A vintage time Merrill Lynch Pan-LatAm Conference March 2008 1 - - PowerPoint PPT Presentation

1

Merrill Lynch Pan-LatAm Conference March 2008

A vintage time

2

“This presentation may contain statements that express management’s expectations about future events or results rather than historical facts. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected in forward-looking statements, and Vale cannot give assurance that such statements will prove

• correct. These risks and uncertainties include factors: relating to the Brazilian

and Canadian economies and securities markets, which exhibit volatility and can be adversely affected by developments in other countries; relating to the iron ore and nickel businesses and their dependence on the global steel industry, which is cyclical in nature; and relating to the highly competitive industries in which Vale operates. For additional information on factors that could cause Vale’s actual results to differ from expectations reflected in forward-looking statements, please see Vale’s reports filed with the Brazilian Comissão de Valores Mobiliários and the U.S. Securities and Exchange Commission.”

Disclaimer

3

Agenda A remarkable growth history A successful investment performance Confidence in the future

4

A remarkable growth history

5

2007: another vintage year

Outstanding operational performance: nine production records Outstanding financial performance: record revenue, operational profit, net earnings, cash generation, dividend per share and investment

6

1.548 2.573 4.841 11.825 7.260 30.7% 38.7% 42.5% 44.2% 41.2% 2003 2004 2005 2006² 2007 Net earnings (US$ billion) adjusted EBIT margin (%)¹

Sustained high performance over time

1 excluding extraordinary inventory adjustment

² pro forma figures

CAGR: 66.2%

7

High operational margin across-the-board

47.9% 47.1% 31.2% 24.0% Ferrous minerals Non ferrous minerals¹ Aluminum Logistics

Operational margin 2007

1 excluding extraordinary inventory adjustment

8

Iron ore and pellets 44.7% Nickel 30.3% Copper 6.0% Manganese and ferroalloys 1.9% Aluminum 8.2% Logistics 4.6% Others 4.3%

Sales diversification by products, origin and destination

Revenues - US$ 33.1 billion 2007

By product

Brazil 16.0% Americas ex-Brazil 17.5% China 17.7% Europe 22.1% Row 4.1% Asia ex- China 22.6%

By destination

Brazil 61.5% North America 27.6% Asia 8.5% Australia 0.5% Europe 1.9%

By origin

9

Powerful cash flow generation originated from a well-balanced portfolio of bulks and exchange- traded metals

Adjusted EBITDA US$ billion

CAGR: 67.7%

1 pro forma figures, excluding extraordinary inventory adjustment 2 excluding extraordinary inventory adjustment

2.130 3.722 6.540 12.397 16.836 2003 2004 2005 2006¹ 2007²

Ferrous minerals 47.3% Logistics 3.7% Aluminum 5.8% Non ferrous minerals 43.2%

Cash generation composition 20072

10

16,836 (870) (351) (680) (364) (210) (204) (122) 1,490 5,750 12,397

Prices and sales volumes were instrumental to EBITDA growth. The USD depreciation and cost inflation continued to pressure our cash flow

2006 2007

SG&A Price Volume R&D

US$ million

Vale adjusted EBITDA

Dividends received ∆ FX Cost inflation Non cash Volume costs1

1 cost rise derived from production increase

11

Record production of the world’s best iron ore: 295.9 Mt. Record shipments: 296.4 Mt. Leading supplier to China Sales with global reach – all five continents. Global price settler for the seventh consecutive year.

