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Discussion withsell-side analystsRi d J i J l 11th 2014Rio de Janeiro, July 11th 2014Luciano Siani, Vale CFO

1

OBJECTIVE OF THE DISCUSSION

The objective of this discussion is to clarify topics

that have created confusion in previous releasesthat have created confusion in previous releases

and address outstanding questions from sell-side

analysts

2

DOCUMENT CONTENT

Iron ore prices and margins

Capex

Cash Flow

3

DOCUMENT CONTENT


Capex

Cash Flow

4

TOPICS COVERED – IRON ORE PRICES AND MARGINS

• The transition of the

Pricing systems Price realization EBITDA margins

• The evolution of • Vale's sales mix -benchmark to alternative pricing systems

Vale's price realization vs. the IODEX

goals and implications

• Sales products• Vale's provisional

pricing mechanism and its impact on

• Overview of Vale's iron ore price realization

• Sales products impacting Vale's EBITDA per ton

pprices

• Evolution of Vale's pricing mix

• The main drivers impacting Vale's price realization

• Projections of Vale’s future margins

pricing mix price realization

5











pprices



• Projections of Vale’s future margins


6

HISTORIC EVOLUTION OF PRICING SYSTEMS

Mining companies abandoned the benchmark pricing system, prevalent during periods of low price volatility, and gradually adopted alternative pricing mechanisms better suitable to customer needs

240

US$/t

MB 63% Fe FOB Brazil¹Vale SF FOB Brazil to Asia²

200 Sharp spot price decreases reduced the importance of the lagged-based pricing system

Sharp spot price increases lead to the collapse of benchmark pricing system

120

160

80

120

40

0Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14

¹ Market index based on MB 63.5% CFR China² Vale prices based on standard Sinter Feed Fines with Fe(%) adjusted to 63.5% for comparison with index

Benchmark Lagged New Pricing Mechanisms

7

CURRENTLY PREVAILING PRICING SYSTEMS

With the fall of the benchmark system, alternative pricing systems were developed to better adapt to customer needs, particularly the needs of Chinese steel mills

Trade-offsDescription

Lagged

• Sales based on past prices

• Prices calculated based on the average price of the past three-months ending one month before the current quarter, i.e., based on three month

i d t ti 4 th b f th l t

• Provides price stability and predictability

• Creates disconnection with the short-term prices, specially in

l til i i i t

Customers invoiced based on provisional prices

period starting 4 months before the relevant quarter

volatile pricing environments

Reflects market prices on

Provisional

• Customers invoiced based on provisional prices

• Accounting provision in the end of the quarter based on “best estimate” of prices on delivery

• Final prices settled and adjustments made in the b t t d li

• Reflects market prices on delivery, i.e., closer to iron ore usage

• Requires end of quarter pricing adjustments between initial

• Sales completed and prices settled in the current quarter

subsequent quarter, upon delivery adjustments between initial invoice and delivery

• Reflects average market prices of the quarter of deliveryquarter

• Prices based on methodologies such as:

– Monthly averages

– Daily prices

Current

the quarter of delivery

• Maintains price volatility

a y p ces

– Provisional prices liquidated within the quarter

8

PRICE AT DELIVERY CONCEPT

Volumes subject to provisional pricing, as reported on Vale's results release, are the ones whose delivery and thus final price settlement occur after the end of the current quarter

Q1 Q20 15 30 45 60 75 90 105 120 135 150 165 180

Conceptual

0 15 30 45 60 75 90 105 120 135 150 165 180

Adjustment of provisional price to reflect Vale’s best estimates on prices at delivery

Final price settledstill in Q1~ 45 days

Shipments before 45 days to the end of the quarter Delivery within the quarter

p y

Classified as current

Provisional pricing in current quarter

(Q1)Final prices settled and provision reversals i ti th t t (Q2) i

~ 45 days

Shipments in the later 45 days of the quarter

Delivery after end of quarter

impacting the next quarter (Q2) prices

Provisional pricingin current quarter

(Q1)

