As filed with the Securities and Exchange Commission on March 27, 2014
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2013
Commission file number: 001-15030
VALE S.A.
(Exact name of Registrant as specified in its charter)
Federative Republic of Brazil
(Jurisdiction of incorporation or organization)
Luciano Siani Pires, Chief Financial Officer
phone: +55 21 3814 8888
fax: +55 21 3814 8820
Avenida Graça Aranha, No. 26
20030-900 Rio de Janeiro, RJ, Brazil
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
Preferred class A shares of Vale, no par value per share
American Depositary Shares (evidenced by American Depositary Receipts), each representing
one preferred class A share of Vale
Common shares of Vale, no par value per share
American Depositary Shares (evidenced by American Depositary Receipts), each representing
one common share of Vale
6.25% Guaranteed Notes due 2016, issued by Vale Overseas
6.250% Guaranteed Notes due 2017, issued by Vale Overseas
5.625% Guaranteed Notes due 2019, issued by Vale Overseas
4.625% Guaranteed Notes due 2020, issued by Vale Overseas
4.375% Guaranteed Notes due 2022, issued by Vale Overseas
8.25% Guaranteed Notes due 2034, issued by Vale Overseas
6.875% Guaranteed Notes due 2036, issued by Vale Overseas
6.875% Guaranteed Notes due 2039, issued by Vale Overseas
5.625% Notes due 2042, issued by Vale S.A.
Name of Each Exchange on
Which Registered
New York Stock Exchange*
New York Stock Exchange
New York Stock Exchange*
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
*
Shares are not listed for trading, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the
New York Stock Exchange.
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
The number of outstanding shares of each class of stock of Vale as of December 31, 2013 was:
3,256,724,482 common shares, no par value per share
2,108,579,618 preferred class A shares, no par value per share
12 golden shares, no par value per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (cid:59) No (cid:134)
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Yes (cid:134) No (cid:59)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90
days.
Yes (cid:59) No (cid:134)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes (cid:59) No (cid:134)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large
accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:59)
Accelerated filer (cid:134)
Non-accelerated filer (cid:134)
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP (cid:134) International Financial Reporting Standards as issued by the International Accounting Standards Board (cid:59) Other (cid:134)
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes (cid:134) No (cid:59)
Item 17 (cid:134) Item 18 (cid:134)
TABLE OF CONTENTS
Page
Page
Corporate governance ............................................ 149
Code of ethics ........................................................ 151
Principal accountant fees and services ................... 151
Change in registrant’s certifying accountant ......... 152
Information filed with securities regulators ........... 153
Exhibits .................................................................. 154
Glossary ................................................................. 155
Signatures .............................................................. 161
Index to consolidated financial statements ............ F-1
Form 20-F cross reference guide ............................... ii
Forward-looking statements ..................................... iv
Risk factors ................................................................ 1
Presentation of financial information ...................... 12
Selected financial data ............................................. 13
I. Information on the company
Business overview ................................................... 15
Lines of business ..................................................... 23
1. Bulk materials ............................................ 25
2. Base metals .................................................. 37
3. Fertilizer nutrients ........................................ 49
4. Infrastructure ................................................ 51
5. Other investments ......................................... 57
Reserves ................................................................... 58
Capital expenditures ................................................ 69
Regulatory matters ................................................... 73
II. Operating and financial review and prospects
Overview ................................................................. 78
Results of operations ............................................... 84
Liquidity and capital resources ................................ 94
Contractual obligations ............................................ 98
Off-balance sheet arrangements .............................. 98
Critical accounting policies and estimates ............... 98
Risk management .................................................. 102
III. Share ownership and trading
Major shareholders ................................................ 104
Related party transactions ...................................... 107
Distributions .......................................................... 109
Trading markets ..................................................... 110
Share price history ................................................. 111
Depositary shares ................................................... 111
Purchases of equity securities by the issuer and
affiliated purchasers ...................................... 112
IV. Management and employees
Management .......................................................... 112
Management compensation ................................... 124
Employees ............................................................. 125
V. Additional information
Legal proceedings .................................................. 126
Memorandum and articles of association .............. 131
Shareholder debentures .......................................... 138
Exchange controls and other limitations affecting
security holders ............................................. 139
Taxation ................................................................. 141
Evaluation of disclosure controls and procedures . 148
Management’s report on internal control over
financial reporting ......................................... 148
i
FORM 20-F CROSS REFERENCE GUIDE
Item Form 20-F caption
1
Identity of directors, senior management and
Location in this report
2
3
4
4A
5
6
Page
–
–
13
–
–
1
15,69
advisers ........................................................... Not applicable ...................................................
Offer statistics and expected timetable.............. Not applicable...................................................
Key information
3A Selected financial data ..................................... Selected financial data ......................................
3B Capitalization and indebtedness ....................... Not applicable ...................................................
3C Reasons for the offer and use of proceeds ....... Not applicable ...................................................
3D Risk factors ...................................................... Risk factors .......................................................
Information on the Company
4A History and development of the company ....... Business overview, Capital expenditures .........
4B Business overview ........................................... Business overview, Lines of business,
4C Organizational structure ................................... Exhibit 8 ...........................................................
4D Property, plant and equipment ......................... Lines of business, Capital expenditures,
Reserves, Regulatory matters ........................... 15,23,58,73
–
Regulatory matters ............................................
Unresolved staff comments ................................. None .................................................................
Operating and financial review and
prospects
5A Operating results .............................................. Results of operations ........................................
5B Liquidity and capital resources ........................ Liquidity and capital resources .........................
5C Research and development, patents and
licenses, etc. ..................................................... Capital expenditures .........................................
5D Trend information ............................................ Results of operations ........................................
5E Off-balance sheet arrangements ....................... Off-balance sheet arrangements........................
Critical accounting policies and estimates ........
5F Tabular disclosure of contractual obligations .. Contractual obligations .....................................
5G Safe harbor ...................................................... Forward-looking statements .............................
Directors, senior management and employees
6A Directors and senior management ................... Management .....................................................
6B Compensation .................................................. Management compensation ..............................
6C Board practices ................................................ Management―Board of directors ....................
6D Employees ....................................................... Employees ........................................................
6E Share ownership ............................................... Major shareholders,
15,69,73
–
84
94
69
84
98
98
98
iv
–
112
124
112
125
Employees―Performance-based
compensation ..............................................
104,126
7
Major shareholders and related party
transactions
8
9
7A Major shareholders .......................................... Major shareholders ...........................................
7B Related party transactions ................................ Related party transactions .................................
7C Interests of experts and counsel ....................... Not applicable ...................................................
Financial information
8A Consolidated statements and other financial
information ...................................................... Financial statements .........................................
Distributions .....................................................
Legal proceedings .............................................
8B Significant changes .......................................... Not applicable ...................................................
The offer and listing
9A Offer and listing details ................................... Share price history ............................................
9B Plan of distribution .......................................... Not applicable ...................................................
9C Markets ............................................................ Trading markets ................................................
9D Selling shareholders......................................... Not applicable ...................................................
9E Dilution ............................................................ Not applicable ...................................................
104
107
–
F-1
109
126
–
111
–
110
–
–
ii
Form 20-F cross reference guide
10
11
12
13
16
17
18
19
Related party transactions ...........................
23,84,107
Item Form 20-F caption
Location in this report
9F Expenses of the issue ....................................... Not applicable ..................................................
Additional information
10A Share capital .................................................. Memorandum and articles
of association—Common shares and
preferred shares ...........................................
10B Memorandum and articles of association ...... Memorandum and articles of association ........
10C Material contracts .......................................... Lines of business; Results of operations;
10D Exchange controls ......................................... Exchange controls and other limitations
affecting security holders ............................
10E Taxation ......................................................... Taxation ...........................................................
10F Dividends and paying agents.......................... Not applicable ..................................................
10G Statement by experts ...................................... Reserves ...........................................................
10H Documents on display ................................... Information filed with securities regulators .....
10I Subsidiary information .................................... Not applicable ..................................................
Quantitative and qualitative disclosures
about
market risk ..................................................... Risk management ............................................
Description of securities other than equity
securities
12A Debt securities ............................................... Not applicable ..................................................
12B Warrants and rights ........................................ Not applicable ..................................................
12C Other securities .............................................. Not applicable ..................................................
12D American Depositary Shares ......................... Depositary shares .............................................
Defaults, dividend arrearages and
delinquencies .................................................. Not applicable ..................................................
14 Material modifications to the rights of
security
holders and use of proceeds .......................... Not applicable ..................................................
15
Controls and procedures ..................................... Evaluation of disclosure controls and
procedures ...................................................
Management’s report on internal control over
financial reporting .......................................
16A Audit Committee financial expert ................. Management―Fiscal Council .........................
16B Code of ethics ................................................ Code of ethics ..................................................
16C Principal accountant fees and services ........... Principal accountant fees and services .............
16D Exemptions from the listing standards for
audit committees ..............................................
Management―Fiscal Council; Corporate
Page
–
131
131
139
141
–
58
153
–
102
–
–
–
111
–
–
148
148
121
151
151
governance ..................................................
121,149
16E Purchase of equity securities by the issuer
and affiliated purchasers ..................................
Purchases of equity securities by the issuer
and affiliated purchasers .............................
16F Change in registrant’s certifying accountant
............................................................................... Change in registrant’s certifying accountant ...
16G Corporate governance .................................... Corporate governance ......................................
16H Mine safety disclosure ................................... Not applicable
Financial statements ............................................ Not applicable ..................................................
Financial statements ............................................ Financial statements ........................................
Exhibits................................................................. Exhibits ............................................................
112
152
149
–
–
F-1
154
iii
FORWARD-LOOKING STATEMENTS
This annual report contains statements that may constitute forward-looking statements within the meaning of
the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Many of those
forward-looking statements can be identified by the use of forward-looking words such as “anticipate,” “believe,”
“could,” “expect,” “should,” “plan,” “intend,” “estimate” and “potential,” among others. Those statements appear in a
number of places and include statements regarding our intent, belief or current expectations with respect to:
•
•
•
•
•
•
•
•
•
•
•
our direction and future operation;
the implementation of our principal operating strategies, including our potential participation in
acquisition, divestiture or joint venture transactions or other investment opportunities;
the implementation of our financing strategy and capital expenditure plans;
the exploration of mineral reserves and development of mining facilities;
the depletion and exhaustion of mines and mineral reserves;
trends in commodity prices and demand for commodities;
the future impact of competition and regulation;
the payment of dividends or interest on shareholders’ equity;
industry trends, including the direction of prices and expected levels of supply and demand;
other factors or trends affecting our financial condition or results of operations; and
the factors discussed under Risk factors.
We caution you that forward-looking statements are not guarantees of future performance and involve risks
and uncertainties. Actual results may differ materially from those in forward-looking statements as a result of various
factors. These risks and uncertainties include factors relating to (a) the countries in which we operate, especially
Brazil and Canada, (b) the global economy, (c) capital markets, (d) the mining and metals businesses, which are
cyclical in nature, and their dependence upon global industrial production, which is also cyclical, and (e) the high
degree of global competition in the markets in which we operate. For additional information on factors that could
cause our actual results to differ from expectations reflected in forward-looking statements, see Risk factors.
Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update
them in light of new information or future developments. All forward-looking statements attributed to us or a person
acting on our behalf are expressly qualified in their entirety by this cautionary statement, and you should not place
undue reliance on any forward-looking statement.
___________
Vale S.A. is a stock corporation, or sociedade por ações, that was organized on January 11, 1943 under the
laws of the Federative Republic of Brazil for an unlimited period of time. Its head office is located at Avenida Graça
Aranha, No. 26, 20030-900 Rio de Janeiro, RJ, Brazil, and its telephone number is 55-21-3814-4477.
In this report, references to “Vale” are to Vale S.A. References to “we,” “us” or the “Company” are to Vale
and, except where the context otherwise requires, its consolidated subsidiaries. References to our “preferred shares”
are to our preferred class A shares. References to our “ADSs” or “American Depositary Shares” include both our
common American Depositary Shares (our “common ADSs”), each of which represents one common share of Vale,
and our preferred class A American Depositary Shares (our “preferred ADSs”), each of which represents one class A
preferred share of Vale. American Depositary Shares are represented by American Depositary Receipts (“ADRs”)
issued by the depositary. References to our “HDSs” or “Hong Kong Depositary Shares” include both our common
Hong Kong Depositary Shares (our “common HDSs”), each of which represents one common share of Vale, and our
class A preferred Hong Kong Depositary Shares (our “preferred HDSs”), each of which represents one preferred
Class A share of Vale. Hong Kong Depositary Shares are represented by Hong Kong Depositary Receipts (“HDRs”)
issued by the depositary.
Unless otherwise specified, we use metric units.
References to “real,” “reais” or “R$” are to the official currency of Brazil, the real (singular) or reais
(plural). References to “U.S. dollars” or “US$” are to United States dollars. References to “CAD” are to Canadian
dollars, and references to “A$” are to Australian dollars.
iv
Risks relating to our business
RISK FACTORS
The mining industry is highly exposed to the cyclicality of global economic activity and requires significant
investments of capital.
The mining industry is primarily a supplier of industrial raw materials. Industrial production tends to be the
most cyclical and volatile component of global economic activity, which affects demand for minerals and metals. At
the same time, investment in mining requires a substantial amount of funds in order to replenish reserves, expand and
maintain production capacity, build infrastructure and preserve the environment. Sensitivity to industrial production,
together with the need for significant long-term capital investments, are important sources of risk for the financial
performance and growth prospects of Vale and the mining industry generally.
Adverse economic developments in China could have a negative impact on our revenues, cash flow and
profitability.
China has been the main driver of global demand for minerals and metals over the last few years. In 2013,
Chinese demand represented 64.3% of global demand for seaborne iron ore, 50% of global demand for nickel and 43%
of global demand for copper. The percentage of our net operating revenues attributable to sales to customers in China
was 40.5% in 2013. Therefore, any contraction of China’s economic growth could result in lower demand for our
products, leading to lower revenues, cash flow and profitability. Poor performance in the Chinese real estate sector,
the largest consumer of carbon steel in China, would also negatively impact our results.
Our business may be adversely affected by declines in demand for the products our customers produce,
including steel (for our iron ore and coal business), stainless steel (for our nickel business) and agricultural
commodities (for our fertilizer nutrients business).
Demand for our iron ore, coal and nickel products depends on global demand for steel. Iron ore and iron ore
pellets, which together accounted for 73.0% of our 2013 net operating revenues, are used to produce carbon steel.
Nickel, which accounted for 8.3% of our 2013 net operating revenues, is used mainly to produce stainless and alloy
steels. Demand for steel depends heavily on global economic conditions, but it also depends on a variety of regional
and sectorial factors. The prices of different steels and the performance of the global steel industry are highly cyclical
and volatile, and these business cycles in the steel industry affect demand and prices for our products. In addition,
vertical backward integration of the steel and stainless steel industries and the use of scrap could reduce the global
seaborne trade of iron ore and primary nickel. The demand for copper is affected by the demand for copper wire, and
a sustained decline in the construction industry could have a negative impact on our copper business. The demand for
fertilizers is affected by prices of agricultural commodities in the international and Brazilian markets, and a sustained
decline in the price of one or more agricultural commodities could negatively impact our fertilizer nutrients business.
The prices we charge, including prices for iron ore, nickel and copper, are subject to volatility.
Our iron ore prices are based on a variety of pricing options, which generally use spot price indices as a basis
for determining the customer price. Our prices for nickel and copper are based on reported prices for these metals on
commodity exchanges such as the London Metal Exchange (“LME”) and the New York Mercantile Exchange
(“NYMEX”). Our prices and revenues for these products are consequently volatile, which may adversely affect our
cash flow. Global prices for metals are subject to significant fluctuations and are affected by many factors, including
actual and expected global macroeconomic and political conditions, levels of supply and demand, the availability and
cost of substitutes, inventory levels, investments by commodity funds and others and actions of participants in the
commodity markets.
1
The nickel industry has experienced strong supply growth in recent years, which continued to put nickel
prices under pressure in 2013. Nickel refining in China, primarily using imported nickel ores and related raw material,
increased an estimated 560,000 metric tons from 2006 to 2013. In 2013, estimated Chinese nickel pig iron and
ferro-nickel production continued to increase, representing 25% of global nickel output. Other long lead-time nickel
projects are also ramping up and will continue to increase the global supply of nickel in the coming years.
In January 2014, the Indonesian government approved a law that restricts the sale and export of unprocessed
nickel. Indonesia is currently a major producer of nickel, and as a result of the new law, we expect that the nickel
supply on international markets will decline, causing nickel prices to increase. In the event that this measure does not
take effect or has an impact different from our expectations, we may need to revise our projections of future prices of
nickel.
We may not be able to adjust production volume in a timely or cost-efficient manner in response to changes in
demand.
During periods of high demand, our ability to rapidly increase production capacity is limited, which could
prevent us from meeting demand for our products. Moreover, we may be unable to complete expansions and
greenfield projects in time to take advantage of rising demand for iron ore, nickel or other products. When demand
exceeds our production capacity, we may meet excess customer demand by purchasing iron ore, iron ore pellets or
nickel from joint ventures or unrelated parties and reselling it, which would increase our costs and narrow our
operating margins. If we are unable to satisfy excess customer demand in this way, we may lose customers. In
addition, operating close to full capacity may expose us to higher costs, including demurrage fees due to capacity
restraints in our logistics systems.
Conversely, operating at significant idle capacity during periods of weak demand may expose us to higher
unit production costs since a significant portion of our cost structure is fixed in the short term due to the high capital
intensity of mining operations. In addition, efforts to reduce costs during periods of weak demand could be limited by
labor regulations or previous labor or government agreements.
Regulatory, political, economic and social conditions in the countries in which we have operations or projects
could adversely impact our business and the market price of our securities.
Our financial performance may be negatively affected by regulatory, political, economic and social
conditions in countries in which we have significant operations or projects. In many of these jurisdictions, we are
exposed to various risks such as potential renegotiation, nullification or forced modification of existing contracts,
expropriation or nationalization of property, foreign exchange controls, changes in local laws, regulations and
policies, political instability, bribery, extortion, corruption, civil strife, acts of war, guerilla activities and terrorism.
We also face the risk of having to submit to the jurisdiction of a foreign court or arbitration panel or having to enforce
a judgment against a sovereign nation within its own territory.
Actual or potential political or social changes and changes in economic policy may undermine investor
confidence, which may hamper investment and thereby reduce economic growth, and otherwise may adversely affect
the economic and other conditions under which we operate in ways that could have a materially negative effect on our
business.
We are involved in legal proceedings that could have a material adverse effect on our business in the event of
an outcome that is unfavorable to us.
We are involved in legal proceedings in which adverse parties have claimed substantial amounts. Although
we are vigorously contesting them, the outcomes of these proceedings are uncertain and may result in obligations that
could materially adversely affect our business and the value of our shares, ADSs and HDSs. For additional
information, see Additional information—Legal proceedings.
2
Risk factors
Disagreements with local communities in which we operate could adversely impact our business and
reputation.
Disputes with communities where we operate may arise from time to time. Although we contribute to local
communities with taxes, royalties, employment and business opportunities and social programs, expectations are
complex and involve multiple stakeholders with different and constantly evolving interests. In some instances, our
operations and mineral reserves are located on or near lands owned or used by indigenous or aboriginal people or other
groups of stakeholders. Some of these indigenous peoples may have rights to review or participate in natural resource
management, and we consult and negotiate with them to mitigate the impact of our operations or to obtain access to
their lands. Some of our mining and other operations are located in territories where title may be subject to disputes or
uncertainties, or in areas claimed for agriculture or land reform purposes, which may lead to disagreements with
landowners, local communities and the government. We consult and negotiate with these groups to come to common
agreement on land access and how to mitigate the impact on our operations.
Disagreements or disputes with local groups, including indigenous or aboriginal groups, could cause delays
or interruptions to our operations, adversely affect our reputation or otherwise hamper our ability to develop our
reserves and conduct our operations. Protesters have taken actions to disrupt our operations and projects, and they
may continue to do so in the future. Although we engage in active dialogue with all stakeholders and vigorously
defend ourselves against illegal acts, future attempts by protesters to harm our operations could adversely affect our
business.
We could be adversely affected by changes in government policies or trends such as resource nationalism,
including the imposition of new taxes or royalties on mining activities.
Mining is subject to government regulation in the form of taxes and royalties, which can have a significant
financial impact on our operations. In the countries where we are present, governments may impose new taxes, raise
existing taxes and royalty rates, reduce tax exemptions and benefits, request or force renegotiation of tax stabilization
agreements or change the basis on which taxes are calculated in a manner that is unfavorable to us. Governments that
have committed to provide a stable taxation or regulatory environment may alter those commitments or shorten their
duration.
We are also required to meet domestic beneficiation requirements in certain countries in which we operate,
such as local processing rules, export taxes or restrictions, or charges on unprocessed ores. The imposition of or
increase in such taxes or charges can significantly increase the risk profile and costs of operations in those
jurisdictions. We and the mining industry are subject to rising trends of resource nationalism in certain countries in
which we operate that can result in constraints on our operations, increased taxation or even expropriations and
nationalizations.
Concessions, authorizations, licenses and permits are subject to expiration, limitation on renewal and various
other risks and uncertainties.
Our operations depend on authorizations and concessions from governmental regulatory agencies in the
countries in which we operate. We are subject to laws and regulations in many jurisdictions that can change at any
time, and changes in laws and regulations may require modifications to our technologies and operations and result in
unanticipated capital expenditures.
3
Some of our mining concessions are subject to fixed expiration dates and might only be renewed a limited
number of times for a limited period of time. Apart from mining concessions, we may need to obtain various
authorizations, licenses and permits from governmental or other regulatory bodies in connection with the planning,
maintenance and operation of our mines and related logistics infrastructure, which may be subject to fixed expiration
dates or periodic review or renewal. While we anticipate that renewals will be given as and when sought, there is no
assurance that such renewals will be granted as a matter of course and on a timely basis, and there is no assurance that
new conditions will not be imposed in connection with renewal. Fees for mining concessions might increase
substantially due to the passage of time from the original issuance of each individual exploration license. If so, the
costs of holding or renewing our mining concessions might impede our business objectives. Accordingly, we need to
continually assess the mineral potential of each mining concession, particularly at the time of renewal, to determine if
the costs of maintaining the concession is justified by the results of operations to date, and we might elect to let some
of our concessions lapse. There can be no assurance that concessions will be obtained on terms favorable to us, or at
all, for our future intended mining or exploration targets.
In a number of jurisdictions where we have exploration projects, we may be required to retrocede to the state
a certain portion of the area covered by the exploration license as a condition to renewing the license or obtaining a
mining concession. This requirement can lead to a substantial loss of part of the mineral deposit originally identified
in our feasibility studies. For more information on mining concessions and other similar rights, see Regulatory
matters.
Our projects are subject to risks that may result in increased costs or delay in their implementation.
We are investing to maintain and further increase our production capacity and logistics capabilities and to
expand the scope of the minerals we produce. We regularly review the economic viability of our projects. As a result
of this review, we may decide to postpone, suspend or interrupt the implementation of certain projects. Our projects
are also subject to a number of risks that may adversely affect our growth prospects and profitability, including the
following:
• We may encounter delays or higher than expected costs in obtaining the necessary equipment or
services and in implementing new technologies to build and operate a project.
• Our efforts to develop projects on schedule may be hampered by a lack of infrastructure, including
reliable telecommunications services and power supply.
• Suppliers and contractors may fail to meet their contractual obligations to us.
• We may face unexpected weather conditions or other force majeure events.
• We may fail to obtain the required permits and licenses to build a project, or we may experience
delays or higher than expected costs in obtaining them.
• Changes in market conditions or regulations may make a project less profitable than expected at the
time we initiated work on it.
• There may be accidents or incidents during project implementation.
• We may face shortages of skilled personnel.
4
Risk factors
Operational problems could materially and adversely affect our business and financial performance.
Ineffective project management and operational breakdowns might require us to suspend or curtail
operations, which could generally reduce our productivity. Operational breakdowns could entail failure of critical
plant and machinery. There can be no assurance that ineffective project management or other operational problems
will not occur. Any damages to our projects or delays in our operations caused by ineffective project management or
operational breakdowns could materially and adversely affect our business and results of operations. Our business is
subject to a number of operational risks that may adversely affect our results of operations, such as:
• Unexpected weather conditions or other force majeure events.
• Adverse mining conditions delaying or hampering our ability to produce the expected quantity of
minerals and to meet specifications required by customers, which can trigger price adjustments.
• Accidents or incidents involving our mines and related infrastructure, plants, railroads, ports and
ships.
• Delays or interruptions in the transportation of our products, including with railroads, ports and
ships.
• Tropical diseases, HIV/AIDS and other contagious diseases in regions where some of our
development projects are located, which pose health and safety risks to our employees.
• Labor disputes that may disrupt our operations from time to time.
• Changes in market conditions or regulations may affect the economic prospects of an operation and
make it inconsistent with our business strategy.
• Disruptions to or unavailability of critical information technology systems or services resulting
from accidents or malicious acts.
Our business could be adversely affected by the failure of our counterparties to perform their obligations.
Customers, suppliers, contractors and other counterparties may fail to perform existing contracts and
obligations, which may unfavorably impact our operations and financial results. The ability of suppliers and
customers to perform their obligations may be adversely affected in times of financial stress and economic downturn.
Suppliers are also subject to capacity constraints in times of high demand which may affect their ability to fulfill their
commitments.
