boilers will be installed outdoorsat a site east of the powerhouse. The installation will require an area of aboul.2,000 s;q.m. One of the boilers will be kept as a standby unit to allow for main-tenance and emergencies. The powerhouse boilers will burn all surplus tar pro-duced at the by-products plant.

The existing steam distribution piping needs no alterations, but willbe extended by about 200 meters to the plate mill plant and a branch provided toNo. 2 B.F. and the coke oven batteries.

An energy center is to be built to centralize and supervise all flowsin the steai, gas and oil systems. One 20,000 m3 coke oven gas holder is to beinstalled at the site where the present gas holders are located.

ANNEX LPage 10

Approximately 1,000 m of blast furnace gas piping and some 1,200 m ofcoke oven gas piping will be added to the existing gas distribution system.

12. Water System

The present water distribution system will be modified so as to providefor recirculation of uncontaminated water. Thus, no additions are required atthe existing pump houses Nos. 1 and 2. However, the following expansion of thewater piping and sewer systems of the treated water facilities are contemplatedto provide for the recirculation of water:

(a) Blast furnace plant, with emergency water being supplied by anelevated tank provided with a diesel generator and pump.

(b) Coke plant (Nos. 1, 2 and 3 batteries and auxiliaries).

(c) Coke plant (Nos. 4 and 5 batteries and auxiliaries).

(d) B.0.F. plant (treated water for the lance system).

(e) Existing rolling mills (except No.3 reheat furnace).

(f) Plate mill plant (including No. 3 reheat furnace), with emergencywater provided by an elevated tank, local 400 KVA diesel-generator unit and res-pective pump.

(g) Powerhouse (only water used by No. 3 turbo-generator and No. 3turbo-blower).

(h) Air separation plants (all three plants).

Expansion of the main water piping system will be mainly concentratedin the extension to the rolling mills and plate mill plant. The sewer systemwill be extended by about 2,500 m in the plate mill and coke plant area.

13. Mobile Equipment and Rolling Stock

Additional mobile equipment and rolling stock comprised in Stage II in-cludes:

11 - diesel electric locomotives (one for transportation of hot metalfrom No. 2 B.F. to the B.O.F.; one for moving torpedo cars atNo. 2 B.F.; one for moving torpedo cars at the B.O.F.; two foringot cars; one for the transporation of ingot molds, rolls,stools and cold ingots; one for the transportation of finishedproducts; one standby unit; one to go to the car dumper with ore;one for switching traffic at the car dumper area and one forswitching traffic within the plant).

13 - 200-ton torpedo cars

ANNEX 5Page 11

37 - 150-ton ingot cars5 - 100-ton flat cars1 - 35-ton locomotive crane1 - 100-ton railway scale

25 - 50-ton gondola cars15 - 50-ton ore cars15 - 65-ton dump cars10 - 50-ton flat cars

14. Roads, Railroads, Warehouses, Offices,Laboratories, Maintenance Shops

The capital costs include provision for the construction and modifica-tion of new roads and railroads, extension of the present warehouses, miscella-neous offices, laboratory equipment, maintenace shop equipment, etc.

Industrial Projects DepartmentApril 1972

ANNEX 6

BRAZIL - COSIPA STEEL EXPANSION PROJECT

ECOLOGY

1. Among the facilities to be added or modified under the 2.3 million ton

stage, the blast furnace, coke plant, B.O.F. shop and the hot scarfing machineare the items that will mostly contribute to air and water pollution. The afore-mentioned units will be provided with auxiliary equipment especially designed tominimize pollution to a degree that will meet the requirements established inpresent U.S. standards.

2. Insofar as water pollution is concerned, the 2.3 million ton projectcontemplates industrial water recirculation within each individual plant suchas the blast furnace, the coke plant, the steelmaking shop, the existing roll-ing mills, the new plate mill, etc. In this way, the amount of water to bedrawn out of the river for plant industrial use will consist practically of make-up water only. The water to be discharged into the river will consequently belimited to a rather small flow. Notwithstanding this fact, contaminated waterwill be treated prior to discharge. For instance, at the by-products plantammonia destructing equipment will be incorporated.

3. In order to prevent or to minimize air pollution, the following isanticipated:

At the blast furnace special exhausters and filters will beinstalled at strategic points in the cast houses to collect dust-carrying fumes generated during casting. A dust catcher will collectmost of the solids contained in the gas generated by the furnace. Theremaining will flow through the primary venturi and drained togetherwith water for transfer to the thickener where such flue dust willbe recovered.

The coke oven batteries will be provided with automaticlarry cars equipped with gas washing and ignition burning devicesto minimize environmental and air pollution by the gases liberatedwhen the ovens are being charged.

Stacks will be built high enough to meet the present regula-tions.

At the B.O.F. shop, a second gas cleaning station will be

installed to collect all the gas generated in the LD vessels andrecover the flue dust for utilization at the sinter plants.

Gases generated by the blast furnaces and coke ovens, afterbeing properly treated will be used in other furnaces and in thepower house boilers.

ANNEX 6Page 2

4. The capital costs for the 2.3 million ton stage include an estimatedUS$9 million for pollution control equipment.

Industrial Projects DepartmentMarch 1972

ANNEX 7BRAZIL - COSIPA STEEL EXPANSION PROJECT

MANPOWER REQUIREMENT FORECAST BY QUANTITY AND TYPETO REACH THE CONPANY'S PRODUCTION TARGETS

Production Capacity (MTY) 600,000* 1,000,000 2,300,000 3,500,000Area and Type of Manpower Number _ Number Number

ProductionUnskilled/semi-skilled 35.6 685 36.7 735 25.0 925 21.9 1.030Skilled and Specialist 53.3 1,027 53.5 1,070 58.0 2,145 59.6 2,800Technicians 9.7 187 8.6 170 15.0 555 16.6 780Graduates 1.4 27 1.3 25 2.0 75 1.9 90

Sub-total 100.0 1,926 100.0 2,000 100.0 3,700 100.0 4,700

Production Support ServicesUnskilled/semi-skilled 11.1 245 13.5 310 11.9 440 11.3 510Skilled and Specialist 72.8 1,601 68.9 1,585 67.0 2,480 66.7 3,000Technicians 14.1 310 15.9 365 18.0 665 18.4 830Graduates 2.0 44 1.7 40 3.1 115 3.6 160

Sub-total 100.0 2,220 100.0 2,300 100.0 3,700 100.0 4,500

AdministrationUnskilled/semi-skilled 15.1 141 15.0 150 7.1 85 6.4 90Skilled and Specialist 58.o 539 60.0 600 59.2 710 57.2 800Technicians 12.0 112 14.0 140 20.0 240 21.4 300Graduates 14.9 139 11.0 110 13.7 165 15.0 210

Sub-total 100.0 931 100.0 1,000 100.0 1,200 100.0 1,400

SalesUnskilled/semi-skilled 11.2 25 14.0 35 12.5 50 12.9 90Skilled and Specialist 69.2 155 66.o 165 55.0 220 50.0 350Technicians 12.5 28 14.0 35 25.0 100 27.1 190Graduates 7.1 16 6.o 15 7.5 30 10.0 70

Sub-total 100.0 224 100.0 250 100.0 400 100.0 700

General ServicesUnskilled/semi-skilled 21.9 187 28.1 295 15.0 90 11.4 80Skilled and Specialist 72.0 616 65.2 685 55.8 335 52.9 370Technicians 2.8 24 4.3 45 23.3 140 28.6 200Graduates 3.3 28 2.4 25 5.9 35 7.1 50