Classified as

provisional

9

HYPOTHETICAL IMPACT OF PROVISIONAL PRICING

Price adjustments can be estimated based on the hypothetical realized prices in the first 45 days following the quarter ended compared to the prices provisioned by the end of the quarter

Pro isional sales

Hypothetical 2Q14

Provisional sales 1Q

(%) 41%Volumes under

i i l l

Quarter ImpactUS$t

4Q13 +3.1

1Q14 (6.4)

Sales volumes 1Q, ex-pellets

provisional sales

(Mt) 23.7X2Q14 (2.0)

(Mt) 57.8Hypothetical Adjustment

(US$Mi) (142)

X

H th ti l

Realized less provisioned price

Hypothetical 2Q price impact

(US$/t) (2 0)÷

HypotheticalIODEX realized prices¹

111

Hypothetical provisioned² prices (US$/t) 117

(US$/t) (6)Hypothetical 2Q sales volume,ex-pellets

(US$/t) (2.0) _

(US$/t) 117(Mt) 70

¹ Average of first 45 days of 2Q14² Hypothetical price provisioned at the end of the quarter (1Q) estimated based on IODEX of last day of the quarter (1Q)

10

EVOLUTION OF VALE’S PRICING MIXVale’s sales mix is mostly concentrated in current and provisional pricing mechanisms

Lagged

• Provisional pricing has increased gradually

CurrentProvisional Benchmark

• Provisional sales are concentrated in the Chinese market and

8%15%

31%

close to its sales distribution limit

• Mix may vary with92%

73%

64%

53%

93%

Mix may vary with changes in the geographical distribution of sales and the ramp-up of

27%

53%

p pthe distribution center in Malaysia

27% 21% 16%7%

2009 2010 2011 2012 2013

11

COMPARISON PLATTS 62% AND THE 45-DAY FOWARD INDEXDespite short term differences, over the medium term, the Platts 62% and its forward index net-off

US$/dmt

Pl 62

150,00

160,00 Platts 62

Média Platts 62 em todo o período

Platts 62 defasado em 45 dias

Média Platts 62 defasado em todo o período

Platts 62Average Platts 62Platts 62, 45 days forwardAverage Platts 62, 45 days forward

Avg = 130.6A 129 0130,00

140,00

Avg = 129.0

120,00

,

100,00

110,00

4Q12 1Q13 2Q13 3Q13 4Q13 1Q14

Quarter adjustments will net off over the long term despite short term volatility

12











pprices



• Projections of Vale's future margins


13

IODEX VS VALE REALIZED PRICES

There has been fluctuations in the difference between the IODEX and Vale's realized prices, primarily because of price volatility and the existing price mechanisms that do not correlate directly with the IODEX average

Difference between the average IODEX¹ and Vale's realized priceVale realized prices vs. IODEX

US$/t

180

Iron Ore Price (IODEX) US$/dmtRealized Price US$/wmt 54

US$/t

Average

120

140

160

3837

80

100

12032

26

20

25

29

22

27 27

22

30

27.8

40

60

8

20 1922

0

20

3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14

8

3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14

¹ Platts assessmet of daily transaction value for the seaborne iron ore imported and sold into China on a 62% Fe Content

14

PRICE REALIZATION – IRON ORE

Vale’s iron ore price realization is impacted not only by key drivers such as freight, quality and pricing systems but also by the sale of ROM - an intermediate product

US$/t, 1Q14

29.9

US$/t

120.4 9.8

Lower prices on

intermediate products

12.1

2 61.9 1.6

6 4

p

2.6 6.4

4.3

0 2 90 50.2 90.5

AveragePlatts1Q14

Humidity Freight Quality Laggedprices

Current Impactprior

quarter¹

ROM Other Valeprice1Q14

Pricing system

¹ Adjustment as a result of provisional prices booked in the previous quarter

15

DRIVERS IMPACTING PRICE REALIZATIONAll drivers impacting price realization have improvement trends or will have no negative impact on future price realization

• Fe content decreased as mines got deeper

CommentsDrivers Impact Trends and ongoing actions

• Conclusion of the Itabiritos and the S11D project will increase qualitygot deeper

