Starting to deliverStarting to deliver the turnaroundthe turnaround2012/4Q12 performance2012/4Q12 performance
February 28, 2013
Disclaimer
“This presentation may include statements that present Vale's expectations aboutfuture events or results. All statements, when based upon expectations aboutthe future and not on historical facts, involve various risks and uncertainties. Valecannot guarantee that such statements will prove correct. These risks anduncertainties include factors related to the following: (a) the countries where weoperate, especially Brazil and Canada; (b) the global economy; (c) the capitalmarkets; (d) the mining and metals prices and their dependence on globalmarkets; (d) the mining and metals prices and their dependence on globalindustrial production, which is cyclical by nature; and (e) global competition in themarkets in which Vale operates. To obtain further information on factors that maylead to results different from those forecast by Vale, please consult the reportsVale files with the U.S. Securities and Exchange Commission (SEC), theBrazilian Comissão de Valores Mobiliários (CVM), the French Autorité desMarchés Financiers (AMF) and The Stock Exchange of Hong Kong Limited, andin particular the factors discussed under “Forward Looking Statements” and “Riskin particular the factors discussed under Forward-Looking Statements and RiskFactors” in Vale’s annual report on Form 20-F.”
2
At Vale, life comes first. Health and safety is a key prioritykey priority
Frequency of accidents remain on a declining trend.
We are continuing to pursue a much safer environment to our employees
1.5 8.0 LWCFR¹ TRIFR¹
We are continuing to pursue a much safer environment to our employees.
1.5
1.0 0 9
5.7
0.9 0.8
0.7 3.9 3.3
2.8
2008 2009 2010 2011 2012 2008 2009 2010 2011 2012
3
¹ LWCFR = Lost workday case frequency rate = all accidents suffered by employees and contractors that result in injuries per million hours of work
¹ TRIFR = Total recordable injury frequency rate = all personal accidents suffered by employees and contractors resulting in time off work per million hours of work
Our goal is to maximize shareholder return through the cycles We are actively pursuingthrough the cycles. We are actively pursuing many ways to achieve it
Removal of uncertainties.– Enormous progress in environmental permitting and gradual resolution of
tax issues.Strong discipline in capital allocation– Focus on world-class assets: towards a smaller and higher return projectFocus on world class assets: towards a smaller and higher return project
portfolio.– Divestiture of non-core assets.
A l t f l t b l k d f i ti ti d j t i– A lot of value to be unlocked from existing operations and projects ramping up.
– Deploying capital to our highest return business: iron ore projects coming on stream in 2013-2016 to add substantial value.
Building a lean organization, with a greater focus on a lower cost structure.Meeting the growth trilemma: capex and dividends aligned with expectedMeeting the growth trilemma: capex and dividends aligned with expected cash flow, with a minimal use of the balance sheet.
4
A robust financial performance even in face of a challenging environment, characterized by subpar global growth and declining metals prices
US$ million
2011 2012
Revenues 60,389 46,454
Operational margin¹ 48.5% 31.5%g
Underlying earnings¹ 23,234 11,236
Adjusted EBITDA¹ 33,759 19,135Adjusted EBITDA 33,759 19,135
Adjusted EBITDA margin¹ 57.2% 42.2%
Capital and R&D expenditures 17,994 17,729p p , ,
Total dividend 9,000 6,000
5
1 Excluding non-cash non-recurring items.
An excellent iron ore performance, increasing t th i llour exposure to the price rally
The highest level for a fourth quarter => 85.5 Mt¹.4Q performance was superior to 3Q for the first time since 2003.Operation of N5 South and below normal rainfall were
finstrumental to the performance.
85 5
Iron ore output¹ – Mt
50.758.1 62.2
69.980.1
63.3 63.4
80.3 82.9 85.5
6
4Q03 4Q04 4Q05 4Q06 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12
¹ Including the attributable share of the 50%-owned Samarco JV.
