Oxstones Investment Club™In 1965, U.S. Navy Admiral Arthur W. Radford persuaded Walther Moreira Salles, a Brazilian banker and former ambassador to the U.S., to back a venture to produce something called niobium.
At the time, there was no market or commercial use for the powdery element — just studies suggesting that tiny amounts of it could make steel stronger and more flexible. Radford sat on the board of mining company Molycorp Inc (MCP)., which had acquired the rights to deposits of niobium in Brazil’s Minas Gerais state, and needed another investor to start digging.
Moreira Salles decided to buy a majority stake in the operation, and the bet paid off. Today, the metal is present in a 10th of all new steel produced globally, for use in cars, oil pipelines and jet engines. After gradually buying out Molycorp’s interest, the family now produces 85 percent of the world’s niobium.
That market dominance has helped make the mogul’s heirs Brazil’s richest family. His four sons, Fernando, Pedro, Joao and Walter, control a combined fortune of $27 billion, according to the Bloomberg Billionaires Index. The brothers do not currently appear on any international wealth ranking.
“We created the whole market,” Tadeu Carneiro, chief executive officer of Cia. Brasileira de Metalurgia & Mineracao, the family’s niobium company, said in an interview at his office in Sao Paulo. On his desk lies a chunk of the heavy, lustrous alloy that CBMM sells. “Now you see how fantastic this company is — its value, these dividends — but we started from zero, when niobium was just a laboratory dream.”
Banking Interest
CBMM generates more than $600 million in annual profit, published financial statements show. It is worth at least $13 billion, based on the family’s sale of a 30 percent stake to a group of Asian steelmakers for $3.9 billion in 2011. The brothers are estimated to hold an equal share of the remaining 70 percent stake, according to the Bloomberg ranking.
The family’s niobium holding is more valuable than their $7.1 billion interest in Itau Unibanco Holding SA (ITUB4), Latin America’s largest bank by market value, for which they are more widely known. Through the Cia. E. Johnston holding company, split equally among the four brothers, they own 33.5 percent of the Itau Unibanco Participacoes SA vehicle, which in turn controls 51 percent of Itau’s voting stock, according to filings with the U.S. Securities and Exchange Commission and the Brazilian regulator.
Cash Portfolio
CBMM’s dividends have proved lucrative, often exceeding 50 percent of annual net income, according to statements from the company published in Minas Gerais state’s official gazette. Based on an analysis of those payments, as well as distributions from Itau Unibanco, taxes and market performance, the Moreira Salles family probably controls a portfolio of investable assets of almost $11 billion, according to the ranking.
The Moreira Salles brothers declined to comment on their wealth, according to a spokesman who asked not to be identified.
Taken together, they’re richer than the heirs to the Grupo Votorantim industrial conglomerate. Led by Antonio Ermirio de Moraes, Votorantim’s owners are worth a combined $26 billion. Brazil’s single richest individual remains Anheuser-Busch InBev NV (ABI) investor Jorge Paulo Lemann, with a $20.6 billion fortune.
The Moreira Salles family’s wealth is almost three times that of Eike Batista, who was Brazil’s No. 1 until November. He’s worth $10 billion.
According to Carneiro, CBMM pioneered the technology that allows niobium to fortify steel on an industrial scale. He was one of many students who, over the decades, received doctoral fellowships backed by the company to explore uses for the obscure element, which was discovered in the 19th century. They then came to work for CBMM after graduating, applying what they’d learned.
Secret Process
CBMM’s techniques are such a closely-guarded secret that the Asian steelmakers that bought a stake — including China’s Baosteel Group Corp. and Japan’s Nippon Steel & Sumitomo Metal Corp (5401). — have never been allowed to carry out technical due diligence work.
“CBMM is not a mining company, but a technology company,” Carneiro said. The metal is not rare, he said. “What is rare is the market.”