Sub-total 10C.0 855 100.0 1,050 100.0 600 100.0 700

TotalUnskilled/Semi-skilled 20.9 1,283 23.1 1,525 16.6 1,590 '15.0 1,800Skilled and Specialist 64.2 3,938 62.2 4,105 61.3 5,890 61.0 7,320Technicians 10.8 661 11.4 755 17.7 1,700 19.2 2,300Graduates 4.1 254 3.3 215 4.4 420 4.8 580

Grand Total 100.0 6,136 100.0 6,600 100.0 9,600 100.0 12000

*As of December 31, 1971

EMPLOYMENT LEVEL(Recent Past and Projected)

6oo,ooo 1,000,000 2,300,000Number of emplo.yees As of 12/31/71 1973 1978 3, 500,000

I e 2nd their distributAon\O PI Number * Number Number Nber

'1 Production 1,926 27.63 2,000 30.31 3,700 38.55 4,700 39.170

(D

CFco Production supportti services 2,200 33.32 2,300 34.85 3,700 38.54 4,500 37.51

Administration 931 16.49 1,000 15.16 1,200 12.50 1,400 11.66CD

CF

Sales 224 3.69 250 3.78 400 4.16 700 5.83

General services 855 18.87 1,050 15.90 600 6.25 700 5.83

TOTAL 6,136 100.00 6,600 100.00 9,600 100.00 12,000 100.00

lbZ

M3N

BRAZIL - COSIPA STEEL EXPANSION PROJECT

PROJECT SCHEDULESTAGE 11

Facility or Itern 1972 1973 1974 1975 1976

Dock and Dock Equipme,,t _ ml _ l_ _L l tI I I Raw Material Handling Facilities (including Coal Yard) m m m l ._ -Lm -r -

Coke Pl.nt mli - m - - - - - -

Blast Furnance 4s m -_ U _ - - - - - __BOF Plant m m _ UEm - --o -_ _ _ -

Slabbing Mill m m _ -I _ _ I I I I _ _ _ Oxygen Plaect m_ i _ i - -_ _ _ o-_ _

Pla.te Mill J* mm ml - -ml- 111- -1111

Hot StriP Mill ajim mm No U - - - m - -

Cold Strip Mill - - Il Power House n _ _ _ I_ I -_ - - _ !l

C-OG. Gas Holder U U- - - -- - - -

ElecTrical Power Receiving & Disbributing SVstce, _ -_ _ _ -_ I IWater Distribution Syster _- MM 1 _ T T I I I I I 1 .

