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3Q11 Results

3Q11 Results. October 27, 2011. Disclaimer.

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3Q11 Results

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  1. 3Q11 Results October 27, 2011

  2. Disclaimer “This presentation may include statements that present Vale's expectations about future events or results. All statements, when based upon expectations about the future and not on historical facts, involve various risks and uncertainties. Vale cannot guarantee that such statements will prove correct. These risks and uncertainties include factors related to the following: (a) the countries where we operate, especially Brazil and Canada; (b) the global economy; (c) the capital markets; (d) the mining and metals prices and their dependence on global industrial production, which is cyclical by nature; and (e) global competition in the markets in which Vale operates. To obtain further information on factors that may lead to results different from those forecast by Vale, please consult the reports Vale files with the U.S. Securities and Exchange Commission (SEC), the Brazilian Comissão de Valores Mobiliários (CVM), the French Autorité des Marchés Financiers (AMF), and The Stock Exchange of Hong Kong Limited, and in particular the factors discussed under “Forward-Looking Statements” and “Risk Factors” in Vale’s annual report on Form 20-F.”

  3. Agenda • Continuing to create value • Market fundamentals

  4. Continuing to create value

  5. An outstanding operational performance QoQ YoY 3Q11 • All-time high production figures • Iron ore 87.9 Mt1 • Pellet 14.2 Mt2 • Copper 84,300 t • Thermal coal 1.2 Mt +9.5% +6.4% +8.3% +4.3% +34.3% +45.6% +60.4% +20.0% ¹ Includes 2.9 Mt of Vale’s attributable iron ore production from Samarco ² Includes 2.8 Mt of Vale’s attributable pellets production from Samarco

  6. An outstanding financial performance QoQ YoY 3Q11 • All-time high figures • Operating revenues of US$ 16.7 billion +9.1% +15.5% • Adjusted EBIT of US$ 8.4 billion +8.1% +6.9% • Adjusted EBITDA of US$ 9.6 billion +6.2% +9.3%

  7. Increase in sales volumes was the main driver for EBITDA performance Adjusted EBITDA US$ million  FX Price variation R&D¹ Dividends² Costs & expenses ³ Sales volume 2Q11 3Q11 ¹ This change relates to the accounting figure, differing from the financial disbursement used for Investments ² Dividends received from affiliated non-consolidated companies. ³ Costs excluding depreciation and amortization. Expenses include SG&A + other operating expenses.

  8. Our cash generation continues to reach record-high levels, allowing us to successfully deal with the trilemma faced by growing companies LTM Adjusted EBITDA US$ billion

  9. Dividend distribution in 2011 will reach US$ 9.0 billion, a record figure Dividends US$ billion

  10. Powerful cash flow supports a healthy balance sheet with a low-risk debt portfolio Total debt Debt cost and maturity ¹,² % Years 10.1 5.5 9.1 4.7 ¹ at end of quarter. ² cash and cash equivalent.

  11. Investments¹ grew by 48.5% YoY in 9M11, despite the challenges in project implementation 9M10 US$ 7.614 billion 9M11 US$ 11.308 billion ¹ Excluding M&A.

  12. Continuing to create shareholder value: growth and high rates of return on invested capital ROIC LTM1 Invested capital US$ billion ¹ ROIC LTM = return on capital invested for the last twelve-month period.

  13. Starting up production • Karebbe Total capacity: 130MW The Karebbe hydropower plant, in Sorowako, Indonesia, will support expansion plans  and at the same time will have an important role in our efforts to curb the production costs of our Indonesian nickel operations.

  14. Starting up production Moatize is the first project concluded by Vale in the African continent • Moatize I Total capacity: 11 Mtpy, 8.5 Mtpy metallurgical coal and 2.5 Mtpy of thermal coal. Moatize I, the first phase of the Moatize coal project, in the province of Tete, Mozambique, started production in 3Q11.

