Brazilian geologist Joao Carlos Cavalcanti used to be Eike Batista’s partner in the early 2000s, when they set up the “embryo” of what became Eike’s mining company MMX. According to Cavalcanti, Eike promised to make investments in the project but never did. In fact, he had no intention on delivering on his promise since the beginning. “I have nothing against him. I just want him to pay what he owes me,” says the geologist, who’s suing Eike for R$22 million. Cavalcanti has recently uncovered a deposit of rare earth mineral “neodymium” in Bahia. The discovery is the first of its genre in Brazil.
In this interview to Veja magazine (via Exame) made last week, Cavalcanti compared Eike to a “big kid” who needs to blame someone when his businesses don’t go well. “[OGX’s now ex-CEO] Paul Mendonca will be the flavor of the month, especially after this OGX’s stock meltdown. It already happened to [Eike’s ex-partner] Rodolfo Landim which started to outshine Eike, who eventually ousted him. Paulo, until recently, was called Mr. Oil by Eike. If I know Eike well, I believe Paulo will be fired.”
Bingo! While Cavalcanti was doing this interview, OGX sent a statement to the market reporting the firing of CEO Paulo Mendonca.
Excerpts of the Exame interview below:
Exame: When did you and Eike fell out?
Cavalcanti: In 2002, I discovered a deposit of iron ore in Bahia. Eike learned about it and came to me. Then we set up IRX (which became the “embryo” of now public company MMX) to explore this area. He owned 80% of the business and I owned 20%. Our plan called for an initial investment in research before the start of the exploration activities, but he ended up not investing one cent. As the partner in charge of financing, he had to invest about US$10 million. But as Eike never puts his own money on anything, he kept telling me he was going to invest, until in 2005 the Brazilian Ministry of Energy took away our land exploration permit. We lost our opportunity. Had he done what he promised the operation would have yielded me about US$200 million.
Exame: If Eike wanted to have a mining company, why didn’t he invest?
Cavalcanti: He used arguments that there was no infrastructure to the flow of ore. But the infrastructure is usually built after the project becomes viable. Nobody invests in infrastructure before knowing the potential of the ore. Even with MMX, there is a logistics issue. They are building it now. But so far no ore has been delivered.
Exame: Did you follow the beginnings of his oil company OGX?
Cavalcanti: Yes, it started at a time when I was often at his office. He would get reports from the federal government, the state, and other agencies, then he would organize them, changed their cover design, translate them to English and introduce the reports as his own to the Canadian pension funds. Based on that presentation he managed to raise US$500 million and returned to Brazil to participate in the ANP (National Petroleum Agency) auctions. With that money, he managed to buy the licenses to explore Petrobras’ marginal deposits. What the ANP placed at auction was not good. They were not the best deposits. But he knew how to appreciate them, how to “sell” them. He brought the best Petrobras executives, including Rodolfo Landim [another ex-partner who is suing Eike], usually paying them very well. But when the guy did not deliver what he expected, Eike used to humiliate him, putting on insulting nick names to the person. He is just a kid, really.
Exame: Do you think OGX will be able to produce the already revised down forecast of 5000 barrels/day?
Cavalcanti: It is possible. But no well that came from the Petrobras auction should yield more than that. If the capacity was the 40,000 barrels/day numbers he told the market previously, why would Petrobras auction it anyway? It makes no sense. Eike has never done this before, he doesn’t know how it works.
Exame: Why didn’t investors question Eike on his project data before?
Cavalcanti: Because Eike is the darling of foreign investors. He looks like a German, speaks five languages and is charismatic. And because his dad is the well-respected Eliezer Batista. Now that’s a great man. Furthermore, Eike used to sell encyclopedias in Germany, and a guy who can sell encyclopedias to Germans can sell pretty much anything. He is very smart and bodes well with investors, governments, everyone. He bought [ex-President] Lula’s suit in a charity auction for R$1 million and the very next day the BNDES [Brazil’s state development bank] loaned him R$150 million so he could rebuild Hotel Gloria. He gets what he wants, period.
Exame: But in theory, those who understand the oil and gas market should have known about these risks. Wasn’t anyone suspicious about the capacity of these wells auctioned by Petrobras?
Cavalcanti: Well, they should have been. The problem is that bankers don’t understand the energy market. There aren’t geologists or mining engineers working as analysts. There are economists who don’t understand anything about this sector. They understand numbers, indicators, but don’t know how things actually work.
Exame: Are you angry at Eike?
Cavalcanti: No, I have nothing against him. I just want to pay the R$22 million he owes me.
Exame: Do you think he will regain credibility with the market?
Cavalcanti: I don’t know. I doubt it. The only thing he does well is noodles at Mr. Lam, his Chinese restaurant in Rio. I met him there a couple years ago, before I actually sued him. We talked briefly and he told me he would pass Bill Gates. But he will not. I think the universe will start to turn against him. He needs to be more humble, less arrogant. He needs to promise less, and help more. Bill Gates, Carlos Slim, Lakshmi Mittal and Warren Buffett are simple men, who spend a lot of time and money to philanthropy. What did Eike make? Which hospital has he built with his fortune? What did he give back to society?