Mobile Equprment & Rolling Stock U I - - - - - I r _ -

Roads and Railroads m m El - - ii - - _

Warehouse - n - - - -

Maintenance Shop Relocations and Offices - - - - _

Legend

U _ _ U Preparation and Approval of Specification and Bid Evaluation

Construction

Award of Major Contract

* Start-up World Bank-6561

BRAZIL - CCSIP. SiTB8L UIPANSION PROJECT

RSTINATED CAPITAL COST_= STAG 112(US1 Million)

- ~~~~~~~Constr..ction TotalBilaterai IBRD/IDB Fareig_ Brazil Total Forel 0n Brazil Total Foreign Brazil Total

(1) (2) (35 (4) (5) (6) (71 131 (9) (10) (11)(3+4) (6+71 (3+6) (4+7) (9+10)

1. Dock and Dock Eqlipment - 2,6 1.9 - 1.9 - 2.3 2.3 1.9 2.3 4.22. coke Plant (including Coal Yard) 27.6-/ - 25.5 - 25.5 0.5 12,3 12.8 26.0 12.3 38.33. Raw Material Hlandling Facilities - 12.12/ 3.9 0.6 4.5 0.6 3,7 4.3 4.5 4.3 S8.4. Blast Furnace Plant 32.8 18.1 8.2 26.3 0.9 9.5 10.4 19.0 17.7 36. 75. B.0.F, Plant 4.9 - 0.0 1.6 5.6 1.0 2.6 3.6 5,0 4.2 9.26. Slabbing Mill 18.9 0 12.9 2.3 15.2 1.5 7.3 8.8 14.4 9.6 24.07. Oxygen Plant 4.3 3.1 0.2 3.3 - 1.5 1.5 3.1 1.7 4.88. Plate Mill Plant (inclodiog Reheatin,g Furnace) 36.4 7.3 28.7 7.1 35.8 15.2 22.6 37.8 43.9 29.7 73.69. Hot Strip Mill Plant (i Rcluding Reheating FP-rnacel - 10.8 6.4 3.3 9,7 0,3 2.9 3.2 6.7 6.2 12.9

10. Cold Strip Mill Plant - 5.9 2.9 1.5 4.4 - 2.1 2.1 2.9 3.6 6.511. Plant Utilities and Distribotion System 9.3 1.6 7.1 1.2 8.3 0,2 2.6 2.6 7.3 3.8 11.112. Electrical Power Receiving and Distriboting Systen - 5.9 2.9 1.5 4.4 - 2.1 2.1 2.9 3.6 6.513. Water DistLribtion System - 6.5 3.0 )1.1 4.9 0.2 7.9 8.1 4.0 9.0 13.014. Mobile Eqizipsent a,nd Rolling Stock - 21.4- 3.2 4.4 7.6 - - - 3.2 4.4 7.615. Roads and Railroads - -_ 1.1 1.1 _ i.1 1,1

16. Wareho- se- - - - 0.6 0.6 - 0.6 0.617. Office, LaboratLries, :iaictenaace Shop, etc. - 0.7 0.5 - 0.5 1,2 1.2 0.5 1.2 1.718. Tempotrar Co-sttocti-, - - - - - 1.5 1.5 - 1.5 1.5

Sub-Total 126.2 31.9 158.1K 20.5 82.3 102.0 146.7 114.2 260.9

19. bpare Ports 12.6 1.3 13.9 - - , 12.6 1.3 13.920. Sopervision of Frectio- and Strt-.-p 0.1 2.9 2.9 - - - 0.1 2.8 2.921. Zngilzeering g 3 3 3 11.6 - - - 8.3 3.3 11.6

Sib-Total 147.2 3,.3 186.5 20.5 82.3 102.8 167.7 121.6 289.322. Contingency S4.l 23 A17.5 2.1 8.2 10.3 16.3 il.5 27. 8

Sub-Total 161.4 4-.,. 204.0 22.6 90.5 113.1 184.0 133.1 317.123. Price Escolation 13.6 _3.0 16,6 2.9 11.7 14.6 16.5 14.7 31.2

Sob-Total 175.0 4j.r 220.6 25.5 102.2 127.7 200.5 147.8 348.3.ibert >-t Marinn and Port Ispr-e,e- fo - 5.5 5.5 - - - - 5.5 5.5

't).sl.L .. .n- i _ _n q 0'.,'5 0 _ O 51.1 26.1 25.5 102.2 127.7 200.5 1353.8

-Includir - ir.igl o .d .nsIraacc. -

1/ Ttcloldes spares, s-pervisi-a nt ert.Lic, and zart-up, 1-. coaaningencv an,d 5' yearl. price escalation.2,,' Eaal3+e coal trd.3/ Inclodes coal yard.

4/ Including overhead cranes included with reapoctire pusito.$/ Includes Us58.. million in dire.t foreign egoh nge component of lo-all;' procured goods.

Ind-strial Projects DepartmentMarch 1972

ANNEX 10

BRAZIL - COSIPA STEEL EXPANSION PROJECT

ASSUMPTIONS FOR WORKING CAPITAL REQUIREMENTS

It is assumed that the Company will reduce its working capital require-ments by 1973 from the present high levels as shown below:

1971 1972 1973-1981(Actual)

(hs % of Gross Sales)

Cash 2 4 4Accounts Receivables 23 18 18Inventory 50 35 20Accounts Payable 39 19 19

Inventories: 1978 - upon Completion of Stage IIStock

Expressedin Daily Quantity Value

Input/Outpult Tons (000) US$ Million

A. Finished Products(Average Overall IndividualProducts) 10 53.7 4U5

B. Semi-Finished Products (Major Items)Ingots 1 6.3 0.4Slabs 15 83.5 5.4Pickling Line & Hot Shear Line 7 27.4 2.1Cold Reduction Mill 5 8.8 0.7

C. Raw Materials (Major Items)Imported Coal 45 195,0 5.5National Coal 30 34.0 1.0Petrolenum Coke 30 13.0 0.4Iron Ore -3'' 275.0 2.5Limestone 15 16.1 0.1Dolomite iEI 5.5 *Manganese 15 2.5 *Steel Scrap 50.0 0.3

*Less than US$50,000.

Industrial Projects DepartmentMarch 1972

ANNEX 1 1

BRAZIL - COSIPA STEEL EXPANSION PROJECT

EQUIPMENT TO BE FINANCED BY THE BANK

Amount ofCategory* Loan Allocated 1 /

(in Million ofUS$ Equivalent)

1. Dock equipment and raw material handlingfacilities (including coal yard) 8.0

2. Iron making equipment including blastfurnace and auxiliary equipment for theblast furnace plant 18.0

3. Components of steelmaking plant, includ-ing mold preparation yard and ancilliaries 2.5

4. Equipment for slabbing, plate and hot andcold-strip mills including reheatingfurnace 17.2

5. Equipment and materials for water and energy-systems, maintenance shops and laboratories 8.0

6. Mobile equipment and rolling stock includ-ing torpedo cars 5.6

7. Physical contingencies 5.2

Total 64.5

*Includes spares, supervision and erection and start-up expenses,15% margin of preference and 5% yearly price escalation.

1/ These rounded amounts represent 60% of the total estimateddisbursements by IDB/IBRD.

Industrial Projects DepartamentMarch 1972

BRAZIL - COSIPA ST&;L EX?psallC PROJECT

DISBURSEMENT FORECASTS FOR IBRD, IDB AND BILATERAL LOANS(Million of U055

1972 19 73 1974 ____1975 ___ ____ _______ 1976Description Third Fourth First Second Third Fourth First Second Third Fourth First Second Th ird Fourth First Secon Third Fourth

IBRD Loan

Disbulrsements - 2.6 3.0 2.4 3.5 4.9 6.2 17.1 8.1 4.5 2.1 6.0 2.0 0.8 1.1 - 0.2CumulIative - 2.6 5 .6 8.0 11.5 16.4 22.6 39.7 47.8 52 3 54.4 60.4 62.4 63.2 64.3 64.3 64.5Undisbursed Amount 64.5 61.9 58.9 56.5 53.0 48.1 41.9 24.8 16.7 12.9 10. 0.1 2.1 1.3 0.2 0.2 - -

IDB Loan

Disbursements - 1.7 2.0 1.6 2.3 3.3 6.2 11.4 5.4 2.9 1.4 4.0 1.4 0.6 0.7 - 0.1Cumulative - 1.7 3.7 ; 33 7.6 10.9 15.1 26.5 31.9 34.8 36.2 40.2 41.6 42.2 42.9 42.9 43.0Undisbhrsed Amount 43.0 41.3 39.3 73.7 35.4 32.1 27.9 16.5 11.1 8.2 6.8 2.7 1.4 0.8 0.1 0.1 -

Bilateral Loans

Disbursements - - - 3.7 3.5 5.0 7.5 20.3 3.8 8.8 22.2 8.8 2.2 1.2 0.1 2 .2 1.8Cumulative - - - 3.7 7.2 12.2 19.7 40.0 43.8 52 63 74.8 83.6 85.8 87.0 87.1 89.3 91.1Undisbursed Amou,nt 91.1 91.1 91.1 87.4 83.9 78.9 71.4 51,1 47.3 38.3 16.3 7.5 5.3 4.1 4.1 1.8 -

NOTE: Based on terms of payment: 10% with order30% during manufacturing50% on shipment

5% on completion of erection5% upon acceptance by COSIPA.

Industrial Projects DepartmentMarch 1972

NTNEX 13

BRAZIL - COSIPA STEEI EXPANSION PROJECT

RAW MATERIALS

COSIPA's major raw material requirements after the completionof Stage I and Stage II, their sources and delivered prices are givenbelow:

Projected Consumption(000 Tons) Delivered