• Quality premiums declined as a result of lower coking coal prices and lower productivity requirements

Quality S11D project will increase quality

• Closure of inefficient steel capacity in China, fight against pollution and gradual increase in coking coal prices will increase quality premiumq prices will increase quality premium

• Creation of the IOCJ 65% Index will help capture the VIU of high quality ores

• Freight Brazil-China varied based on supply-demand, having reached very high levels prior to 2009

Freight• Increase in the Valemax fleet and

long term shipping contracts will further reduce and provide stability to freight costs2009

• Pricing systems affected price realization, particularly in times of high volatilityPricing system

to freight costs

• Evolution of sales mix reflecting customer needs and Vale’s logistic strategieshigh volatilityg y strategies

• Sales of ROM (Run of Mine) products brought average

• Maintenance of current sales volumes of ROM as a result of its

Fonte: Vale

products brought average realized price downROM sales

volumes of ROM as a result of its positive contribution

16

EVOLUTION OF PRODUCT QUALITY

The expected increase in Vale's product quality will bring additional value which will vary depending of the price premium associated with the Fe content

Hypothetical EBITDA impact of increased Fe content¹Production and quality evolution

Delta Fe(2014-2018)

% 1 0

2014 2018

%

Hypothetical

Value, % Fe

$/t

1.0

2-5

Production (Mt) 321 453

Fe 63.9 64.9

Hypothetical Fe VIU Range

$ / %Fe.t 2-5EBITDAImpact

US$ Bi 1-2

SiO2 + Al2O3 5.8 4.1

P 0.055 0.050Production volume 2018

US$ Bi

Mt 450

¹ Based on 2018 production volumes

17

THE NEW IOCJ PRICING INDEX

Vale expects to capture the real value of its high quality ores through the introduction of a transparent and liquid index to price its 65% Fe ore from Carajás

The value of Vale's high quality ores has not been fully captured by the formula with the decrease in value of the 1% Fe differential

As result, Vale decided to introduce the IOCJ 65% index and develop a better reference to price its high quality ores

150

65% Fe Index65% Fe price (62% Index + US$/t of Fe spread)

5

6 1% Fe Value

126

138$/dmt4

5

/dm

t

114

126

2

3 $/

102Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14

1 Oct-10 Aug-11 Jun-12 Apr-13 Feb-14

• 1% Fe value decreased with coal oversupply and steel overcapacity

• Increasing supply of low grade ore (58%) and environmental pressures will drive premiums

• 1% Fe value decreased with coal oversupply and steel overcapacity

• Increasing supply of low grade ore (58%) and environmental pressures will drive premiums

• The IOCJ Index will allow for value to be captured beyond the 1% Fe formula

• Vale expects to provide liquidity to the IOCJ 65% index to generate credible and transparent price

• The IOCJ Index will allow for value to be captured beyond the 1% Fe formula

• Vale expects to provide liquidity to the IOCJ 65% index to generate credible and transparent priceenvironmental pressures will drive premiums

for higher grade oreenvironmental pressures will drive premiums for higher grade ore

index to generate credible and transparent price referencesindex to generate credible and transparent price references

18

FREIGHT RATES AND IRON ORE PRICESUS$/dmt

Vale's freight strategy brought stability and predictability to freight costs, reducing volatility to Vale's realized prices

240 IODEX 62%

Freight

US$/dmt

200

Freight

120

160

80

120

40

02008 2009 2010 2011 2012 2013 2014

New Freight Strategy

19

IMPACT OF RUN OF MINE (ROM) SALES ON REALIZED PRICESIn 2013, the sales of run of mine (ROM) reduced Vale's realized price by about US$6/t

Fines sales (ex-ROM¹)

2013

MtIron ore Revenues

Total Volume (Iron Ore+ROM) X

249.4

FOB fines price(ex-ROM)

US$

US$ biMt

Total Revenues(Iron Ore+ROM)

Reported price 2013

US$/t 107.4÷

264.6 28.2

113.5

ROM¹ Volume

(Iron Ore+ROM)