We currently operate important parts of our pelletizing, bauxite, nickel, coal, copper and steel businesses
through joint ventures with other companies. Important parts of our electricity investments and projects are operated
through consortia. Our forecasts and plans for these joint ventures and consortia assume that our partners will observe
their obligations to make capital contributions, purchase products and, in some cases, provide skilled and competent
managerial personnel. If any of our partners fails to observe its commitments, the affected joint venture or consortium
may not be able to operate in accordance with its business plans, or we may have to increase the level of our
investment to implement these plans.
In addition, some of our assets may be controlled and managed by joint venture partners that may not fully
comply with our standards, controls and procedures, including our health, safety, environment and community
standards. Failure by any of our partners to adopt standards, controls and procedures equivalent to ours could lead to
higher costs, reduced production or environmental, health and safety incidents or accidents, which could adversely
affect our results and reputation.
5
Our business is subject to environmental, health and safety incidents or accidents.
Our operations involve the use, handling, storage, discharge and disposal of hazardous substances into the
environment and the use of natural resources, and the mining industry is generally subject to significant risks and
hazards, including the potential for fire or explosion, toxic gas leaks, escape of polluting substances or other hazardous
materials, rockfall incidents in underground mining operations and incidents involving mobile equipment or
machinery. This could occur by accident or by a breach of operating standards, and could result in a significant
incident, including damage to or destruction of mineral properties or production facilities, personal injury or death,
environmental damage, delays in production, monetary losses and possible legal liability. We have health, safety and
environmental standards and risk management systems and processes in place to mitigate the risk of such incidents or
accidents. Notwithstanding our standards, policies and controls, our operations remain subject to incidents or
accidents that could adversely affect our business or reputation.
Our business may be adversely affected by environmental regulation, including regulations pertaining to
climate change.
Nearly all aspects of our activities, products, services and projects around the world are subject to
environmental, health and safety regulations, which may expose us to increased liability or increased costs. These
regulations require us to obtain environmental licenses, permits and authorizations for our operations, and to conduct
environmental impact assessments in order to get approval for our projects and permission for initiating construction.
Significant changes to existing operations are also subject to these requirements. Difficulties in obtaining permits may
lead to construction delays or cost increases. Environmental regulation also imposes standards and controls on
activities relating to mineral research, mining, pelletizing activities, railway and marine services, ports,
decommissioning, refining, distribution and marketing of our products. Such regulation may give rise to significant
costs and liabilities. In addition, community activist groups and other stakeholders may increase demands for socially
responsible and environmentally sustainable practices, and their efforts may lead to the creation or revision of
government regulations and policies, which could entail significant costs and reduce our profitability. Private
litigation relating to these or other matters may adversely affect our financial condition or cause harm to our
reputation.
Environmental regulation in many countries in which we operate has become stricter in recent years, and it is
possible that more regulation or more aggressive enforcement of existing regulations will adversely affect us by
imposing restrictions on our activities and products, creating new requirements for the issuance or renewal of
environmental licenses, raising our costs or requiring us to engage in expensive reclamation efforts. For example,
changes in Brazilian legislation for the protection of caves have required us to conduct extensive technical studies and
to engage in complex discussions with Brazilian environmental regulators, which are continuing. We cannot yet
assess the final impact of these regulations on our operations, but it is possible that in certain of our iron ore mining
operations or projects, we may be required to limit or modify our mining plans or to incur additional costs to preserve
caves or to compensate for the impact on them, with potential consequences for production volumes, costs or reserves
in our iron ore business. For more information about Brazilian environmental regulations related to caves, see
Regulatory matters—Environmental regulations.
National policies and international regulations regarding climate change may affect a number of our
businesses in different countries, because we operate worldwide. For example, there is legislation in many countries
where we operate that limits greenhouse gas emissions in the mining industry. Regulatory initiatives at the national
and international levels that affect our shipping practices could increase our costs or require us to make new capital
expenditures.
6
Risk factors
Natural disasters may inflict severe damage to our operations and projects in the countries where we operate
and may cause a negative impact in our sales to countries adversely affected by such disasters.
Natural disasters, such as wind storms, droughts, floods, earthquakes and tsunamis may adversely affect our
operations and projects in the countries where we operate, and may cause a contraction in sales to countries adversely
affected due to, among other factors, power outages and the destruction of industrial facilities and infrastructure. The
physical impact of climate change on our business remains highly uncertain, but we may experience changes in
rainfall patterns, water shortages, rising sea levels, increased storm intensity and flooding as a result of climate change,
which may adversely affect our operations. On certain occasions in recent years, we have determined that force
majeure events have occurred due to severe weather. On December 27, 2013, we declared force majeure under a
number of our iron ore sales contracts as a result of the adverse weather conditions in southeastern Brazil, which
resulted in the suspension of the mining and transport, creating serious challenges to the operations of our
Southeastern System. The force majeure was lifted on January 6, 2014.
We may not have adequate insurance coverage for some business risks.
Our businesses are generally subject to a number of risks and hazards, which could result in damage to, or
destruction of, properties, facilities and equipment. The insurance we maintain against risks that are typical in our
business may not provide adequate coverage. Insurance against some risks (including liabilities for environmental
pollution or certain hazards or interruption of certain business activities) may not be available at a reasonable cost, or
at all. Even when it is available, we may self-insure where we determine that is more cost-effective to do so. As a
result, accidents or other negative developments involving our mining, production or transportation facilities could
have a material adverse effect on our operations.
Our reserve estimates may materially differ from mineral quantities that we are actually able to recover; our
estimates of mine life may prove inaccurate; and market price fluctuations and changes in operating and
capital costs may render certain ore reserves uneconomical to mine.
Our reported reserves are estimated quantities of ore and minerals that we have determined can be
economically mined and processed under present and assumed future conditions. There are numerous uncertainties
inherent in estimating quantities of reserves and in projecting potential future rates of mineral production, including
factors beyond our control. Reserve reporting involves estimating deposits of minerals that cannot be measured in an
exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and engineering
and geological interpretation and judgment. As a result, no assurance can be given that the indicated amount of ore
will be recovered or that it will be recovered at the rates we anticipate. Reserve estimates and estimates of mine life
may require revisions based on actual production experience and other factors. For example, fluctuations in the
market prices of minerals and metals, reduced recovery rates or increased operating and capital costs due to inflation,
exchange rates, changes in regulatory requirements or other factors may render proven and probable reserves
uneconomic to exploit and may ultimately result in a restatement of reserves. Such a restatement could affect
depreciation and amortization rates and have an adverse effect on our financial performance.
We may not be able to replenish our reserves, which could adversely affect our mining prospects.
We engage in mineral exploration, which is highly uncertain in nature, involves many risks and frequently is
non-productive. Our exploration programs, which involve significant expenditures, may fail to result in the expansion
or replacement of reserves depleted by current production. If we do not develop new reserves, we will not be able to
sustain our current level of production beyond the remaining lives of our existing mines.
7
The feasibility of new mineral projects may change over time.
Once mineral deposits are discovered, it can take a number of years from the initial phases of drilling until
production is possible, during which the economic feasibility of production may change. Substantial time and
expenditures are required to:
•
•
•
•
•
establish mineral reserves through drilling;
determine appropriate mining and metallurgical processes for optimizing the recovery of metal
contained in ore;
obtain environmental and other licenses;
construct mining, processing facilities and infrastructure required for greenfield properties; and
obtain the ore or extract the minerals from the ore.
If a project proves not to be economically feasible by the time we are able to exploit it, we may incur
substantial losses and be obliged to take write-downs. In addition, potential changes or complications involving
metallurgical and other technological processes arising during the life of a project may result in delays and cost
overruns that may render the project not economically feasible.
We face rising extraction costs or investment requirements over time as reserves deplete.
Reserves are gradually depleted in the ordinary course of a given open pit or underground mining operation.
As mining progresses, distances to the primary crusher and to waste deposits become longer, pits become steeper,
mines move from being open pit to underground, and underground operations become deeper. In addition, for some
types of reserves, mineralization grade decreases and hardness increases at increased depths. As a result, over time,
we usually experience rising unit extraction costs with respect to each mine, or we may need to make additional
investments, including adaptation or construction of processing plants and expansion or construction of tailing dams.
Several of our mines have been operating for long periods, and we will likely experience rising extraction costs per
unit in the future at these operations in particular.
Labor disputes may disrupt our operations from time to time.
A substantial number of our employees, and some of the employees of our subcontractors, are represented by
labor unions and are covered by collective bargaining or other labor agreements, which are subject to periodic
negotiation. Strikes and other labor disruptions at any of our operations could adversely affect the operation of
facilities and the timing of completion and cost of our capital projects. For more information about labor relations, see
Management and employees—Employees. Moreover, we could be adversely affected by labor disruptions involving
unrelated parties that may provide us with goods or services.
We may face shortages of equipment, services and skilled personnel.
The mining industry has faced worldwide shortages of mining and construction equipment, spare parts,
contractors and other skilled personnel during periods of high demand for minerals and metals and intense
development of mining projects. We may experience longer lead times for mining equipment and problems with the
quality of contracted engineering, construction and maintenance services. We compete with other mining and
extractive sector companies for highly skilled management and staff with relevant industry and technical experience,
and we may not be able to attract and retain such people. Shortages during peak periods could negatively impact our
operations, resulting in higher production or capital expenditure costs, production interruptions, higher inventory
costs, project delays and potentially lower production and revenues.
8
Risk factors
Higher energy costs or energy shortages would adversely affect our business.
Energy costs are a significant component of our cost of production, representing 10.2% of our total cost of
goods sold in 2013. To fulfill our energy needs, we depend on the following sources: oil by-products, which
represented 46% of total energy needs in 2013, electricity (25%), coal (7%), natural gas (16%) and other energy
sources (6%), using figures converted into tons of oil equivalent (“TOE”).
Fuel costs represented 7.5% of our cost of goods sold in 2013. Increases in oil and gas prices adversely affect
margins in our logistics services, mining, iron ore pellets, fertilizers and nickel businesses.
Electricity costs represented 2.7% of our total cost of goods sold in 2013. If we are unable to secure reliable
access to electricity at acceptable prices, we may be forced to curtail production or may experience higher production
costs, either of which would adversely affect our results of operations. We face the risk of energy shortages in the
countries where we have operations and projects due to excess demand, lack of infrastructure or weather conditions,
such as floods or droughts.
Electricity shortages have occurred throughout the world, and there can be no assurance that growth in power
generation capacity in the countries in which we operate will be sufficient to meet future consumption increases.
Future shortages, and government efforts to respond to or prevent shortages, may adversely impact the cost or supply
of electricity for our operations.
Price volatility – relative to the U.S. dollar – of the currencies in which we conduct operations could adversely
affect our financial condition and results of operations.
A substantial portion of our revenues and our debt is denominated in U.S. dollars, and changes in exchange
rates may result in (i) losses or gains on our net U.S. dollar-denominated indebtedness and accounts receivable and (ii)
fair value losses or gains on currency derivatives we use to stabilize our cash flow in U.S. dollars. In 2013, 2012 and
2011, we had foreign exchange losses of US$2.8 billion, US$1.9 billion and US$1.4 billion, respectively. In addition,
the price volatility of the Brazilian real, the Canadian dollar, the Australian dollar, the Indonesian rupiah and other
currencies against the U.S. dollar affect our results since most of our costs of goods sold are denominated in currencies
other than the U.S. dollar, principally the real (54% in 2013) and the Canadian dollar (14% in 2013), while our
revenues are mostly U.S. dollar-denominated. We expect currency fluctuations to continue to affect our financial
income, expense and cash flow generation.
Significant volatility in currency prices may also result in disruption of foreign exchange markets, which
could limit our ability to transfer or to convert certain currencies into U.S. dollars and other currencies for the purpose
of making timely payments of interest and principal on our indebtedness. The central banks and governments of the
countries in which we operate may institute restrictive exchange rate policies in the future and impose taxes on foreign
exchange transactions.
The integration between the Company and acquired companies might prove more difficult than anticipated.
We may not be able to successfully integrate our acquired businesses. We have grown our business in part
through acquisitions, and some of our future growth could depend on acquisitions. Integration of acquisition targets
might take longer than expected, and the costs associated with integration of acquisition targets might be higher than
anticipated. Completed acquisitions could fail to achieve the increased revenues, cost savings or operational benefits
that were anticipated at the time of their conception. Acquisitions could lead to the incurrence of substantial costs as a
result of, for example, impairment of goodwill, unforeseen liabilities arising from acquired businesses, inability to
retain key staff, inconsistencies in standards, controls, procedures and policies between the Company and the
acquisition target which could negatively affect our financial condition and results of operations. In addition,
management attention could be diverted from ordinary responsibilities to integration issues.
9
Failures in our information technology systems or difficulties in integrating new enterprise resource planning
software may interfere with the normal functioning of our business.
We rely on information technology (“IT”) systems for the operation of many of our business processes.
Failures in our IT systems, whether caused by accident or malicious acts, may result in the disclosure or theft of
sensible information, misappropriation of funds and disruptions to our business operations.
In addition, we are in the process of integrating new enterprise resource planning software into our IT
systems. If we are unable to replace, upgrade or modify our IT systems to adapt to this new software in a timely and
cost-effective manner, our ability to capture and process financial transactions may be negatively affected.
Implementing the software may prove more costly or take longer than expected, result in the loss of data or lead to
system malfunctions that interfere with the normal functioning of our business. If we are unable to successfully
manage the process of implementing the new software, our results of operations may be adversely affected.
Risks relating to our corporate structure
Our controlling shareholder has significant influence over Vale, and the Brazilian government has certain
veto rights.
As of February 28, 2014, Valepar S.A. (“Valepar”) owned 52.7% of our outstanding common stock and
32.4% of our total outstanding capital. As a result of its share ownership, Valepar can elect the majority of our board of
directors and control the outcome of some actions that require shareholder approval. For a description of our
ownership structure and of the Valepar shareholders’ agreement, see Share ownership and trading—Major
shareholders.
The Brazilian government owns 12 golden shares of Vale, granting it limited veto power over certain
company actions, such as changes to our name, the location of our headquarters and our corporate purpose as it relates
to mining activities. For a detailed description of the Brazilian government’s veto powers, see Additional
information—Memorandum and articles of association—Common shares and preferred shares.
Our governance and compliance processes may fail to prevent regulatory penalties and reputational harm.
We operate in a global environment, and our activities straddle multiple jurisdictions and complex regulatory
frameworks with increased enforcement activities worldwide. Our governance and compliance processes, which
include the review of internal control over financial reporting, may not prevent future breaches of legal, accounting or
governance standards. We may be subject to breaches of our Code of Ethics and Conduct and business conduct
protocols and to instances of fraudulent behavior, corrupt practices and dishonesty by our employees, contractors or
other agents. Our failure to comply with applicable laws and other standards could subject us to fines, loss of
operating licenses and reputational harm.
10
Risk factors
It could be difficult for investors to enforce any judgment obtained outside Brazil against us or any of our
associates.
Our investors may be located in jurisdictions outside Brazil and could seek to bring actions against us or our
directors or officers in the courts of their home jurisdictions. The Company is a Brazilian company, and the majority
of our officers and directors are residents of Brazil. The vast majority of our assets and the assets of our officers and
directors are likely to be located in jurisdictions other than the home jurisdictions of our investors. It might not be
possible for investors to effect service of process within their home jurisdictions on us or on our officers or directors
who reside outside their home jurisdictions. In addition, a foreign judgment will be enforceable in the courts of Brazil
without a re-examination of the merits only if previously confirmed by the Brazilian Superior Court of Justice
(Superior Tribunal de Justiça), and confirmation will only be granted if the judgment: (a) fulfills all formalities
required for its enforceability under the laws of the country where it was issued; (b) was issued by a competent court
after due service of process on the defendant, as required under applicable law; (c) is not subject to appeal; (d) was
authenticated by a Brazilian consulate in the country in which it was issued and is accompanied by a sworn translation
into the Portuguese language; and (e) is not contrary to Brazilian national sovereignty, public policy or good morals.
Therefore, investors might not be able to recover against us or our directors and officers on judgments of the courts of
their home jurisdictions predicated upon the laws of such jurisdictions.
Risks relating to our depositary shares
If ADR holders or HDR holders exchange ADSs or HDSs, respectively, for the underlying shares, they risk
losing the ability to remit foreign currency abroad.
The custodian for the shares underlying our ADSs and HDSs maintains a registration with the Central Bank
of Brazil entitling it to remit U.S. dollars outside Brazil for payments of dividends and other distributions relating to
the shares underlying our ADSs and HDSs or upon the disposition of the underlying shares. If an ADR holder or HDR
holder exchanges its ADSs or HDSs for the underlying shares, it will be entitled to rely on the custodian’s registration
for only five business days from the date of exchange. Thereafter, an ADR holder or HDR holder may not be able to
obtain and remit foreign currency abroad upon the disposition of, or distributions relating to, the underlying shares
unless it obtains its own registration under Resolution No. 2,689 of the National Monetary Council (“CMN”), which
permits qualifying institutional foreign investors to buy and sell securities on the BM&FBOVESPA. For more
information regarding these exchange controls, see Additional information—Exchange controls and other limitations
affecting security holders. If an ADR holder or HDR holder attempts to obtain its own registration, it may incur
expenses or suffer delays in the application process, which could delay the receipt of dividends or other distributions
relating to the underlying shares or the return of capital in a timely manner.
The custodian’s registration or any registration obtained could be affected by future legislative changes, and
additional restrictions applicable to ADR holders or HDR holders, the disposition of the underlying shares or the
repatriation of the proceeds from disposition could be imposed in the future.
ADR holders and HDR holders may be unable to exercise preemptive rights relating to the shares underlying
their ADSs and HDSs.
The ability of ADR holders and HDR holders to exercise preemptive rights is not assured, particularly if the
applicable law in the holder’s jurisdiction (for example, the Securities Act in the United States or the Companies
Ordinance in Hong Kong) requires that either a registration statement be effective or an exemption from registration
be available with respect to those rights, as is in the case in the United States, or that any document offering
preemptive rights be registered as a prospectus, as is the case in Hong Kong. We are not obligated to extend the offer
of preemptive rights to holders of ADRs or HDRs, to file a registration statement in the United States, or to make any
other similar filing in any other jurisdiction, relating to preemptive rights or to undertake steps that may be needed to
make exemptions from registration available, and we cannot assure holders that we will file any registration statement
or take such steps.
11
ADR holders and HDR holders may encounter difficulties in the exercise of voting rights.
ADR holders and HDR holders do not have the rights of shareholders. They have only the contractual rights
set forth for their benefit under the deposit agreements. ADR holders and HDR holders are not permitted to attend
shareholders’ meetings, and they may only vote by providing instructions to the depositary. In practice, the ability of
a holder of ADRs or HDRs to instruct the depositary as to voting will depend on the timing and procedures for
providing instructions to the depositary either directly or through the holder’s custodian and clearing system. With
respect to ADSs for which instructions are not received, the depositary may, subject to certain limitations, grant a
proxy to a person designated by us.
The legal protections for holders of our securities differ from one jurisdiction to another and may be
inconsistent, unfamiliar or less effective than investors anticipate.
We are a global company with securities traded in several different markets and investors located in many
different countries. The legal regime for the protection of investors varies around the world, sometimes in important
ways, and investors in our securities should recognize that the protections and remedies available to them may be
different from those to which they are accustomed in their home markets. We are subject to securities legislation in
several countries, which have different rules, supervision and enforcement practices. The only corporate law
applicable to us is the law of Brazil, with its specific substantive rules and judicial procedures. We are subject to
corporate governance rules in several jurisdictions where our securities are listed, but as a foreign private issuer, we
are not required to follow many of the corporate governance rules that apply to U.S. domestic issuers with securities
listed on the New York Stock Exchange, and we are not subject to the U.S. proxy rules. Similarly, we have been
granted waivers and exemptions from certain requirements of the Rules Governing the Listing of Securities on The
Stock Exchange of Hong Kong Limited (“HKEx Listing Rules”), the Codes on Takeovers and Mergers and Share
Repurchases and the Securities and Futures Ordinance of Hong Kong that are generally applicable to issuers listed in
Hong Kong.
PRESENTATION OF FINANCIAL INFORMATION
Our financial statements as of and for each of the years ended in December 31, 2013, 2012 and 2011
contained in this annual report have been presented in U.S. Dollars and prepared in accordance with International
Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
We have discontinued the preparation of financial statements in accordance with generally accepted
accounting principles in the United States (“U.S. GAAP”). We have adopted IFRS, as issued by the IASB, as the basis
for the preparation and presentation of our financial statements and reporting to the SEC beginning with our financial
statements as of and for the year ending December 31, 2013 presented in this annual report. This annual report and
future reports filed with the SEC will only present financial information prepared in accordance with IFRS.
We first adopted IFRS, as issued by the IASB, for our financial statements for the year ended December 31,
2010, which we published and filed with the CVM. Our transition date from Brazilian GAAP to IFRS was January 1,
2009, and we used certain mandatory or elective exceptions under IFRS 1 in those financial statements. For a
reconciliation of our financial statements in accordance with IFRS from U.S. GAAP, see Note 33 to our consolidated
financial statements.
12
SELECTED FINANCIAL DATA
The tables below present selected consolidated financial information as of and for the periods indicated. You
should read this information together with our consolidated financial statements in this annual report.
Consolidated statement of income data
Net operating revenues ................................................................................
Cost of products and services ......................................................................
Selling, general and administrative expenses ..............................................
Research and development ..........................................................................
Other operating expenses, net ......................................................................
Impairment of non-current assets ................................................................
Gain (loss) on measurement or sales of non-current assets ........................
Operating income .........................................................................................
Non-operating income (expenses):
Financial income (expenses), net .................................................................
Equity results from associates and joint controlled entities ........................
Results on sale of investments from associates and joint controlled
entities ........................................................................................................
Impairment on investments ..........................................................................
Income before income taxes ........................................................................
Income taxes ................................................................................................
Income from continuing operations .............................................................
Income (loss) attributable to non-controlling interests ................................
Net income attributable to Company’s shareholders, from continuing
operations ...................................................................................................
Loss from discontinued operations, net of tax .............................................
Net income attributable to Company’s shareholders ..................................
Income (loss) attributable to non-controlling interests ................................
Net income ...................................................................................................
Total cash paid to shareholders(1) ...............................................................
2009
24,771
(15,035)
(1,064)
(976)
(1,553)
-
-
6,143
874
440
17
-
7,474
(2,080)
5,394
107
5,287
(6)
5,281
107
5,388
2,724
For the year ended December 31,
2012
2011
2010
(US$ million)
60,075
(24,528)
(2,271)
(1,671)
(2,775)
-
1,494
30,324
46,424
(19,829)
(1,663)
(876)
(2,214)
-
-
21,842
46,553
(25,390)
(2,172)
(1,465)
(3,588)
(4,023)
(506)
9,409
(1,533)
983
-
-
21,292
(3,712)
17,580
190
17,390
(133)
17,257
190
17,447
3,000
(3,549)
1,138
-
-
27,913
(5,265)
22,648
(233)
22,881
(86)
22,795
(233)
22,562
9,000
(4,022)
645
-
(1,941)
4,091
1,174
5,265
(257)
5,522
(68)
5,454
(257)
5,197
6,000
2013
46,767
(24,245)
(1,302)
(801)
(2,843)
(2,298)
(215)
15,063
(8,332)
469
41
-
7,241
(6,833)
408
(178)
586
(2)
584
(178)
406
4,500
(1) Consists of total cash paid to shareholders during the period, whether classified as dividends or interest on shareholders’ equity.
Earnings per share
Earnings per share:
Per common share .......................................................................................
Per preferred share ......................................................................................
Weighted average number of shares outstanding (in thousands)(1)(2):
Common shares ...........................................................................................
Preferred shares ...........................................................................................
Treasury common shares underlying convertible notes .............................
Treasury preferred shares underlying convertible notes ............................
Total ............................................................................................................
Distributions to shareholders per share(3):
Expressed in US$ ........................................................................................
Expressed in R$ ..........................................................................................
2009
For the year ended December 31,
2012
2011
2010
(US$, except as noted)
2013
0.98
0.98
3.25
3.25
4.34
4.34
1.06
1.06
0.11
0.11
3,181,706
2,030,700
74,998
77,580
5,364,984
3,210,023
2,035,783
18,416
47,285
5,311,507
3,197,063
1,984,030
18,416
47,285
5,246,794
3,172,179
1,933,491
-
-
5,105,670
3,185,653
1,967,722
-
-
5,153,375
0.53
1.01
0.57
0.98
1.74
2.89
1.17
2.26
0.87
1.81
(1) Each common ADS represents one common share and each preferred ADS represents one preferred share.
(2) Changes in the number of shares outstanding reflect share repurchase programs conducted from May 2011 to November 2011. For more
information see Share ownership and trading—Purchases of equity securities by the issuer and affiliated purchasers.
(3) Our distributions to shareholders may be classified as either dividends or interest on shareholders’ equity. In many years, part of each
distribution has been classified as interest on shareholders’ equity and part has been classified as dividends. For information about
distributions paid to shareholders, see Share ownership and trading—Distributions.
13
Balance sheet data
Current assets ...................................................................................
Property, plant and equipment, net and intangible assets ................
Investments in affiliated companies and joint ventures and other
investments .....................................................................................
Other assets.......................................................................................
Total assets .......................................................................................
Current liabilities ..............................................................................
Liabilities directly associated with non-current assets held for
sale and discontinued operations ...................................................
Long-term liabilities(1) ....................................................................
Long-term debt(2) ............................................................................
Total liabilities ..................................................................................
Results from operations with non-controlling shareholders ............