1973 1978 PriceItem Sources (Stage I) (Stage II) (US.$/Ton)

Iron Ore Quadrilatero Ferrifero,Minas Gerais 1,300 3,000 9

National Coal Santa Catarina 211 h09 High Volatile

Imported Coal U.S.A. and Poland* 435 1,067 27Low Volatile

Imported Coal U.S.A. and Poland* 114 L09 29Limestone Salto de Pirapora,

Sao Paulo 310 700 7Dolomite Bom Jesus de Pirapora,

Sao Paulo 60 133 7Manganese Ore Conselherio Lafaiete,

Minas Gerais 30 61 18

*Negotiations with Polish and U.S. suppliers are in progress.

Coal Sources and Supply

Because domestic coking coal is of lower quality (high ash andsulfur content) and higher cost than imported coal, COSIPA expects toreduce the proportion of its domestic coal consumption from the 1971 levelof 38% to 20% from 1977 onwards. At the completion of the expansion theprojected coal-mix for coke production is assumed to average 80% imported(60% high volatile and 20% low volatile) and 20% domestic Santa Catarinacoal. To protect its position with respect to foreign coal sources,COSIPA is planning to enter into long-term contracts (8 years) with atleast two suppliers in the United States and Poland. Contract negotia-tions are understood to have reached an advanced stage. In the meantime,COSIPA is making year-to-year commitments for its foreign coal with theIJnited States.

ANNEX 13Page 2

Iron Ore Sources and Supply

On account of its location, COSIPA has the highest iron orecost of the three flat-product mills. COSIPA has been receiving ironore from different sources; of its 1971 ore purchases 44% came from CSN,30% from Iltaminas, 15% from Itacolomi and 11% from MFM. Present orecontracts are short-term, but in view of Brazil's abundant iron oreresources, this will not cause the Company any difficulties in cover-ing its future requirements.

The Company is making preparations to simplify its ore receiv-ing facilities to accommodate larger deliveries. The modifications tothe raw materials handling facilities, which form part of the project,are expected to reduce the cost of the blast furnace burden. The assump-tions on which the cost calculations are based are considered achievable.

Limestone and Dolomite

Both these raw materials are obtained from the Company's sub-sidiary, MFM. The limestone mines are located about 205 km and thedolomite mines about 450 km from the COSIPA plant. The quarries arebeing enlarged so that MFM will be able to provide the Company's increasedrequirements.

Scrap

Scrap for use in the B.O.F. converters is obtained from therolling and finishing operations. The indicated need of about 600,000tons at the completion of Stage II is equivalent to 26% of planned rawsteel production.

Industrial Projects DepartmentApril 1972

ANNEX 14

BRAZIL - COSIPA STE:L EXPANSION PROJECT

MANUFACTURING COSTS 0PINTERMEDIATE AND FINISED PRODUCTS

1971 Actual vs. Projections

The following is a comparison between direct unit manufacturing costsexperienced during 1971 and those projected for 1972, 1973 (the year in whichStage I will come, into full production), 1975, 1978 (the first calendar year inwhich the plant is expected to produce at the full capacity of 2.3 million TPYraw steel), and 1980 onward. All values are expressed in February 1971 U.S.dollars per me-tric ton, and exclude ICM, depreciation and financial charges.

% Decreasebetween

1971and

1971 1972 1973 1975 1978 1980 1978Actual -- Projection -

US$/ton

Product

In Process

Iron 53 48 45 45 42 42 21Ingots 71 67 63 63 58 58 18Slabs - Conditioned 87 79 72 71 65 65 25

Finished

Plate 114 102 88 92 77 77 32Hot Rolled Coil 108 100 92 90 82 84 24Hot Rolled Sheet 113 106 96 96 92 88 19Cold Rolled Coil 132 113 103 102 94 93 29Cold Rolled Sheet 154 138 111 109 101 101 34

Industrial Projects DepartmentMarch 1972

ANNEX 15

BRAZIL - COSIPA STEEL EXPANSION PROJECT

SELLING PRICE ASSUMPTIONS

US$/Tj o EquivalentlDomestic - FOB Plant -Export?

Including ExcludingIPI and ICM Taxes Excluding IPI and ICM

Product IPI Taxes

Plate 186 177 148 124Hot Rolled Coil 165 159 132 97Hot Rolled Sheet 184 175 146 114Cold Rolled Coil 214 204 170 124Cold Rolled Sheet 250 238 199 134

Foundry Coke 100 97 81

1/ Based on February 1971 prices. These prices cover base price plus extrasfor dimensions and quality specifications.

2/ This includes handling and transportation costs to point of shipment aswell as port utilization taxes which are estimated to be US$4/ton. IPIand ICM taxes are not applicable for exports.

NOTE:

IPI - Federal Excise Tax. This tax is, for all products excepthot coils, 5% of the price including ICM taxes; for hot coils it is only 4%.

ICM - State Sales Tax. According to the laws of the State ofSao Paulo, the ICM has a value of 17% for the products sold in the State ofSao Paulo and 15% for the ones sold outside the state. From these values ICMpaid on raw material and supplies can be deducted. The average ICM paid byCOSIPA is about 15.4% of the price without IPI and this has been used in theprojections.

Industrial Projects DepartmentMarch 1972

ANNEX 16

BRAZIL - C06IPA STEEL EXPANSION PROJECT

INCOME STATEMENT .FORECASTS (1972 - 1981)(Us$ Million)

Det s c r i p t i o n 1972 1973 1974 1975 976 17 198 1980 L 8

Production levels (oco) Toris 1.000+ 1.000 1.050 1.100 1.800 2.150 2.300 2.300 2.300 2.300

Gross SalesSteel Products - Domeatic / 131.9 139.1 147.7 153.4 230.2 263.2 299.0 30r.9 304.3 304.3

Exports j 9.3 8.4 8.3 10.0 20.9 31.3 23.2 18.0 20.7 20.7Foundry Coke ,/ - - - - 18.5 22.2 22.2 22.2 22.2 22.2

Sub-total 1412 147.5 15.0 163.4 37 3 44. 4 349.1 347.2 347.2

Export Inicentives j 2.3 2.1 2.1 2.5 5.3 7.9 5.8 4.5 5.2 5.2Less - IPM 5.9 6.4 6.8 7.1 10.6 12.1 13.7 14.3 14.1 14.1

- Distribution Cost 0.3 0.3 0.3 0.3 0.7 1.0 0.8 0.6 0.7 0 7Net Sales 137.3 142.9 1 51, 158.5 263.6 311.5 335.7 337 7.6 337.6

Less - Cost of Goods Sold 5/ 83.0 741. 7 78.4 82.1 136.1 152.6 158.8 158.6 156.4 156,4- ICM J/ 19.4 20.14 21-.7 22.5 36.7 42.1 47.4 48.8 48.1 48.1

Gross Profit 34.9 47.8 50.9 53.9 90.8 116. 129.5 131.3 133.1 133.1

Administrat,iorn Expenses j 2.> 2.5 2.5 2.5 3.1 3.1 3.1 3.1 3.1 3.1Sales Expenses G 1.6 1.6 1.6 1.6 2.4 2.4 2.4 2.4 2.4 2.4Depreciation 7 12.0 19.4 19.5 19.6 36.2 41.8 42.0 42.2 42.3 42.5Amortization of leo-Operating Expenses - 0. 5 O.5 O.5 2.8 2 .8 2.8 2.8 2.8

Operating Profit 1B- 23. 2 2 79.2 80.8 82.5 82-3

Other Income 2.0 '.0 0.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0Financial Expenses . 8.5 10.3 11.6 18.1 ,29.6 26-o Q-5 21-0 187