Iron ore: unrivaled global scale and scope

65% rise for Southern and Southeastern Systems ores. US$ 0.0619 per Fe unit dmtu premium for Carajás ores. 2008 fines prices

12

Vale is the uncontested leader of the global iron ore market…

Vale Rio Tinto BHP Billiton Anglo American 2 7 2 6

Iron ore production million metric tons

+9% +4% +4% 300 Mt 150 Mt +12%

13

Norilsk Vale BHP Xstrata Anglo 2 7 2 6

… and the second largest nickel producer

Nickel production ‘000 metric tons

21.0% 300 kt 150 kt +5.6%

• 1.0%
• 0.1%
• 6.2%

¹

¹ Norilsk has acquired Lion Ore and OMX in 2007. Excluding acquisitions, its nickel production would decline by 3.9%

14

Capability to generate value through acquisition growth: successful integration of Vale Inco

Introducing discipline in capital allocation and our standards of relationship with communities and environmental protection Exploitation of synergies: Sudbury Basin, global procurement and mineral exploration Record nickel production: 247,900 metric tons Totten: the first project to be developed in the Sudbury Basin over the last 30 years Creighton Deep: reserves increase at Sudbury

15

Successful integration: the development of Goro

Compliant with EU safety and environment standards Construction of Prony Bay port and power plant concluded All relevant equipment already installed

December 2006 December 2007

16

Successful integration: the development of Goro

Operation license expected for June 2008 First autoclave expected to start-up in October Production to start- up by year end Opportunity for a low cost brownfield project

17

A successful investment performance

18

A strong track record of project delivery, providing new value-creation vehicles

1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07

Funil Alunorte 3 Carajás 70 Mtpy Sossego Candonga Aimorés Alunorte 4&5 São Luís Trombetas Capão Xavier Pier III PDM Mo I Rana Fábrica Nova Taquari- Vassouras Capim Branco I Brucutu Carajás 85 Mtpy Carajás 100 Mtpy Capim Branco II Paragominas I

19

A proven track record of successful acquisitions - US$ 25 billion over the last years

Consolidation Consolidation

• f
• f iron

iron ore

• re

leadership leadership Becoming Becoming a a global global leader leader in in nickel nickel Growth Growth plataform plataform in in coal coal

20

Dealing with the growth trilemma: financing growth and distributing dividends…

1.988 2.092 4.998 11.004 20.628 2003 2004 2005 2006 2007 0.15 0.17 0.29 0.39 0.27 2003 2004 2005 2006 2007

Financing high growth capex1 US$ billion Returning capital to shareholders Dividend per share US$ per share CAGR 26.8%

1 Capex figures includes acquisitions and are based on cash disbursements

21

… while maintaining a sound balance sheet and a low-risk debt portfolio

4.2 4.2 3.9 5.0 6.1 5.9 5.9 22.6 23.5 19.1 18.3 19.0 1.1 0.8 0.7 0.8 0.8 0.8 0.7 1.1 1.2 1.9 1.3 2.0

1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 Total debt - US$ billion¹ Total debt/LTM EBITDA (x)¹

¹ at end of quarter, excluding inventory adjustment.

5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 5.5 6.5 7.5 8.5 9.5 10.5 11.5 Average cost of debt Average debt maturity

Debt cost and maturity Debt and leverage

% Years

10.7 6.1 7.9 6.7

4Q07 4Q07

22

5.4 7.5 11.1 48.0 31.2 46.8% 54.7% 64.4% 39.4% 54.3% 2003 2004 2005 2006³ 2007³ Capital invested US$ billion ROIC %

Our investment program is anchored on a good track record of discipline on capital allocation

¹ PP&E + working capital + R&D

2 before income taxes 3 excludes effect of extraordinary inventory adjustments

Return on capital invested

1 2

23

24.5% 25.8% 50.6% 53.3%

54.6%

23.2% 23.2% 20.8% 20.7% 20.1% Boeing Toyota Endesa BHP Billiton Anglo American Genentech British American Tobacco Apple América Móvil Vale

The large-cap Top Ten Total shareholder return2 (TSR) 2002-2006

1 Boston Consulting Group “The 2007 Value Creators report”. Large cap = companies with market cap above US$ 50 billion 2 TSR average between 2002 and 2006

# 1 in the globe in shareholder value creation among large-caps1

Vale

24

73.7%

65.4% 46.3% 43.4% 36.3% Anglo American Rio Tinto BHP Billiton Xstrata Vale

Source: Bloomberg

The best performance among large mining companies

Total shareholder return1 (TSR) 2003-2007

¹TSR average between 2003 and 2007

25

Organic growth continues: the largest capex in the mining industry in 2007

Ferrous minerals 22.9% Coal 2.2% Power generation 2.2% Steel 3.7% Others 3.9% Logistics 12.8% Aluminum 11.3% Non ferrous minerals 41.0%