Shareholders’ equity:
Capital stock .....................................................................................
Additional paid-in capital .................................................................
Mandatorily convertible notes—common ADSs .............................
Mandatorily convertible notes—preferred ADSs ............................
Retained earnings and revenue reserves ..........................................
Total Company shareholders’ equity ...............................................
Noncontrolling interests ...................................................................
Total shareholders’ equity ................................................................
Total liabilities and shareholders’ equity .........................................
(1) Excludes long-term debt.
(2) Excludes current portion of long-term debt.
2009
2010
At December 31,
2011
(US$ million)
2012
2013
20,459
69,042
4,446
5,527
99,474
9,208
-
12,764
19,902
41,874
(98)
43,869
(98)
1,350
1,048
8,826
54,995
2,605
57,600
99,474
31,559
86,115
4,394
4,559
126,627
17,987
-
17,214
21,591
56,792
1,413
45,266
1,413
236
528
19,866
67,309
2,526
69,835
126,627
21,538
91,863
8,013
5,502
126,916
11,093
(cid:31)
16,470
21,538
49,101
7
60,578
7
191
422
14,902
76,100
1,715
77,815
126,916
22,069
94,093
6,384
8,031
130,577
12,402
169
16,380
26,799
55,750
(400)
60,578
(552)
-
-
13,213
73,239
1,588
74,827
130,577
20,611
88,536
3,584
11,866
124,597
9,164
448
22,379
27,670
59,661
(400)
60,578
(552)
-
-
3,299
63,325
1,611
64,936
124,597
In 2013, we started to account for our employment benefits according to the revised IAS 19 – Employee
benefits (“IAS 19R”). In accordance with its transition provisions, we applied this standard retrospectively as of and
for the years ended December 31, 2012 and 2011. For further details on the effects of retroactive application of IAS
19R, see Note 6 to our consolidated financial statements. We have not restated our selected consolidated financial
information set forth above as of and for the years ended December 31, 2010 and 2009, because we do not consider the
impact of IAS 19R material for those periods.
14
I. INFORMATION ON THE COMPANY
BUSINESS OVERVIEW
Summary
We are one of the largest metals and mining companies in the world and the largest in the Americas, based on market
capitalization. We are the world’s largest producer of iron ore and iron ore pellets and the world’s second-largest producer of
nickel. We also produce manganese ore, ferroalloys, coal, copper, platinum group metals (“PGMs”), gold, silver, cobalt and
potash, phosphates and other fertilizer nutrients. To support our growth strategy, we are engaged in mineral exploration efforts
in 11 countries around the globe. We operate large logistics systems in Brazil and other regions of the world, including
railroads, maritime terminals and ports, which are integrated with our mining operations. In addition, we have a portfolio of
maritime freight assets, floating transfer stations and a distribution center to support the distribution of iron ore worldwide.
Directly and through affiliates and joint ventures, we also have investments in energy and steel businesses.
The following table presents the breakdown of total net operating revenues attributable to each of our main lines of
business.
Bulk materials:
Iron ore ....................................................
Iron ore pellets ........................................
Manganese and ferroalloys .....................
Coal .........................................................
Other ferrous products and services .......
Subtotal – bulk materials ...............
Base metals:
Nickel and other products(1) ..................
Copper(2) ................................................
Subtotal – base metals ...................
Fertilizer nutrients ...........................................
Other(3) ...........................................................
Total net operating revenues ...........................
2011
Year ended December 31,
2012
2013
US$ million
% of total
US$ million
% of total
US$ million
% of total
36,416
7,938
676
1,058
585
46,673
8,118
1,103
9,221
3,322
859
60,075
60.6%
13.2
1.1
1.8
1.0
77.7
13.5
1.8
15.3
5.5
1.4
100.0%
26,931
6,560
543
1,092
246
35,372
5,975
1,156
7,131
3,570
480
46,553
57.9%
14.1
1.2
2.3
0.5
76.0
12.8
2.5
15.3
7.7
1.0
100.0%
28,137
6,000
523
1,010
132
35,802
5,839
1,447
7,286
2,814
865
46,767
60.2%
12.8
1.1
2.2
0.3
76.6
12.5
3.1
15.6
6.0
1.8
100.0%
Includes nickel co-products and by-products (copper, precious metals, cobalt and others).
(1)
(2) Does not include copper produced as a nickel co-product.
(3)
Includes pig iron and energy.
• Bulk materials:
ο
Iron ore and iron ore pellets. We operate four systems in Brazil for producing and distributing iron ore,
which we refer to as the Northern, Southeastern, Southern and Midwestern Systems. The Northern and the
Southeastern Systems are fully integrated, consisting of mines, railroads and a maritime terminal and a port.
The Southern System consists of three mining sites and two maritime terminals. We operate 10 pellet plants
in Brazil and two in Oman. The operations of three of our pellet plants in Brazil have been suspended since
the fourth quarter of 2012 in response to market conditions. We also have a 50% stake in a joint venture that
owns three integrated pellet plants in Brazil, and we have 25% stakes in two pellet companies in China.
15
ο Manganese and ferroalloys. We conduct our manganese mining operations through subsidiaries in Brazil,
and we produce several types of manganese ferroalloys through a wholly-owned subsidiary in Brazil.
ο Coal. We produce metallurgical and thermal coal through Vale Moçambique, S.A. (“Vale Moçambique”),
which operates assets in Mozambique, and Rio Doce Australia Pty Ltd (“Vale Australia”), which operates
coal assets in Australia through wholly-owned subsidiaries and unincorporated joint ventures. In
Mozambique, we are ramping up operations in Moatize, which includes both metallurgical and thermal coal.
We also have minority interests in Chinese coal and coke producers.
• Base metals:
ο Nickel. Our principal nickel mines and processing operations are conducted by our wholly-owned subsidiary
Vale Canada Limited (“Vale Canada”), which has mining operations in Canada and Indonesia. We also own
and operate, or have interests in, nickel refining facilities in the United Kingdom, Japan, Taiwan, South
Korea and China. We are currently ramping up our operations in New Caledonia. At the end of 2013, we
resumed the ramp-up of our nickel operations in Onça Puma, Brazil.
ο Copper. In Brazil, we produce copper concentrates at Sossego and Salobo, in Carajás, in the Brazilian state
of Pará. Salobo operations are ramping up. In Canada, we produce copper concentrates, copper anodes and
copper cathodes in conjunction with our nickel mining operations at Sudbury and Voisey’s Bay. In Zambia,
our joint venture produces copper concentrates at Lubambe, located in the Zambian Copperbelt.
ο Cobalt, PGMs and other precious metals. We produce cobalt as a by-product of our nickel mining and
processing operations in Canada and refine the majority of it at our Port Colborne facilities, in the Province of
Ontario, Canada. We also produce cobalt as a by-product of our nickel operations in New Caledonia, which
we are currently ramping up. We produce PGM as by-products of our nickel mining and processing
operations in Canada. The PGMs are concentrated at our Port Colborne facilities and refined at our precious
metals refinery in Acton, England. We produce gold and silver as by-products of our nickel mining and
processing operations in Canada, and gold as a by-product of our copper mining in Brazil. Some of the
precious metals from our Canadian operations are upgraded at our Port Colborne facilities, and all such
precious metals are refined by unrelated parties in Canada and other countries.
• Fertilizer nutrients:
ο We produce potash in Brazil, with operations in Rosario do Catete, in the state of Sergipe. Our main
phosphate operations are conducted by our subsidiary Vale Fertilizantes S.A. (“Vale Fertilizantes”), which
holds most of our fertilizer assets in Brazil and is the largest Brazilian producer of phosphate rock, phosphate
and nitrogen fertilizers. We also have operations in Bayóvar, a phosphate rock mine in Peru.
16
Business overview
• Logistics infrastructure:
ο We are a leading operator of logistics services in Brazil and other regions of the world, with railroads,
maritime terminals, distribution centers and ports. Two of our four iron ore systems include an integrated
railroad network linked to port and terminal facilities. We also have an interest in MRS Logística S.A.
(“MRS”), which transports our iron ore products from the Southern System mines to our maritime terminals.
We are constructing a world-class logistics infrastructure to support our operations in Central and Eastern
Africa. We own and charter dry bulk vessels to transport the products that we sell on a cost and freight
(“CFR”) basis to customers.
Business strategy
Our mission is to transform natural resources into prosperity and sustainable development. Our vision is to be the
number one global natural resources company in creating long-term value through excellence and passion for people and the
planet. We are committed to investing only in world-class assets, with long life, low cost, expandability and high quality output,
capable of creating value through the cycles. A lean management organization, with teamwork and accountability, excellence
in project execution and firm commitment to transparency and shareholder value creation are principles of paramount
importance that guide us towards the achievement of our goals. Health and safety, investment in human capital, a positive work
environment and sustainability are also critical to our long-term competitiveness.
We aim to maintain our leadership position in the global iron ore market and to grow through world-class assets while
exercising disciplined capital management and maintaining a low cost structure. Iron ore and nickel will continue to be our
main businesses while we work to maximize the value of our copper, coking coal and fertilizer nutrients businesses. To
enhance our competitiveness, we will continue to invest in our railroads and our global distribution network. We seek
opportunities to make strategic partnerships and complement our portfolio through acquisitions, while focusing on disciplined
capital management. We have also disposed of assets that we have determined to be non-strategic or in order to optimize the
structure of our business portfolio. The divestiture of assets improves capital allocation and unlocks funds to finance the
execution of top priority projects. The preservation of our credit ratings is one of our basic commitments. Below are the
highlights of our major business strategies.
Maintaining our leadership position in the global iron ore market
We continue to consolidate our leadership in the global iron ore market. In 2013, we had an estimated market share of
21.9% of the total volume traded in the seaborne market, slightly below the previous year. We are committed to maintaining
our leadership position in the global iron ore market, by focusing our product line to capture industry trends, increasing our
production capacity in line with demand growth, controlling costs, strengthening our logistics infrastructure of railroads, ports,
shipping and distribution centers, and strengthening relationships with customers. Our diversified portfolio of high quality
products, strong technical marketing strategy, efficient logistics and long-standing relationships with major customers will help
us achieve this goal.
Enhancing our logistics capacity to support our bulk materials business
We believe that the quality of our railway assets and extensive experience as a railroad and port operator position us as
a leader in the logistics business in Brazil. We have been expanding the capacity of our railroads primarily to meet the needs of
our iron ore business.
17
To support our commercial strategy for our iron ore business, we are building a global distribution network. We
operate a distribution center in Oman and two floating transfer stations (“FTS”) in the Philippines, and we continue to invest in
a fleet of Valemax vessels primarily dedicated to transporting iron ore from Brazil to Asia on a shuttle basis. We are also
investing in the development of a distribution center in Malaysia in order to enhance the competitiveness of our iron ore
business in the region.
In order to position ourselves for the future expansion of our coal production in Mozambique and leverage our
presence in Africa, we are currently expanding railroad capacity by rehabilitating the existing network and building new
railroad tracks to develop the logistics corridor from our mine to a new port to be built at Nacala-à-Velha.
Maximization of value in the nickel and copper businesses
We are one of the world’s largest nickel producers, with large-scale, long-life and low-cost operations, a substantial
resource base, diversified mining operations producing nickel from nickel sulfides and laterites and advanced technology. We
have refineries in North America, South America, Europe and Asia, which produce an array of products for use in most nickel
applications. We are a leading producer of high-quality nickel products for non-stainless steel applications, such as plating,
alloy steels, high nickel alloys and batteries, which represented 63% of our nickel sales in 2013. Our long-term goal is to
strengthen our leadership in the nickel business. We continue to optimize our operational flowsheet and to review our asset
utilization aiming to increase cost efficiency and improve returns.
The growth of our copper business will allow us to leverage the processing plants in our Sossego and Salobo
operations by using existing facilities and minimizing capital expenditures. We operate the Sossego copper mine and are
ramping up our copper operations at Salobo, both located in the Carajás region. These copper mines benefit from our
infrastructure facilities serving the Northern System. The gold we produce at Sossego and Salobo increases the total aggregated
value of those operations. We are also ramping up our copper operations at Lubambe, in Zambia, through a joint venture. We
also recover copper in conjunction with our nickel operations, principally at Sudbury and Voisey’s Bay, in Canada.
Developing the coal business
We have coal operations in Moatize (Mozambique) and Australia, and we hold minority interests in two joint ventures
in China. We intend to continue pursuing organic growth in the metallurgical coal business mainly through the expansion of
the Moatize operations in Mozambique.
Maintaining growth options in fertilizer nutrients business
We have potash and phosphate rock operations as well as potential investments in greenfield and brownfield projects
that we believe will allow us to benefit from certain demographic trends: the growing world population, an increase in per
capita income in emerging economies, higher global consumption of proteins and fertilizer-driven agricultural expansion in
Brazil. We operate phosphate assets and a potash mine in Brazil (Taquari-Vassouras) and a phosphate rock operation in Peru
(Bayóvar). Our portfolio also includes potash and phosphate projects and mineral exploration initiatives.
Development of our resource base
We are taking advantage of our global presence to develop mineral exploration initiatives. We conduct brownfield
exploration to maximize results from existing mining areas and to support both projects and operations. We conduct our
greenfield exploration activities in 11 countries, with Brazil, Peru, Chile, Australia and Indonesia representing 82% of our
expenditures budgeted for 2014. In particular, we seek to identify opportunities and develop deposits with the potential for
large scale production at low cost. Our exploration activities include iron ore, nickel, copper, coal, potash and phosphates.
18
Business overview
Optimizing our energy matrix
As a large consumer of electricity, we have invested in power generation projects to support our operations and to
reduce our exposure to the volatility of energy prices and regulatory uncertainties. Accordingly, we have developed
hydroelectric power generation plants in Brazil, Canada and Indonesia, and we currently generate 59% of our worldwide
electricity needs from our own plants. We are seeking to develop a cleaner energy matrix by investing to develop clean energy
sources such as biofuels and focusing on reducing our carbon footprint.
Integrating sustainability into our business
We are committed to integrating sustainability considerations into our business strategy, as we cannot grow without
taking into account the physical limits of our planet or the well-being of communities in which we operate. Since 2013, we have
incorporated environmental and social projects directly into our strategic planning, moving away from a stand-alone
investment model. We practice sustainable mining by dedicating resources to education and research on applying technologies
to use natural resources efficiently. In addition, we actively support an open dialogue with our main stakeholders (governments,
communities, customers, suppliers, employees and others), because we recognize that only by acting together can we achieve
sustainable growth and contribute to social welfare.
Significant changes in our business
We summarize below major events related to our organic growth, divestitures, acquisitions and other significant
developments in our business since the beginning of 2013.
Organic growth
We have an extensive program of investments in the organic growth of our businesses. Our main investment projects
are summarized under —Capital expenditures. The most significant projects that have come on stream since the beginning of
2013 are summarized below:
• Carajás plant 2 (formerly known as Carajás Additional 40 Mtpy). In the second half of 2013, we completed
the construction of an iron ore dry processing plant in Carajás, in the Brazilian state of Pará, which is
expected to reduce our operating costs and increase our productivity. The estimated nominal capacity of this
project is 40 Mtpy.
• Carajás CLN 150Mtpy. In the second half of 2013, we completed the Carajás CLN 150 Mtpy project, which
resulted in the increase of the Northern System’s railway and port capacity. The project included the
construction of a fourth pier at the Ponta da Madeira maritime terminal, located in the Brazilian state of
Maranhão, increasing the terminal’s capacity to 150 Mtpy. This project raised EFC’s estimated nominal
logistics capacity to 128 Mtpy.
• Conceição Itabiritos. In the second half of 2013, we also completed the construction of a concentration plant
in the Southeastern System, in the Brazilian state of Minas Gerais. The estimated additional nominal capacity
of the project is 12 Mtpy of pellet feed.
• Long Harbour. In the second half of 2013, we completed the construction of our hydrometallurgical facility
in Long Harbour, in the province of Newfoundland and Labrador, Canada. The refinery has an estimated
nominal capacity of 50,000 tpy of finished nickel with associated copper and cobalt co-product streams,
without additional capacity. We have initiated commissioning activities and expect to commence production
in the second quarter of 2014.
19
• Totten. In the second half of 2013, we also concluded construction of our nickel-copper mine in Sudbury,
Ontario, Canada. The project has an estimated nominal capacity of 8,000 tpy nickel and 10,000 tpy of
copper.
Dispositions and asset sales
We are always seeking to optimize the structure of our portfolio of businesses in order to achieve the most efficient
allocation of capital. To that end, we dispose of assets that we have determined to be non-strategic. We summarize below our
most significant dispositions and asset sales since the beginning of 2013.
•
•
•
•
•
•
•
Sale of gold streams from Salobo and Sudbury mines – In February 2013, we sold to Silver Wheaton Corp.
and Silver Wheaton (Caymans) Ltd. (together, “Silver Wheaton”) 25% of the gold produced as a by-product
at our Salobo copper mine, in Brazil, for the life of that mine, and 70% of the gold produced as a by-product
at our Sudbury nickel-copper mines, in Canada, for 20 years. We received an initial cash payment of US$1.9
billion and 10 million warrants exercisable into Silver Wheaton shares, with a strike price of US$65.0 and a
10-year term, and ongoing payments of the lesser of US$400 (which in the case of Salobo is subject to a 1%
annual inflation adjustment) and the prevailing market price, for each ounce of gold that we deliver under the
agreement.
Sale of interests in Hydro – In November 2013, we sold our entire 22% interest in Norsk Hydro ASA
(“Hydro”), a major aluminum producer listed on the Oslo Stock Exchange and the London Stock Exchange,
in an offering that generated gross cash proceeds of US$1.811 billion. We originally acquired the interest in
2011, as part of the consideration for transferring a substantial part of our aluminum business in Brazil to
Hydro.
Sale of stake in oil and gas concessions – In November 2013, we entered into an agreement to sell our 20%
stake in onshore concessions BT-PN-2 and BT-PN-3 in the Parnaíba Basin, Brazil to a subsidiary of GDF
Suez. The transaction amounts to US$8 million in cash plus potential proceeds of up to US$22 million,
subject to the purchaser’s final investment decision to develop and produce under these concessions. The
conclusion of this sale will relieve us from committed capital expenditures of approximately US$16 million
until June of 2014. The closing of this transaction is subject to customary conditions precedent and regulatory
approvals.
Sale of Tres Valles – In December 2013, we concluded the sale of Sociedad Contractual Minera Tres Valles
(“Tres Valles”), a copper mine business in the Coquimbo region in Chile, to Inversiones Porto San Giorgio
S.A, controlled by Vecchiola S.A, for US$25 million. The transaction includes the sale of all of our
90%-equity interest in Tres Valles and other mineral rights we held in the Coquimbo region.
Sale of Log-in – In December 2013, we sold our entire 31.3% stake in Log-in Logística Intermodal S.A.
(“Log-in”) through an auction on the BM&FBOVESPA. We received a total of US$94 million from this
sale.
Sale of Fosbrasil – In December 2013, we agreed to sell our entire 44.25% stake in Fosbrasil, a company that
produces purified phosphoric acid in Cajati, in the Brazilian state of São Paulo, to Israel Chemicals Ltd
(“ICL”) for US$45 million. The conclusion of this transaction is subject to customary conditions precedent
and regulatory approvals.
Sale of stakes in VLI – In 2013, we agreed to sell an aggregate of 62.4% of our wholly-owned subsidiary VLI
S.A. (“VLI”). In September 2013, we agreed to transfer 20% of the total share capital to Mitsui & Co., Ltd.
(“Mitsui”), for R$1.5 billion, and 15.9% to the investment fund of a Brazilian employee benefits fund called
Fundo de Garantia por Tempo de Serviço –FGTS (“FI-FGTS”), for R$1.2 billion. All of the cash proceeds
from the sale to FI-FGTS and R$800.0 million of the proceeds from Mitsui will consist of a cash contribution
to VLI in consideration of the issue of new shares to Mitsui and FI-FGTS. The cash contribution to VLI will
be used to finance part of VLI’s investment plan. We will receive the remaining R$709.0 million directly
from Mitsui in consideration of the transfer of VLI shares held by Vale. In December 2013, we entered into
an agreement with an investment fund managed by Brookfield Asset Management (“Brookfield”) for the sale
of an additional 26.5% stake in VLI, for R$2.0 billion, which we will receive directly from Brookfield in
20
Business overview
consideration of the transfer of VLI shares held by Vale. Each of these transactions is subject to conditions
precedent, including, in the case of the transaction with Brookfield, approval by the antitrust authorities. On
March 20, 2014, the antitrust authorities approved the transactions with Mitsui and FI-FGTS. Upon
completion of these transactions, we will hold 37.6% of VLI’s total share capital, and will enter into a
shareholders’ agreement with Mitsui, FI-FGTS and Brookfield.
Acquisitions
• Completion of the Belvedere acquisition – In February 2013, we concluded the acquisition from a subsidiary
of Aquila Resources Limited (“Aquila”) of the remaining 24.5% stake that we did not own in the Belvedere
underground coal project (“Belvedere”) in Queensland, Australia. The price of A$150 million (US$156
million) was the fair market value determined by an independent expert engaged by Vale and Aquila.
Belvedere is still in an early stage of development and, consequently, its implementation is subject to
approval by our Board of Directors. According to our preliminary estimates, Belvedere has the potential to
reach a production capacity up to 7.0 million metric tons per year of mainly coking coal.
•
Increased stake in Capim Branco I and II hydroelectric power plants – In March 2013, we acquired an
additional 12.47% stake in Capim Branco I and II hydroelectric power plants from Suzano Papel e Celulose
S.A. for US$112 million. Through this acquisition, our stake in Capim Branco I and II increased to 60.89%,
which stake gives us the right to receive around 1,524 gigawatt hours of energy per year until the end of the
concession in 2036.
Restructuring our investments in power generation
In December 2013, we entered into several agreements with CEMIG Geração e Transmissão S.A. (“CEMIG GT”) to:
(i) sell 49% of our 9% stake in Norte Energia S.A. (“Norte Energia”), the company established to develop and operate the Belo
Monte hydroelectric plant, in the Brazilian state of Pará, to CEMIG GT, for approximately R$206 million; and (ii) create two
distinct joint ventures, which will hold the power generation assets and projects described below:
• The first joint venture is Aliança Norte Energia Participações S.A. (“Aliança Norte Energia”), which will be
51% owned by us and 49% by CEMIG GT. We will convey our current direct 9.0% interest in Norte Energia
to Aliança Norte Energia. As a result, our interest in the Belo Monte project will be reduced to 4.59%, and we
are seeking to reduce our guarantee of the financing for the Belo Monte project to the corresponding
percentage.
• The second joint venture is Aliança Geração de Energia S.A. (“Aliança Geração”). We will own 55% of
Aliança Geração, which will hold our and CEMIG GT’s interests in the following hydroelectric power plants:
Porto Estrela, Igarapava, Funil, Capim Branco I e II, Aimorés and Candonga. These plants have an aggregate
attributable installed capacity of 1,158 MW and assured energy of 652 average MW. We will enter into
long-term contracts with Aliança Geração in order to maintain the same amount of energy supplied to our
operations.
These transactions are subject to regulatory approvals and other conditions precedent. The final amounts of these
transactions are subject to certain adjustments in accordance with the terms and conditions established in the investment
agreements.
Suspension of the Rio Colorado project in Argentina
In March 2013, we suspended the implementation of the Rio Colorado project in Argentina, because the
circumstances of the project under current conditions would not enable results in line with our commitment to discipline in
capital allocation and value creation. We have been and will keep honoring our commitments related to the concessions and
reviewing alternatives to enhance the prospects for the project, and we will subsequently evaluate whether to resume it. In 2013,
we recognized an impairment on our potash assets related to the Rio Colorado project. For more information see Note 16 to our
consolidated financial statements.
21
Obtaining environmental licenses for S11D and CLN S11D projects
In May 2013, we received the environmental license to construct a 101 km rail spur that will connect the Carajás S11D
project to the Carajás railroad (“EFC”), which is part of the CLN S11D project. In July 2013, we obtained the installation
license for our Carajás S11D iron ore project, which authorizes construction of the plant and development of the mine. The
S11D project consists of development of a mine, processing plant, railway and a port, with an estimated nominal capacity of 90
Mtpy of iron ore. The CLN S11D project is expected to increase EFC’s estimated nominal logistics capacity to approximately
230 Mtpy.
Participation in the REFIS
In November 2013, we elected to participate in the federal tax settlement program (“REFIS”) for payment of Brazilian
corporate income tax and social contribution on the net income of our non-Brazilian subsidiaries and affiliates from 2003 to
2012.
Under the program, we paid US$2.6 billion in 2013, including an upfront payment and an initial installment, and the
remaining US$7.0 billion to be paid in 178 further monthly installments, accruing interest based on the Central Bank of Brazil’s
overnight interest rate (“SELIC”). Our participation in the REFIS resulted in a substantial reduction in the amounts in dispute
and is consistent with our goal of eliminating uncertainties and focusing on our core businesses, while preserving potential
benefits from legal challenges to the tax regime for foreign subsidiaries. Our participation in the REFIS had a substantial effect
on our 2013 financial performance. For more information about the REFIS, see Legal proceedings—Litigation on Brazilian
taxation of foreign subsidiaries.
Resumption of Onça Puma operations
At the end of 2013, we resumed our nickel operations at Onça Puma, which had been suspended since June 2012 as a
result of damages to the facility’s two furnaces. We rebuilt one of the furnaces, and the nominal capacity of Onça Puma with
only one furnace operating will be approximately 25,000 tpy.