Net Profit or (Loss) before Provisions 15.6 20.1 32.5 39.1 55-2 59.3 63-5 65-6

Provision for Bad Debts 0._ t0. 3 0.3 0.3 0.5 o-6 o-6 o-6 -.6 o-6Provision for Relininig of Blast Furnace 1.o 0.5 0.5 0.5 1.0 1.0 1.0 1-9 1.0 10

Net Profit or (Loss) before 'axes 4 t j 17.7 L9-3 31.0 37.5 53.6 57 7 61 9 64.o

Income Taxes 2/ __ -__ _ -_

Net Income after Taxes 14,1 16.5 17 19 31.0 37.5 53.6 57 7 61,9 64.4~_ = _~ - _

+ Including purchased slabs.

Based on February 1971 prices. Price assumptions are givenl in Anniiex 15 and product mix is shown in Annex 4

I Export incentives of about 25F/% of total export value.

,:1 Cost of goods sold is based on prices anid productiotn factors us of February 9, 1971. Raw material price assumptions are shown inAnnex 13.

ICM taxes represenit ani average of 15.49 of the sales revenuiie.

,/ Approximatel,y 1.5° until the completion of stage II and about 1/ thereafter.

i/ Approximately 65% of administrative expernses unitil the completion of stage II and 755( thereafter.

t/ 45, rate for existing equipment (25 year life ) and 5. 5R ol' equipment installed after 1971 (18 year lite).

J 14 accounts receivable.

9/ No income tax since the compalnv is virtually ownled by the Government. The projections assume that this situation will notchange during the projected years.

Industrial Projects DepartmentApril, 1972

ANNEX 17

BRAZIL - COSIPA STEEL EXPANSION PROJECT

SOURCE AND APPLICATION OF FUNDS 1972 - 1981(UST Million)

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981

SOURCES

From OperationsNet Income after Taxes 14.1 16.5 17.7 19.3 31.0 37-5 53.6 57.7 61.9 64.oDepreciation and Amortization 12.0 19.9 20.0 20.1 36-7 43.8 44.o 44.2 44.3 44.5Provisions 1.5 o.8 0.8 0.8 1.5 1.6 1.6 L.6 1.6 1.6

27.6 37.2 3d.5 40.2 69.2 82.9 99.2 103. 5 107.5 110.1

Suppliers Credit 9/ 28.7 - 3.6 7.2 - - - - -

Loans:Stage I - Suppliers Credit 17.3 0.5

- BNDE Principal plus Interest 2 17.9 4.5 2.4 -

35.2 5.0 2.4 IStage Il - IBRD 2.6 13.8 35.9 10.9 1.3 - - - -

- IDB 1.7 9.2 23.9 7.4 0.8 - - - - -- Bilateral - 12.2 40.4 34.4 4.1 - - - - -- BNDE - Principal - - 37.6 36.7 9.8 - - - - -- BNDE - Interest - - 1.4 3.6 4.6 - - - - -

Foreign 4.3 35.2 100.2 52.7 6.2 - - - - -Local - - 39.0 40.3 14.4 - -

4'J3 35.2 139.2 93.0 20.6 - -

Other Loans - BNDE - 6.3 7.3 8.3 9.5 - - - -

Equity:Capital Increase

sNDE - - 1.7 - - - - - - -State of Sao Paulo 9.2 9.8 10.4 10.8 - - -Others _ _ _ _

9.2 9.8 10.4 10.8 l

TOTAL 105.0 93.5 203.1 159.5 99.3 82.9 99.2 103.5 107.8 1lo.1

APPLICATIONS

Fixed Investments:Stage I

Foreign Currency 20.3 0.5 -5Local Currency 30.5 1.3 - - - - - - -

Financial Expenses 4.4 2.6 - -BNDE Financial Expenses Deferred 5/ 2.3 2.3 2.4 -

57.5 6.7 2.4 -

Stage TIIForeign Currency 7.1 36.6 79.9 41.8 6.2 - - - - -

Local Currency 2.3 25.4 85.9 58.7 9.9 - - - - -Financial Expenses 2.1 4.1 11.0 15.3 7.9 - - - -

Deferred - - 1.4 3.6 4.611.5 66.1 170.2 119.4 2b -6

Replacements and Maintenance 1.3 2.0 2.0 2.3 2.5 2.8 3.0 3.0 3.0 3.0

Relining of Blast Furnance 4.0 - - -o - 3.0 - - -

Loan Repayment 7.6 6.5 6.1 14.9 22.9 37.8 37.5 37.5 37.5 37.0Other Expenses

Pre-Operating Expenses 4.3 1.8 1.8 8.9 8.9 - - - - -Imported Slabs Payments i/ 3.6 19.4 13.8 - 3.6 7.2 - - - -

DividendsCommon Shares -_ _ _ _ 13.0 13.0 13.0 13.0 13.0Preferred Shares i 6.o 6.7 7.3 8.0 8.0 8.0 8.o 8.0 8.o

Change in Working Capital 13.2 ( 19.7) 1.9 1.7 24.4 10.8 6.4 1.1 ( 0.4) -

Change in Surplus Cash 2.0 4.7 ( 9.8) 5.0 0.4 3.3 28.3 40.9 46.7 49.1

TOTAL 105.0 93.5 203.1 159.5 99.3 82.9 99.2 103.5 107.8 110.1

Accumulated Cash 9.5 14.2 4.4 9.4 9.8 13.1 41.4 82.3 129.0 178.1

Imported slabs on two year repayment terms.

SBNDE's loans already commited.

Relending of preferred dividends, plus interest capitalized in principal during construction period.

The state of Sao Faulo is expected to reinvest, during the construction period, the equivalent of 50% ICM taxes paid in the previous year.

5/ Capitalized in principal.

6% annual dividends on preferred shares and 6% annual dividends on common shares after the completion of the project.

Industrial Projects Department.April, 1972

ANNEX 18BRAZIL - COSIPA STEEL EXPANSION PROJECT

BREAK-EVEN POINTSSTEEL PRODUCTS

In US$ Million1978

Profit Cash

Fixed Cost

Manufacturing Cost 44.1 44.1Depreciation 42.0Debt Repayment _ 36.1Financial Charges 26.o 26.0

Total Fixed Cost (FC) 112.1 106.2

Variable Cost

Manufacturing Cost 103.6 103.6Sales and Other Expenses 5.6 5.6ICM Taxes 38.7 38.7Total Variable Cost (VC) 147.9 147 .9

Revenue

Revenue from Domestic and Export Sales 314.6 314.6

Total Revenue (R) 314.6 314.6

Break-Even (Capacity %) 67.0 63.7

Break-Even (Capacity %) FCR - VC

Industrial Projects DepartmentMarch 1972

PROFIT BREAK EVEN POINTYEAR 1978 Page 2

In US$ million350

314.6

300

250

*15w

14 ~~~~~~~~BREAK EVEN POINT2 00 mm m

0

150_ C~~~~~~~~~~~~~~~~~

50

I. I ILI I I I1000 50% 67% 100%

PERCENTAGE OF OPERATION

WVorld Bank-6754

ANNEX 1 9BRAZIL - COSIPA STEEL EXPANSION PROJECT

ASSUMPTIONS FOR FINANCIAL ANDECONOMIC RATE OF RETURN AND SENSIVITY ANALYSIS

Description

cBase CaseFinancial Return-' Economic Return*

Domestic47 Eport Domestic Export-(USs/ton)~

1. Selling Prices

Plates 177 124 150 120Hot Rolled Coil 159 97 128 93Hot Rolled Sheet 175 114 145 110Cold Rolled Coil 204 124 150 120Cold Rolled Sheet 238 134 160 130Foundry Coke 97 _ 75 -

1/ Export incentives of about 21-23% of total export value are considered.2/ Including ICM taxes but excluding IPI taxes.

*See notes on the following page.

Financial Return Economic Return(US$/ton)

2. Raw Materials(Delivered to COSIPA Plant)

National Coal 28 28Imported High Volatile Coal 27 27Imported Low Volatile Coal 29 29Iron Ore 9 9Limestone 7 7Dolomite 7 7Manganese Ore 18 18Imported Slabs 84 84

3. Project Cost (excluding priceescalations) US$391 million US$391 million

4. Construction Period 5 years 5 years5. Production Period 18 years 18 years6. Scrap Value Zero Zero

ANNEX 19Fage 2

Notes:

Prices used for economic return calculations are based on Europeanexport prices that prevailed in February-August 1971 for the various products.These prices have been analyzed in the context of historical trends, and onaverage are expected to reflect representative prices over the long-term periodrelevant for evaluation of this project. In fact, if Brazil had to import 3.5million TPT of steel products in the context of the existing volume of worldtrade (under 50 million TPI) there would probably be some upward pressure onprices of several products.

