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GERDAU SA (GGBR4)

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Gerdau SA : Brazil Gerdau To Invest BRL838 Million To Expand Iron Ore

05/03/2012 | 01:17pm US/Eastern

--Long-steel maker Gerdau aims to boost iron ore production to 11.5 million tons by end-2014

--Gerdau's iron ore mines should supply 100% of company's needs by end of this year, CEO says

--Steelmaker still looking for partner to develop mines, also studying possible port project

By Jeff Fick

Of

(Updates with additional details throughout, adds stock price in sixth paragraph.)

Brazilian long steel maker Gerdau (GGB, GGBR4.BR) plans to nearly double iron ore output by the end of 2014 as the company seeks to cut input costs and capitalize on rising raw materials prices, Chief Executive Andre Gerdau Johannpeter said Thursday.

Speaking during a conference call with reporters, Johannpeter said that Gerdau will invest 838 million Brazilian reais ($436 million) to raise iron ore production at company owned mines to 11.5 million metric tons from current output of about 6.5 million tons.

"The investments are expected to be completed by the end of 2014," Johannpeter said. The investments will include logistics and transport infrastructure to deliver the ore to Gerdau's nearby mills in Minas Gerais state, the executive added.

Gerdau and other global steelmakers have struggled in recent years with rising prices for key steelmaking raw ingredients such as iron ore, metallurgical coal and scrap metal. The ongoing European debt crisis and sluggish global economy have not allowed steelmakers to raise prices and pass along higher costs to consumers, pressuring steelmakers' margins.

Raw materials prices, however, have stabilized in recent months--a trend that should continue over the next few months, Johannpeter said. "We don't see big changes in the future," Johannpeter said. Gerdau expects to be "100% self-sufficient" in iron ore by the end of 2012, the executive added.

Late Wednesday, Gerdau reported a 3% decline in first-quarter net profit to BRL397 million despite a 10% jump in net revenues. Gerdau's locally traded shares were among the biggest losers in the Ibovespa stocks index, falling 2.0% to BRL17.45 a share at midday. In New York, the company's American Depositary Receipts were down 3.1% at $9.05 a share.

The iron ore expansion is part of a broader BRL10.3 billion investment plan through 2016 that the company expects to maintain despite the gloomy global economic scenario, Chief Financial Officer Osvaldo Schirmer said. Schirmer said that long-term investment decisions are made "independent of short-term oscillations."

Gerdau is still in talks with potential partners to help develop the company's iron ore mines, which are estimated to hold about 2.9 billion tons of ore. "The search for a partner is ongoing," Johannpeter said. "We don't have a fixed date to announce a partner."

The next step in the process will be for interested companies to visit the mine sites, Johannpeter added.

Gerdau also continues to study a port project on Sepetiba Bay near the company's Cosigua mill in Rio de Janeiro state. Initially, the project was considered as a joint development with flat steelmaker Companhia Siderurgica Nacional (SID, CSNA3.BR) and state-run energy giant Petroleo Brasileiro (PBR, PETR4.BR), or Petrobras, but that has since changed, Gerdau's Schirmer said.

The project is "in a revision and adjustment phase," Schirmer said. The joint project has been "unwound" so that each company can develop their separate areas "in their own time and within their own budgets," Schirmer added.

Gerdau envisions a port capable of exporting about 70 million tons of iron ore per year, done in two phases of 35 million tons each, Schirmer said. In addition, the port would have the capacity to import about 10 million tons of metallurgical coal, he added.

-By Jeff Fick, Dow Jones Newswires; 55-21-2586-6085; Jeff.Fick@dowjones.com

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