2007 - US$ 7.6 billion

Ferrous minerals 29.6% Coal 3.5% Power generation 4.3% Steel 0.7% Others 5.1% Logistics 17.0% Aluminum 6.9% Non ferrous minerals 32.9%

Total capex by business area 2008E - US$ 11.0 billion

26

Iron ore & pellets Nickel Coal Copper Bauxite & alumina Phosphates Logistics Power generation Steel

Brownfield Greenfield

2008 2010

Goro

2009 2011 2012

Reference

US$ 1 billion Onça Puma Itabiritos Fazendão Alunorte 6&7 Paragominas II Papomono Carajás 130 Mtpy Southern Corridor Carborough Downs Equatorial Barcarena Salobo I Tubarão VIII Oman Estreito Bayovar Karebbe Voisey’s Bay Paragominas III Serra Sul NAR Moatize Litoranea Totten Maquiné-Baú Vermelho Eastern Range CSA CSV Setentrional UHC

Shaping the future: investing US$ 59 billion

• ver the next five years

27

Execution of the organic growth pipeline will give rise to a significant production expansion

2007 2008E ∆% 2012E CAGR 08-12 Iron ore 296 325 9.8% 422 7.4% Pellets¹ 18 20 13.6% 33 13.4% Nickel2 248 280 12.9% 507 15.4% Copper² 284 300 5.6% 592 15.8% Alumina 4.3 5.3 23.3% 8.2 13.8% Coal 2.2 5.6 154.5% 15 46.8%

million metric tons

¹ does not include production of JVs (Samarco, Nibrasco, Hispanobras, Kobrasco, Itabrasco). Samarco 3rd pellet plant (7.6 Mtpy) is coming on stream in 1H08. ² 1,000 metric tons

3 Running at 450 Mtpy

3

28

Main iron ore projects

capex capacity start up US$ million million metric tons Fazendão 129 14 1H08 Carajás 130 2,478 30 2H09 Carajás Serra Sul 10,094 90 1H12 Maquiné-Baú 2,207 24 1H11

¹ Subject to approval by the Board of Directors ¹ ¹

29

Main pellets projects

capex capacity start up US$ million million metric tons Itabiritos 973 7.0 2H08 Samarco 1,200 7.6 1H08 Tubarão VIII 636 7.5 2H10 Oman 546 9.0 1H10

¹ 50% owned by Vale. The total capex of the project is US$ 1.2 billion and it will be financed 100% by Samarco, with no disbursement from Vale

2 Subject to approval by the Board of Directors

¹

2

30

Main nickel projects

capex capacity start up US$ million ‘000 metric tons Goro 3,212 60.0¹ 4Q08 Onça Puma 1,395 58.0² 1Q09 Vermelho 1,908 46.0 1H12 Totten 362 8.2³ 1H11 Voisey’s Bay Refinery4 2,177 50.0 2H11

¹ 4,600 tons of cobalt ² 2,800 tons of cobalt ³ 11,200 tons of copper and 82,000 oz of precious metals

4 Subject to appoval by the Board of Directors

31

Main aluminum projects

capex capacity start up US$ million ‘000 metric tons Alunorte 6&7 846 6.3 3Q08 NAR 1,795 7.4 2Q11 Paragominas II 196 4.5 2Q08 Paragominas III 416 4.9 1H11

¹ Subject to approval by the Board of Directors

2 The construction of stages 6 and 7 will raise the refinery’s production capacity to 6.26 million tons of alumina per year

¹ ¹ 2

32

Confidence in the future

33

Equity prices are forward-looking. Mining equity prices have been resilient to financial turmoil and our ADR (RIO) price decoupled

