August 26, 2012 Testing its Metal

Volume 15 | Issue 3

LSM Brasil is a 100-year-old company located in one of the oldest mining regions of Brazil. It also belongs to AMG, a Vanguard Dutch group d

Most businesses begin with the spark of an idea; LSM Brasil, however, really did begin life with an actual spark. The century-old Brazilian company started out as a manufacturer of matches. The year was 1912, the place was Niterói, across the picturesque Guanabara Bay from Rio de Janeiro, and the name of the company was Cia Industrial Fluminense.

FROM MATCHES TO METALS
Despite having branched out into soft drinks, in the years following World War II, Cia Industrial Fluminense ran into difficulties and was purchased by a Spanish businessman by the name of Ramon Fraga. Fraga’s background was in mining and metals, which explains why soon after acquiring the faltering company, he completely changed both its raison d’être and its production line. Via his mining contacts, he decided to tap into São João del Rei, a colonial town in the neighboring state of Minas Gerais with a long tradition of mining (it was one of the hot spots of Minas’ 18th-century gold rush). In the 1940s, São João’s tin and pewter mines were the richest in Brazil and it wasn’t long before Fraga was buying up tin, processing it in Rio and exporting it to markets overseas.

In 1960, São del Rei’s municipal government inaugurated its first hydroelectric plant to generate electricity for the city. Shortly after, Fraga decided to purchase the plant from City Hall. On the heels of this idea came another; to move his entire business from Rio to São João. Instead of buying, processing, and exporting minerals, Cia Industrial Fluminense would now mine and produce its own tin using its own electric energy. In fact, the factory Fraga opened in São João constituted the first tin production plant in Brazil.

Over the next two decades, Cia Industrial Fluminense grew by adding other metals to its production line. It inaugurated the first silicon production plant in Brazil and also began manufacturing mischmetal (used to make lighter stones). Then in 1980, it was purchased by Metallurg, a U.S.-based group specializing in metals and alloys that was looking for a foothold in Brazil. With its purchase of Cia Industrial Fluminense, Metallurg brought new technologies and new products to Brazil. In particular, it was behind the company’s decision to begin producing oxides from tantalum and niobium along with special aluminum alloys.

“In fact, this is where I came in,” confesses LSM Brasil’s President Itamar Dutra Pereira Resende. “I joined the company in 1985, and my first project was to bring the special alloy aluminum technology from the U.K. to Brazil. This was a whole new era for the company. The tin mines were drying up and the mischmetal alloys were losing competitivity due to the introduction of low-priced Chinese imports. As a result, we began gradually transitioning from our traditional products to a new generation of products consisting of oxides and aluminum alloys. By 1996, we had closed the cycle of the past and were completely focused on our new lines.”

In 1998, another important milestone occurred when Metallurg was acquired by AMG (Advanced Metallurgical Group), a Dutch group with a stable of innovative global companies all dedicated to developing innovative metallurgical solutions to meet the growing demand for materials that reduce C02 emissions. AMG’s specific focus revolves around advanced furnace systems and the creation of new niche metals and complex alloys. Among the companies under its aegis was a British-based manufacturer of high specification metals and alloys called London & Scandinavian Metallurgical (LSM). When it became apparent that LSM and Cia Industrial Fluminense shared many complementary products and synergies, the two companies created a partnership which was sealed, in 2009, when Cia Fluminense took the name LSM Brasil.

MUTUAL BENEFITS
“I’ve been president of LSM UK for six years as well as being president of LSM Brasil,” points out Resende. “Since the two companies already had so much in common, sharing the same name was a natural step. It was also a strategic one in that the LSM brand name gave Cia Fluminense a lot of global clout. In the years since, we’ve consolidated certain activities, aligned our commercial structures, and improved practices, all of which have optimized operations on both sides of the Atlantic.”

A concrete example of the benefits of this partnership is the recent development at LSM UK of a ferroalloy of highly porous ferro niobium, the product of LSM UK’s technology and LSM Brasil’s niobium oxide. “Fusing LSM UK’s technology with LSM Brasil’s high quality products generates a lot of confidence in the market” confesses Resende. “Ultimately, we’ve created a vertically integrated operation in two different territories. As a result, production levels have soared in Brazil and more sophisticated products are being created in the UK (where, previously, much of the focus was on the creation of chromium metals).”

While both LSMs have benefitted enormously, for its part, LSM Brasil has experienced exponential growth. Since 1996, when it first began producing niobium and tantalum, the company’s business has grown ten-fold. In the last two years alone, both its tantalum mines and its hydroelectric plant have double their output while production of niobium oxide has grown by 60 percent. Last year, the company’s industrial activities brought in revenues of US$100 million while its mining activities yielded another US$ 50 million (50 percent of LSM Brasil’s tantalum supplies its own needs while the remainder is sold to other companies).

At the moment, 30 percent of LSM Brasil’s business is in Brazil while the other 70 percent is derived from sales to overseas markets, particularly Europe and Asia. The most important segments for its products are the electronics industry (for tantalum oxide), aluminum industry (aluminum tablets and alloys used for sheeting, electric cables, etc.), and the aeronautical industry (niobium oxide), which is experiencing considerable growth on a global level.

Indeed, the company is particularly optimistic about the future, an attitude that is reflected in the many innovative projects and technologies being developed by both LSM Brasil and LSM UK. “The biggest trends for the future in this segment involve recycling and the development of metals and alloys that are less expensive,” predicts Resende. “The fact is that minerals are becoming increasingly expensive and production technology has to be rethought in terms of energy use, environmental impact, and sources of raw material. With these factors in mind, we’re seeking to refine processes and create new products, which will result in major growth for us over the next few years.”

While unable to share specifics, Resende does reveal that the investments involved will result in the company’s doubling its business in the near future. He estimates that within two years, revenues from industrial and chemical operations alone (excluding mining) will have climbed to US$200 million.

ADAPTING AND REACTING TO CHANGE
“Our main focus has always been on innovation. This stems from our biggest strength, which is our capacity for change,” confesses Resende. “Throughout our 100 years of history, the ability to accompany, adapt, and react to changes has been a hallmark of our company. We do this rapidly and naturally.”

LSM Brasil’s flexibility serves it particularly well in today’s economy, in which Brazil is no longer a cheap place in which to do business. In fact, the infamous “Brazil cost” is notoriously expensive. In order to stay globally competitive, the company runs an extremely organized opearation in which communication between all of its 530 employees is synchronized on every level. Such “discipline” is a cultural characteristic that Resende admits is a positive side effect from interaction with its UK-based corporate sibling. And yet, he credits the company’s real success with its quintessentially Brazilian talent for “openness,” and “creativity.”

“Brazilians in general are open to change and novelty, and Brazilian culture embraces flexibility and creativity,” he says. “When one looks at Brazil’s history, one realizes why this is the case. Interestingly, I have colleagues in the UK who were surprising by how calm I was in the aftermath of the global financial crisis of 2008. The truth is that, as a Brazilian, I have lived through years in which inflation was 50 percent a month. Because dealing with such turbulence is ‘normal’, Brazilians have this built-in survival instinct and ability to improvise solutions. That’s a very useful trait in today’s global economy when markets are so volatile. Today, visibility is short; one can’t buy or sell over the long term anymore. Success in this climate is all about being able to change and do what needs to be done. And that’s what we’re good at.”

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