US$ Bi+

ROM28.4

MtROM Revenues

US$ Mi

X

243 5

15.2

Product PriceUS$/t

ROM Price

US$/t

US$ Mi 243.5

16.0

Fines (ex-ROM) 113.5

Fines (with ROM) 107.4

Delta (ROM impact)Delta (ROM impact) 6.1

¹ ROM sales includes volumes of tailing dams fines processed externally

20











pprices



• Projections of Vale's future margins


21

VALE'S SALES MIX – GOALS AND IMPLICATIONS

The additional production increases total cash generation by leveraging non-utilized installed capacity despite negatively impacting unit margins

Vale currently has Goal

Implications

• Increase total

Current Situation

Vale currently has

some opportunistic

sales of lower

i d tOptimize total

EBITDA

• Deliver lower unit

i (EBITDA/t)margin products,

leveraging its non-

utilized logistics in

cash generation

by leveraging

installed capacity

margins (EBITDA/t)

• Blur margins of

standard operationsthe Southern and

Southeastern

Systems

p y standard operations,

making it difficult to

forecast future y

results

22

VALE'S EBITDA AND EBITDA MARGINS

Vale has some opportunistic operations which have a positive EBITDA contribution but bring unit margins (EBITDA/t) down

US$ bi, 1Q14 EBITDA US$/t

• Third party ore • ROM

1.3 4.1

Third party ore

• Corumbá operation

• Miniminas operation

ROM

• High Silica

• Tailing dam fines

2.5 0.3 2.8

Iron ore adjusted EBITDA (ex-lower

Lower margin operations

Iron oreEBITDA¹

Other Valebusinesses²

EBITDAEBITDA (ex lower margin operations)

operations EBITDA businesses

55.7 48.8

¹ Considers 57.8 Mt of iron ore Volume

² Includes Ferroalloys, Coal, Base Metals, Fertilizer and Pellets

23

CONSIDERATIONS FOR PROJECTING FUTURE MARGINSVale's price realization will increase with some ongoing initiatives

Not Exhaustive

• Low margin operations are in most cases opportunistic and will not be expanded

• Future expansions will be low cost

– S11D expansion at US$15/t

• Production increase will be of higher quality products improving price realizationProduction increase will be of higher quality products, improving price realization

– S11D, Itabiritos and other potential new mines will increase product quality

Additi l i t l li ill t lit i– Additional environmental licenses will support quality increases

– Pollution trends may increase Fe content premiums

• Malaysia distribution center will allow for additional optionality in price realization

24

DOCUMENT CONTENT


Capex

Cash Flow

25

CAPEX PROFILEVale's CAPEX will reduce with the conclusion of ongoing projects

US$ bi

Project executionSustaining capex

16.3 16.2

14.2 13 8

Approved projects only

4.6 4.6

4.6 4.5

14.2 13.8

12.5

4.5

4.5

9.5

8.1

11.7 11.69.6 9.3

8.0

4.9

5.1

5.8

5.03.2

0.7

5.1

2011 2012 2013 2014 2015 2016 2017 20182011 2012 2013 2014 2015 2016 2017 2018

26

CAPEX PROFILE – SUSTAINING CAPEXSustaining capex has been rationalized and will only increase marginally driven by the completion of new projects

Iron oreBase metalsCoal

US$ bi

Coal Fertilizers

4.5 4.5 4.5

4.95.1

2014 2015 2016 2017 2018

27

CAPEX PROFILE – PROJECT EXECUTIONS11D investments will peak in 2015, reducing sharply by 2018

US$ bi

Carajas expansion ex S11DS11D

9.3

8 0

Moatize II/ NacalaItabiritosSalobo IIOthers

8.0

5.0

3 23.2

0 70.7

2014 2015 2016 2017 2018

28

PERSPECTIVE ON VALE'S FUTURE CAPEX (POST-2018)The capex post-2018 is expected to be in the range of US$ 8 to 10 billion