22
LINES OF BUSINESS
Our principal lines of business consist of mining and related logistics. We also have energy assets to supply part of our
consumption. This section presents information about operations, production, sales and competition and is organized as
follows.
1. Bulk materials
1.1 Iron ore and iron ore pellets
1.1.1 Iron ore operations
1.1.2 Iron ore production
1.1.3 Iron ore pellets operations
1.1.4 Iron ore pellets production
1.1.5 Customers, sales and marketing
1.1.6 Competition
1.2 Coal
1.2.1 Operations
1.2.2 Production
1.2.3 Customers and sales
1.2.4 Competition
1.3 Manganese ore and ferroalloys
1.3.1 Manganese ore operations and production
1.3.2 Ferroalloys operations and production
1.3.3 Manganese ore and ferroalloys: sales and
competition
2. Base metals
2.1 Nickel
2.1.1 Operations
2.1.2 Production
2.1.3 Customers and sales
2.1.4 Competition
2.2 Copper
2.2.1 Operations
2.2.2 Production
2.2.3 Customers and sales
2.2.4 Competition
2.3 PGMs and other precious metals
2.4 Cobalt
3. Fertilizer nutrients
3.1 Phosphates
3.2 Potash
3.3 Customers and sales
3.4 Competition
4. Infrastructure
4.1 Logistics
4.1.1 Railroads
4.1.2 Ports and maritime terminals
4.1.3 Shipping
4.2 Energy
5. Other investments
23
24
1. Bulk materials
Our bulk materials business includes iron ore mining, iron ore pellet production, coal production, manganese
ore mining and ferroalloy production. Each of these activities is described below.
Lines of business
1.1 Iron ore and Iron ore pellets
1.1.1 Iron ore operations
We conduct our iron ore business in Brazil primarily at the parent-company level, through our wholly-owned
subsidiary Mineração Corumbaense Reunida S.A. (“MCR”) and through our subsidiary MBR. Our mines, all of
which are open pit, and their related operations are mainly concentrated in three systems: the Southeastern, Southern
and Northern Systems, each with its own transportation capabilities. We also conduct mining operations in the
Midwestern System and through Samarco Mineração S.A. (“Samarco”), a joint venture with BHP Billiton plc in
which we have a 50% equity stake. We conduct each of our iron ore operations in Brazil under concessions from the
federal government granted for an indefinite period. For more information about these concessions, see Regulatory
matters—Mining rights and regulation of mining activities.
25
Company/
Mining System
Location
Description/History
Mineralization
Operations
Power Source
Access / Transportation
Vale .......................
Northern System Carajás, state of Pará
Open-pit mines and ore-processing
plants. Divided into Serra Norte, Serra
Sul and Serra Leste (northern, southern
and eastern ranges). Since 1985, we
have been conducting mining activities
in the northern range, which is divided
into three main mining areas (N4W, N4E
and N5). A new beneficiation plant
started up in the last quarter 2013.
High grade hematite
(66.7% on average).
Open-pit mining operations. Beneficiation
process consists simply of sizing
operations, including screening,
hydrocycloning, crushing and filtration.
Output from the beneficiation process
consists of sinter feed, pellet feed and lump
ore.
Supplied through
the national
electricity grid.
Acquired from
regional utility
companies.
EFC railroad transports the
iron ore to the Ponta da
Madeira maritime terminal in
the state of Maranhão.
Southeastern
System
Iron Quadrangle, state
of Minas Gerais
Southern System Iron Quadrangle, state
of Minas Gerais
Three sites: Itabira (two mines, with
three major beneficiation plants), Minas
Centrais (three mines, with three major
beneficiation plants and one secondary
plant) and Mariana (three mines, with
four major beneficiation plants).
Ore reserves with high
ratios of itabirite ore
relative to hematite ore.
Itabirite ore has iron grade
of 35-60% and requires
concentration to achieve
shipping grade.
Open-pit mining operations. We generally
process the run-of-mine by means of
standard crushing, classification and
concentration steps, producing sinter feed,
lump ore and pellet feed in the
beneficiation plants located at the mining
sites.
Three major sites: Minas Itabirito (four
mines, three major beneficiation plants
and three secondary beneficiation
plants); Vargem Grande (three mines
and two major beneficiation plants); and
Paraopeba (four mines and four
beneficiation plants).
Ore reserves with high
ratios of itabirite ore
relative to hematite ore.
Itabirite ore has iron grade
of 35-60% and requires
concentration to achieve
shipping grade.
Open-pit mining operations. We generally
process the run-of-mine by means of
standard crushing, classification and
concentration steps, producing sinter feed,
lump ore and pellet feed in the
beneficiation plants located at the mining
sites.
Midwestern
System(1)
State of Mato Grosso do
Sul
Comprised of the Urucum and Corumbá
mines. Open-pit mining operations.
Urucum and Corumbá ore
reserves comprised by
hematite ore, which
generates lump ore
predominantly.
Open-pit mining operations. The
beneficiation process for the run of mine
consists of standard crushing and
classification steps, producing lump and
fines.
Supplied through
the national
electricity grid.
Acquired from
regional utility
companies or
produced directly
by Vale.
Supplied through
the national
electricity grid.
Acquired from
regional utility
companies or
produced directly
by Vale.
Supplied through
the national
electricity grid.
Acquired from
regional utility
companies.
Samarco ................ Iron Quadrangle, state
of Minas Gerais
Integrated system comprised of two
mines, two beneficiation plants, two
pipelines, three pellet plants and a port.
Itabirite type.
Open-pit mining operations. The two
beneficiation plants, located at the site,
process the run-of-mine by means of
standard crushing, milling and
concentration steps, producing pellet feed
and sinter feed.
Supplied through
the national
electricity grid.
Acquired from
regional utility
companies.
EFVM railroad connects these
mines to the Tubarão port.
MRS, an affiliate railway
company, transports our iron
ore products from the mines to
our Guaíba Island and Itaguaí
maritime terminals in the state
of Rio de Janeiro.
Products delivered to
customers through barges
traveling along the Paraguay
and Paraná rivers.
Samarco mines supply the
Samarco pellet plants using
two pipelines extending
approximately 400 kilometers.
These pipelines transport the
iron ore from the beneficiation
plants to the pelletizing plants,
and from the pelletizing plants
to the port in the state of
Espírito Santo.
(1) Part of our operations in the Midwestern System is conducted through MCR.
26
Lines of business
1.1.2 Iron ore production
The following table sets forth information about our iron ore production.
Production for the year ended December 31,
Mine/Plant
Type
2011
2012
(million metric tons)
2013
2013
Process
Recovery
(%)
Southeastern System
Itabira
Cauê .................................................. Open pit
Conceição ......................................... Open pit
Minas Centrais
Água Limpa(1) ................................. Open pit
Gongo Soco(3) .................................. Open pit
Brucutu ............................................. Open pit
Mariana
Alegria .............................................. Open pit
Fábrica Nova ..................................... Open pit
Fazendão ........................................... Open pit
Total Southeastern System ......................................
Southern System
Minas Itabirito
Segredo/João Pereira ........................ Open pit
Sapecado/Galinheiro ......................... Open pit
Vargem Grande
Tamanduá ......................................... Open pit
Capitão do Mato ............................... Open pit
Abóboras ........................................... Open pit
Paraopeba
Jangada ............................................. Open pit
Córrego do Feijão(3) ........................ Open pit
Capão Xavier .................................... Open pit
Mar Azul(3) ...................................... Open pit
Total Southern System ............................................
Midwestern System
Corumbá ................................................. Open pit
Urucum ................................................... Open pit
Total Midwestern System .................
Northern System
Serra Norte
N4W .................................................. Open pit
N4E ................................................... Open pit
N5 ..................................................... Open pit
Total Northern System ............................................
Vale...................................................................................
Samarco(2) .......................................................................
Total .................................................................................
18.6
21.4
5.0
5.3
30.9
14.7
13.2
11.1
120.2
11.8
18.6
8.8
7.3
5.3
5.1
6.8
8.4
4.1
76.3
4.1
1.5
5.6
38.9
20.1
50.8
109.8
311.8
10.8
322.6
17.8
19.9
4.6
4.4
31.7
14.7
13.0
9.5
115.6
12.2
19.6
9.7
7.3
5.6
6.1
6.8
9.6
3.3
80.3
4.6
1.8
6.4
39.3
18.7
48.8
106.8
309.0
10.9
320.0
15.9
18.1
4.4
4.7
28.7
15.8
12.5
9.3
109.5
12.0
19.0
6.7
9.9
5.4
6.9
5.8
9.2
4.2
79.0
4.5
2.0
6.5
31.3
19.9
53.6
104.9
299.8
10.9
310.7
62.3
68.8
47.5
100.0
73.7
82.7
67.3
100.0
75.6
69.2
81.3
81.3
100.0
94.2
94.2
87.1
100.0
79.8
69.3
93.5
93.5
93.5
56.8
(1) Água Limpa mine and plants are owned by Baovale, in which we own 100% of the voting shares and 50% of the total shares. Production
figures for Água Limpa have not been adjusted to reflect our ownership interest.
(2) Production figures for Samarco, in which we have a 50% interest, have been adjusted to reflect our ownership interest.
(3) Production figures for these mines or plants include minor operations at other sites with low levels of production and total reserves.
27
1.1.3 Iron ore pellets operations
Directly and through joint ventures, we produce iron ore pellets in Brazil, Oman and China, as set forth in the following table. Our total estimated nominal
capacity is 57.2 Mtpy, including the full capacity of our pelletizing plants in Oman, but not including our joint ventures Samarco, Zhuhai YPM Pellet Co., Ltd.
(“Zhuhai YPM”) and Anyang Yu Vale Yongtong Pellet Co., Ltd. (“Anyang”). Of our total 2013 pellet production, including the production of our joint ventures,
61.4% was blast furnace pellets and 38.6% was direct reduction pellets, which are used in steel mills that employ the direct reduction process rather than blast
furnace technology. We supply all of the iron ore requirements of our wholly-owned pellet plants and part of the iron ore requirements for Samarco and Zhuhai
YPM. In 2013, we sold 10.2 million metric tons to Samarco and 1.2 million metric tons to Zhuhai YPM.
Company/Plant
Description / History
Nominal Capacity
(Mtpy)
Power Source
Other Information
Vale’s Share
(%)
Partners
Brazil:
Vale
Tubarão (state of
Espírito Santo)
Two wholly owned pellet plants (Tubarão I and
II) and five leased plants. Receives iron ore
from our Southeastern System mines and
distribution is made though our logistics
infrastructure.
Fábrica (state of
Minas Gerais)
Part of the Southern System. Receives iron ore
from the Fábrica mine. Production is
transported by MRS and EFVM.
Vargem Grande
(state of Minas
Gerais)
Part of the Southern System. Receives iron ore
from the Pico and Vargem Grande mines and
the production is transported by MRS.
São Luís (state of
Maranhão)
Part of the Northern System. Receives iron ore
from Carajás and production is shipped to
customers through our Ponta da Madeira
maritime terminal.
29.2
4.5
7.0
7.5
Samarco ...................... Three pellet plants with nominal capacity of
22.3
22.3 Mtpy. The pellet plants are located in the
Ponta Ubu unit, in Anchieta, state of Espírito
Santo.
Oman:
100.0
100.0
100.0
100.0
-
-
-
-
50.0
BHP Billiton plc
Operations at the Tubarão I and II
pellet plants have been suspended
since November 13, 2012 in
response to changes in steel
industry demand for raw materials
(contraction in pellet consumption
in favor of greater use of sinter
feed).
-
-
On October 8, 2012, we
suspended operations at the São
Luís pellet plant for reasons
similar to those supporting our
suspension of operations at the
Tubarão I and II plants.
In 2014, we will start up the fourth
pellet plant with a capacity of 8.3
Mtpy, which will increase
Samarco’s total nominal pellet
capacity to 30.5 Mtpy.
Supplied through the
national electricity grid.
Acquired from regional
utility companies or
produced directly by
Vale.
Supplied through the
national electricity grid.
Acquired from regional
utility companies or
produced directly by
Vale.
Supplied through the
national electricity grid.
Acquired from regional
utility companies or
produced directly by
Vale.
Supplied through the
national electricity grid.
Acquired from regional
utility companies or
produced directly by
Vale.
Supplied through the
national electricity grid.
Acquired from regional
utility companies or
produced directly by
Samarco.
28
Company/Plant
Vale Oman
Pelletizing Company
LLC (“VOPC”)...........
Description / History
Vale’s industrial complex. Two pellet plants
(totaling 9.0 Mtpy of capacity) for direct
reduction pellets. The pelletizing plants are
integrated with our distribution center that has
a nominal capacity to handle 40.0 Mtpy.
Nominal Capacity
(Mtpy)
9.0
Power Source
Supplied through the
national electricity grid.
Other Information
In the last quarter of the year, the
site reached the monthly nominal
capacity. The total volume
produced in 2013 was 8.28 Mtpy.
China:
Zhuhai YPM ............... Part of the Yueyufeng Steelmaking Complex.
1.2
It has port facilities, which we use to receive
feed from our mines in Brazil. The main
customer is Zhuhai Yueyufeng Iron & Steel
Co., Ltd. (“YYF”), which is also located in the
Yueyufeng Steelmaking Complex.
Supplied through the
national electricity grid.
Anyang. ...................... Pelletizing operation in China with the capacity
to produce 1.2 Mtpy that started production in
March 2011.
1.2
Supplied through the
national electricity grid.
–
–
Lines of business
Vale’s Share
(%)
70.0
Partners
Oman Oil Company
S.A.O.C.
25.0
Zhuhai Yueyufeng
Iron and Steel Co.
Ltd., Halswell
Enterprises Limited
25.0
Anyang Iron &
Steel Co., Ltd.
29
1.1.4 Iron ore pellets production
The following table sets forth information about our main iron ore pellet production.
Company
Vale(1) ..................................................................................................
Hispanobras(2) .....................................................................................
Samarco(3) ...........................................................................................
Zhuhai YPM(3) ....................................................................................
Anyang(3) .............................................................................................
Total ................................................................................................
Production for the year ended December 31,
2011
2012
(million metric tons)
2013
39.0
2.1
10.7
0.3
0.2
52.3
43.3
1.1
10.7
0.2
0.2
55.6
39.0
-
10.6
0.2
0.2
50.0
(1) Figure includes actual production, including full production from our pellet plants in Oman and from the four pellet plants we leased in Brazil
in 2008. We signed a 10-year operating lease contract for Itabrasco’s pellet plant in October 2008. We signed a five-year operating lease
contract for Kobrasco’s pellet plant in June 2008, renewed for additional five years in 2013. We signed a 30-year operating lease contract for
Nibrasco’s two pellet plants in May 2008.
(2) On July 1, 2012, we signed a three-year operating lease for Hispanobras’ pellet plant and started to consolidate its output with our production.
(3) Production figures for Samarco, Zhuhai YPM and Anyang have been adjusted to reflect our ownership interest.
1.1.5 Customers, sales and marketing
We supply all of our iron ore and iron ore pellets (including our share of joint-venture pellet production) to
the steel industry. Prevailing and expected levels of demand for steel products affect demand for our iron ore and iron
ore pellets. Demand for steel products is influenced by many factors, such as global manufacturing production, civil
construction and infrastructure spending. For further information about demand and prices, see Operating and
financial review and prospects—Major factors affecting prices.
In 2013, China accounted for 47.7% of our iron ore and iron ore pellet shipments, and Asia as a whole
accounted for 64.9%. Europe accounted for 18.0%, followed by Brazil with 11.8%. Our 10 largest customers
collectively purchased 143.6 million metric tons of iron ore and iron ore pellets from us, representing 47.0% of our
2013 iron ore and iron ore pellet sales volumes and 42.4% of our total iron ore and iron ore pellet revenues. In 2013,
no individual customer accounted for more than 10.0% of our iron ore and iron ore pellet shipments.
In 2013, the Asian market (mainly Japan, South Korea and Taiwan) and the European market were the
primary markets for our blast furnace pellets, while the Middle East, North America and North Africa were the
primary markets for our direct reduction pellets.
We strongly emphasize customer service in order to improve our competitiveness. We work with our
customers to understand their main objectives and to provide them with iron ore solutions to meet specific customer
needs. Using our expertise in mining, agglomeration and iron-making processes, we search for technical solutions that
will balance the best use of our world-class mining assets and the satisfaction of our customers. We believe that our
ability to provide customers with a total iron ore solution and the quality of our products are both very important
advantages helping us to improve our competitiveness in relation to competitors who may be more conveniently located
geographically. In addition to offering technical assistance to our customers, we operate sales support offices in Tokyo
(Japan), Seoul (South Korea), Singapore, Dubai (UAE) and Shanghai (China), which support the sales made by Vale
International, located in St. Prex, Switzerland, which is a wholly-owned subsidiary of Vale International Holdings
GmbH (formerly Vale Austria Holdings GmbH). These offices also allow us to stay in close contact with our customers,
monitor their requirements and our contract performance, and ensure that our customers receive timely deliveries.
30
Lines of business
We sell iron ore and iron ore pellets under different arrangements, including long-term contracts with
customers and on a spot basis through tenders and trading platforms. We adopt different pricing mechanisms for our
sales, generally linked to the Chinese spot market, including basically the following systems: (i) daily spot prices, (ii)
spot price after delivery, consisting of a provisional pricing and an adjustment invoice following delivery; (iii) current
quarter and monthly averages; and (iv) three-month average with a lag of one month.
1.1.6 Competition
The global iron ore and iron ore pellet markets are highly competitive. The main factors affecting
competition are price, quality and range of products offered, reliability, operating costs and shipping costs.
Our biggest competitors in the Asian market are located in Australia and include subsidiaries and affiliates of
BHP Billiton plc (“BHP Billiton”), Rio Tinto Ltd (“Rio Tinto”) and Fortescue Metals Group Ltd (“FMG”). Although
the transportation costs of delivering iron ore from Australia to Asian customers are generally lower than ours as a
result of Australia’s geographical proximity, we are competitive in the Asian market for two main reasons. First, steel
companies generally seek to obtain the types (or blends) of iron ore and iron ore pellets that can produce the intended
final product in the most economic and efficient manner. Our iron ore has low impurity levels and other properties
that generally lead to lower processing costs. For example, in addition to its high grade, the alumina grade of our iron
ore is very low compared to Australian ores, reducing consumption of coke and increasing productivity in blast
furnaces, which is particularly important during periods of high demand. When market demand is strong, our quality
differential generally becomes more valuable to customers. Second, steel companies often develop sales relationships
based on a reliable supply of a specific mix of iron ore and iron ore pellets.
In terms of reliability, our ownership and operation of logistics facilities in the Northern and Southeastern
Systems help us ensure that our products are delivered on time and at a relatively low cost. In addition, we continue to
develop a low-cost freight portfolio aimed at enhancing our ability to offer our products in the Asian market at
competitive prices and to increase our market share. To support this strategy, we have built a distribution center in
Oman and two FTS in the Philippines, and we are investing in a distribution center in Malaysia. We are party to
medium- and long-term freight contracts, and we own vessels, including new ships called Valemax. They reduce
energy consumption and greenhouse emissions by carrying an increased amount of cargo in a single trip, offering
lower freight rates. These investments improve speed and flexibility for customization, and they shorten the time to
market required for our products.
Our principal competitors in Europe are Kumba Iron Ore Limited, Luossavaara Kiirunavaara AB (“LKAB”),
Société Nationale Industrielle et Minière (“SNIM”) and Iron Ore Company of Canada (“IOC”), a subsidiary of Rio
Tinto. We are competitive in the European market for the same reasons as in Asia, but also due to the proximity of our
port facilities to European customers.
The Brazilian iron ore market is also competitive. There are several small iron ore producers and new
companies with developing projects, such as Anglo Ferrous Brazil, MMX, Ferrous Resources and Bahia Mineração.
Some steel companies, including Gerdau S.A. (“Gerdau”), Companhia Siderúrgica Nacional (“CSN”), V&M do
Brasil S.A. (“Mannesmann”), Usiminas and Arcelor Mittal, also have iron ore mining operations. Although pricing is
relevant, quality and reliability are important competitive factors as well. We believe that our integrated
transportation systems, high-quality ore and technical services make us a strong competitor in the Brazilian market.
With respect to pellets, our major competitors are LKAB, Cliffs Natural Resources Inc., Arcelor Mittal
Mines Canada (formerly Quebec Cartier Mining Co.), IOC and Gulf Industrial Investment Co.
31
1.2 Coal
1.2.1 Operations
We produce metallurgical and thermal coal through our subsidiaries Vale Moçambique, which operates Moatize, and Vale Australia, which operates coal
assets in Australia through wholly-owned companies and unincorporated joint ventures. We also have a minority interest in two Chinese companies, Henan Longyu
Energy Resources Co., Ltd. (“Longyu”) and Shandong Yankuang International Coking Company Limited. (“Yankuang”), as set forth in the following table.
Company/
Mining Site
Vale
Moçambique
Location
Description / History
Mineralization/
Operations
Mining Title
Power Source
Access/
Transportation
Moatize .............. Tete,
Mozambique
Vale Australia
Integra Coal ....... Hunter
Valley, New
South Wales
Carborough
Downs ................
Bowen Basin,
Queensland
Open-cut mine, which was developed
directly by Vale. Operations started in
August 2011 and are expected to reach a
nominal production capacity of 11 Mtpy,
mostly comprised of metallurgical coal.
Vale has a 95.0% stake, and the remaining is
owned by Empresa Moçambicana de
Exploração Mineira, S.A.
Produces metallurgical and
thermal coal. Moatize’s main
branded product is the Chipanga
premium hard coking coal, but
there is operational flexibility for
multiple products. The optimal
product portfolio will come as a
result of market trials. Coal from
the mines is processed at a coal
handling and processing plant
(“CHPP”) with a capacity of
4,000 metric tons per hour.
Open-cut mine and underground coal mine,
acquired from AMCI in 2007, located 10
kilometers northwest of Singleton in the
Hunter Valley of New South Wales,
Australia. Vale has a 61.2% stake and the
remaining is owned by Nippon Steel
(“NSC”), JFE Group (“JFE”), Posco,
Toyota Tsusho Austrália, Chubu Electric
Power Co. Ltd.
Produces metallurgical and
thermal coal. The operations are
comprised of an underground
coal mine that produces coal by
longwall methods and an
open-cut mine. Coal from the
mines is processed at a CHPP
with a capacity of 1,200 metric
tons per hour.
Acquired from AMCI in 2007. Carborough
Downs mining leases overlie the Rangal
Coal Measures of the Bowen Basin with the
seams of Leichardt and Vermont. Both
seams have coking properties and can be
beneficiated to produce coking coal and
pulverized coal injection (“PCI”) products.
Vale has a 85.0% stake and the remaining is
owned by JFE, Posco, Tata Steel.
Metallurgical coal. The
Leichardt seam is currently our
main target for development and
constitutes 100% of the current
reserve and resource base.
Carborough Downs coal is
processed at the Carborough
Downs CHPP, which is capable
of processing 1,000 metric tons
per hour, and which operates
seven days per week.
32
Mining concession
expiring in 2032,
renewable thereafter.
Supplied by local utility
company. Back up supply
on site.
The coal is transported from the
mine by the Linha do Sena
railway to the port of Beira.
Mining tenements
expiring in 2023,
2026, 2030 and 2032.
Supplied through the
national electricity grid.
Acquired from local utility
companies.
Production is loaded onto trains
and transported 83km to the
port of Newcastle, New South
Wales, Australia.
Mining tenements
expiring in 2035 and
2039.
Supplied through the
national electricity grid.
Acquired from local utility
companies.
The product is loaded onto
trains at a rail loadout facility
and transported 163 kilometers
to the Dalrymple Bay Coal
Terminal, Queensland,
Australia.
Company/
Mining Site
Location
Description / History
Mineralization/
Operations
Isaac Plains ........ Bowen Basin,
Queensland
The Isaac Plains open-cut mine, acquired
from AMCI in 2007, is located close to
Carborough Downs in central Queensland.
The mine is managed by Isaac Plains Coal
Management on behalf of the joint venture
parties. Vale has a 50.0% stake, and the
remaining shares are owned by a subsidiary
of Sumitomo.
Metallurgical and thermal coal.
The coal is classified as a
medium volatile bituminous coal
with low sulfur content. Coal is
processed at the Isaac Plains
CHPP, which has a capacity of
500 metric tons per hour.
Mining Title
Mining tenements
expiring in 2025.
Power Source
Supplied through the
national electricity grid.
Acquired from local utility
companies.
Lines of business
Access/
Transportation
Railed 172 kilometers to the
Dalrymple Bay Coal Terminal.
China
Longyu ............... Henan
Province,
China
Longyu has two operational coal mines,
which are located 10km and 5km from
Yongcheng city, Henan Province. Vale has
a 25.0% stake and the remaining is owned
by Yongmei Group Co., Ltd. (former
Yongcheng Coal & Electricity (Group) Co.
Ltd.), Shanghai Baosteel International
Economic & Trading Co., Ltd. and other
minority shareholders. Vale acquired a stake
in Longyu by purchasing newly issued
shares.
Metallurgical and thermal coal
and other related products.
Mining concessions
expiring in 2034
Supplied through the
national electricity grid.
Acquired from local utility
companies.
Products are trucked or railed
directly to customers in China
or railed or trucked to
Lianyungang port.
Yankuang ........... Shandong
Province,
China
Metallurgical coke plant located 10km from
Yanzhou city, Shandong Province. Vale has
a 25.0% stake and the remaining is owned
by Yankuang Group Co. Ltd. and Itochu
Corporation. Yankuang was formed by the
three shareholders.