The process is so complex and capital-intensive that, while there are 300 known niobium deposits around the world, there are only four working mines. It requires multiple refining stages to turn powdery brown earth with just 3 percent niobium content into an iron alloy with 66 percent purity, which is what global steelmakers buy.
CBMM processes 750 metric tons an hour at its site in Araxa, about 350 miles north of Sao Paulo, Carneiro said. On average, only 200 grams of the niobium alloy are necessary to strengthen a ton of steel, allowing manufacturers to make lighter, more efficient cars and sturdier bridges and buildings. The product represents 90 percent of CBMM’s revenue.
God Particle
The company uses a separate process to make a concentrated white niobium powder that is used in camera lenses and jet engines. The powder is also present in the superconducting magnets for the world’s largest particle accelerator — the Large Hadron Collider, near Geneva — which helped physicists try to observe the theoretical elementary particle known as the Higgs boson, also called the “God particle.”
“You have no idea how much work it takes to sell niobium,” Carneiro said. According to him, CBMM spent more than two decades trying to convince China, the world’s largest producer of steel, to buy the metal. It finally succeeded in 2000. The country now buys a quarter of CBMM’s production.
No IPO
It’s this sort of long-term vision and planning that explains why the company has no plans to hold an initial public offering, which would subject it to the shortsighted demands of stock investors, Carneiro said.
Another reason not to sell shares: CBMM doesn’t need the cash, he said. Its 37 percent net-income margin would make it one of the 10 most profitable mining companies with a market value of at least $1 billion, according to data compiled by Bloomberg. Its revenue was 3.8 billion reais ($1.9 billion) in 2012, Carneiro said.
The oldest Moreira Salles brother, Fernando, 66, is the company’s chairman and is closely involved in its management, according to Carneiro. Pedro, 53, is the chairman of Itau Unibanco, as well as a board member at CBMM. Pedro has muscular dystrophy and uses a wheelchair at public events.
The family’s banking roots trace back to 1924, when Joao Moreira Salles, who ran a store in Minas Gerais that sold food, drinks and household goods, decided to open Casa Bancaria Moreira Salles. The lender financed the expansion of coffee plantations in the 1930s and 1940s.
Chanel No. 5
After his death, his son Walther gradually built the lender into the banking giant known as Unibanco. It was already one of Brazil’s largest financial institutions in 2008, when it was bought by Itau, owned by the Villela and Setubal families.
Walther Moreira Salles’s other two sons have pursued careers in the arts, continuing a different family tradition. Walter Salles, 56, directed the movies “On the Road,” based on the novel by Jack Kerouac, and “The Motorcycle Diaries,” about Che Guevara’s early days. Joao, 50, is a documentary filmmaker and the founder and publisher of Piaui, a Brazilian magazine inspired by The New Yorker.
Their father moved in the jet-setting circles of his time. His first wife, Helene Tourtois, who gave birth to Fernando, was the daughter of the creator of the Chanel No. 5 perfume. The brothers were raised in part by an Argentine butler, Santiago Badariotti, who had a taste for poetry, Latin and the piano — and later became the subject of one of Joao’s documentaries.
Rockefeller, Jagger
At his mansion in Rio de Janeiro, Walther hosted guests such as Henry Ford II, Nelson Rockefeller, Aristotle Onassis and Mick Jagger. Over the years, Walther donated paintings by Picasso, Bellini and Raphael to the Museu de Arte de Sao Paulo. He later turned his house into the headquarters for the Instituto Moreira Salles, founded in 1992 to sponsor cultural programs in Brazil. Joao is now its chairman.
Throughout it all, banking remained at the center of Walther Moreira Salles’s life. In an interview published in the Estado de S. Paulo newspaper last year, his son Pedro said: “The bank was his fifth son, a business he created from zero.”
http://www.bloomberg.com/news/print/2013-03-13/brazil-s-richest-family-forging-13-billion-niobium-dream.html
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