  15. Moatize main branded product Chipanga prime HCC Main parameters CSN 9 CSR 69 Rank (Ro max) 1.32 Volatile matter 228 Ash (% ad) 10.5 Sulphur (% ad) 0.75 Phosphorus 0.085 Vitrinite 80.8 Max dilatation 118 Max fluidity 380 Mt

  16. The Board of Directors approved the expansion of Moatize, leveraging our rich coal resources in Mozambique, and… • Moatize II: mine Additional 11 Mtpy of nominal production capacity at Moatize, which will total 22 Mtpy. Includes duplication of the Coal Handling and Preparation Plant and expanding the infrastructure. Production is estimated to be composed of 70% HCC  and 30% thermal coal. Capex: US$ 2.07 billion. Start up: expected for the second half of 2014.

  17. … creating an integrated coal operation with the Nacala corridor • Nacala corridor: 912 km–long railway and maritime terminal Handling capacity: estimated at 18 Mtpy of coal. Capex: US$ 4.444 billion, US$ 3.435 billion for the railroad and US$ 1.009 billion for the maritime terminal. Start up: expected for the second half of 2014. ¹ Vale holds a 67% stake in Sociedade Desenvolvimento Corredor do Norte S.A. (SDCN), the company that controls each of the existing railways in Mozambique (CDN) and Malawi (CEAR)..

  18. Market fundamentals

  19. Global IP has recovered, driven by the US, Japan and China and supporting the demand for minerals and metals Global industrial production % 3mma, saar¹ ¹ Seasonally adjusted annualized rate Source: Vale and J.P. Morgan

  20. The recovery of DM has been running at below-trend rates, being a drag to global growth GDP growth1 % Average GDP growth 1997-2007: 2.3% 3Q09-2Q11: 1.9% Average GDP growth 1997-2007: 3.1% 3Q09-2Q11: 2.6% ¹ Annualized rate, sazonally adjusted. Source: Haver Analytics

  21. Giventhe fiscal adjustmentunderwayandbankfunding stress, theprobabilityof a recession in the Euro Zone hasincreased Euro Zone Recession according the Euro area business cycle dating committee Sources: Vale, Federal Reserve Bank of Chicago and NBER

  22. China’s growth is more moderate but steady Chinese GDP growth % 9.1% 8.0% ¹ Seasonally adjusted annualized rate. Source: Haver Analytics/CEIC

  23. With no signs of weakness in FAI and IP growth IP and FAI growth FAI IP Source: Haver Analytics/CEIC

  24. In a sharp contrast to 2008, the Chinese property market is not in a recession now Chinese property market % YoY Source: Haver Analytics/CEIC and DEGC/DIRI

  25. A collapse of the property market in China is unlikely • The social housing program is a key government priority, providing a cushion to private sector. • Social housing has the potential to support overall construction in the next 12-18 months. • Authorities may ease monetary/credit policies in face of an inflation fall. • In the case of a global downturn there is room to ease monetary and fiscal policy. • While infrastructure projects were the focus of 2008 stimulus package, social housing can be #1 priority in an eventual attempt to boost growth in 2012.

  26. Out of the 10 million units targeted for 2011, 98.6% were reported to start by September million units Construction started

  27. Housing construction still has a high-growth potential, given the estimated deficit million units Migrant families Urban families “Full” houses E Sources: Vale, NBS China and Gavekal.

  28. Iron ore prices dropped under the influence of factors that are likely to be reversed in the short-term Platts IODEX 62% Fe US$/dry metric ton 138.5 October 24, 2011 Source: Platts.

  29. Nickel market fundamentals remain strong. Contrasting with 2008, nickel prices and inventories are falling simultaneously Nickel prices US$/metric ton 2011 2008 Prices Inventories Inventories Prices Source: Bloomberg

  30. Copper prices are following a similar pattern Copper prices US$/metric ton 2011 2008 Prices Inventories Source: Bloomberg

  31. Vale: um líder global

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