US$ bi

1.5 - 3.0 8.0 - 10.0

5.0

1.5 - 2.0

Sustaining ReplacementProjects

Discretionary Total

29

OVERVIEW OF VALE'S ITABIRITOS PROJECTS UNDER STUDYOther Itabiritos projects are under study

Itabiritos projects under study

Projects Status Capacity Mtpy

Fáb i FEL 2 26Fábrica FEL 2 26

Jangada FEL 2 15

Mariana FEL 2 27

ITM S Pico FEL 3 27

30

DOCUMENT CONTENT


Capex

Cash Flow

31

ASSESSMENT OF VALE'S CASH FLOWS

There has been common mistakes, some conservative projections and other opportunities not considered in most analyst reports

Topics Comments

• Divestitures • Disregard of R$ 1.5 billion received in April 2014

– R$ 709 million from sales proceeds and R$ 803 millionfrom the settlement of an intercompany loan with VLI

• Additional R$ 2 bi yet to be received

O S$ f

Common mistakes

• Fiscal credits • Outstanding tax credits close to US$ 1.5 billion from the REFIS settlement by the end of 1Q14

• Capex • No material decrease in capex in the years following the• Capex • No material decrease in capex in the years following the completion of ongoing projects

• Costs • Unit costs not trending significantly down with the completion and start-up of S11D

Conservative projections

W ki it l P t ti l f d ti i ki it l t id d

• Volume • Conservative projection of volumes for the coming years

• Working capital • Potential for reductions in working capital not considered

Opportunities • Trapped Inventory • Ability to haul about 10Mt of iron ore stranded in the Southeastern System with the conclusion of the Pico-Fabrica road

• Further Divestitures • Potential cash generation with additional divestments

Fabrica road

33

IO PRICE INDEXES

62% Fe INDEXES 2014

$/dmt LAST YTD Q3 JUL Q2 JUN MAY APR Q1 MAR FEB JAN

PLATTS 62% Fe IODEX 96,00 110,75 95,58 95,58 102,60 92,67 100,80 114,24 120,38 111,79 121,24 128,15

TSI 62% Fe 96,50 110,81 95,72 95,72 102,66 92,74 100,56 114,58 120,43 111,83 121,37 128,12

TSI 62% Fe LOW ALUMINA 97,20 111,83 96,62 96,62 103,71 93,78 101,64 115,60 121,42 112,73 122,42 129,14

METAL BULLETIN 96,51 111,04 95,55 95,55 103,02 92,98 101,09 114,90 120,55 111,55 121,41 128,73

ARGUS 62% ICX 95,25 109,31 77,44 77,44 101,36 91,46 99,45 113,08 118,72 110,00 119,71 126,50

65% FE INDEXES - ALL ORES 2014


PLATTS 65% 105,25 119,75 104,79 104,79 110,04 100,73 107,53 121,74 130,91 119,61 132,38 140,81

TSI 65% 104,40 120,47 103,68 103,68 111,96 100,78 109,89 125,10 130,60 122,10 131,61 138,14

ARGUS 65% 103,80 119,46 102,73 102,73 109,22 99,39 107,19 120,99 131,32 118,15 134,35 141,60

65% FE INDEXES - IOCJ ONLY 2014


M t l B ll ti 65% i d ¹ 105 51 120 72 104 39 104 39 111 02 101 08 107 89 123 94 131 57 120 46 133 63 141 69Metal Bulletin 65% index¹ 105,51 120,72 104,39 104,39 111,02 101,08 107,89 123,94 131,57 120,46 133,63 141,69

FORMULA² 101,10 116,82 100,68 100,68 108,19 97,88 106,28 120,31 127,02 118,31 127,84 134,94

¹ Metal Bulletin: 62% Fe MBIO Index + 65% Fe IOCJ premium

² 62% Fe INDEX + Fe spread (IOCJ Fe-62) x 1% Fe value for the indicated period

Sources:

From Platts: Steel Markets Daily and Metal Alerts

From TSI: The Steel Index Daily Report

From MB: MBIO daily indexFrom MB: MBIO daily index

Bloomberg

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