The cost of transport from the ualn BEropean ports to Sao Paulo, theprincipal market for steel, has been calculated on the basis of actual costsincurred in recent years on imports of up to 300,000 TPY, with benefit of specialcontract rates for bulk shipments. While it is possible that much larger ship-ments could be movd at somewhat leas cost, there is also the likelihood ofhigher costs on account of port congestion and the need for additional handlingfacilities, etc.

Altogether, import prices (CIF) assumed for the calculations appearto be a fair average of costs that would have to be incurred for imports duringthe period of time under consideration.

For exports, the economic return calculation assumes February 1971Brazilian prices (FOB Brazilian Ports). These are generally lower than theprices actually obtained for Brazilian steel exports in the recent past. Pricecalculations include adjustment for freight from the steel mills at Oubatao toSao Paulo in each case.

ANNEX 19Page 3

COSIPA: COSTS AND BENEFITS

FINANCIAL RATE OF RETURN($ Million)

Capital Operati_,Co9tl/ COSO Revenue2/

1972 11 0 01973 58 0 01974 155 5 81975 101 10 161976 48 79 1211977 11 101 1691978 6 113 1931979 1 114 1961980-94 0 111 195

1/ Including working capital and preoperating expenses, butexcluding price escalation and interest during construc-tion. See Annex 3 of Part I for discussions.

2/ Including ICM taxes, but excluding IPI taxes.i/ Including ICM taxes and export credits. Also includes

revenue from the sales of foundry coke.

ECONCOIC RATE OF RETURN($ Million)

Capit!, OperatingCost. / C0_5_ &Revenue3/

1972 11 0 01973 58 0 01974 155 4 51975 101 7 161976 48 63 981977 11 79 1371978 6 86 1561979 1 85 1581980-94 0 83 157

1/ Including working capital and preoperating expenses, butexcluding price escalations and interest during construc-tion.

2/ Excluding ICM and IPI taxes.3/ Based-on FOB Europe prices plus freight charges to Brazil.

Export credits are excluded.

ANNEX 19

P.ge 4

SENSITIVITY TESTS ON FINANCIAL AND ECONOMIC RATE OF RETURNS

Financial Rate of Return

30% 30%

20% I,., 20%

Capital Cost

.' / vs. : Operating Cost v~~~~~~~~~~~~~~~~~~~vs

16.8%… - - ReturnReturn

cc I / I /5%

0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

0% BaseCase I _- I

-30% -2 0% -10 0 -O +10 o +2 0%/

Decrease Increase

%S Variation in Inputs

Economic Rate of Return

30% 30%A

20% 14 20%

3 w ~~~~~~~~~ ~~Revenue Oprtn Cost

> ~~~~Return Return

5% 5%0% Bas ICIasIIe 0°,

-3 0% -20% -1 0% o + 1 00 +20 % +30 %

Decrease Increase

D/ Variation in Inputs

210% M1.5%

0% 0%

-30% -20% -10% 0 + 10%p +2001 +30%11

Decrease Increase% Variation in Inputs

WoO'd B5,-k 67b~5

ANNEX 19Page 5

COSIPA: SENSITIVITY TESTS (Continued)

Capital Operating Financial EconomicCost Cost Revenue Rate of Rate of

Case of Expected Value ------- Retu Return

1 100 100 100 16.80 14.75(Base

Case)

2 100 100 75 4.80 4.6o

3 100 100 125 25.84 22.48

4 100 75 100 22.34 19.17

5 100 125 100 10.L45 9.75

6 75 100 100 21.96 19.52

7 125 100 100 13.30 11.45

8 100 90 90 15.11 13.13

9 90 100 90 14.i11 12.59

10 100 110 90 9.85 8.95

11 110 110 90 8.62 7.78

12 110 110 100 12.97 11.46

13 105 105 95 12.78 11.29

14 one year delay in completion 14.44 12.73

15 one year delay plus 15% capitalcost overrun 12.66 11.05

Industrial Projects DepartmentMarch 1972

ANNEX 20

BRAZIL - COSIPA STEEL EXPANbION PROJECT

BALANCE SHEET PROJECTIONS(Us$ Million)

D e s c r i p t i o n 1972 1973 1 1975 1976 1977 1978 1979 1980 1981

A S S E T S

Current Assets i/Cash 5.7 5.9 6.2 6.5 10.8 12.7 13.7 14.0 13.9 13.9

Accounts Receivables 25.4 26.6 28.1 29.4 48.5 57.0 62.o 62.8 62.5 62.5

Inventories 49. L 29.5 31.2 32.7 53.9 63.3 68.9 69.8 69.5 69.580.5 5 W 6 65. 5 - 6 113.2 133.0 o 4 6 .6 4 145.9

Surplus Cash 2 9.5 14.2 4.14 9. 4 9.8 13.1 41.14 82.3 129.0 178.1

Net Fixed AssetsGross Fixed Assets 425-1 499.9 682.5 804.2 835.3 838.1 841.1 844.1 847.1 850.1

Less: Depreciation 65.8 85.2 104.7 124.3 160.5 202.3 244.3 286.5 328.8 371.3

359.3 414.7 577.8 679.9 674.8 635.8 596.8 557-6 518.3 478.8

Other Assets 5.4 5.4 5.4 5.4 5.4 5.4 5.4 5.4 5.4 5.4

Deferred Charges 6.o 7.3 8.6 17.0 25.14 23.4 21.4 19.4 17.4 15.4

T 0 T A L 460.7 503.6 661.7 780.3 828.6 810.7 809.6 811.3 816.o 823.6

L I A B I L I T I E S

Current LiabilitiesAccournts Payable / 26.8 28.0 29.6 31.0 51.2 60.2 65.4 66.3 66.o 66.oCurrent Portion of Long-Term Debt 6.5 6.1 14.9 22.9 37.8 37.5 37.5 37.5 37.0 35.7

33.3 34.1 44. 5 53.9 89.0 97.7 102.9 103.0 101.7

Long Term Debt 102.4 142.8 278.5 355.2 347.5 310.0 272.5 235.0 198.o 162.3

Deferred Credits 33.2 13.8 3.6 lo.8 7.2 - - - - -

Other Liabilities 5-1 5.1 5.1 5.1 5.1 5.1 5-1 5.1 5.1 5.1

Eqiuity 255Share Capital - Common 215.3 215.3 215.3 215.3 215.3 215.3 215.3 215.3 215.3 215.3

- Prleferred ./ 102.3 112.1 122.5 135.0 135-0 135.0 135.0 135.0 135.0 135.0317.6 327.4 337.b 350.3 350.3 350.3 350.3 350.3 350.3 350.3

Advanice for Future Capital Increase 82.3 82.3 82.3 82.3 82.3 82.3 82.3 82.3 82.3 82.3

Technical and Other Reserves 1.1 1.9 2.7 3.5 5.0 6.6 5.2 6.8 8.4 lo.oRetained Earnings (Loss) (114.3) (103.8) (92.8) ( 80.8) ( 57.8) ( 41-3) ( 8-7) 28.0 68.9 111.9

Sub-total 286.7 307.8 330.0 355.3 379.8 397.9 429.1 467.4 509.9 554.5

T 0 T A L 460.7 503.6 661.7 780.3 828.6 810.7 809.6 811.3 816.o 823.6

Ratios

Current Ratio i/ 2.4 1.8 1.5 1.3 1.3 1.4 1.4 1.4 1.4 1.4

LTD: Equity 26:74 32:68 46:54 50:50 48:52 44:56 39:61 34:66 28:72 23:77

]/ Refer Annex 10.

| This item is not shown as current assets since it is earmarked for future expansion (Stage III).

See footnote 4 of Annex 17.

Current ratio excluding surplus cash.

Industrial Projects Department.April, 1972

BRAZIL - COSIPA STEEL EXPANSION PROJECT

IDJCOME STATEME1NT FORECAST

(INCLUDING STAGE III)(US7 Million)

1972 1973 1974 1l975 1976 1977 1978 1979 1930 191 1Q8 2 l82

Total Sales Tons (000) 1000 10OO 1050 1100 1800 2150 2300 2300 2400 2900 3300 3500

Gross Sales 14] 148 156 163 270 317 344 349 358 4i9 472 503

Net Sales 137 ]43 151 159 264 312 336 339 347 405 4 56 485

Cost of Gouds SDld -1 102 95 100 105 173 195 206 208 2i4 246 283 '79

Gross Profit 35 48 1 54 91 117 130 131 13 159 173 206

General Expenses 4 4 4 4 6 6 6 6 6 7 7 7

Depreciation ez Asinutizatiori 12 20 20 20 37 44 45 45 49 61 61 6119 24 27 '0 48 67 79 ° - 8 91 L5 3

Other Incomre 2 2 2 2 2 2 2: 2 3 3 3 3

Finarcial Expenses 5 8 10 12 18 28 24 21 20 25 22 19