Metallurgical coke, methanol, tar
oil and benzene. Yankuang has
production capacity of 1.7 Mtpy
of coke and 200,000 tpy of
methanol.
–
Supplied through the
national electricity grid.
Acquired from local utility
companies.
Most coke products are railed
while other products are
trucked directly to customers in
China or railed to Rizhao port.
33
1.2.2 Production
The following table sets forth information on our markeatable coal production.
Operation
Metallurgical coal:
Vale Australia
Production for the year ended December 31,
Mine type
2011
2012
(thousand metric tons)
2013
Integra Coal(1) ................................. Underground and open-cut
Isaac Plains(2) ..................................
Carborough Downs(3) .....................
Broadlea(4) ......................................
Open-cut
Underground
Open-cut
Vale Moçambique
Moatize(5) ........................................
Open-cut
Total metallurgical coal ...............................................................
Thermal coal:
Vale Colombia
El Hatillo(6) .....................................
Open-cut
Vale Australia
Integra Coal(1) .................................
Isaac Plains(2) ..................................
Broadlea(4) ......................................
Vale Moçambique
Open-cut
Open-cut
Open-cut
Moatize(5) ........................................
Open-cut
Total thermal coal ........................................................................
467
635
1,390
0
275
2,766
3,565
325
274
0
342
4,506
962
709
911
0
2,501
5,083
–
351
381
0
1,267
1,999
1,410
656
2,447
0
2,373
6,885
–
87
347
0
1,444
1,878
(1) These figures correspond to our 61.2% equity interest in Integra Coal, an unincorporated joint venture.
(2) These figures correspond to our 50.0% equity interest in Isaac Plains, an unincorporated joint venture.
(3) These figures correspond to our 85.0% equity interest in Carborough Downs, an unincorporated joint venture.
(4) Broadlea Coal has been on care and maintenance status since December 2009.
(5) Moatize started production in August 2011.
(6) We sold the El Hatillo mine in the second quarter of 2012.
1.2.3 Customers and sales
Coal sales from our Australian operations are primarily focused on East Asia. Coal sales from our Moatize
operations, in Mozambique, target global steel markets, including Asia, India, Africa, Europe and the Americas. Our
Chinese coal joint ventures direct their sales into the Chinese domestic market.
1.2.4 Competition
The global coal industry comprises markets for black (metallurgical and thermal) and brown (lignite) coal,
and is highly competitive.
Growth in the demand for steel, especially in Asia, underpins strong demand for both metallurgical and
thermal coal. We expect robust supply and lower prices for metallurgical coal in the next few years, which will reduce
investments in new greenfield projects and may result in supply imbalances in the long term. Port and rail constraints
in certain supply regions could lead to limited availability of incremental metallurgical coal production without
significant capital expenditures.
Competition in the coal industry is based primarily on the economics of production costs, coal quality and
transportation costs. Our key competitive strengths include the strategic geographic location of our current and future
supply bases and our production cash costs relative to other producers.
Major participants in the seaborne coal market are subsidiaries, affiliates and joint ventures of BHP Billiton,
Glencore Xstrata, Anglo American, Rio Tinto, Teck Cominco, Peabody, Walter Energy and the Shenhua Group,
among others.
34
Lines of business
1.3 Manganese ore and ferroalloys
1.3.1 Manganese ore operations and production
We conduct our manganese mining operations in Brazil through our wholly-owned subsidiaries Vale
Manganês S.A. (“Vale Manganês”), Vale Mina do Azul S.A. and MCR. Our mines produce three types of manganese
ore products:
• metallurgical ore, used primarily for the production of ferroalloys;
•
•
natural manganese dioxide, suitable for the manufacture of electrolytic batteries; and
chemical ore, used in several industries for the production of fertilizer, pesticides and animal feed,
and used as a pigment in the ceramics industry.
Mining Site
Company
Location
Description/History Mineralization
Operations
Power Source
Azul ..................... Vale Mina do
Azul S.A.
State of Pará Open-pit mining
operations and
on-site beneficiation
plant.
High-grade ores
(at least 40%
manganese grade).
Crushing and
classification
steps, producing
lumps and fines.
Morro da Mina .... Vale Manganês State of Minas
Gerais
Open-pit mining
operations and one
major beneficiation
plant.
Low-grade ores
(24% manganese
grade).
Crushing and
screening/dense
medium
classification
steps, producing
lumps and fines
to the Barbacena
and Ouro Preto
ferroalloy plants.
Supplied through
the national
electricity grid.
Acquired from
regional utility
companies.
Supplied through
the national
electricity grid.
Acquired from
regional utility
companies.
Access/
Transportation
Manganese ore is
transported by
truck and EFC
railroad to the
Ponta da Madeira
maritime
terminal.
Manganese ore is
transported by
trucks to the
Ouro Preto and
Barbacena
ferroalloy plants.
Urucum ................ MCR
State of Mato
Grosso do Sul
Underground mining
operations and
on-site beneficiation
plant.
High-grade ores
(at least 40%
manganese grade).
Crushing and
classification
steps, producing
lumps and fines.
Supplied through
the national
electricity grid.
Acquired from
regional utility
companies.
Manganese ore is
transported to the
port of Rosario
(Argentina) by
barges traveling
along the
Paraguay and
Paraná rivers.
The following table sets forth information about our manganese production.
Mine
Production for the year ended December 31,
Type
2011
2012
2013
(million metric tons)
2013 Process
Recovery
(%)
Azul ............................................................
Morro da Mina ...........................................
Open pit
Open pit
Urucum .......................................................
Underground
Total ........................................................................................
2.1
0.1
0.3
2.5
1.9
0.2
0.3
2.4
1.9
0.1
0.4
2.4
57.8
65.6
81.9
35
1.3.2 Ferroalloys operations and production
We conduct our ferroalloys business through our wholly-owned subsidiary Vale Manganês.
The production of ferroalloys consumes significant amounts of electricity, representing 5.7% of our total
consumption in 2013. The electricity supply to our ferroalloy plants is provided through power purchase agreements.
For information on the risks associated with potential energy shortages, see Risk factors.
We produce several types of manganese ferroalloys, such as high carbon and medium carbon
ferro-manganese and ferro-silicon manganese.
Plant
Location
Description/History
Nominal Capacity
Power Source
Minas Gerais
Plants .....................
Cities of Barbacena and
Ouro Preto
Barbacena has six furnaces,
two refining stations and a
briquetting plant. Ouro Preto
has three furnaces.
74,000 tons per year at
Barbacena plant and
65,000 tons per year at
Ouro Preto plant.
Bahia Plant ............ City of Simões Filho
Four furnaces, two converters
and a sintering plant.
150,000 tons per year.
Supplied through the national
electricity grid. Energy acquired
from independent producers
through power purchase
agreements.
Supplied through the national
electricity grid. Energy acquired
from independent producers
through power purchase
agreements.
The following table sets forth information about our ferroalloys production.
Plant
Barbacena ..................................................................
Ouro Preto .................................................................
Simões Filho ..............................................................
Total .......................................................................
2011
67
61
76
204
Production for the year ended December 31,
2012
(thousand metric tons)
65
62
79
206
2013
45
48
82
175
1.3.3 Manganese ore and ferroalloys: sales and competition
The markets for manganese ore and ferroalloys are highly competitive. Competition in the manganese ore
market takes place in two segments. High-grade manganese ore competes on a global seaborne basis, while low-grade
ore competes on a regional basis. For some ferroalloys, high-grade ore is mandatory, while for others high- and
low-grade ores are complementary. The main suppliers of high-grade ores are located in South Africa, Gabon,
Australia and Brazil. The main producers of low-grade ores are located in the Ukraine, China, Ghana, Kazakhstan,
India and Mexico.
The ferroalloy market is characterized by a large number of participants who compete primarily on the basis
of price. The principal competitive factors in this market are the costs of manganese ore, electricity, logistics and
reductants. We compete with both stand-alone producers and integrated producers that also mine their own ore. Our
competitors are located principally in countries that produce manganese ore or steel. For further information about
demand and prices, see Operating and financial review and prospects—Major factors affecting prices.
36
Lines of business
2. Base metals
2.1 Nickel
2.1.1 Operations
We conduct our nickel operations primarily through our wholly-owned subsidiary Vale Canada, which
operates two nickel production systems, one in the North Atlantic and the other in the Asia Pacific. A third nickel
production system, Onça Puma, in the South Atlantic, resumed its ramp-up activities in late 2013. Our nickel
operations are set forth in the following table.
37
Mining System/
Company
North Atlantic
Location
Description/History
Operations
Mining Title
Power Source
Vale Canada…..
Canada —
Sudbury,
Ontario
Vale Canada…..
Canada —
Thompson,
Manitoba
Integrated mining, milling,
smelting and refining operations
to process ore into finished nickel
with a nominal capacity of
66,000 metric tons of refined
nickel per year and additional
nickel oxide feed for the refinery
in Wales. Mining operations in
Sudbury began in 1885. Vale
acquired the Sudbury operations
in 2006.
Integrated mining, milling,
smelting and refining operations
to process ore into finished nickel
with a nominal capacity of
45,000 metric tons of refined
nickel per year. Thompson
mineralization was discovered in
1956 and was acquired by Vale
in 2006.
Vale Newfoundland &
Labrador
Limited……….
Canada —
Voisey’s
Bay,
Newfoundla
nd and
Labrador
Open-pit mining and milling of
ore into intermediate products -
nickel and copper concentrates.
Voisey’s Bay’s operations
started in 2005 and were
purchased by Vale in 2006.
Supplied by Ontario’s
provincial electricity grid
and produced directly by
Vale.
Patented mineral
rights with no
expiration date;
mineral leases
expiring between
2014 and 2025; and
mining license of
occupation with
indefinite expiration
date.
Order in Council
leases expiring
between 2020 and
2030; mineral leases
expiring in 2034.
Supplied by the
Provincial utility
company.
Mining lease expiring
in 2027.
100% supplied through
Vale owned diesel
generators.
Primarily underground mining
operations with nickel sulfide ore
bodies, which also contain some copper,
cobalt, PGMs, gold and silver.
Construction of the Totten mine was
completed in 2013.
We also smelt and refine an intermediate
product, nickel concentrate, from our
Voisey’s Bay operations. In addition to
producing finished nickel in Sudbury,
we ship a nickel oxide intermediate
product to our nickel refinery in Wales
for processing to final products. We also
have capabilities to ship nickel oxide to
our Asian refineries.
Primarily underground mining
operations with nickel sulfide ore
bodies, which also contain some copper
and cobalt.
Local concentrate combines with nickel
concentrate from our Voisey’s Bay
operations for smelting and refining to
high quality nickel plate product.
Smelting and refining are being
considered for phase out in Thompson,
due to pending federal sulfur dioxide
emission standards that are expected to
come into effect in 2015.
Comprised of the Ovoid open pit mine,
and deposits with the potential for
underground operations at a later stage.
We mine nickel sulfide ore bodies,
which also contain some copper and
cobalt. Nickel concentrates are currently
shipped to our Sudbury and Thompson
operations for final processing (smelting
and refining) while copper concentrate is
sold in the market. Once the Long
Harbour refinery is operational, our
nickel concentrate from Labrador will be
redirected to the facility and processed
38
Access/
Transportation
Located by the
Trans-Canada
highway and the two
major railways that
pass through the
Sudbury area.
Finished products are
delivered to the North
American market by
truck. For overseas
customers, the
products are loaded
into containers and
travel intermodally
(truck/rail/containersh
ip) through both east
and west coast
Canadian ports.
Finished products are
delivered to market by
truck in North
America. For overseas
customers, the
products are loaded
into containers and
travel intermodally
(truck/rail/containersh
ip) to final destination
through both west
coast and east coast
Canadian ports.
The nickel and copper
concentrates are
transported to the port
by haulage trucks and
then shipped by
drybulk vessels to
either overseas
markets or to our
Canadian operations
for further refining.
Mining System/
Company
Location
Description/History
Operations
Mining Title
Power Source
Vale Europe
Limited……….
U.K. —
Clydach,
Wales
Asia Pacific
PT Vale Indonesia
Tbk (“PTVI”,
previously PT
International Nickel
Indonesia Tbk)
……….
Indonesia —
Sorowako,
Sulawesi
Vale Nouvelle-
Calédonie S.A.S
(“VNC”)…….
New
Caledonia —
Southern
Province
Stand-alone nickel refinery
(producer of finished nickel),
with nominal capacity of 40,000
metric tons per year. Clydach’s
refinery commenced operations
in 1902 and was acquired by
Vale in 2006.
Open cast mining area and
related processing facility
(producer of nickel matte, an
intermediate product) with a
nominal capacity of
approximately 80,000 metric
tons of nickel in matte per year.
PTVI’s shares are traded on the
Indonesia Stock Exchange. We
indirectly hold 59.3% of PTVI’s
share capital, Sumitomo Metal
Mining Co., Ltd (“Sumitomo”)
holds 20.1%, Sumitomo
Corporation holds 0.1% and the
public holds 20.5%. PTVI was
established in 1968, commenced
its commercial operations in
1978 and was acquired by Vale
in 2006.
Mining and processing
operations (producer of nickel
oxide and cobalt carbonate).
VNC’s shares are held by Vale
(80.5%), Sumic (14.5%) and
Société de Participation Minière
du Sud Caledonien SAS
(“SPMSC”) (5%). (1)
on a prioritized basis.
Processes a nickel intermediate product,
nickel oxide, supplied from either our
Sudbury or Matsuzaka operations to
produce finished nickel in the form of
powders and pellets.
–
Supplied through the
national electricity grid.
PTVI mines nickel laterite ore and
produces nickel matte, which is shipped
primarily to nickel refineries in Japan.
Pursuant to life-of-mine off-take
agreements, PTVI sells 80% of its
production to our wholly-owned
subsidiary Vale Canada and 20% of its
production to Sumitomo.
Contract of work
expiring in 2025,
which is currently
being renegotiated
with the Indonesian
government.
Produced primarily by
PVTI’s low cost
hydroelectric power
plants on the Larona
River (there are currently
three facilities). PTVI has
thermal generating
facilities in order to
supplement its
hydroelectric power
supply with a source of
energy that is not subject
to hydrological factors.
Lines of business
Access/
Transportation
Transported to final
customer in the UK
and continental
Europe by truck.
Product for overseas
customers are trucked
to the ports of
Southhampton and
Liverpool and shipped
by ocean container.
Trucked
approximately 55 km
to the river port at
Malili and then loaded
onto barges in order to
load break-bulk
vessels for onward
shipment to Japan.
Mining concessions
expiring between
2015 and 2051.
Supplied through the
national electricity grid
and by independent
producers.
Products are packed
into containers and are
trucked approximately
4km to Prony port.
We are currently ramping up our nickel
operation in New Caledonia. VNC
utilizes a High Pressure Acid Leach
(“HPAL”) process to treat limonitic
laterite and saprolitic laterite ores. We
expect to continue to ramp-up VNC over
the next three years to reach nominal
production capacity of 57,000 metric
tons per year of nickel contained in
nickel oxide, which will be further
processed in our facilities in Asia, and
hydroxide cake form, and 4,500 metric
tons of cobalt in carbonate form.
39
Mining System/
Company
Vale Japan
Limited……….
Location
Japan —
Matsuzaka
Vale Taiwan
Ltd……….…
Taiwan —
Kaoshiung
Vale Nickel (Dalian)
Co., Ltd……….
China —
Dalian,
Liaoning
Korea Nickel
Corporation…
South Korea
— Onsan
Description/History
Stand-alone nickel refinery
(producer of intermediate and
finished nickel), with nominal
capacity of 60,000 metric tons
per year. Vale owns 87.2% of the
shares, and Sumitomo owns the
remaining shares. The refinery
was built in 1965 and was
acquired by Vale in 2006.
Stand-alone nickel refinery
(producer of finished nickel),
with nominal capacity of 18,000
metric tons per year. The
refinery commenced production
in 1983 and was acquired by
Vale in 2006.
Stand-alone nickel refinery
(producer of finished nickel),
with nominal capacity of 32,000
metric tons per year. Vale owns
98.3% of the shares and Ningbo
Sunhu Chemical Products Co.,
Ltd. owns the remaining 1.7%.
The refinery commenced
production in 2008.
Stand-alone nickel refinery
(producer of finished nickel),
with nominal capacity of 30,000
metric tons per year. Vale owns
25.0% of the shares, and the
remaining shares are held by
Korea Zinc Co., Ltd, Posteel Co.,
Ltd, Young Poong Co., Ltd. and
others. The refinery commenced
production in 1989.
Operations
Produces intermediate products for
further processing in our refineries in
China, Korea and Taiwan, and finished
nickel products using nickel matte
sourced from PTVI.
Mining Title
–
Power Source
Supplied through the
national electricity grid.
Acquired from regional
utility companies.
Produces finished nickel primarily for
the stainless steel industry, using
intermediate products from our
Matsuzaka and New Caledonian
operations.
Produces finished nickel for the stainless
steel industry, using intermediate
products primarily from our Matsuzaka
and New Caledonian operations.
Produces finished nickel for the local
stainless steel industry in Korea,
primarily using intermediate products
containing about 75% nickel (in the form
of nickel oxide) primarily from our
Matsuzaka operations.
–
–
–
Supplied through the
national electricity grid.
Acquired from regional
utility companies.
Supplied through the
national electricity grid.
Acquired from regional
utility companies.
Supplied through the
national electricity grid.
Acquired from regional
utility companies.
Access/
Transportation
Products trucked over
public roads to
customers in Japan.
For overseas
customers, the product
is stuffed into
containers at the plant
and shipped from the
ports of Yokkaichi and
Nagoya.
Trucked over public
roads to customers in
Taiwan. For overseas
customers, the product
is stuffed into
containers at the plant
and shipped from the
port of Kaoshiung.
Product moved over
public roads by truck
and by railway to
customers in China. It
is also shipped in
ocean containers to
overseas and some
domestic customers.
KNC’s production is
moved by truck over
public roads to
customers in Korea
and is exported in
containers to overseas
customers from the
ports of Busan and
Ulsan.
South Atlantic
Vale/Onça
Puma………….
Brazil —
Ourilândia
do Norte,
Pará
Mining, smelting and refining
operation producing a high
quality ferronickel for
application within the stainless
steel industry.
The Onça Puma mine is built on lateritic
nickel deposits of saprolitic laterite ore.
The operation produces ferronickel via
the rotary kiln-electric furnace process.
We resumed operations with a single
line in 2013, with first metal being
produced in the fourth quarter of 2013.
Mining concession for
indefinite period.
Supplied through the
national electricity grid.
Acquired from regional
utility companies or
produced directly by
Vale.
The ferro-nickel is
transported by public
paved road and EFC
railroad to the Itaqui
maritime terminal in
the state of Maranhão.
It is exported in ocean
40
Mining System/
Company
Location
Description/History
Operations
The nominal capacity of the single line
operation is estimated at 25,000 metric
tons per year. We will evaluate
opportunities to restart the second line
operations in light of market outlook and
single line furnace performance
considerations.
Mining Title
Power Source
Lines of business
Access/
Transportation
containers.
(1) Sumic, a joint venture between Sumitomo and Mitsui, has a put option to sell us all of its shares in VNC under certain conditions – see Note 31 to our consolidated financial statements. Once the start-up
of commercial production is reached at VNC, Sumic will have an option to purchase 6.5% of VNC, which represents the dilution in Sumic’s shareholding that occurred as a result of an October 2012
agreement. SPMSC has an obligation to increase its stake in VNC to 10% within two years after the start-up of commercial production.
41
2.1.2 Production
The following table sets forth our annual mine production by operating mine (or on an aggregate basis for
PTVI because it has mining areas rather than mines) and the average percentage grades of nickel and copper. The
mine production at PTVI represents the product from PTVI’s dryer kilns delivered to PTVI’s smelting operations and
does not include nickel losses due to smelting. For our Sudbury, Thompson and Voisey’s Bay operations, the
production and average grades represent the mine product delivered to those operations’ respective processing plants
and do not include adjustments due to beneficiation, smelting or refining. The following table sets forth information
about ore production at our nickel mining sites.
2011
2012
2013
(thousands of metric tons, except percentages)
Grade
Grade
Grade
Production
% Copper % Nickel
Production
% Copper % Nickel
Production
% Copper % Nickel
1.09
1.80
0.56
1.56
2.58
0.44
2.37
0.27
1.29%
−
−
−
0.92
1.84
0.66
1.61
1.51
0.93
1.15
0.72
1.14%
1.86
1.34
1.67%
1.94%
3.11%
−
−
−
2.02%
1.27%
1.87%
263
913
915
1,887
815
1,515
109
64
196
6,414
1,175
613
1,788
2,318
4,369
1,860
1.32
2.01
0.59
1.42
3.15
0.49
1.84
0.32
1.61%
−
−
−
1.28
2.19
0.65
1.75
1.52
1.00
1.92
0.89
1.33%
2.07
1.39
1.84%
1.68%
2.89%
−
−
−
2.00%
1.36%
2.28%
Ontario operating mines
Copper Cliff North .......................
Creighton ......................................
Stobie ............................................
Garson ..........................................
Coleman .......................................
Ellen ..............................................
Totten............................................
Gertrude ........................................
Total Ontario operations ..........
Manitoba operating mines
Thompson .....................................
Birchtree .......................................
Total Manitoba operations .......
Voisey’s Bay operating mines
Ovoid ............................................
Sulawesi operating mining areas
Sorowako ......................................
New Caledonia operating mines
VNC ..............................................
Brazil operating mines
Onça Puma ...................................
892
991
1,568
640
1,363
131
28
−
5,612
1,182
721
1,903
2,366
3,848
1,043
1,466
1.15
1.72
0.61
1.78
3.02
0.45
1.01
−
1.03
2.22
0.74
2.08
1.77
0.90
0.97
−
1.61%
1.45%
−
−
−
1.76
1.36
1.61%
2.39%
3.38%
−
−
−
1.95%
1.29%
1.86%
792
797
2,006
643
1,062
371
6
36
5,714
1,160
643
1,804
2,351
3,678
1,179
1,975
42
The following table sets forth information about our nickel production, including: nickel refined through our
facilities and intermediates designated for sale. The numbers below are reported on an ore-source basis.
Lines of business
Mine
Type
Sudbury(1) ..........................................
Thompson(1) ......................................
Voisey’s Bay(2) ..................................
Sorowako(3) .......................................
Onça Puma(4) .....................................
New Caledonia(5) ..............................
External(6) ..........................................
Underground
Underground
Open pit
Open cast
Open pit
Open pit
−
Total(7) ...................................................................................
2011
2013
Production for the year ended December 31,
2012
(thousand metric tons)
65.5
24.2
61.9
69.0
6.0
4.5
5.9
237.0
59.7
25.0
68.9
67.8
7.0
5.1
8.0
241.5
69.4
24.5
63.0
78.8
1.9
16.3
6.4
260.2
Includes finished nickel produced at our Sudbury and Thompson operations.
(1) Primary nickel production only (i.e., does not include secondary nickel from unrelated parties).
(2)
(3) We have a 59.3% interest in PTVI, which owns the Sorowako mines, and these figures include the minority interests.
(4) Primary production only. Nickel contained in ferro-nickel.
(5) We have a 80.5% interest in VNC, and these figures include minority interests. Nickel contained in NHC and NiO.
(6) Finished nickel processed at our facilities using feeds purchased from unrelated parties.
(7) These figures do not include tolling of feeds for unrelated parties.
2.1.3 Customers and sales
Our nickel customers are broadly distributed on a global basis. In 2013, 44% of our total nickel sales were
delivered to customers in Asia, 28% to North America, 27% to Europe and 1% to other markets. We have short-term
fixed-volume contracts with customers for the majority of our expected annual nickel sales. These contracts generally
provide stable demand for a significant portion of our annual production.
Nickel is an exchange-traded metal, listed on the LME, and most nickel products are priced according to a
discount or premium to the LME price, depending primarily on the nickel product’s physical and technical
characteristics. Our finished nickel products represent what is known in the industry as “primary” nickel, meaning
nickel produced principally from nickel ores (as opposed to “secondary” nickel, which is recovered from recycled
nickel-containing material). Finished primary nickel products are distinguishable in terms of the following
characteristics, which determine the product price level and the suitability for various end-use applications:
•
•
•
nickel content and purity level: (i) intermediates has various levels of nickel content, (ii) nickel pig
iron has 1.5-6% nickel, (iii) ferro-nickel has 10-40% nickel, (iv) refined nickel with less than 99.8%
nickel, including products such as Tonimet™ and Utility nickel™, (v) standard LME grade nickel
has a minimum of 99.8% nickel, and (v) high purity nickel has a minimum of 99.9% nickel and does
not contain specific elemental impurities;
shape (such as pellets, discs, squares, and strips); and
size.
In 2013, the principal end-use applications for nickel were:
•
•
austenitic stainless steel (66% of global nickel consumption);
non-ferrous alloys, alloy steels and foundry applications (17% of global nickel consumption);
43
•
•
nickel plating (7% of global nickel consumption); and
specialty applications, such as batteries, chemicals and powder metallurgy (10% of global nickel
consumption).
In 2013, 63% of our refined nickel sales were made into non-stainless steel applications, compared to the
industry average for primary nickel producers of 34%, which brings more stability to our sales volumes. As a result of
our focus on such higher-value segments, our average realized nickel prices for refined nickel have typically exceeded
LME cash nickel prices.
