Vale SA, the Brazilian miner that announced the ouster of its chief executive amid government criticism, agreed to buy a stake in a hydro-power project in the Amazon and invest about 2.3 billion reais ($1.5 billion).

Vale, the world’s second-largest miner by market value, said in a regulatory filing yesterday its board approved buying as much as 9 percent of Norte Energia SA, which will build and operate the Belo Monte dam, from Gaia Energia & Participacoes SA. Rio de Janeiro-based Vale will reimburse Gaia for expenditures made and assume its future investment commitments.

The deal comes less than a month after Vale said it would replace Chief Executive Officer Roger Agnelli amid criticism from Brazil’s government, which has direct and indirect stakes, that it wasn’t doing enough to help generate jobs. The 25.8 billion-real dam, which will flood 516 square kilometers (199 square miles) of the world’s largest rainforest, is a key piece in the government’s plan to increase energy supplies.

“It appears as if it was the government’s idea to bring Vale into this investment,” Rogerio Freitas, a partner at Rio de Janeiro-based hedge fund Teorica Investimentos, said in a telephone interview yesterday. “The most rational thing to do is invest your resources where you get the highest return given the risk, and in Vale’s case that would be the mining business.”

Failed Bid

Vale, which failed in a previous bid to buy a stake when the rights to Belo Monte were auctioned last year, joins state- controlled Centrais Eletricas Brasileiras SA as a partner in Norte Energia. Eletrobras, as South America’s largest utility is known, and two of its units hold a combined 49.98 percent, according to its website.

Vale has stakes in other hydroelectric dams in Brazil.

The Organization of the American States requested April 5 that Brazil suspend work on Belo Monte. The OAS echoed protests of “Avatar” director James Cameron, former U.S. President Bill Clinton and former California Governor Arnold Schwarzenegger, who gathered in the Amazon city of Manaus earlier this year to voice concern about the potential environmental impact from the dam. The project will require the relocation of about 1,000 Indians.

Vale announced April 5 that it named Murilo Pinto de Oliveira Ferreira to take over as CEO in May after Agnelli’s mandate expires. Vale has underperformed Brazil’s Bovespa index and BHP Billiton Ltd., the world’s biggest mining company by market value, since mid-January amid concern the government would seek to play a bigger role in management decisions.

Vale Share Drop

Vale fell 22 centavos, or 0.5 percent, to 46.05 reais in Sao Paulo trading. The acquisition announcement was made after the end of regular trading yesterday. The company’s preferred stock has plunged 12 percent since Jan. 15, compared with a 7.4 percent drop for the Bovespa and a 12 percent gain for BHP.

During the global recession two years ago, Vale fired 1,300 employees and said 5,500 more would be put on paid leave. The company pared investments by about half to $9 billion, from an announced $14.2 billion, a decision criticized by then-President Luiz Inacio Lula da Silva, who said it had “no reason” to cut spending as it had “lots of cash” to help the economy grow.

Agnelli also faced government criticism for buying ships in China when Brazil was setting up its own shipyards. The former president urged Vale to spend more on fertilizers and, between April and September 2009, asked the company to build steelworks at least half a dozen times.

More recently, Energy and Mining Minister Edison Lobao said Vale was interested in becoming a partner of Belo Monte project, according to local newspapers. Vale said March 25 that it was still assessing the venture and hadn’t made a decision.

Pension Stakes

Previ and Funcef, the pension funds of state-run banks Banco do Brasil SA and Caixa Economica Federal, hold 49 percent of Vale’s group of controlling shareholders along with Petros, the retirement fund for government-controlled oil producer Petroleo Brasileiro SA.

Other shareholders of the group, Valepar SA, include Bradespar SA, the holding company of Bradesco; Mitsui & Co. and BNDESPAR, a subsidiary of the Brazilian state-owned development bank.

Vale plans to finance about 75 percent of its investments in Belo Monte, estimated at 2.3 billion reais, Vale Marketing Director Jose Carlos Martins said yesterday on a conference call with journalists. Brazil’s national development bank, known as BNDES, will provide most of the financing, he said.

The investment will eventually allow Vale to generate about 73 percent of its own energy needs, Energy Director Almir Rezende said on the same call. The project will provide Vale with 400 megawatts, he said.

“Vale is a large consumer of electricity and invests in generation assets based on its consumption needs,” the company said in yesterday’s statement. Vale is “seeking to reduce operating costs on a permanent basis and minimize price and supply risks.”

—With assistance from Helder Marinho in Sao Paulo. Editors: Keith Gosman, Jessica Brice

To contact the reporters on this story: Juan Pablo Spinetto in Rio De Janeiro at jspinetto [at] bloomberg [dot] net; Jessica Brice in Sao Paulo at jbrice1 [at] bloomberg [dot] net

To contact the editor responsible for this story: Dale Crofts at dcrofts [at] bloomberg [dot] net