If you look at a map of the world, the Brazilian state Mato Grosso do Sul is located at the same latitude as Antofagasta. That is, about 2 thousand kilometers south of the Amazon, near the border with Paraguay and Argentina. In the vicinity of the Sucuriú River, Arauco, the Angelini group’s forestry company, will carry out the largest investment in its history: the construction of a pulp plant – named after the river – for US$ 4.6 billion. The announcement was made on Tuesday, after board approval.
The milestones
In May 2022, in Campo Grande, the capital of the state of Mato Grosso do Sul, Arauco signed an agreement with the federal government and the municipality of Inocencia to develop the project. With it, the company promised to advance environmental licensing, while the state promised to support with infrastructure.
“They are super demanding in their requirements, but at the same time they have a powerful industrial vocation, which is very anchored in how permits are obtained. They sit next to you at the table to accompany you and guide you so that you can obtain the license,” says a person who participated in the business. “It’s not ‘here are the rules and bring me the folder’, but we build the folder together,” he explains.
Six months ago Arauco obtained the environmental permits and took them to the board of directors. With that milestone, earthworks began, a first investment of close to US$200 million.
Today, machinery is seen at the site preparing the land to build the factory. As it is a greenfield (it is built from scratch), the company must create “a world” around it, ranging from housing, health and education solutions., even public infrastructure. The company had to do the same in southern Chile with the US$3 billion Modernization and Expansion of the Arauco Plant (MAPA) project, which it inaugurated a year and a half ago.
The Finnish partners
When they signed the agreement with the state of Mato Grosso do Sul, the project contemplated two stages: a first with a production capacity of 2.5 million tons of pulp per year, and a second with the same capacity. But In the process, the proposal of the Finnish company Valmet – in charge of construction and technology, from start to finish – made them change the plan: “They delivered a very competitive proposal, with very efficient production costs per ton,” says an expert. There were economies of scale and it made sense for them to do a first stage with greater capacity.
Then they decided to expand production to 3.5 million tons of pulp, making the pulp production project the largest in the world implemented in a single stage. This is not the first time that Arauco has worked with Valmet – whose headquarters are in the city of Espoo in Finland, but also has offices in Chile and Brazil, among other places. The company, listed on Nasdaq Helsinki, developed half of the MAPA project processes. Several Arauco executives have visited the headquarters in Europe. What draws their attention the most is the technological capacity of its partners: A large part of Sucuriú’s operation will be automated and digitalized.
The final stretch of the negotiations occurred in Santiago. Valmet executives settled in the Arauco offices to refine details. The white smoke came out on Wednesday, September 11. With the closing of the general framework of the agreement, the Arauco team from Brazil and Chile already had the proposal to take to the board of directors set for this Tuesday.
Coming
There was no celebration in the company, but there was internal recognition of the teams in Chile and Brazil that have been working on the project. “There is a certain caution,” explains a senior executive. “(Tuesday’s announcement) is a super important milestone, but the challenge is just beginning.”
The approval of the board of directors, they explain, is like the lowering of the flag. “But this is just beginning. It is a very big effort, which involves a significant deployment of resources, expertise, negotiations,” they add. Although the main supplier (Valmet) is closed, there are many other “small” suppliers that have yet to be defined.
If the calendar advances as stipulated, Construction of the plant should begin in 2025 to begin operating in 2027.
The key executives
To the signing of the agreement with the Brazilian state two years ago, he traveled Matías Domeyko, then executive vice president of Arauco; Cristian Infante, General manager; Nicolás Jobet, people and communications manager; and Carlos Altamiras, president director of Arauco do Brasil. Although Domeyko had to be in charge of the project from the beginning, now as president of the board of directors of Arauco (in April he was appointed to that position and Infante remained CEO), on Tuesday he had to give the ok to the plan presented to him by the equipment.
Two other executives who have been key in the process are Altimiras and Iván Chamorro, vice president of the pulp and forestry business. Together they have made the Chile-Brazil hinge under the tutelage of Infante.
Financing
In Brazil, being a federal country, states compete for companies’ resources. “There is healthy competition in the states to attract investments,” explains an insider. Arauco has more than 20 years of history in that nation, with five wood plants, so growth in that place was the natural path.
In addition to the tax exemptions offered by the state of Mato Grosso do Sul, the company chose the place for its geographical conditions: it is a flat sector, where the planting and harvesting process is very efficient, which makes the forestry cycle more shorter than in Chile. If here a rotation lasts 12 years, there between planting, growth, harvesting and replanting seven years pass.
To finance the project, whose investment is estimated at US$ 4.6 billion, there are several ways. The company had an important forest area in the Paraná region that it sold last year to its Brazilian competitor Klabin for US$ 1.1 billion.. With that there is some cash.
Besides, A shareholders meeting was called on October 17 to make a capital increase of US$ 1.2 billion. Also It was agreed to reduce the dividend distribution from 40% to 30% until 2026. The rest of the funds are still to be seen: the idea is to issue bonds, which could be done in Chile or the United States. The Finance and Treasury and Investor Relations area will be in charge of evaluating the different alternatives.
