Taking steps to maximize value creation Murilo Ferreira, CEO - - PowerPoint PPT Presentation

Taking steps to maximize value creation

Murilo Ferreira, CEO

Hong Kong March 2013

Carajás, Brazil

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

• perate, 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.”

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Delivering on the commitments A better outlook

Agenda

Voisey's Bay, Canadá

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Delivering on the commitments

4 PDM, Brazil

Our goal is to maximize shareholder return through 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 project portfolio. – Divestiture of non-core assets. – 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

• n 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 expected

cash flow, with a minimal use of the balance sheet.

5

New platforms of value creation are beginning to ramp up as planned

• Salobo: copper & gold.
• Lubambe: copper.
• VNC: nickel & cobalt.

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Salobo - a world-class asset in the first quartile

• f the industry cost curve - is delivering copper

and gold

• Salobo I, the first plant, throughput
• f 12Mtpa¹, is operating.
• Ongoing construction of Salobo II

12 Mtpa¹ - 68% physical progress - start-up 1H14.

• Total capacity - Salobo I&II -

200,000 t of copper in concentrates plus about 320,000 ozpy of gold by- product.

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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).

• Feb 2013 - second production line starting to operate.

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Ni = nickel NiO = nickel oxide NHC = nickel hydroxide cake IPCM = intermediate product of cobalt methodology

Product quality has been very good and meets design expectations

Existing base metals operations - nickel & copper - are showing a good performance. The successful ramp-up of projects – Salobo, Lubambe and VNC - is a major source

• f upside to current performance

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446 613 3Q12 4Q12 25.3 33.9 3Q12 4Q12

¹ Excluding pre-operating, idling expenses and R&D.

Adjusted EBITDA¹

US$ million

Adjusted EBITDA margin¹

SG&A spending is being reigned in

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727 501 4Q11 4Q12

• 31%

1 Excludes depreciation and nickel, copper and iron ore adjustment for provisional prices.

1,287 904 1,500 1,994 1,914 2008 2009 2010 2011 2012

• 5%

SG&A¹

US$ million

Expenses with materials and outsourced services, responsible for almost 40% of COGS, are starting to be curbed

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1,014 1,091 1,163 995 1Q12 2Q12 3Q12 4Q12 1,096 1,285 1,236 1,153 1Q12 2Q12 3Q12 4Q12

• 14.4%
• 6.7%

Materials

US$ million

Outsourced services

US$ million

R&D expenditures are being focused on fewer projects with higher value creation potential: 12% less than 2011 and 36% less than budgeted for 2012

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1,063 1,010 1,136 1,742 1,533 2008 2009 2010 2011 2012

R&D

US$ million

• 12.0%

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Walking the talk: improving working capital management despite the impact of higher iron

• re prices in 4Q12

Days receivables outstanding

62.3 53.2 56.2 52.7 1Q12 2Q12 3Q12 4Q12 8.545 7.825 7.213 7.312 1Q12 2Q12 3Q12 4Q12

Working capital

US$ billion

The divestment program is creating value: improves capital 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.
• August 2012: 10 large ore carriers - US$ 600 million.
• December 2012:

– Araucaria nitrogen - US$ 234 million. – Oil & gas exploration assets - US$ 40 million.

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Total divestiture: US$ 1.471 billion

Unlocking value from existing assets: sale of gold flows, extracted as a by-product, at a very attractive premium

• 25% of the Salobo stream for mine life and 70% of Sudbury for

20 years.

• US$ 1.9 billion upfront payment plus SLW warrants valued at

US$ 100 million plus US$ 400 per oz upon gold delivery.

• Unlocks substantial value still hidden in our base metals
• perations.

– Salobo payable gold by-product valued at US$ 5.32 billion plus NPV of US$ 400 payment flows for each oz of gold delivered. – 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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Four major projects - involving total capital expenditures 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.
• Conceição Itabiritos.

Nickel & copper & cobalt

• Long Harbour.

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¹ Total capex estimated for the four projects to be concluded this year.

Carajás Additional 40 Mtpy: expanding capacity with 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.

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CLN 150 Mtpy: the efficient logistics support to Additional 40 Mtpy

PDM maritime terminal

• First 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 railway

• Double tracking of 125 km underway.

Total capex: US$ 4.114 billion.

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Conceição Itabiritos: counteracting the effects

• f resources ageing with technology
• Construction of new plant

allowing for mine life extension.

• Adds 12 Mtpy of capacity

@67.7% Fe content.

• 95% of physical progress, final

phase of electromechanical assembly.

• Total capex: US$1.174 billion.

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Long Harbour: using new technology to increase efficiency and to reduce costs in base metals

• Fully integrated hydrometallurgical

flowsheet.