We offer sales and technical support to our customers on a global basis. We have a well-established global
marketing network for finished nickel, based at our head office in Toronto, Canada. We also have sales and technical
support offices in St. Prex (Switzerland), Saddle Brook, New Jersey (United States), Tokyo (Japan), Shanghai
(China), Singapore and Kaohsiung (Taiwan). For information about demand and prices, see Operating and financial
review and prospects—Major factors affecting prices.
2.1.4 Competition
The global nickel market is highly competitive. Our key competitive strengths include our long-life mines,
our low cash costs of production relative to other nickel producers, sophisticated exploration and processing
technologies, and a diversified portfolio of products. Our global marketing reach, diverse product mix, and technical
support direct our products to the applications and geographic regions that offer the highest margins for our products.
Our nickel deliveries represented 13% of global consumption for primary nickel in 2013. In addition to us,
the largest suppliers in the nickel industry (each with its own integrated facilities, including nickel mining, processing,
refining and marketing operations) are Mining and Metallurgical Company Norilsk Nickel (“Norilsk”), Jinchuan
Nonferrous Metals Corporation (“Jinchuan”), Glencore Xstrata and BHP Billiton. Together with us, these companies
accounted for about 47% of global refined primary nickel production in 2013.
While stainless steel production is a major driver of global nickel demand, stainless steel producers can use
nickel products with a wide range of nickel content, including secondary nickel (scrap). The choice between primary
and secondary nickel is largely based on their relative prices and availability. In recent years, secondary nickel has
accounted for about 44-47% of total nickel used for stainless steels, and primary nickel has accounted for about
53-56%. Nickel pig iron, a low-grade nickel product made in China from imported lateritic ores (primarily from the
Philippines and Indonesia), is primarily suitable for use in stainless steel production. With higher nickel prices and
strong demand from the stainless steel industry, Chinese domestic production of nickel pig iron and low-grade
ferro-nickel continues to expand. In 2013, Chinese nickel pig iron and ferro-nickel production is estimated to have
been 490,000 metric tons, representing 25% of world primary nickel supply. We expect that the implementation of the
Indonesian mining law, which restricts the export of unprocessed ores, may affect Chinese nickel pig iron and
ferro-nickel production going forward.
Competition in the nickel market is based primarily on quality, reliability of supply and price. We believe
our operations are competitive in the nickel market because of the high quality of our nickel products and our
relatively low production costs.
44
Lines of business
2.2 Copper
2.2.1 Operations
We conduct our copper operations at the parent-company level in Brazil and through our subsidiaries in Canada and Chile.
Mining Site/
Location
Brazil
Location
Description/History
Mineralization/Operations
Mining Title
Power Source
Access/Transportation
Vale/Sossego ... Carajás, state of
Pará.
Two main copper ore bodies, Sossego and
Sequeirinho and a processing facility to
concentrate the ore. Sossego was
developed by Vale and started production
in 2004.
Vale/Salobo ..... Carajás, state of
Pará.
Salobo I processing plant is ramping up to
a total capacity of 100,000 tpy of copper
in concentrates. Salobo is expected to
reach a total capacity of 200,000 tpy by
2016, after Salobo II expansion.
The copper ore is mined using the open-pit
method, and the run-of-mine is processed
by means of standard primary crushing and
conveying, SAG milling (a
semi-autogenous mill that uses a large
rotating drum filled with ore, water and steel
grinding balls to transform the ore into a
fine slurry), ball milling, copper concentrate
flotation, tailings disposal, concentrate
thickening, filtration and load out.
Our Salobo copper and gold mine is mined
using the open-pit method, and the
run-of-mine is processed by means of
standard primary and secondary crushing,
conveying, roller press grinding, ball
milling, copper concentrate flotation,
tailings disposal, concentrate thickening,
filtration and load out.
Mining concession
for indefinite
period.
Mining concession
for indefinite
period.
Supplied through
the national
electricity grid.
Acquired from
Eletronorte,
pursuant to power
purchase
agreements or
produced directly
by Vale.
Supplied through
the national
electricity grid.
Acquired from
Eletronorte,
pursuant to power
purchase
agreements or
produced directly
by Vale.
We truck the concentrate to
a storage terminal in
Parauapebas and then
transport it via the EFC
railroad to the Ponta da
Madeira maritime terminal
in São Luís, in the state of
Maranhão. We constructed
an 85-kilometer road to link
Sossego to Parauapebas.
We truck the concentrate to
a storage terminal in
Parauapebas and then
transport it via the EFC
railroad to the Ponta da
Madeira maritime terminal
in São Luís, in the state of
Maranhão. We constructed
a 90-kilometer road to link
Salobo to Parauapebas.
Canada
Vale Canada .... Canada —
Sudbury,
Ontario
Vale Canada/
Voisey’s Bay ...
Canada —
Voisey’s Bay,
Newfoundland
and Labrador
Zambia
Lubambe .......... Zambian
Copperbelt
See —Base metals—Nickel—Operations
We produce two intermediate copper
products, copper concentrates and copper
anodes, and we also produce electrowon
copper cathode as a by-product of our nickel
refining operations.
Please refer to the table in our Nickel Operations
See —Base metals—Nickel—Operations
At Voisey’s Bay, we produce copper
concentrates.
Please refer to the table in our Nickel Operations
Lubambe (previously Konkola North)
copper mine, which includes an
underground mine, plant and related
infrastructure. TEAL (our 50/50 joint
venture with ARM) has an 80% stake in
Nominal production capacity of 45,000
metric tons per year of copper in
concentrates. Production started in October
2012.
Mining
concessions
expiring in 2033.
Long-term energy
supply contract
with Zesco
(Zambian state
owned power
Copper concentrates are
transported by truck to local
smelters.
45
Mining Site/
Location
Location
Description/History
Lubambe. Zambia Consolidated Copper
Mines Investment Holding PLC Ltd.
holds the remaining (20%) stake.
Mineralization/Operations
Mining Title
Power Source
Access/Transportation
supplier).
46
2.2.2 Production
The following table sets forth information on our copper production.
Lines of business
Type
2011
2012
2013
Production for the year ended December 31,
(thousand metric tons)
Mine
Brazil:
Salobo .................................
Sossego ...............................
Canada:
Sudbury ...............................
Voisey’s Bay .......................
Thompson ...........................
External(1) ..........................
Chile:
Open pit
Open pit
Underground
Open pit
Underground
−
Tres Valles(2) .....................
Open pit and underground
Zambia:
Lubambe(3) .........................
Underground
Total ...........................................................................
−
109
101
51
1
31
9
−
302
13
110
79
42
3
29
14
1
290
65
119
103
36
2
24
11
9
370
(1) We process copper at our facilities using feed purchased from unrelated parties.
(2) We sold Tres Valles mine in December 2013. The 2013 production is by the end of October.
(3) Vale’s attributable production capacity of 40%.
2.2.3 Customers and sales
We sell copper concentrates from Sossego and Salobo phase I under medium and long-term contracts to
copper smelters in South America, Europe, India and Asia. We have medium-term copper supply agreements with
Glencore Canada Corporation for the sale of copper anodes and most of the copper concentrates produced in Sudbury.
We sell copper concentrates from Voisey’s Bay under medium-term contracts to customers in Europe. We sell
electrowon copper from Sudbury in North America under short-term sales agreements.
2.2.4 Competition
The global copper market is highly competitive. Producers are integrated mining companies and custom
smelters, covering all regions of the world, while consumers are principally wire rod and copper-alloy producers.
Competition occurs mainly on a regional level and is based primarily on production costs, quality, reliability of supply
and logistics costs. The world’s largest copper cathode producers are Corporación Nacional del Cobre de Chile
(“Codelco”), Aurubis AG, Glencore Xstrata, Freeport-McMoRan Copper & Gold Inc. (“Freeport-McMoRan”) and
Jiangxi Copper Corporation Ltd., operating at the parent-company level or through subsidiaries. Our participation in
the global copper market is marginal.
Copper concentrate and copper anode are intermediate products in the copper production chain. Both the
concentrate and anode markets are competitive, having numerous producers but fewer participants and smaller
volumes than in the copper cathode market due to high levels of integration by the major copper producers.
In the copper concentrate market, mining occurs on a world basis with a predominant share from South
America, while consumers are custom smelters located in Europe and Asia. Competition in the custom copper
concentrate market occurs mainly on a global level and is based on production costs, quality, logistics costs and
reliability of supply. The largest competitors in the copper concentrate market are BHP Billiton, Antofagasta plc,
Freeport McMoRan, Glencore Xstrata, Codelco and Rio Tinto, operating at the parent-company level or through
subsidiaries. Our market share in 2013 was about 4% of the total custom copper concentrate market.
47
The copper anode/blister market has very limited trade within the copper industry; generally, anodes are
produced to supply each company’s integrated refinery. The trade in anodes/blister is limited to those facilities that
have more smelting capacity than refining capacity or to those situations where logistics cost savings provide an
incentive to source anodes from outside smelters. The largest competitors in the copper anode market in 2013
included Codelco, Glencore Xstrata, China Nonferrous Metals and Anglo American, operating at the parent-company
level or through subsidiaries.
2.3 PGMs and other precious metals
As by-products of our Sudbury nickel operations in Canada, we recover significant quantities of PGMs, as
well as small quantities of gold and silver. We also recover gold as a by-product of our operations at our Salobo and
Sossego copper mines in Carajás, in the Brazilian state of Pará. We operate a processing facility in Port Colborne,
Ontario, which produces PGMs, gold and silver intermediate products using feed from our Sudbury operation. We
have a refinery in Acton, England, where we process our intermediate products, as well as feeds purchased from
unrelated parties and toll-refined materials. In 2013, PGM concentrates from our Canadian operations supplied about
55% of our PGM production, which also includes metals purchased from unrelated parties. Our base metals marketing
department sells our own PGMs and other precious metals, as well as products from unrelated parties and toll-refined
products, on a sales agency basis.
In February 2013, we sold to Silver Wheaton 25% of the gold produced as a by-product at our Salobo copper
mine, in Brazil, for the life of that mine, and 70% of the gold produced as a by-product at our Sudbury nickel mines, in
Canada, for 20 years. Pursuant to the gold stream contract, Silver Wheaton received 34,325 oz of gold in 2013.
The following table sets forth information on our precious metals production.
Mine(1)
Sudbury:
Type
2011
2012
(thousand troy ounces)
2013
Platinum .......................................................
Palladium .....................................................
Gold..............................................................
Underground
Underground
Underground
Salobo:
Gold..............................................................
Sossego:
Gold..............................................................
Open pit
Open pit
174
248
182
−
90
134
251
69
20
75
145
352
91
117
78
(1) Production figures exclude precious metals purchased from unrelated parties and toll-refined materials.
2.4 Cobalt
We recover significant quantities of cobalt, classified as a minor metal, as a by-product of our nickel
operations. In 2013, we produced 1,550 metric tons of refined cobalt metal at our Port Colborne refinery, 685 metric
tons of cobalt in a cobalt-based intermediate product at our nickel operations in Canada and New Caledonia, and our
remaining cobalt production consisted of 1,297 metric tons of cobalt contained in other intermediate products (such as
nickel concentrates). As a result of the ramp-up of VNC operations in New Caledonia, our production of cobalt
intermediate as a by-product of our nickel production will increase. We sell cobalt on a global basis. Our cobalt metal
is electro-refined at our Port Colborne refinery and has very high purity levels (99.8%), which is superior to the LME
contract specification. Cobalt metal is used in the production of various alloys, particularly for aerospace applications,
as well as the manufacture of cobalt-based chemicals.
48
The following table sets forth information on our cobalt production.
Lines of business
Mine
Sudbury .......................................................
Thompson ....................................................
Voisey’s Bay ................................................
New Caledonia ............................................
External sources(1) .......................................
Total ..............................................................
Type
Underground
Underground
Open pit
Open pit
−
(1) These figures do not include tolling of feeds for unrelated parties.
3. Fertilizer nutrients
3.1 Phosphates
2011
Production for the year ended December 31,
2012
(metric tons)
2013
593
158
1,585
245
93
2,675
589
96
1,221
385
52
2,343
853
292
1,256
1,117
13
3,532
We operate our phosphates business through subsidiaries and joint ventures, as set forth in the following
table.
Company
Location
Vale Fertilizantes .....................................
MVM Resources International, B.V. ......
Vale Cubatão. ..........................................
Uberaba, Brazil
Bayóvar, Peru
Cubatão, Brazil
Our share of capital
Voting
Total
100.0
51.0
100.0
(%)
100.0
40.0
100.0
Partners
–
Mosaic, Mitsui & Co
–
Vale Fertilizantes is a producer of phosphate rock, phosphate fertilizers (“P”) (e.g., monoammonium
phosphate (“MAP”), dicalcium phosphate (“DCP”), triple superphosphate (“TSP”) and single superphosphate
(“SSP”)) and nitrogen (“N”) fertilizers (e.g., ammonia and ammonium nitrate). It is the largest producer of phosphate
and nitrogen crop nutrients in Brazil. Vale Fertilizantes operates the following phosphate rock mines, through
concessions for indefinite period: Catalão, in the state of Goiás, and Tapira, Patos de Minas and Araxá, all in the state
of Minas Gerais, and Cajati, in the state of São Paulo, in Brazil. In addition, Vale Fertilizantes has nine processing
plants for the production of phosphate and nitrogen nutrients, located at Catalão, Goiás; Araxá, Patos de Minas and
Uberaba, Minas Gerais; Guará, Cajati, and three plants in Cubatão, São Paulo. In July 2013, we concluded the sale of
Araucária operations for US$234 million to Petrobras.
Since 2010 we have also operated the Bayóvar phosphate rock mine in Peru, with nominal capacity of 3.9
Mtpy, through a concession for indefinite period.
The following table sets forth information about our phosphate rock production.
Mine
Bayóvar .....................................................................
Catalão ......................................................................
Tapira ........................................................................
Patos de Minas ..........................................................
Araxá .........................................................................
Cajati .........................................................................
Total ..........................................................................
Type
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
Production for the year ended December 31,
2013
2012
2011
(thousand metric tons)
2,544
947
2,011
44
1,231
582
7,359
3,209
1,026
2,068
44
1,084
550
7,982
3,546
1,057
1,869
53
1,111
640
8,277
49
The following table sets forth information about our phosphate and nitrogen nutrients production.
Product
Monoammonium phosphate (MAP) ..........................................................
Triple superphosphate (TSP) ......................................................................
Single superphosphate (SSP) .....................................................................
Dicalcium phosphate (DCP) .......................................................................
Ammonia ....................................................................................................
Urea ............................................................................................................
Nitric acid ...................................................................................................
Ammonium nitrate .....................................................................................
3.2 Potash
Production for the year ended December 31,
2011
2012
2013
(thousand metric tons)
1,201
913
2,226
511
475
483
478
490
823
811
2,638
580
619
628
468
458
1,128
905
2,102
444
347
219
416
419
We conduct potash operations in Brazil at the parent-company level, with mining concessions of indefinite
duration. We have leased Taquari-Vassouras, the only potash mine in Brazil (in Rosario do Catete, in the state of
Sergipe), from Petrobras since 1992. In April 2012, we extended the lease for 30 more years. The following table sets
forth information on our potash production.
Mine
Production for the year ended December 31,
Type
2011
2012
(thousand metric tons)
2013
2013 Process
Recovery
(%)
Taquari-Vassouras ................................................ Underground
625
549
492
85.9
3.3 Customers and sales
All potash sales from the Taquari-Vassouras mine are to the Brazilian market. In 2013, our production
represented approximately 6% of total potash consumption in Brazil. We have a strong presence and long-standing
relationships with the major market participants in Brazil, with more than 60% of our sales generated from four
long-term customers.
Our phosphate products are mainly sold to fertilizer blenders. In 2013, our sales represented approximately
27% of total phosphate consumption in Brazil, with imports representing 56% of total supply. In the
high-concentration segment our production supplied more than 32% of total Brazilian consumption, with products like
MAP and TSP. In the low-concentration phosphate nutrients segment our sales represented approximately 33% of
total Brazilian consumption, with products like SSP.
3.4 Competition
The industry is divided into three major nutrients: potash, phosphate and nitrogen. There are limited
resources of potash around the world, with Canada, Russia and Belarus being the most important sources, each of
which having only a few producers. The industry presents a high level of investment and a long time required for a
project to mature. In addition, the potash industry is highly concentrated, with the 10 major producers accounting for
more than 95% of total world production capacity. While potash is a scarcer resource, phosphate is more available,
but all major exporters are located in the northern region of Africa (Morocco, Algeria and Tunisia) and in the United
States. The top five phosphate rock producers (China, Morocco, United States, Russia and Brazil) account for 79% of
global production, of which roughly 14% is exported. However, higher value-added products such as MAP and DAP
are usually traded instead of phosphate rock due to cost efficiency.
50
Lines of business
Brazil is one of the largest agribusiness markets in the world due to its high production, exports and
consumption of grains and biofuels. It is the fourth-largest consumer of fertilizers in the world and one of the largest
importers of potash, phosphates, phosphoric acid and urea. Brazil imports 93% of its potash consumption, which
amounted to 8.1 Mtpy of KCl (potassium chloride) in 2013, 15% higher than 2012, from Canadian, German, Russian,
Belarusian and Israeli producers, in descending order. In terms of global consumption, China, the United States,
Brazil and India represent 58% of the total, with Brazil alone representing 17% of the total. Our fertilizer projects are
highly competitive in terms of cost and logistics to supply the Brazilian market.
Most phosphate rock concentrate is consumed locally by downstream integrated producers, with the seaborne
market corresponding to 14% of total phosphate rock production. Major phosphate rock exporters are concentrated in
North Africa, mainly through state-owned companies, with Moroccan OCP Group holding 30% of the total seaborne
market. Brazil imports 56% of the total phosphate nutrients it needs through both phosphate fertilizer products and
phosphate rock. The phosphate rock imports supply non-integrated producers of phosphate fertilizer products such as
SSP, TSP and MAP.
Nitrogen-based fertilizers are derived primarily from ammonia (NH3), which, in turn, is made from nitrogen
present in the air and natural gas, making this an energy-intensive nutrient. Ammonia and urea are the main inputs for
nitrogen-based fertilizers. Consumption of nitrogen-based fertilizers has a regional profile due to the high cost
associated with transportation and storage of ammonia, which requires refrigerated and pressurized facilities. As a
result, only 11% of the ammonia produced worldwide is traded. North America is the main importer, accounting for
33% of global trade. Main exporting regions are Central America, Russia, Eastern Europe and the Middle East.
4. Infrastructure
4.1 Logistics
We have developed our logistics business based on the transportation needs of our mining operations and we
also provide transportation services for other customers.
We conduct our logistics businesses at the parent-company level and through subsidiaries and joint ventures,
as set forth in the table below. One of these subsidiaries is VLI, which provides integrated logistics solutions through
9,742 km of railroads (FCA, FNS, EFVM and EFC), five inland terminals with a total storage capacity of 509,320 tons
and three maritime terminals and ports operations. We currently own 100% of the stock of VLI, but we have agreed to
sell interests in VLI to Mitsui, FI-FGTS and Brookfield, and upon closing, we will hold a 37.6% stake in VLI. We
currently account for VLI in our financial statements as an asset held for sale. For more information, see Business
overview—Significant changes in our business—Sale of stakes in VLI.
Company
Business
Location
Our share of capital
Total
Voting
(%)
–
–
Partners
–
Brazil
Vale .............................. Railroad (EFVM and EFC),
port and maritime terminal
operations
VLI(1) .......................... Railroad, port, inland
terminal and maritime
terminal operations.
Holding of certain cargo
logistics assets
FCA(1)(2) .................... Railroad operations
FNS(1)(2) ..................... Railroad operations
MRS ............................. Railroad operations
CPBS ............................ Port and maritime terminal
operations
Brazil
37.6
37.6
FI-FGTS, Mitsui and Brookfield
Brazil
Brazil
Brazil
Brazil
37.6
37.6
46.8
100.0
37.6
37.6
FI-FGTS, Mitsui and Brookfield
FI-FGTS, Mitsui and Brookfield
47.6
100.0
CSN, Usiminas and Gerdau
–
PTVI ............................. Port and maritime terminal
Indonesia
59.3
59.3
Sumitomo, public investors
operations
Vale Logística
Argentina ..................... Port operations
CEAR(3) ...................... Railroad
Argentina
Malawi
100.0
43.4
100.0
43.4
–
Portos e Caminhos de Ferro de
Moçambique, E.P.
51
Company
Business
Location
Our share of capital
Total
Voting
(%)
CDN(4) ........................ Railroad and maritime
Mozambique
43.4
43.4
CLN .............................
terminal operations
Railroad and port operations
Mozambique
80.0
80.0
Partners
Portos e Caminhos de Ferro de
Moçambique, E.P.
Portos e Caminhos de Ferro de
Moçambique, E.P.
Vale Logistics
Limited ......................... Railroad operations
Transbarge
Navegación ..................
Paraná and Paraguay
Waterway System
(Convoys)
Malawi
100.0
100.0
Paraguay
100.0
100.0
–
–
VNC ............................. Port and maritime terminal
New Caledonia
80.5
80.5
Sumic, SPMSC
operations
(1) Vale currently owns 100% of the total and voting stock of VLI. Upon completion of the sales to Mitsui, FI-FGTS and Brookfield, Vale will
hold the voting and total stakes indicated in this table. Vale, Mitsui, FI-FGTS and Brookfield will jointly control VLI through a shareholders’
agreement.
(2) FCA and FNS are controlled by VLI.
(3) Vale controls its interest in CEAR through an 85% interest in SDCN.
(4) Vale controls its interest in CDN through an 85% interest in SDCN.
4.1.1 Railroads
Brazil
Vitória a Minas railroad (“EFVM”). The EFVM railroad links our Southeastern System mines in the Iron
Quadrangle region in the Brazilian state of Minas Gerais to the Tubarão Port, in Vitória, in the Brazilian state of
Espírito Santo. We operate this 905-kilometer railroad under a 30-year renewable concession, which expires in 2027.
The EFVM railroad consists of two lines of track extending for a distance of 601 kilometers to permit continuous
railroad travel in opposite directions, and single-track branches of 304 kilometers. Industrial manufacturers are
located in this area and major agricultural regions are also accessible to it. VLI has rights to use railroad transportation
capacity on our EFVM railroad. In 2013, the EFVM railroad transported a daily average of 321,890 metric tons of iron
ore, or a total of 77.53 billion ntk of iron ore and other cargo, of which 15.56 billion ntk, or 20.1%, consisted of cargo
transported for customers, including iron ore for Brazilian customers. The EFVM railroad also carried 890 thousand
passengers in 2013. In 2013, we had a fleet of 321 locomotives and 15,212 wagons at EFVM.
Carajás railroad (“EFC”). The EFC railroad links our Northern System mines in the Carajás region in the
Brazilian state of Pará to the Ponta da Madeira maritime terminal, in São Luis, in the Brazilian state of Maranhão. We
operate the EFC railroad under a 30-year renewable concession, which expires in 2027. EFC extends for 892
kilometers from our Carajás mines to our Ponta da Madeira maritime terminal complex facilities located near the
Itaqui Port. Its main cargo is iron ore, principally carried for us. VLI has rights to use railroad transportation capacity
on our EFC railroad. In 2013, the EFC railroad transported a daily average of 296,155 metric tons of iron ore. In 2013,
the EFC railroad carried a total of 102.03 billion ntk of iron ore and other cargo, 3.50 billion ntk of which was cargo for
customers, including iron ore for Brazilian customers. EFC also carried 308 thousand passengers in 2013. EFC
supports the largest train, in terms of capacity, in Latin America, which measures 3.4 kilometers, weighs 41,838 gross
metric tons when loaded and has 330 cars. In 2013, EFC had a fleet of 266 locomotives and 16,434 wagons.
The principal items of cargo of the EFVM and EFC railroads are:
•
•
iron ore and iron ore pellets, carried for us and customers;
steel, coal, pig iron, limestone and other raw materials carried for customers with steel mills located
along the railroad;
52
Lines of business
•
•
agricultural products, such as soybeans, soybean meal and fertilizers; and
other general cargo, such as pulp, fuel and chemical products.
We charge market prices for customer freight, including iron ore pellets originating from joint ventures and
other enterprises in which we do not have a 100% equity interest. Market prices vary based on the distance traveled,
the type of product transported and the weight of the freight in question, and are regulated by the Brazilian
transportation regulatory agency, ANTT (Agência Nacional de Transportes Terrestres).
Ferrovia Centro-Atlântica (“FCA”). FCA is a subsidiary of VLI, which operates the central-east regional
railway network of the Brazilian national railway system under a 30-year renewable concession, which expires in
2026. The central east network has 7,220 kilometers of track, extending into the states of Sergipe, Bahia, Espírito
Santo, Minas Gerais, Rio de Janeiro, Goiás and the Federal District of Brazil. It connects with our EFVM railroad near
the cities of Belo Horizonte, in the state of Minas Gerais, and Vitória, in the state of Espírito Santo. FCA operates on
the same track gauge as our EFVM railroad and provides access to the port of Santos, in the state of São Paulo. In
2013, the FCA railroad transported a total of 13.92 billion ntk of cargo, essentially all of it for customers. In 2013,
FCA had a fleet of 891 locomotives and 16,744 wagons, including owned and leased.