Net ProfiL before loxe,ls Provisions 16 10 19 20 32 41 57 61 6L 69 86 122

Provisionls 2 1 1 1 1 1 1 1 1 2 2 2

Nete Profit af'ter Taxes & Provisions 14 17 18 19' 31 1 40 56 60 60 67 84 120

NOTE: Forecast innil 1979 are samne as Ainnex 16.

4- for period 1980 - 1983 cost of goods solo - 62 ofJ LA net salos, approximately.

,j Inrclading ICM Taxes.

j2 For period 1980 - 1933 general. expenses = 1.5<, of net sales, approximately.

C O S I P A

SOURCES AND APPLICATIONS OF FUNIDS

(INCLUIING STAGE -II)(US$ Million)

1972 1973 1974 1975 1976 1977 1978 1979 1980 19981 1982 183

SOURCES

From Operations 28 37 39 40 69 85 102 106 110 150 147 183

Sappliers CrediLs 29 - 3 7 - - - - _ _ _

Previous Loans 39 47 149 101 30 _ - - - _ _

Stage III Loans _ - - - - - 64 55 1 _ _

Increase in Share Capital 9 10 12 11 - 21 22 24 25 - - -

T 0 T A L 105 94 203 159 99 106 188 185 136 130 147 183APPLICATIONS

l'ixec Investrnernts Stage III j - - - - 2 22 121 117 44 _ _ _

Other Fixed Investments 74 75 183 121 31 3 6 3 3 4 7 4

Loan Amortization 8 7 6 15 23 38 38 38 38 37 40 40

Other Expenses 8 21 15 9 12 8 1 2 4 - -

Dividends - 6 7 7 8 21 22 24 25 26 26 26

Change irn Working Capital 13 ( 20) 2 2 24 11 6 1 2 14 2 7

Change in SUYplUs Cash 2 , (10) 5 (1 3 (6) - 20 49 62 106

T 0 T A L 105 94 203 159 99 106 188 185 136 130 147 183

Accumulated Cash| 9 | 4 9 8 L 5 5 25 74 136 242 ¢

E/ Excluding price escalation.

C O S I P A

BALANCE SHEET PROJECTIONS

(INCLUDING STAGE III)(US$ MiLlion)

1972 L973 174 1975 1976 1977 1978 1979 1Q8b0 __)_l 1_ 2

ASSETS

Current Assets 81 62 66 69 113 133 i47 147 150 176 198 211

Cash Surplus 9 14 4 9 8 ii 5 5 25 74 136 242

Sundry AsseLs 5 5 5 5 5 5 5 5 5 5 5 5

Fixed ASSeT Set

Gross Fixed Assets 425 500 683 804 837 862 989 1.103 1.156 1.160 1. 167 1.171

LeSS: Depreciation 66 85 105 124 161 202 244 287 333 390 447 5055)9 415 57T 7 7 7F 5 22 253 770 720

Deferred Charges 6 7 9 17 25 23 21 20 22 18 14 11

T O A L 460 503 662 780 827 832 921. 99Y 1.025 1.043 1. 073 1. 135

LIA3ILITIIES

Curren-at Liabilities 33 .34 44 54 89 98 103 104 105 120 1.30 136

LnroG Teru DIebt 10'- 143 279 3955 347 030 335 352 316 276 2i 1)6

DeteVZrred Credits 33 14 4; 11 7 _ _ _ _ _ _

Other Liabilities 5 5 5 5 5 5 5 5 5 5 5 5

Eqoity

Share Capital 318 327 338 350 350 371 393 417 442 442 442 442

I .esvSUVS & S;rplus (31) (20) ( 8) 5 29 49 85 121 157 200 260 356

C 01 A L 460 503 662 r780 827 832 921 999 1.025 1. 03 1.073 1.135

Iidustrial Project Department.Apri1, 1972

BRAZIL - COSIPA STEEL EXPANSION PROJECT

SAVINGS IN FOREIGN CURRENCY

Expansion PlanPresent Facilities (1972) Stage I (1973) Stage II (1978)

February 1971 Gross Gross GrossPrice CIF Output Savings Output Savings Output Savings

US$/Ton 1/ (1,000 t)* ($1,000) (1,000 t) ($1,000) (1,000 t) ($1,000)

1. Gross Savings in Foreign Currency

Products

Plates 150 176 26,400 176 26,400 620 93,000

Hot Rolled Coils 128 309 39,552 165 21,120 365 46,720

Hot Rolled Sheets 145 38 5,510 61 8,845 134 19,430

Cold Rolled Coils 150 92 13,800 127 19,050 310 46,500

Cold Rolled Sheets 160 149 23,840 220 35,200 280 44,800

Foundry Coke 75 - - - - 230 17,250

TOTAL 109,102 110,615 267,700

2. Exchange Expenses Incurred in Operations Price Quantity Value Quantity Value Quantity ValueCIF, US$/Ton (1,000 t) ($1,000) (1,000 t) ($1,000) (1,000 t) ($1,000)

Items

High Volatile Coking Coal 22.44/t 190 4,264 381 8,550 1,067 23,943

Low Volatile Coking Coal 25.67/t 63 1,617 104 2,670 497 12,758

Raw Materials and Supplies 2.39/t 2,390 2,390 5,497

Spare Parts2/ 1.63/t 1,630 1,630 3,749

Amortization of Financing Stage I 4,800 4,100 4,323Stage TII- 16,628

Interest on Financing: Stage I 2,693 3,313 1,244

Stage II 2,113 5,252 12,481

Imported Slabs 84.45/t 200 16,890 - -_

TOTAL 36,397 27,905 80,623

3. Iron Ore Exports Foregone 4.75/t 860 4,035 1,400 6,650 3,294 15,647

4. Net Savings in Foreign Currency(1) - ((2) + (3)) 68,620 76,060 _

*Including imported slabs.

1/ FOB Europe prices plus freight charges.2/ Proportional to the tonnage of steel ingots - basic year 1970.

Industrial Projects DepartmentMarch 1972

E.RAZIL - COSIPA STEEL EIPAPSalbi P505TAN 23

PROL1CT FLOW DIARAM

IPAN 2,3 X 106t. MM 1980/86

Relst Faoem-cS5W

| e,Vtae: 5°° Matio NationalCForeign Coal

84,684,790

Cost Tj ' !t:ot;Unit lix, 5,02.I'US Vt-- '

Hot Var: 36,41

Hot Netal ,0440PO t/year

B. O, F.

; YieldA 88,5 dFid3 alli Stoola

Total 133,933,770 Btt lAne

iCost Unit Fix* 10,25i jUS /t-

Steel: Var 17,76

Ingots o'0POO Vyear

Scarfed Slab-Prodaced

Yield, 86,8

Totl 130 442,610

Cost r, ,8D Unit i 1 8

i ,Steel Var 50,71

O2ioo400 t/4ar

2004PO t/yar

72400 t/p1at. j 280000 i/plate

V ~~~~~~~~VFINISHlED 1ATE not 0 CoIL

Yield: 82,S j Tiel& 95,1

'Total 46,276,640 F |o,5 6

o,9zo' Oat *-O-- - 05

* Unit Fix1lg,8S i Unit Fix: 18,81

F Fini- Vars 57,25 i M e 5Plae IciTr 56

t 600p00 t/7sar 93700 V/F 1F 4PO

J, . IheetH.R. Pickled Coil Finished Hot Roiled

IteM, 94,1 i Coil and Sheet

73,133,540 ield i 9-- 0 -C OSTr -- V 1Sheet'93,4

unit p*j-us$/t F. 22,28 1 3 0ai3, 85,710HpiD= 20 S ,

0 , 610,980

673000 e/r i | 208000 t/year uti;,_Var 59s2'370000 t/cuil ! xt-V- 27,36303000 t/shaee Par .!0,71303000 t/ iEeetV 154000 t/year coil

Fi FIISHSD COLD ROLFD z34000 t/year sheetCOIL AND SHEET

Coil, 95,8 23000 5go9ofeied -_t --- 5 ! 1,711,502 4,897,705Sheet 92,5

38 0050370i

Cost c Fr 28,49Tar:S 64,1S

SPFixv 3 i,17ar: 65.7 NOTEs All values are in USii.

350000 t/year oQil270000 t/year Ofiset

Industrial Projects DepartmentMarch 1972

Brazil

COMPANHIA SIDERURGICA PAULISTA - COSIPA

FLOW CHART OF PROCESS

F o Allo y

000 METRIC TONS. (1980)

\| t/ . t= I ILL Fumusa iL i _ +) - - FE _ _ / ~~~~~~~~~~~~~~~~~~~Ptates 680

h-, Sheotw Roed 9 154

| 1il l Coofsnoous Henr;g P~~~~~~~~~~~~~001a *° Sheets

_ b j Xe I r Q W rffl I ii-3Hot Roilec 236

%Oooioo 11oo~. |~o BdOil FQpeer ; J J i consnoo cil

/ 1~IL l JL CleninC ine 2 Cold Rolled 027

_ Ge b I 1 1 Sh¢cr i F ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Shoots

at , L _ rwot trum(as Cr 4 _ ti_ o o L-otd Rollod 350~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~oll ofed 35

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~S-k. Pi Coepe ils

Colm - G., Hrde Torpedo Car

ch-k.f syon-1

n, Go, toI LyprdUt

_ tYC Flo, , ]| CLsemisol 8y-proel>d ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1698Foundry and Metallurgical Coke

SERRA DO MAR

MOUNTAIN - 34~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~PATLAeA