Iron ore and pellet sales reached an all-time hi h i 2012high in 2012
Iron ore and pellet sales¹ 2003-2012
Mt
276296 296 294 299 303
Mt
186
231255 247
186
7
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
¹ US GAAP basis
The shortening of time to market through the use of our global distribution network is improving the price g p g pperformance of our shipments, despite the 14.3% fall in the premium for 1% Fe in 4Q12
Vale realized prices x IODEX FOB Brazil
US$ t i t
Spread IODEX FOB Brazil x Vale FOB dry
US$ t i t
112
1208
US$ per metric ton US$ per metric ton
112
101
6
90
94100
90
2Q12 3Q12 4Q12
Vale realized price¹
IODEX FOB tb k B il²
-1
2Q12 3Q12 4Q12
8
IODEX FOB netback Brazil² 2Q12 3Q12 4Q12
¹ Vale realized prices adjusted for the average moisture content: 2Q12=7.8%, 3Q12=7.5%, 4Q12=7.6%. ² Platts @ 62% Fe IODEX minus the average quarterly Baltic Capesize Index (BCI) Tubarão-China.
The ramp up of projects - Moatize I, Oman I & II and Bayóvar - allowed for the achievement of all-time high output figures in 2012
MtMt2011 2012 ∆%
Coal 3.7 7.1 + 91.0
Pellets1 53.8 55.1 + 2.3
Phosphate rock 7.4 8.0 + 8.5
9
1 Including Samarco's attributable production.
New platforms of value creation are beginning t l dto ramp up as planned
Salobo: copper & gold.
Lubambe: copper.
VNC: nickel & cobalt.
10
Salobo - a world-class asset in the first quartile f th i d t t i d li iof the industry cost curve - is delivering copper
and gold
Salobo I, the first plant, throughputof 12Mtpa¹, is operating.of 12Mtpa , is operating.
Ongoing construction of Salobo II 12 Mt ¹ 68% h i l12 Mtpa¹ - 68% physical progress -start-up 1H14.
Total capacity - Salobo I&II -200,000 t of copper in concentratesplus about 320,000 ozpy of gold by-product.
11 ¹ Run-of-mine (ROM).
VNC is proving to be technically feasible
Dec 2012 - 812 t of Ni in NiO.
Jan 2013 - 1,380 t of Ni in NiO (87%) and NHC (13%) and 100 t of cobalt (IPCM)100 t of cobalt (IPCM).
Feb 2013 - second production line starting to operate.
Product quality has been very good and meets design expectations
Ni = nickel
design expectations
12
Ni nickelNiO = nickel oxideNHC = nickel hydroxide cakeIPCM = intermediate product of cobalt methodology
Existing base metals operations - nickel & copper - are showing a good performance The successful ramp up ofshowing a good performance. The successful ramp-up of projects – Salobo, Lubambe and VNC - is a major source of upside to current performance
Adjusted EBITDA¹US$ million
Adjusted EBITDA margin¹
613
33 9446
33.9
25.3
13
3Q12 4Q12 3Q12 4Q12
¹ Excluding pre-operating, idling expenses and R&D.
SG&A spending is being reigned in
SG&A¹US$ million
7271,994 1,914 -5%
-31%1,287
904
1,500
501
904
4Q11 4Q122008 2009 2010 2011 2012
14 1 Excludes depreciation and nickel, copper and iron ore adjustment for provisional prices.
Expenses with materials and outsourced i ibl f l t 40% f COGSservices, responsible for almost 40% of COGS,
are starting to be curbed
MaterialsUS$ million
Outsourced servicesUS$ million
1 091
1,163 1,285
1,236-14.4% -6.7%
1 014
1,091
1,096
1,153
1,014995
1Q12 2Q12 3Q12 4Q12 1Q12 2Q12 3Q12 4Q12
15
1Q12 2Q12 3Q12 4Q12 1Q12 2Q12 3Q12 4Q12
R&D is being focused on fewer projects with hi h l ti t ti l 12% l thhigher value creation potential: 12% less than 2011 and 36% less than budgeted for 2012
R&DUS$ million
12 0%1,742
1,533
-12.0%
1,063 1,0101,136
16
2008 2009 2010 2011 2012
Walking the talk: improving working capital management despite the impact of higher iron ore prices in 4Q12
Days receivables outstandingWorking capitalUS$ billi
62.3
8.545
US$ billion
56.27.825
53.252.7
7.213 7.312
17
1Q12 2Q12 3Q12 4Q121Q12 2Q12 3Q12 4Q12
The divestment program is creating value: improves capital allocation generates cash and simplifies thecapital allocation, generates cash and simplifies the portfolio, focusing on what is really important
April 2012: Kaolin - US$ 30 million.