Ferrovia Norte-Sul railroad (“FNS”). FNS is a wholly-owned subsidiary of VLI, which has a 30-year
renewable subconcession for the commercial operation of a 724-kilometer stretch of the FNS railroad in Brazil. Since
1989, we have operated a segment of FNS, which connects to the EFC railroad, enabling access to the port of Itaqui, in
São Luís, where our Ponta da Madeira maritime terminal is located. A 452-kilometer extension was concluded in
December 2008. In 2013, the FNS railroad transported a total of 2.46 billion ntk of cargo for customers. This new
railroad creates a new corridor for the transportation of general cargo, mainly for the export of soybeans, rice and corn
produced in the center-northern region of Brazil. In 2013, FNS had a fleet of 41 locomotives and 639 wagons,
including owned and leased.
MRS Logística S.A. (“MRS”). The MRS railroad is 1,643 kilometers long and links the Brazilian states of Rio
de Janeiro, São Paulo and Minas Gerais. In 2013, the MRS railroad carried a total of 156.1 million metric tons of
cargo, including 68.4 million metric tons of iron ore and other cargo from Vale.
Africa
We are developing the Nacala Corridor, which will connect the Moatize site to the Nacala-à-Velha maritime
terminal, located in Nacala, Mozambique, and which crosses into the Republic of Malawi. The Nacala Corridor
consists of railway and port infrastructure, including greenfield and existing railways in Mozambique and Malawi and
a new coal port in Mozambique. These projects will allow for the expansion of Moatize and support our operations in
Central and Eastern Africa. In Mozambique, we are developing the greenfield projects under two concession
agreements held by our subsidiary Corredor Logístico Integrado de Nacala S.A. (“CLN”), which will expire in 2043,
subject to renewal, and we will rehabilitate existing railroads under a concession held by our subsidiary Corredor de
Desenvolvimento do Norte S.A. (“CDN”), which will expire in 2035. In Malawi, we are developing a greenfield
railroad under a concession held by our subsidiary Vale Logistics Limited (“VLL”), which will expire in 2041, subject
to renewal, and we will rehabilitate existing railroads under a concession held by our subsidiary Central East African
Railway Company Limited (“CEAR”), which was extended in 2013 for a 30-year period from the commencement of
rail services under VLL’s greenfield railway concession. We will also invest in the construction of railway links from
Moatize to a new deep water maritime terminal to be built in Nacala-à-Velha by CLN. We continue to consider
partnerships for the utilization and potential future development of the Nacala Corridor.
53
4.1.2 Ports and maritime terminals
Brazil
We operate a port and maritime terminals principally as a means to complete the delivery of our iron ore and
iron ore pellets to bulk carrier vessels serving the seaborne market.
See Bulk materials—Iron ore
pellets—Operations. We also use our port and terminals to handle customers’ cargo. In 2013, 1.2% of the cargo
handled by our port and terminals represented cargo handled for customers.
Tubarão Port. The Tubarão Port, which covers an area of 18 square kilometers, is located near the Vitória
Port in the Brazilian state of Espírito Santo and contains the iron ore maritime terminal, which we operate directly, and
the Praia Mole Terminal and the Terminal de Produtos Diversos, which are operated by VLI.
• The iron ore maritime terminal has two piers. Pier I can accommodate two vessels at a time, one of
up to 170,000 DWT on the southern side and one of up to 200,000 DWT on the northern side. Pier
II can accommodate one vessel of up to 405,000 DWT at a time, limited at 23 meters draft. In Pier
I there are two ship loaders, which can load up to 13,500 metric tons per hour each. In Pier II there
are two ship loaders that work alternately and can each load up to 16,000 metric tons per hour
continuously. In 2013, 101.6 million metric tons of iron ore and iron ore pellets were shipped
through the terminal for us. The iron ore maritime terminal has a storage yard with a capacity of 3.4
million metric tons.
• Praia Mole terminal is principally a coal terminal and handled 9.8 million metric tons in 2013.
• Terminal de Produtos Diversos handled 7.4 million metric tons of grains and fertilizers in 2013.
Ponta da Madeira maritime terminal. Our Ponta da Madeira maritime terminal is located near the port of
Itaqui, in the Brazilian state of Maranhão. Pier I can accommodate vessels of up to 420,000 DWT and has a maximum
loading rate of 16,000 tons per hour. Pier II can accommodate vessels of up to 155,000 DWT and has a maximum
loading rate of 8,000 tons per hour. Pier III, which has two berths and three shiploaders, can accommodate vessels of
up to 200,000 DWT at the south berth and 180,000 DWT at the north berth (or two vessels of 180,000 DWT
simultaneously), subject to tide conditions, and has a maximum loading rate of 8,000 metric tons per hour in each
shiploader. Pier IV (south berth) is able to accommodate vessels of up to 420,000 DWT and have two ship loaders that
work alternately with a maximum loading rate of 16,000 tons per hour. Cargo shipped through our Ponta da Madeira
maritime terminal consists principally of our own iron ore production, with the exception of Pier II, which is used for
general cargo. Other cargo includes manganese ore produced by us and pig iron and soybeans for unrelated parties. In
2013, 107 million metric tons of iron ore were handled through the terminal. The Ponta da Madeira maritime terminal
has a storage yard with a static capacity of 8.9 million tons, which will be expanded to 10.7 million tons.
Itaguaí maritime terminal – Cia. Portuária Baía de Sepetiba (“CPBS”). CPBS is a wholly-owned subsidiary
that operates the Itaguaí terminal, in the Sepetiba Port, in the Brazilian state of Rio de Janeiro. Itaguaí’s maritime
terminal has a pier with one berth that allows the loading of ships up to 18 meters of draft and approximately 200,000
DWT of capacity. In 2013, the terminal uploaded 21.9 million metric tons of iron ore.
Guaíba Island maritime terminal. We operate a maritime terminal on Guaíba Island in the Sepetiba Bay, in
the Brazilian state of Rio de Janeiro. The iron ore terminal has a pier with two berths that allows the loading of ships
of up to 350,000 DWT. In 2013, the terminal uploaded 39.9 million metric tons of iron ore.
54
Lines of business
Inácio Barbosa maritime terminal (“TMIB”). Vale operates the Inácio Barbosa maritime terminal, located in
the Brazilian state of Sergipe. The terminal is owned by Petrobras. Vale and Petrobras are parties to a service
agreement that provides for the operation of this terminal by Vale until June 2014. VLI and Petrobras have entered into
a consortium agreement that provides for the operation of TMIB by VLI for a 25-year period beginning after all
governmental approvals are received. This consortium agreement has been approved by both CADE and the National
Agency of Waterway Transportation (“ANTAQ”) and is still subject to approval by the Brazilian Secretary of Ports
(“SEP”).
Santos maritime terminal (“TIPLAM”). VLI operates a maritime terminal in Santos, in the Brazilian state of
São Paulo. The terminal has a pier that is equipped to receive ships of up to 67,000 DWT. In 2013, the terminal
handled 2.3 million metric tons of ammonia and bulk solids.
Argentina
Vale Logística Argentina S.A. (“Vale Logística Argentina”) operates a terminal at the San Nicolas port
located in the province of Buenos Aires, Argentina, where Vale Logística Argentina has a permit to use a storage yard
covering 20,000 square meters until October 2016 and an agreement with third parties for an extra storage yard of
27,000 square meters. We handled 1.17 million metric tons of iron and manganese ore through this port in 2013,
which came from Corumbá, Brazil, via the Paraguay and Paraná rivers, for shipment to Brazilian, Asian and European
markets. The loading rate of this port is 15,000 tons per day and the unloading rate is 11,000 tons per day.
Oman
Vale Oman Distribuition Center LLC (“VODC”) operates a distribution center in Liwa, Sultanate of Oman.
The maritime terminal has a 1.4 kilometer deep water jetty, which is integrated with a storage yard that has a
throughput capacity to handle 40 Mtpy of iron ore and pellets per year. The loading nominal capacity is 10,000 tons
per hour and the unloading nominal capacity is 9,000 tons per hour.
Indonesia
PTVI owns and operates two ports in Indonesia to support its nickel mining activities.
• The Balantang Special Port is located in Balantang Village, South Sulawesi, and has two types of
piers, with total capacity of 6,000 DWT: a barge slip for barges with capacity of up to 4,000 DWT
for dry bulk cargo and a general cargo wharf for vessels of up to 2,000 DWT.
• The Tanjung Mangkasa Special Port is located in Lampia Village, South Sulawesi, with mooring
buoys that can accommodate vessels with capacity of up to 20,000 DWT, and a terminal that can
accommodate fuel tanker vessels with capacity of up to 2,000 DWT, totaling capacity of 22,000
DWT.
New Caledonia
We own and operate a port in Prony Bay, Province Sud, New Caledonia. This port has three terminals,
including a passenger ferry terminal able to berth two ships up to 50m long, a dry bulk wharf where vessels of up to
55,000 DWT can unload at a rate of 10,000 tons per day and a general cargo wharf where vessels up to 215m long can
berth. The general cargo wharf can move containers at a rate of 10 per hour and liquid fuels (LPG, HFO, Diesel) at a
rate of 600 cubic meters per hour, and break-bulk. The port’s container yard, covering an area of approximately
13,000 square meters, can receive up to 800 units. A bulk storage yard is linked to the port by a conveyor and has a
storage capacity of 90,000 tons of limestone, 95,000 tons of sulfur, and 60,000 tons of coal.
55
4.1.3 Shipping
We continue to develop and operate a low-cost fleet of vessels, comprised of our own ships and ships hired
pursuant to medium and long-term contracts, to support our bulk materials business. At the end of 2013, 29 of our
vessels were in operation, including 15 Valemax vessels, with a capacity of 400,000 DWT each, and 14 other vessels
(capesizes, ore carriers and very large ore carriers) with capacities ranging from150,000 to 250,000 DWT. We also
leased 16 Valemax vessels under long-term contracts. We expect the delivery of four more owned Valemax vessels
from Chinese shipyard in 2014. To support our iron ore delivery strategy, Vale owns and operates two floating transfer
stations in Subic Bay, Philippines that transfer iron ore from Valemax vessels to smaller vessels that deliver the cargo
to its destinations. We expect this service to enhance our ability to offer our iron ore products in the Asian market at
competitive prices and to increase our market share in China and the global seaborne market. In 2013, we shipped
approximately 135 million metric tons of iron ore and pellets on a CFR basis.
In the Paraná and Paraguay waterway system, we transport iron ore and manganese ores through our
subsidiary Transbarge Navegación, which transported 2.09 million tons through the waterway system in 2013, and our
subsidiary Vale Logística Argentina, which loaded 1.17 million tons of ore at San Nicolas port into ocean-going
vessels in 2013. In 2010, we also purchased two new convoys (two pushers and 32 barges) that will begin operations
in 2014.
We operate a fleet of 24 tug boats in maritime terminals in Brazil, specifically in Vitória (in the state of
Espírito Santo), Trombetas and Vila do Conde (in the state of Pará), São Luís (in the state of Maranhão), Mangaratiba
(in the state of Rio de Janeiro) and Aracaju (in the state of Sergipe).
4.2 Energy
We have developed our energy assets based on the current and projected energy needs of our operations, with
the goal of reducing our energy costs and minimizing the risk of energy shortages.
Brazil
Energy management and efficient supply in Brazil are priorities for us, given the uncertainties associated
with changes in the regulatory environment and the risk of rising electricity prices. In 2013, our installed capacity in
Brazil was 1.2 GW. We use the electricity produced by these plants for our internal consumption needs. We currently
have stakes in nine hydroelectric power plants and four small hydroelectric power plants in operation. The
hydroelectric power plants of Igarapava, Porto Estrela, Funil, Candonga, Aimorés, Capim Branco I, Capim Branco II
and Machadinho are located in the Southeastern and Southern regions, and Estreito is located in the Northern region.
Once the transactions we have undertaken with CEMIG GT are complete, the joint venture Aliança Geração will hold
our and CEMIG GT’s interests in the following hydroelectric power plants: Porto Estrela, Igarapava, Funil, Capim
Branco I e II, Aimorés and Candonga. See Business Overview–Significant changes in our business—Restructuring
our investments in power generation.
We currently have a 9% stake in Norte Energia, the company established to develop and operate the Belo
Monte hydroelectric plant in the Brazilian state of Pará. Upon completion of the transactions we entered into with
CEMIG GT, we will indirectly hold a 4.59% stake in Norte Energia through Aliança Norte Energia. Our participation
in the Belo Monte project gives us the right to purchase 9% of the electricity generated by the plant, which has already
been contracted through a long term power purchase agreement entered into with Norte Energia. This power purchase
agreement will not be affected by the transactions described in Business Overview–Significant changes in our
business—Restructuring our investments in power generation.
56
Lines of business
We also produce palm oil in the Brazilian state of Pará, which will be used to produce biodiesel. The
biodiesel will be blended with regular diesel to produce a fuel called B20 (with 20% of biodiesel), which will be used
to power our fleet of locomotives, trucks and heavy-duty machinery in the Northern System operations.
Canada
In 2013, our wholly-owned and operated hydroelectric power plants in Sudbury generated 20% of the
electricity requirements of our Sudbury operations. The power plants consist of five separate generation stations with
an installed generator nameplate capacity of 56 MW. The output of the plants is limited by water availability, as well
as by constraints imposed by a water management plan regulated by the provincial government of Ontario. Over the
course of 2013, average demand for electrical energy was 197 MW to all surface plants and mines in the Sudbury area.
In 2013, diesel generation provided 100% of the electric requirements of our Voisey’s Bay operations. We
have six diesel generators on-site, of which normally only four are in operation, producing 12 MW.
Indonesia
Energy costs are a significant component of our nickel production costs for the processing of lateritic and
saprolitic ores at PTVI operations in Indonesia. A major portion of PTVI’s electric furnace power requirements is
supplied at a low cost by its three hydroelectric power plants on the Larona River: (i) the Larona plant, which has an
average generating capacity of 165 MW, (ii) the Balambano plant, which has an average capacity of 110 MW and (iii)
the Karebbe plant, with 90 MW of average generating capacity. These plants help reduce production costs by
substituting oil used for power generation with hydroelectric power, reduce CO2 emissions by replacing
non-renewable power generation, and enable us to increase our current nickel production capacity in Indonesia.
5. Other investments
We own a 50.0% stake in California Steel Industries, Inc. (“CSI”), a producer of flat-rolled steel and pipe
products located in the United States. The remainder is owned by JFE Steel. CSI’s annual production capacity is
approximately 2.8 million metric tons of flat rolled steel and pipe. In addition, we have a 26.9% stake in the
ThyssenKrupp Companhia Siderúrgica do Atlântico (“TKCSA”) integrated steel slab plant in the Brazilian state of
Rio de Janeiro. The plant started operations in 2010, and produced 3.6 Mt in 2013. The plant will ultimately have a
production capacity of 5.0 Mtpy and will consume 8.5 million metric tons of iron ore and iron ore pellets per year,
supplied exclusively by Vale. We are also involved in two other steel projects in Brazil: Companhia Siderúrgica do
Pecém (“CSP”), which is currently under construction, and Aços Laminados do Pará (“Alpa”), which is under review
pending discussions with the Brazilian government.
We own minority interests in two bauxite mining businesses that are both located in Brazil: Mineração Rio do
Norte S.A. (“MRN”) and Mineração Paragominas S.A. (“Paragominas”). We have agreed to transfer our interests in
Paragominas to Hydro in two equal tranches in 2014 and 2016.
We also have an onshore and offshore hydrocarbon exploration portfolio in Brazil and Peru. This portfolio is
under review, and some concessions are being relinquished while others are in the process of being assigned, subject
to regulatory approvals.
57
Presentation of information concerning reserves
RESERVES
The estimates of proven and probable ore reserves at our mines and projects and the estimates of mine life
included in this annual report have been prepared by our staff of experienced geologists and engineers, unless
otherwise stated, and calculated in accordance with the technical definitions established by the SEC. Under the SEC’s
Industry Guide 7:
• Reserves are the part of a mineral deposit that could be economically and legally extracted or
produced at the time of the reserve determination.
• Proven (measured) reserves are reserves for which (a) quantity is computed from dimensions
revealed in outcrops, trenches, working or drill holes; grade and/or quality are computed from the
results of detailed sampling; and (b) the sites for inspection, sampling and measurement are spaced
so closely and the geologic character is so well defined that size, shape, depth and mineral content of
reserves are well-established.
• Probable (indicated) reserves are reserves for which quantity and grade and/or quality are computed
from information similar to that used for proven (measured) reserves, but the sites for inspection,
sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of
assurance, although lower than that for proven (measured) reserves, is high enough to assume
continuity between points of observation.
We periodically revise our reserve estimates when we have new geological data, economic assumptions or
mining plans. During 2013, we performed an analysis of our reserve estimates for certain projects and operations,
which is reflected in new estimates as of December 31, 2013. Reserve estimates for each operation assume that we
either have or expect to obtain all of the necessary rights and permits to mine, extract and process ore reserves at each
mine. For some of our operations, the projected exhaustion date includes stockpile reclamation that occurs after
mining has ceased. Where we own less than 100% of the operation, reserve estimates have not been adjusted to reflect
our ownership interest. Certain figures in the tables, discussions and notes have been rounded. For a description of
risks relating to reserves and reserve estimates, see Risk factors.
58
Our reserve estimates are based on certain assumptions about future prices. We have determined that our
reported reserves could be economically produced if future prices for the products identified in the following table
were equal to the three-year average historical prices through December 31, 2013. For this purpose, we used the
three-year historical average prices set forth in the following table.
Reserves
Commodity
Iron ore:
Vale(1) .......................................................
Samarco(2) .................................................
Coal:
Metallurgical – Moatize ............................
Metallurgical – Integra underground.........
Metallurgical – Integra open cut ...............
Metallurgical – Carborough Downs ..........
Metallurgical – Isaac Plains ......................
PCI – Carborough Downs .........................
PCI – Isaac Plains(3) .................................
Thermal – Integra open cut ............................
Thermal – Isaac Plains ...................................
Base metals:
Nickel(4) ....................................................
Copper .......................................................
Nickel by-products:
Platinum .....................................................
Palladium ...................................................
Gold ...........................................................
Cobalt(4) ....................................................
Fertilizer nutrients:
Phosphate ...................................................
Potash ........................................................
Manganese(5):
Manganese lump ore .................................
Manganese sinter feed ..............................
Three-year average historical price
Pricing source
(US$ per metric ton, unless otherwise stated)
144.87
166.29
187.00
143.65
124.98
188.20
150.08
156.16
141.99
101.00
93.77
8.38
3.64
1,590.00
718.00
1,543.00
13.75
174.00
425
203.72
179.35
Average Platts IODEX (62% Fe CFR China, US$/dmt)
Average realized price for pellets (US$/dmt)
Medium volatile hard coking coal FOB Queensland
(source: Platts)
Average realized semi hard coking coal price
Average semi soft coking coal realized price
Average hard coking coal realized price
Average semi hard coking coal realized price
Average PCI realized price
Average PCI realized price
Average thermal realized price
Average thermal realized price
LME Ni (US$/lb)
Average realized price (US$/lb)
Average realized price (US$/oz)
Average realized price (US$/oz)
Average realized price (US$/oz)
99.3% low cobalt metal (US$/lb) (source: Metal
Bulletin)
Average benchmark price for phosphate concentrate,
FOB Morocco (source: Fertilizer Week)
Average benchmark price for potash, FOB Vancouver
(source: Fertilizer Week)
Average realized price (US$/dmt)
Average realized price (US$/dmt)
(1) The economic assessment of our iron ore reserves is based on the average Platts IODEX prices, as adjusted to reflect the effects of freight,
moisture and the quality premium for our iron ore.
(2) US$ per dry metric ton of iron ore pellets is used for pricing at Samarco.
(3) Both semi soft coking coal (SSCC) and PCI are considered the same product at the operation in compiling the average three yearly sales price.
(4) Premiums (or discounts) are applied to the nickel and cobalt spot prices at certain operations to derive realized prices. These premiums (or
discounts) are based on product form, long-term contracts, packaging and market conditions.
(5) Prices mostly on a Delivery Duty Unpaid (DDU) China basis.
59
Iron ore reserves
The following tables set forth our iron ore reserves and other information about our iron ore mines. Total iron
ore reserves increased 10% from 2012 to 2013, reflecting new reserves from the Capanema and Conta História
deposits and the updated geological and reserve models to incorporate new cutoff limits and drilling data for deposits
at Alegria, Fábrica Nova and Fazendão (Southeastern System). In addition, we included reserves supported by a new
process to treat hard itabirites from Galinheiro and Sapecado (Southern System). Other modifications reflect depletion
from 2013 operations.
Proven – 2013
Probable – 2013
Total – 2013
Total – 2012
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Summary of total iron ore reserves(1)
Southeastern System .................
Southern System .......................
Midwestern System ...................
Northern System .......................
Vale Total ..............................
Samarco(2) ................................
Total .......................................
2,112.0
2,081.2
6.6
4,760.5
8,960.3
1,867.7
10,828.0
48.0
45.7
62.8
66.7
57.4
40.1
54.4
3,135.7
3,518.4
24.8
2,423.4
9,102.3
1,078.4
10,180.7
45.5
43.6
62.2
66.6
50.5
38.8
49.2
5,247.7
5,599.6
31.4
7,184.0
18,062.7
2,946.1
21,008.8
46.5
44.4
62.3
66.7
53.9
39.7
51.9
3,318.3
5,435.4
33.6
7,278.2
16,065.5
2,976.5
19,042.0
49.1
44.8
62.2
66.7
55.6
39.7
53.1
(1) Tonnage is stated in millions of metric tons of wet run-of-mine, based on the following moisture contents: Southeastern System 4.1%; Southern System
4.2%; Midwestern System 5.9%; Northern System 6.0%; and Samarco 6.5%. Grade is % of Fe.
(2) Reserves of Samarco’s Alegria iron ore mines. Our equity interest in Samarco is 50.0% and the reserve figures have not been adjusted to reflect our
ownership interest.
Itabira site
Conceição .............................
Minas do Meio ......................
Minas Centrais site
Água Limpa(2) .....................
Brucutu .................................
Apolo ....................................
Mariana site
Alegria ..................................
Fábrica Nova ........................
Fazendão ...............................
Capanema
Conta História .......................
Total Southeastern System .......
Iron ore reserves per mine in the Southeastern System(1)
Proven – 2013
Probable – 2013
Total – 2013
Total – 2012
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
482.4
202.7
20.3
210.1
292.4
213.3
379.2
311.6
-
-
2,112.0
45.8
51.5
42.0
50.4
57.4
46.3
43.6
45.7
-
-
48.0
102.4
69.8
6.7
260.3
339.7
143.5
779.1
307.6
610.7
515.9
3,135.7
47.7
48.8
42.7
48.3
55.1
44.0
40.9
40.7
47.1
45.4
45.5
584.8
272.6
27.0
470.3
632.1
356.8
1,158.3
619.2
610.7
515.9
5,247.7
46.1
50.8
42.2
49.3
56.1
45.4
41.8
43.2
47.1
45.4
46.5
607.5
295.7
33.0
501.4
632.1
157.8
770.9
319.8
-
-
3,318.3
46.3
50.8
42.2
49.5
56.1
48.3
44.7
49.9
-
-
49.1
(1) Tonnage is stated in millions of metric tons of wet run-of-mine, based on the following moisture contents: Itabira site 1.5%; Minas Centrais site 6.8%;
Mariana site 3.9%. Grade is % of Fe. Approximate drill hole spacings used to classify the reserves were: 100m x 100m to proven reserves and 200m x
200m to probable reserves.
(2) Vale’s equity interest in Água Limpa is 50.0% and the reserve figures have not been adjusted to reflect our ownership interest.
60
Reserves
Iron ore reserves per mine in the Southern System(1)
Proven – 2013
Probable – 2013
Total – 2013
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Total – 2012
Tonnage Grade
Minas Itabiritos site
Segredo .................................
João Pereira ..........................
Sapecado ..............................
Galinheiro .............................
Vargem Grande site
Tamanduá .............................
Capitão do Mato ...................
Abóboras ..............................
Paraopeba site
Jangada .................................
Capão Xavier ........................
147.6
648.5
345.1
260.9
52.7
229.1
314.9
23.0
59.4
Total Southern System ............
2,081.2
51.6
41.0
45.1
45.6
59.9
51.2
41.8
66.7
65.0
45.7
98.0
338.2
261.5
892.8
350.0
957.4
602.3
12.7
5.5.
3,518.4
44.3
40.8
42.6
43.5
47.5
45.3
40.1
66.4
64.1
43.6
245.5
986.7
606.6
1,153.8
402.8
1,186.5
917.1
35.7
64.9
5,599.6
48.7
40.9
44.0
44.0
49.2
46.5
40.7
66.6
65.0
44.4
249.2
1,011.2
550.0
973.6
412.3
1,198.1
924.6
43.1
73.3
5,435.4
48.8
41.1
44.8
44.7
49.4
46.7
40.8
66.6
65.0
44.8
(1) Tonnage is stated in millions of metric tons of wet run-of-mine. Grade is % of Fe, based on the following moisture contents: Minas Itabiritos site 5.1%;
Vargem Grande site 3.2%; Paraopeba site 3.7%. Approximate drill hole spacings used to classify the reserves were: 100m x 100m to proven reserves
and 200m x 200m to probable reserves.
Iron ore reserves per mine in the Midwestern System(1)(2)(3)
Proven – 2013
Probable – 2013
Total – 2013
Total – 2012
Tonnage
6.6
6.6
Grade
62.8
62.8
Tonnage
24.8
24.8
Grade
62.2
62.2
Tonnage
31.4
31.4
Grade
Tonnage
Grade
62.3
62.3
33.6
33.6
62.2
62.2
Urucum ..................................
Total Midwestern System ..
(1) The Midwestern System is comprised of the Urucum and Corumbá mines.
