Strong fundamentals and value creation Strong fundamentals and - - PowerPoint PPT Presentation

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Strong fundamentals and value creation Strong fundamentals and value creation

New York February 2008

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”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

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Agenda

• The strength of long-term market fundamentals
• A successful investment performance

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The strength of long-term market fundamentals

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The subprime crisis heightened financial asset price volatility

Equity and metals price volatility January 2007 = 100

100 200 300 400 500 600 700 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08

MSCI World MSCI Financials MSCI Metals & Mining LMEX

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Despite their sensitivity to cyclical fluctuations, mining equity prices have been resilient to recessionary expectations

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

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

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

Source: Reuters Ecowinx

LMEX index Monthly average

Global growth below 3%

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2,200 2,300 2,400 2,500 2,600 2,700 2,800 Jul-07 Sep-07 Nov-07 Jan-08

Source: LME

6,000 6,500 7,000 7,500 8,000 8,500 Jul-07 Sep-07 Nov-07 Jan-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

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

Despite signals of a sharp slowdown of the US economy, base metals prices have been resilient

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Prices of steelmaking raw materials are under massive pressure. Iron ore spot prices remained stable amidst decreasing freight prices

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

203.1 189.2 61.8

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Metallurgical coal prices

80 100 120 140 160 180 200 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 ...

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500 1,000 1,500 2,000 2,500 3,000 3,500 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 US$ per ton

…as well manganese alloy prices

FeMnMc prices

Source: CRU

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60 65 70 75 80 85 90 95 Jul-07 Sep-07 Nov-07 Jan-08

¹ FOB Newcastle Source: Coal Portal and Global Coal

1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800 1,900 Jul-07 Sep-07 Nov-07 Jan-08 20 25 30 35 40 45 50 55 Jul-07 Sep-07 Nov-07 Jan-08

Thermal coal¹ US$/metric ton

Prices of thermal coal, precious metals and minor metals are following the same trend, reflecting market tightness

Platinum US$/troy oz Cobalt US$/metric ton

Source: Nymex Source: Reuters EcoWin

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0% 1% 2% 3% 4% 5% 6% 7% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008E 2010E

Global GDP growth

Sources: IMF and Vale

We expect the global economy to remain on an above- average historical growth path driven by globalization, productivity growth and low real interest rates

CAGR 1970–2006: 3.7% 2003-2007E: 5.0% 2008E-2012E: 4.0%

4.9% 3.7% 4.5% 4.0% 4.0%

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Emerging market economies are in the forefront

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

Urbanization – Housing – Infrastructure – Consumer durables Industrialization

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• 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

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External demand has been a minor contributor to China`s economic growth

Chinese GDP growth composition

4.5% 4.3% 5.4% 6.2% 5.2% 4.3% 3.4% 3.0% 1.7% 1.0% 1.1% 0.5%

1980-89 1990-99 2000-06 2007¹

Consumption Investment Net exports

¹Vale estimates Sources: CEIC and Vale

9.7% 9.9% 9.6% 11.4%

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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 process. It is expected to stay in the fast growth track…

Chinese GDP growth

Sources: IMF and Vale

CAGR 1990–2006: 9.8% 2003-2007E: 10.7% 2008-2012E: 9.0%

11.4% 10.0% 9.5% 8.7% 8.5% 8.5%

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… and will 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

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

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

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A successful investment performance

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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

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

Consolidation Consolidation

• f iron ore
• f iron ore

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

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As a result of investment growth and operational excellence, our production grew at 11.6% per year

• ver the last five years. It is expected to maintain the

high growth path over the next five years

Vale aggregate production growth

50 100 150 200 250 300 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Equivalent iron ore production unit base index base 2003 = 100

Greenfield Brownfield Existing Operations CAGR 2003-2007: 11.6% CAGR 2008E-2012E: 10.9%

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¹ index encompassing the production of all products produced by Vale, base 2003 = 100.

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The growth process has been firmly anchored

• n a rigorous 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

5.4 7.5 11.1 43.3 31.2 46.8% 54.7% 64.4% 52.1% 54.3% 2003 2004 2005 2006³ LTM 3Q07³ Capital invested US$ billion ROIC %

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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

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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

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

Brownfield Greenfield

2008 2010

Goro

Developing an exciting pipeline of world-class assets

2009 2011 2012

Reference

US$ 1 billion Onça Puma Itabiritos Fazendão Northern Corridor 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 Southern Range NAR Moatize Litoranea Totten Maquiné-Baú Vermelho Eastern Range CSA CSV Setentrional

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

2003 2007 2008E 2012E CAGR CAGR 07-12 03-07 Iron ore 186.0 295.9 325.0 422.0 7.4% 12.3% Pellets¹ 13.0 17.6 20.0 33.0 13.4% 7.9% Coal

• 2.2

7.6 15.2 47.2%

• Nickel 2
• 247.9

280.0 507.0 15.4%

• Copper²
• 284.2

300.0 592.0 15.8%

• Alumina

2.3 4.3 5.3 8.2 13.8% 16.9%

million metric tons

Running at 450Mtpy

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

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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

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Main pellets projects

capex capacidade start up US$ million million metric tons Itabiritos 973 7.0 2H08 Usina VIII 636 7.5 2H10 Oman 546 9.0 1H10

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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 Refinery 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

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Vale: a global leader