May 2012: Thermal coal in Colombia - US$ 407 million.
July 2012: Manganese ferroalloys in Europe - US$ 160 million.y g y p $
August 2012: 10 large ore carriers - US$ 600 million.
December 2012:
– Araucaria nitrogen - US$ 234 million.g
– Oil & gas exploration assets - US$ 40 million.
T t l di tit US$ 1 471 billi
18
Total divestiture: US$ 1.471 billion
The sale of part of the payable gold by-product stream of Salobo and Sudbury adds US$ 1 9 billion to our cashof Salobo and Sudbury adds US$ 1.9 billion to our cash flow in the very short term and unlocks substantial value
25% of the Salobo stream for mine life and 70% of Sudbury for 20 years20 years.
US$ 1.9 billion upfront payment plus SLW warrants valued at US$ 100 million plus US$ 400 per oz upon gold delivery.US$ 100 million plus US$ 400 per oz upon gold delivery.
Unlocks substantial value still hidden in our base metals operations.p
– Salobo payable gold by-product valued at US$ 5.32 billion plus NPV of US$ 400 payment flows for each oz of gold delivered.p y g
– Estimated capex of Salobo I&II of US$ 4.2 billion with nominal capacity of 200,000 metric tons of copper and the gold by-product.
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2012 adjusted EBITDA was the third highest in our history notwithstanding the large negativeour history, notwithstanding the large negative contribution of falling prices¹
33,759
Adjusted EBITDA¹US$ million
26,116
15,774
19,018 19,135
6 540
9,150
,
9,165
2,1303,722
6,540
20
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
¹ Prices changes contributed to reduce 2012 adjusted EBITDA by US$ 13.8 billion.
The recovery of iron ore prices and volumes expansion were the main determinants of theexpansion were the main determinants of the adjusted EBITDA rise in 4Q12
Adjusted EBITDA¹US$ million
3 738
719238 205 49 (555)
4,394Dividends²
Δ FX
Costs & Sales
volumes3,738Price
changes
expenses
4Q12¹ After excluding non cash non recurring items
3Q12 After excluding non-cash non-recurring items.
² Dividends received from affiliated non-consolidated companies.
21
Iron ore prices accounted for 96% of the price contribution to 4Q12 adjusted EBITDAcontribution to 4Q12 adjusted EBITDA
PricesUS$ million
693
13154
38 10 10 (11) (62)(144)
719NickelOther
Copper Gold FertilizersMet coal693 719
Logistics & energy
coal
Pellets
22
TotalIron ore
Pre-operating, idling and start-up expenses and maritime freight costs contributed with 83% ofmaritime freight costs contributed with 83% of the increase in cost and expenses in 4Q12
Cost & expenses¹US$ million
(221)
(100)(28) (25)
(18) 79
(555) Prov.
SG&AOther
operational expenses Other
(221)R&D
pricing adjustment
expensesCOGS
(242)Pre-operating,
idling andidling and start-up
23
Freight² Cost & expenses
¹ Excludes the effects of volume and FX changes and depreciation.² US$ 90 million refers to previous quarters.
We used part of our cash holdings to close the gap between uses and sources of funds The cash flowbetween uses and sources of funds. The cash flow performance tends to improve in the very short-term and the balance sheet remains strong
Capital allocation 4Q12US$ billion
2 6
1.30.7 8.9 5.0 8.9
Divestitures
4 3
2.6Gross debt
4.33.0
Use of cash
holdingsProjects and sustaining
capex
0.60.3
O i l
capex
Oth
Dividend payment
UTax
24
Operationalcash flow
Otherp y
¹ Tax payments related to agreements: CFEM (US$ 150 million), TFRM (US$ 289 million) and ICMS (US$ 130 million).