Equity prices July 1, 2007 = 100

80 100 120 140 160 180 Jul-07 Sep-07 Nov-07 Jan-08

RIO MSCI World MSCI Metals & Mining

Sources: Bloomberg and Vale

Vale

34

Metal prices use to fall in anticipation of a global growth deceleration

Sources: Reuters Ecowin and Vale

LMEX index

Global growth below 3%

800 1,300 1,800 2,300 2,800 3,300 3,800 4,300

1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 2 1 2 2 2 3 2 4 2 5 2 6 2 7 2 8

35

2,200 2,400 2,600 2,800 3,000 3,200 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08

Source: LME

6,000 6,500 7,000 7,500 8,000 8,500 9,000 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 23,000 25,000 27,000 29,000 31,000 33,000 35,000 37,000 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08

Aluminum price US$/metric ton Copper price US$/metric ton Nickel price US$/metric ton

Base metals prices have been resilient to signals of a slowdown in the US economy

36

Even after the benchmark price rise, iron ore spot prices continued to increase

Spot freight prices Brazil-China

US$/metric ton

Spot iron ore prices

US$/metric ton

Sources: Mysteel, Clarksons

50 100 150 200 250 Jan-07 Mar-07 Jun-07 Sep-07 Dec-07 Chinese iron ore spot Indian iron ore C&F 20 40 60 80 100 120 Jan-07 Mar-07 Jun-07 Sep-07 Dec-07 Feb-0

215 205 69.6

37

Metallurgical coal prices

50 100 150 200 250 300 350 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08

US$/metric ton, fob Australia Australian contract HCC fob Australian Spot HCC fob

Source: CRU

Strong demand growth and supply constraints produced soaring met coal prices

330 98

38

Emerging market economies are in the forefront

• f structural change with important implications
• n the demand for metals

Urbanization – Housing – Infrastructure – Consumer durables Industrialization

39

China to remain as the main driver of global materials demand

2000 2007 2011E Iron ore¹ 15.4 49.0 54.0 Nickel² 4.9 24.2 31.0 Aluminum² 14.0 33.0 41.0 Copper² 12.7 26.3 30.0 Chinese share in global consumption %

¹ share of Chinese imports in seaborne trade ² ending November 2007 Sources: WBMS and Vale

40

• 6%
• 4%
• 2%

0% 2% 4% 6% 8% 10% 12% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

China Hong Kong Singapore Taiwan USA

China is much less sensitive to US cyclical gyrations than small export-oriented Asian economies…

GDP growth¹

¹ Shaded area represents a recession period as defined by the NBER Sources: FMI, NBER and Vale

41

… as its economic growth has been driven by domestic demand

Chinese GDP growth composition

¹Vale estimates Sources: CEIC and Vale

0.8% 9.0% 9.8% Net exports Domestic demand GDP growth

1.0% 8.6% 9.6% 1.7% 9.7% 11.4%

1980-99 2000-06 2007¹

42

0% 3% 6% 9% 12% 15% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008E 2010E 2012E

China is still in the middle of a long-term economic

• development. It is expected to stay in the fast growth

track and well-placed to deal with a global slowdown Chinese GDP growth

Sources: IMF and Vale

CAGR 1990–2006: 9.8% 2003-2007: 10.7% 2008-2012E: 9.2%

11.4% 10.4% 9.5% 8.8% 8.7% 8.6%

43

0% 1% 2% 3% 4% 5% 6% 1990 1993 1996 1999 2002 2005 2008E 2011E

Global GDP growth

Sources: IMF and Vale

We expect the global economy to remain on an above- average historical growth path driven by emerging market economies fast growth

CAGR 1970–2006: 3.6% 2003-2007E: 4.5% 2008E-2012E: 4.0%

4.7% 3.6% 4.2% 4.0% 4.0% 4.0%

44

On the supply side, several challenges constrain an adequate mining supply response to price incentives

Lack of large scale world-class projects “Easy discoveries” are gone Natural resources nationalism Environmental permitting Higher capex costs and shortages Skilled labor Technological challenges

45

Vale: a global leader