~~~~~~~~~~~~~~~~- ~~~~~~~~~~~ ~~-~~~.ORRO DA TAPdl A ~PLNTLA-OT-IAGUR

-4 CA AA A ~ - _4

-4 A ASA ASO G A O _ _ _ __5

IC,~~~~~~~~~~~~~~~~~~~~~~~~~~O~AA.

r~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

IAI~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~CSGIIH

-r-a- T. - +T~~~~~~~~~~~~~~~~~~~~~~~~~~~~- - -i~~~~~~~~~~~~~~~L S.A A

46° 42

B R A Z I L

LOCATION OF THE THREE MAJOR FLAT STEEL PRODUCERSA Plants of Major Flat Steel Producers C~

| SA9 PULO| Principal Domestic Markets for Flat Steel Products

r E T013iAi Seaports for Dispatch of Exports

Roads for Flat Steel Transport(USIMINAS)/ ~

4----e---Railways for Flat Steel Transport (Broaod Gauge)

-I-F-I--I- Railways for Flat Steel Transport (Narrow Gauge)

_ _ Rivers

%>< ~~~~~State Boundaries J/

20- > _

(~~~~~~~~~~~~~~~~~~~~~

) <_ ,, / % fX ) (_--/ ~~~~~~~~~~~~~~~ ~~~~~~E S P I R I T 0

(A PAULt| /SNT

COSIPA E~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~p -~~~~~~~~~UII

X g < g M I ~~~~~~~~~N A S G E R A I S |

-22-' Tres R R I O D E / -2;-

/ j ,/ J ~~~~~~~~~~~~~~~~~~~A N E I R O00 0

S A 5 t

IsAo PAUL > . . : M*t6S l ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.J-1

440 4~~~~~~~~~0 20 40O0 sAPRIL 17Al tic 0c : a n

(COSIPAk - -{Jn >~~~~~~~~~~~~~~~~~~~~~~~~~~~R botllere sho nt ihi map do norl

L E sS-99-9*ub 3tJm 3" W idan$ i, 4fdtftle 6 6

466 44 42- 0

APRIL 1972 1 BRD 3662R

46° 44° 42°

IRON ORE SARZEDO -RAILWAY - 908 KM. BRAZILBRUMADINHO - RAILWAY - 887 KM.ALBERTO FLORES - RAILWAY - 880 KM.ITABIRITO - RAILWAY - 831 KM. COSIPA, LOCATION OF PLANTCASA DE PEDRA - RAILWAY - 800 KM.CONGONHAS - RAILWAY - 794 KM. AND RAW MATERIAL SOURCES

DOLOMITE (') ITARARE - ROAD/RAILWAY - 577 KM.ITANGUA - ROAD/RAILWAY - 465 KM.ITAPEVA - ROAD/RAILWAY - 448 KM. A COSIPA PLANT

-4l--*--+-RAILWAYS (BROAD GAUGE)

LIMESTONE B*1 8RIG. -O/AWY 25MS- RAILWAYS (NARROW GAUGE)

TOBIAS - ROAD/RAILWAY - 205 KM. ~- RIVER

20 () Distance from SAMARITA to COSIPA, by road: 27 KM. IRON ORE IRON ORE ROATE BOUNDARIES 200

Brumadinh.Alberto Flores :

IRON ORE IRON ORE ....Casa de Pedra Itabirito 1I.

Congona IRON OREIRON ORE Conselheiro Lafoiete S

MANGANESE ORE E S P I R I T OSANTO

M I N A S G E R A I S

Barbacena *

-22.

- .; - ~~~~~~~~~~~~~~~~RIO DE J AN E I RO-

The boundaries shown on this map do notimply endorsement or asceptance by theWorld Bank and its affiliate&

- / ~~~~GUANABARA"_

SAO P A U L O D A f -k-

SAO PAULOCLIMESTONE

4, Su

Brig Tobias 0 20 40 60 80 Io00 Amri

DOLOMIT CImImGeaicItang L ITE KftOMEtERS =

ltararmait 4 oubta 0 20 40 60 80

DOLOMITE UNL NG C S; MDOLOMITE ARE AR S3893AMILES46' 44'

APRIL 1972 IBRD 3893