UsesSources agreements¹
Cash position tends to be strengthened over the next few monthsnext few months
US$ 1.9 billion upfront payment of the gold by-product
streaming transaction.
Adjustments for provisional pricing of iron ore shipments inAdjustments for provisional pricing of iron ore shipments in
2012 will add more than US$ 700 million to our cash flow.
Iron ore prices (Platts @ 62% Fe) averaged US$ 152.74 ytd
against US$ 122 30 in 4Q12 (+24 9%)against US$ 122.30 in 4Q12 (+24.9%).
US$ 6.1 billion of cash at year end plus US$ 3.0 billion of
revolving credit lines.25
Capital structure and a low-risk debt portfolio consistent with our high credit ratings: (a) low leverage for the stagewith our high credit ratings: (a) low leverage for the stage of the cycle (b) low cost of debt (c) long average maturity
2.5 Total debt/LTM EBITDA (x)¹
Debt cost and maturity Total debt
%Years2.4
1.8
1.31.0
0.8 0 7 0 6 0 7 0.8 0.91.3
1.6
Total debt/LTM EBITDA (x)
9.110.1
5 5 5 5
6
8
10
0.7 0.6 0.7
22.9
23.6
24.0 25.3
25.3
23.7
24.5
23.0
23.1 24
.9
25.5 29
.1 30.5
5.5
5
5.5
6
8
11.0
11.1
6.2 9.
7
9.4 11
.8 13.2
7.6
5 4.9 1
8.6
6.1
4.6
4.52
4
3.5 4 4.
4Q09 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12
40 1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
Total debt - US$ billion¹ Liquid assets - US$ billion ¹ ²Average debt maturity Average cost of debt
¹ at end of quarter.² cash and cash equivalent.26
Four major projects - involving total capital expenditures of US$ 13 0 billion¹ are starting upexpenditures of US$ 13.0 billion¹ - are starting up in 2013 to boost value over the next few years
Iron ore & logistics
Carajás Additional 40 Mtpy.
CLN 150 Mtpy.py
Conceição Itabiritos.
Nickel & copper & cobaltNickel & copper & cobalt
Long Harbour.
27 ¹ Total capex estimated for the four projects to be concluded this year.
Carajás Additional 40 Mtpy: expanding capacity ith hi h lit d l twith high quality and low costs
Finalizing plant assembly.
85% of physical progress for mine and plant.
Total capex: US$ 3.475 billion.
Operation license expected for 2H13.
28
CLN 150 Mtpy: the efficient logistics support to Additi l 40 MtAdditional 40 Mtpy
PDM maritime terminal
First ship berthed at Pier IV SouthFirst ship berthed at Pier IV South berth. Car dumpers, reclaimers and stacker tested.
Rail access to car dumpers concluded.
Operation licenses for port facilities expected for 1H13.
Carajás railwayCarajás railway
Double tracking of 125 km underway.
T t l US$ 4 114 billiTotal capex: US$ 4.114 billion.
29
Conceição Itabiritos: counteracting the effects f i ith t h lof resources ageing with technology
Construction of new plant pallowing for mine life extension.
Adds 12 Mtpy of capacityAdds 12 Mtpy of capacity @67.7% Fe content.
95% of physical progress, final phase of electromechanical
blassembly.
Total capex: US$1.174 billion.p $
30
Long Harbour: using new technology to i ffi i d t d t i bincrease efficiency and to reduce costs in base metals
Fully integrated hydrometallurgical flowsheetflowsheet.
50,000 tpy of finished nickel, 4,500 tpy of copper cathodes and 2,500 tpy of cobalt.copper cathodes and 2,500 tpy of cobalt.
Lowers costs, increases metal recovery and eliminates SO2 and particular emission.
Infrastructure and civil works b t ti ll l tsubstantially complete.
Moving towards commissioning, 84% of physical progressphysical progress.
Total capex: US$4.250 billion.31
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