• 50,000 tpy of finished nickel, 4,500 tpy of

copper cathodes and 2,500 tpy of cobalt.

• Lowers costs, increases metal recovery

and eliminates SO2 and particular emission.

• Infrastructure and civil works

substantially complete.

• Moving towards commissioning, 84% of

physical progress.

• Total capex: US$4.250 billion.

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Carajás S11D: a transformational project, the largest in Vale’s history and in the iron ore industry

• Nominal capacity: 90 Mtpy.
• Start-up: 2H16.
• Physical progress: 37%.
• Total capex: US$ 8.04 billion.
• Capex 2013: US$ 658 million.
• Stripping ratio: 0.27.
• Mass recovery: 100%.
• Truckless mining, dry ore processing, no

need for tailing dams and 50% cut in the emission of greenhouse gases.

• Low cost, 4.2 billion metric tons of proven &

probable reserves @ 66.7% Fe.

Processing plants 3D Design Modules‟ equipment stockyard

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Carajás S11D

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CLN S11D1 – logistics to support S11D

• Enlargement of the existing logistics infrastructure.
• Start-ups: from 1H15 to 2H18.
• Estimated capex of US$ 11.4 billion.
• Five sub-projects: rail spur with 101 km, new railway

sections with dual tracks, rail terminal and onshore and offshore investments.

• Increase Northern System logistics capacity to 230

Mtpy.

1 This project is subject to the Board of Directors approval

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PDM Pier IV

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A better outlook

25 Clydach, UK

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After a downtrend in 2011/2012, global IP is resuming growth with a positive impact on the demand for minerals and metals

¹ Seasonally adjusted annualized rates Sources: Vale and J.P. Morgan

Global industrial output %mm, sa¹

• 1

1 2

Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12

Global manufacturing PMI Index, sa¹

48 49 50 51 52 53 54 55 56

Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12

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There is a trend reversal in steel production as well

1,350 1,400 1,450 1,500 1,550 1,600 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13

3mma as²

Global steel output Mt, saar¹

¹ Seasonally adjusted annualized rates ² 3-month moving average. Sources: Vale and World Steel Association

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Iron ore stocks remain low. China’s economic recovery is underway and investment growth edged up, propelled by infrastructure and property, strengthening the demand for iron ore

Source: Haver Analytics/CEIC

Fixed asset investment % y/y

Manufacturing Construction Infrastructure

• 5

5 10 15 20 25 30 35 Feb-12 May-12 Aug-12 Nov-12 Feb-13

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• 4.0
• 2.0

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Consumption Investment Net exports

Chinese growth driver is already shifting from investment to consumption¹. However, demand for investment and infrastructure will remain strong through the decade²

¹ The contribution of consumption expenditures to GDP growth rose to 54.3% in 2011-12 from 44.7% in 2000-10. ² China still has a capital per worker ratio about 9% of the US level, as estimated by the World Bank. Sources: NBS and Vale.

China: contributions to GDP growth %

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10 20 30 40 50 60 70 80 90 100 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Brazil Korea China India

Urbanization rate

%

Source: UN Department of Economic and Social Affairs, “World Urbanization Prospects: the 2009 revision”.

Urbanization of China is projected to continue for another 15-20 years. Urban population is likely to expand by 300 million to 1 billion people

10 20 30 40 50 60 70 80 90 100 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 China World

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Source: Demographia World Urban Areas, July 2012

To accommodate massive urbanization, large Chinese cities tend to resemble densely populated Asian cities full

• f high-rise buildings

Cities by population and population density

5 10 15 20 25 30 5 10 15 20 25 30 35 40 Density, „000 people per sq km Millions of people

Population Population density

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0% 20% 40% 60% 80% 100% 2000 2010 2020E

China is estimated to have a rising share of multistory apartment blocks with much higher steel consumption per square meter

Source: McKinsey Global Institute.

> 35 floors 16-35 floors 7-15 floors < 6 floors

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In addition to the large impact on housing investment, urbanization will continue to produce

• ther important effects on the demand for iron ore
• Investment in non-residential floor space.
• Investment in urban infrastructure.
• Increase of passenger cars.

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Source: GaveKal

Upgrading of existing poor quality housing and the alleviation of housing shortage are other important sources of growth

million Urban households Housing stock, units Forecast Housing shortage

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Chinese car production million units

¹ Steel represents around 70% of light vehicle weight and only 2% of its cost. Sources: CEIC and Haver Analytics

China became the world’s largest car manufacturer, the most metal intensive consumer good¹, but the penetration is still low

Passenger cars per 1,000 people 2010

Source: World Bank

China 36 132 158 167 205 248 325 451 487 World Brazil Mexico Russia Korea Japan United States European Union

4 8 12 16 20 2000 2002 2004 2006 2008 2010 2012