(2) We are conducting a review of Corumbá’s reserve estimate, which we expect to disclose in the next cycle.
(3) Tonnage is stated in millions of metric tons of wet run-of-mine, based on the following moisture contents: 5.9%. Grade is % of Fe. Approximate drill
hole spacings used to classify the reserves were: 70m x 70m to proven reserves and 140m x 140m to probable reserves.
Iron ore reserves per mine in the Northern System(1)
Proven – 2013
Probable – 2013
Total – 2013
Total – 2012
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Serra Norte site
N4W ....................................
N4E .....................................
N5 ........................................
1,099.6
240.8
231.3
66.5
66.5
67.0
275.1
84.4
705.8
Serra Sul
S11 .......................................
3,045.8
66.8
1,193.7
Serra Leste
SL1 ......................................
Total Northern System ....
143.0
4,760.5
65.7
66.7
164.4
2,423.4
66.1
66.0
67.3
66.7
65.1
66.6
1,374.7
325.2
937.1
4,239.6
307.4
7,184.0
66.5
66.4
67.2
66.7
65.4
66.7
1,405.5
345.1
980.6
4,239.6
307.4
7,278.2
66.5
66.4
67.2
66.7
65.4
66.7
(1) Tonnage is stated in millions of metric tons of wet run-of-mine, based on the following moisture contents: Serra Norte 8.3%; Serra Sul 4.6%; Serra
Leste 4.3%. Grade is % of Fe. Approximate drill hole spacings used to classify the reserves were: 150m x 100m to proven reserves and 300m x 200m
to probable reserves, except SL1 which is 100m x 100m to proven reserves and 200m x 200m to probable reserves.
61
Proven – 2013
Iron ore reserves per Samarco(1)(2)
Total – 2013
Probable – 2013
Total – 2012
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Samarco
Alegria Norte/Centro ......
Alegria Sul ......................
Germano ..........................
Total Samarco .............
1,058.1
750.8
58.8
1,867.7
42.0
37.6
39.7
40.1
704.2
352.8
21.4
1,078.4
40.2
36.1
39.8
38.8
1,762.3
1,103.6
80.2
2,946.1
41.3
37.1
39.8
39.7
1,780.5
1,115.8
80.2
2,976.5
41.4
37.1
39.8
39.7
(1) Tonnage is stated in millions of metric tons of wet run-of-mine based on moisture content of 6.5%. Grade is % of Fe. Approximate drill hole spacings
used to classify the reserves were: Alegria Norte/Centro, 150m x 100m to proven reserves and 300m x 200m to probable reserves; Alegria Sul, 100m x
100m to proven reserves and 200m x 200m to probable reserves.
(2) Vale’s equity interest in Samarco mines is 50.0% and the reserve figures have not been adjusted to reflect our ownership interest.
Type
Operating since
Projected exhaustion date
Southeastern System iron ore mines
Southern System iron ore mines
Operating since
Projected exhaustion date
Vale interest
(%)
Vale interest
(%)
100.0
100.0
50.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Vale interest
(%)
100.0
Itabira site
Conceição................................
Minas do Meio ........................
Minas Centrais site
Água Limpa ............................
Brucutu ....................................
Apolo ......................................
Mariana site
Alegria ....................................
Fábrica Nova ...........................
Fazendão .................................
Capanema…………………...
Conta História………………
Minas Itabiritos site
Segredo ...................................
João Pereira ............................
Sapecado .................................
Galinheiro ...............................
Vargem Grande site
Tamanduá ...............................
Capitão do Mato .....................
Abóboras ................................
Paraopeba site
Jangada ...................................
Capão Xavier ..........................
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
Type
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
1957
1976
2000
1994
–
2000
2005
1976
-
-
2025
2022
2016
2023
2038
2033
2040
2048
2057
2052
2003
2003
1942
1942
1993
1997
2004
2001
2004
2047
2046
2047
2047
2038
2058
2050
2018
2018
Type
Operating since
Projected exhaustion date
Midwestern System iron ore mines
Urucum ..................................
Open pit
1994
2029
62
Serra Norte
N4W .......................................
N4E ........................................
N5 ..........................................
Serra Sul
Type
Open pit
Open pit
Open pit
S11 .........................................
Open pit
Serra Leste
SL1 .........................................
Open pit
Northern System iron ore mines
Operating since
Projected exhaustion date
1994
1984
1998
–
–
2032
2028
2035
2064
2065
Type
Operating since
Projected exhaustion date
Samarco iron ore mines
Samarco
Alegria Norte/Centro .............
Alegria Sul .............................
Germano ................................
Open pit
Open pit
Open pit
2000
2000
–
2053
2053
2037
Reserves
Vale interest
(%)
100.0
100.0
100.0
100.0
100.0
Vale interest
(%)
50.0
50.0
50.0
Manganese ore reserves
The following tables set forth manganese reserves and other information about our mines. Total manganese
reserves increased 2% from 2012 to 2013. This increase in Urucum’s reserves in 2013 reflects an updated geological
model to incorporate new drilling data and an additional seam.
Proven – 2013
Probable – 2013
Total – 2013
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Total – 2012
Tonnage
Grade
Manganese ore reserves(1)(2)
Azul ..................................
Urucum ............................
Morro da Mina .................
Total .............................
30.1
9.8
8.7
48.6
40.3
46.2
25.3
38.8
7.8
1.8
5.7
15.3
39.5
46.5
24.8
34.9
37.9
11.6
14.4
63.9
40.1
46.3
25.1
37.9
42.0
5.9
14.6
62.5
40.2
45.1
25.1
37.1
(1) Tonnage is stated in millions of metric tons of wet run-of-mine. Grade is % of Mn.
(2) The average moisture of the manganese ore reserves is: Azul (16.2%), Urucum (4.2%), Morro da Mina (3.4%).
Type
Operating since
Projected exhaustion date
Vale interest
Manganese ore mines
Azul ..............................................
Urucum ........................................
Morro da Mina .............................
Open pit
Underground
Open pit
1985
1976
1902
2022
2026
2053
(%)
100.0
100.0
100.0
63
Coal reserves
Our coal reserve estimates have been provided on an in-place material basis after adjustments for depletion,
moisture content, anticipated mining losses and dilution, but excluding any adjustment for losses associated with
beneficiation of raw coal mined to meet saleable product requirements.
Coal ore reserves(1)
ROM(2)
Coal type
Proven –
2013
Probable –
2013
Total – 2013
Total – 2012
(tonnage)
(tonnage)
(calorific
value)
(tonnage)
(calorific
value)
Marketable Reserves (3)
2013
(tonnage)
2012
(tonnage)
Integra Coal:
Metallurgical
& thermal
Integra Open-cut ..........
Integra Underground
– Middle Liddell
Seam .......................... Metallurgical
Integra Underground
– Hebden Seam ......... Metallurgical
Total Integra Coal ....
Carborough Downs –
Underground (4) ...........
Metallurgical
& PCI
Isaac Plains North Open
Cut.................................
Moatize .............................
Total ..............................
Metallurgical,
PCI & thermal
Metallurgical
& thermal l
14.9
4.5
19.4
29.7
(thermal)
21
30.1
10.1
10.9
0.6
0.0
15.5
24.0
10.7
288.8
339
6.3
29.5
40.3
6.9
29.5
55.8
–
–
–
2.8
26.8
31.2 (PCI)
8.7
30.8
60.5
27.5
0.1
10.8
1,148.2
1,191.4
1,437.0
1,530.4
30.1 (PCI)
28.3
(thermal)
15.5
1,498.6
1,602.1
–
–
–
4.7
20.6
35.4
5.7
2.8
19.4
31.2 (PCI)
30.1 (PCI)
28.3
(thermal)
17.4
18.9
8.2
11.9
25.9
515.0
576.0
537.1
605.3
(1) The reserves stated above by deposit are on a 100% shareholding basis. Vale’s ownership interest in accordance with the table below should
be used to calculate the portion of reserves directly attributable to Vale.
(2) Tonnage is stated in millions of metric tons. Reserves are reported on a variable basis in regard to moisture: Integra Open Cut on ROM
estimated basis, Integra Underground on ROM estimated basis, Carborough Downs on air dried basis, and Isaac Plains North on ROM
estimated basis + 2%.Moatize is reported on in situ 6.5% moisture basis. Calorific value of product coal derived from beneficiation of ROM
coal is typically stated in MJ/kg. Calorific value is used in marketing thermal and PCI coals.
(3) Tonnage is stated in millions of metric tons.
(4)
In calculating reserves, gas drainage is assumed to have been completed in accordance with the mine plan. Reduced reserves reflect the
omission of certain blocks and related development as a result of adverse economic conditions.
Reserves at Integra Open Cut, the Middle Liddell Seam for Integra Underground, Carborough Downs and
Isaac Plains decreased in 2013 mainly due to depletion. Reserves for the Hebden Seam for Integra Underground
decreased slightly following an update to the reserve model. Total Moatize ROM reserves decreased 4.1% from 2012
to 2013 reflecting depletion and adjustments due to the revised land use license agreement.
Type
Operating since
Projected exhaustion date
Coal mines
Integra Coal:
Open-cut
Middle Liddell Seam ........................
Hebden Seam ....................................
Carborough Downs ...............................
Isaac Plains ...........................................
Moatize .................................................
Open pit
Underground
Underground
Underground
Open pit
Open pit
1991
1999
–
2006
2006
2011
2021
2016
2031
2020
2017
2042
Vale interest
(%)
61.2
61.2
61.2
85.0
50.0
95.0
64
Reserves
Nickel ore reserves
Our nickel reserve estimates are of in-place material after adjustments for depletion and mining losses (or
screening and drying in the cases of PTVI and VNC) and recoveries, with no adjustments made for metal losses due to
processing.
Canada
Sudbury ............................
Thompson .........................
Voisey’s Bay ....................
Indonesia
PTVI .................................
New Caledonia
VNC ..................................
Brazil
Onça Puma .......................
Total .....................................
Proven – 2013
Probable – 2013
Total – 2013
Total – 2012
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Nickel ore reserves(1)
52.4
3.9
14.0
94.2
57.2
57.3
279.0
1.26
2.03
2.77
1.81
1.34
1.74
1.65
49.0
20.0
3.2
33.3
67.0
38.1
210.6
1.23
1.70
0.67
1.74
1.49
1.41
1.46
101.4
23.9
17.2
127.5
124.2
95.3
489.5
1.25
1.75
2.38
1.79
1.42
1.61
1.57
97.9
25.6
19.5
104.8
122.5
82.4
452.7
1.16
1.74
2.43
1.78
1.44
1.52
1.53
(1) Tonnage is stated in millions of dry metric tons. Grade is % of nickel.
In Canada, reserves at our Sudbury operations increased due primarily to mineral reserve additions at Copper
Cliff Mine, specifically from Kelly Lake and 178 orebodies. Reserves at our Thompson and Voisey’s Bay operations
decreased due to depletions. Mineral reserves at PTVI increased mainly due to the addition of new block reserves,
which was partially offset by losses caused by depletion, pit designs and updates to ore block models. Mineral reserves
at VNC increased slightly due to the conversion of mineral resources to mineral reserves in the north portion of the
Goro Plateau. Reserves at Onça Puma increased due to mine optimization work, including a new mine dilution
strategy.
Type
Operating since
Projected exhaustion date
Nickel ore mines
Canada
Sudbury................................................ Underground
Thompson ............................................ Underground
Voisey’s Bay .......................................
Open pit
Indonesia
PTVI ....................................................
Open pit
New Caledonia
VNC .....................................................
Open pit
Brazil
Onça Puma ..........................................
Open pit
1885
1961
2005
1977
2011
2011
2039
2033
2022
2035
2043
2054
Vale interest
(%)
100.0
100.0
100.0
59.3
80.5
100.0
65
Copper ore reserves
Our copper reserve estimates are of in-place material after adjustments for depletion and mining losses and
recoveries, with no adjustments made for metal losses due to processing.
Proven – 2013
Probable – 2013
Total – 2013
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Total – 2012
Tonnage Grade
Copper ore reserves(1)
52.4
14.0
121.7
641.6
829.7
1.70
1.56
0.78
0.76
0.84
49.0
3.2
15.8
494.8
562.8
1.32
0.37
0.70
0.64
0.70
101.4
17.2
137.5
1,136.4
1,392.5
1.51
1.34
0.77
0.71
0.78
97.9
19.5
150.7
1,122.6
1,390.7
1.48
1.36
0.79
0.72
0.79
Canada
Sudbury ......................
Voisey’s Bay ..............
Brazil
Sossego ......................
Salobo ........................
Total.......................
(1) Tonnage is stated in millions of dry metric tons. Grade is % of copper.
In Canada, our copper ore reserve estimates at our Sudbury operations increased. At our Voisey’s Bay
operations, reserves decreased for the same reasons discussed above in connection with the nickel reserves. This is
because these deposits are polymetallic. In Brazil, reserves at Sossego decreased compared to 2012 due to mine
depletions. The increase of reserves at Salobo is due to cutoff grade changes and an improved pit design.
Type
Operating since
Projected exhaustion date
Copper ore mines
Canada
Sudbury .....................................................
Voisey’s Bay .............................................
Underground
Open pit
Brazil
Sossego .....................................................
Salobo .......................................................
Open pit
Open pit
1885
2005
2004
2012
2039
2022
2024
2065
Vale interest
(%)
100.0
100.0
100.0
100.0
PGMs and other precious metals reserves
We expect to recover significant quantities of precious metals as by-products of our Sudbury, Sossego and
Salobo operations. Our reserve estimates are of in-place material after adjustments for mining depletion and mining
losses and recoveries, with no adjustments made for metal losses due to processing.
Proven – 2013
Probable – 2013
Total – 2013
Total – 2012
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Precious metals reserves(1)
Canada
Sudbury
Platinum ..................
Palladium ................
Gold .........................
52.4
52.4
52.4
Brazil
Sossego
Gold .........................
121.7
Salobo
Gold .........................
Total – Gold ..........
641.6
920.5
0.8
1.0
0.4
0.2
0.4
0.4
49.0
49.0
49.0
15.8
494.8
657.6
1.1
1.3
0.4
0.2
0.3
0.4
101.4
101.4
101.4
137.5
1,136.4
1,578.1
0.9
1.1
0.4
0.2
0.4
0.5
97.9
97.9
97.9
150.68
1,122.6
1,567.0
0.8
1.0
0.4
0.2
0.4
0.4
(1) Tonnage is stated in millions of dry metric tons. Grade is grams per dry metric ton.
66
Reserves
In Sudbury our mineral reserve estimates for platinum, palladium and gold increased for the reasons
discussed above in connection with the nickel reserves. In Brazil, reserves at Sossego decreased from last year due to
mine depletions. The increase of reserves at Salobo is due to cutoff grade changes and an improved pit design.
Type
Operating since Projected exhaustion date Vale interest
Precious metals mines
Canada
Sudbury ............................................................... Underground
Brazil
Sossego ...............................................................
Salobo .................................................................
Open pit
Open pit
1885
2004
2012
2039
2024
2065
(%)
100.0
100.0
100.0
Cobalt ore reserves
We expect to recover significant quantities of cobalt as a by-product of our Canadian operations and from the
VNC project. Our cobalt reserve estimates are of in-place material after adjustments for depletion and mining losses
(or screening in the case of VNC) and recoveries, with no adjustments made for metal losses due to processing.
Proven – 2013
Probable – 2013
Total – 2013
Total – 2012
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Cobalt ore reserves(1)
52.4
14.0
57.2
123.6
0.04
0.13
0.12
0.09
49.0
3.2
67.0
119.2
0.04
0.03
0.11
0.08
101.4
17.2
124.2
242.8
0.04
0.11
0.11
0.08
97.9
19.5
122.5
239.9
0.04
0.12
0.11
0.08
Canada
Sudbury .....................
Voisey’s Bay .............
New Caledonia
VNC ..........................
Total ......................
(1) Tonnage is stated in millions of metric tons. Grade is % of cobalt.
Our cobalt reserve estimates increased in 2013 for the reasons discussed above in connection with the nickel
reserves.
Type
Operating since
Projected exhaustion date
Cobalt ore mines
Canada
Sudbury ........................................
Voisey’s Bay ................................
Underground
Open pit
New Caledonia
VNC .............................................
Open pit
1885
2005
2011
2039
2022
2043
Vale interest
(%)
100.0
100.0
80.5
67
Phosphate reserves
Our phosphate reserve estimates reflect mine production and sales in 2013. Reserves at Bayovar increased
by 84% due to the inclusion of two additional phosphate seams in the mining plan and a new mining strategy that uses
a higher dilution in order to maximize recovery. Our phosphate reserves estimates are of in-place material after
adjustments for mining dilution.
Phosphate reserves(1)
Proven – 2013
Probable – 2013
Total – 2013
Total – 2012
Tonnage
Grade
Tonnage
Grade
Bayóvar .......................
Catalão ........................
Tapira ..........................
Araxá(2) ......................
Cajati ...........................
Salitre ..........................
Total ............................
166.0
44.5
235.6
89.2
68.0
-
603.3
16.3
10.5
7.1
12.0
5.6
-
10.4
249.9
8.3
445.4
42.8
46.4
205.7
998.5
14.9
10.2
6.7
11.0
4.7
11.4
9.8
Tonnage
415.9
52.8
680.9
132.1
114.4
205.7
1601.8
Grade
Tonnage
Grade
15.5
10.4
6.8
11.7
5.2
11.4
10.1
225.4
57.9
691.2
138.6
120.0
205.7
1438.8
17.2
10.6
6.8
11.6
5.2
11.4
9.58
(1) Tonnage is stated in millions of dry metric tons. Grade is % of P2O5.
(2) Proven reserves of secondary ore for Araxá were reclassified as probable reserves as a result of new process flowsheet development.
Type
Operating since
Projected exhaustion date
Phosphate rock ore mine
Bayóvar ...............................................
Catalão ................................................
Tapira ..................................................
Araxá ..................................................
Cajati ...................................................
Salitre ..................................................
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
2010
1982
1979
1977
1970
‒
2045
2020
2054
2027
2035
2033
Vale interest
(%)
40.0(1)
100.0
100.0
100.0
100.0
100.0
(1) Vale holds 51% of the voting capital and 40% of the total capital of MVM Resources International, B.V., the entity that controls
Bayóvar.
Potash ore reserves
Our reserve estimates are of in-place material after adjustments for depletion and mining losses and
recoveries, with no adjustments made for metal losses due to processing. Tonnage at Taquari-Vassouras increased by
32% due to a new mine design, with higher dilution to maximize ore recovery and which reduces the cutoff grade to
have a higher volume of products. Our total potash reserves also increased due to the inclusion of Carnalita Project,
located at Sergipe state, Brazil, which is still subject to approval of our Board of Directors.
Proven – 2013
Probable – 2013
Total – 2013
Total – 2012
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Potash ore reserves (1)(2)
Taquari-Vassouras(3) .........
Carnalita Project(4) ............
7.8
247.1
26.0
12.1
5.1
54.1
21.1
12.1
12.9
301.5
24.1
12.1
9.8
--
28.0
(1) Tonnage is stated in millions of dry metric tons. Grade is % of KCl.
(2) Tonnage is before processing recovery.
(3) Silvinite potash reserves.
(4) Carnalite potash reserves.
Type
Operating since Projected exhaustion date
Vale interest
Potash ore mines
Taquari-Vassouras(1) ...................................
Underground
Carnalita Project ..............
Solution mining
1986
-
2018
2042
(1) We have a 30-year lease with Petrobras, which was signed in 2012.
(%)
100.0
100.0
68
CAPITAL EXPENDITURES
We have an extensive program of investments in the organic growth of our businesses. The figures discussed
in this section are for project execution and sustaining existing operations.
The 2014 investment budget approved by our Board of Directors is US$9.3 billion for project execution,
reflecting a 8.2% decrease compared to the 2013 investment budget, and US$4.5 billion for sustaining existing
operations, reflecting a 11.1% decrease compared to 2013. These decreases reflect stricter discipline in capital
allocation, a stronger focus on maximizing efficiency and minimizing costs and a future project pipeline that is
smaller, but with higher potential to generate substantial value for our shareholders.
A large part of the capital expenditure budget will be invested in Brazil (62.7%) and in Mozambique (22.2%).
The remainder has been allocated to investments in Australia, Canada, China, Indonesia, Malaysia, Malawi, New
Caledonia and Peru, among other countries.
Project execution ........................................................
Investments to sustain existing operations .................
Total ............................................................................
2012 expenditures
(US$ million)
2013 expenditures
(US$ million)
11,580
4,616
US$16,196
9,648
4,585
US$14,233
2014 budget
(US$ million)
9,299
4,547
US$13,847
(% of total)
67.2%
32.8%
100.0%
The following table summarizes by major business area the breakdown of our capital expenditures in 2012
and 2013 and our investment budget for 2014.
2012
2013
2014 budget
(US$ million)
(% of total)
(US$ million)
(% of total)
(US$ million)
(% of total)
Ferrous minerals ...............................
Coal...................................................
Base metals .......................................
Fertilizer nutrients ............................
Logistics for general cargo(1) ..........
Energy ..............................................
Steel ..................................................
Other .................................................
Total .............................................
7,882
1,150
3,693
1,836
592
292
348
403
US$16,196
48.7
7.1
22.8
11.3
3.7
1.8
2.1
2.5
100.0%
7,150
1,511
3,027
1,159
603
214
315
254
US$14,233
50.3
10.6
21.3
8.1
4.2
1.5
2.2
1.8
100.0%
8,313
2,779
1,813
452
(cid:31)
188
264
37
US$13,847
60.0
20.1
13.1
3.3
(cid:31)
1.4
1.9
0.3
100.0%
(1)
Investments in logistics dedicated to a particular business segment are included with that segment in our capital expenditure data. In 2014, we
excluded logistics for general cargo from the total budget.
We are developing a focused organic growth portfolio, with fewer projects but with higher expected rates of
return. Our main initiatives are responsible for 83% of the US$9.3 billion budgeted for project execution in 2014.
These programs include:
• The expansion of our top-quality integrated iron ore operations in Carajás, with 2014 budgeted
expenditures in the amount of US$3.3 billion, consisting of S11D, CLN S11D, Serra Leste projects
and the conclusion of Carajás plant 2 (formerly known as Additional 40 Mtpy) and CLN 150;
• Construction and ramp-up of our world-class integrated Moatize/Nacala coal operation, with 2014
budgeted expenditures in the amount of US$2.6 billion;
• Capacity replacement, increase and quality improvement in the iron ore from the Southern and
Southeastern Systems, with 2014 budgeted expenditures in the amount of US$1.1 billion, including
the Conceição Itabiritos II, Vargem Grande Itabiritos, Cauê Itabiritos projects and the conclusion of
Conceição Itabiritos;
69
• Global distribution network of iron ore in the amount of US$436 million, including investments in
the construction of the Teluk Rubiah distribution center (in the amount of US$278 million), vessels
(in the amount of US$155 million) and barges (in the amount of US$3 million); and
• Salobo II, with 2014 budgeted expenditures in the amount of US$332 million, which will increase
our production of copper and gold.
The following table sets forth total expenditures in 2013 for our main investment projects and expenditures
budgeted for those projects in 2014, together with estimated total expenditures for each project and the estimated
start-up date of each project as of December 31, 2013.
Business area
Main projects(1)
Iron ore
Carajás Plant 2(4)
Carajás Serra Sul S11D
CLN 150(4)
CLN S11D
Serra Leste
Conceição Itabiritos(4)
Vargem Grande Itabiritos
Conceição Itabiritos II
Cauê Itabiritos
Teluk Rubiah
Pellet plants
Tubarão VIII
Coal mining and logistics
Moatize II
Nacala Corridor
Copper mining
Salobo II
Nickel mining and refining
Long Harbour(5)
Totten(4)
Steelmaking
CSP(6)
Actual or
Estimated
Start-up
2H13
2H16
2H13
1H14 to 2H18
2H14
2H13
2H14
2H14
2H15
2H14
1H14
2H15
2H14
1H14
1H14
2H13
2H15
Executed CAPEX
Expected CAPEX
2013(2)
Total
2014
Total(3)
547
818
518
696
140
249
376
228
233
490
194
383
932
294
1,030
172
297
(US$ million)
3,020
2,631
3,778
1,156
432
1,030
1,292
652
353
1,003
1,084
839
1,341
1,054
4,186
712
873
174
1,091
69
1,914
34
73
376
240
373
278
154
761
1,812
332
40
47
197
3,475
8,089
3,931
11,582
478
1,174
1,910
1,189
1,504
1,371
1,321
2,068
4,444
1,707
4,250
759
2,570
(1) Projects approved by the Board of Directors.
(2) All figures presented on a cash basis.
(3) Estimated total capital expenditure cost for each project, including expenditures in prior periods.
(4) Projects delivered in 2013.
(5) We completed the construction in 2013, have initiated commissioning activities and expect to commence production in the second quarter of
2014.
(6) Expected CAPEX and funding is relative to Vale’s stake in the project.
The paragraphs below describe the status of each project as of December 31, 2013 and have not been updated
to reflect any developments after that date.
Bulk materials and logistics projects
Iron ore mining and logistics projects:
• Carajás Serra Sul S11D. Development of a mine and processing plant, located in the southern range
of Carajás, in the Brazilian state of Pará. The project has an estimated nominal capacity of 90 Mtpy.
We are continuing the off-site electromechanical assembly of modules. We received the installation
license in July 2013. The project is 48% complete, with total realized expenditures of US$2.6
billion. The start-up is expected in the second half of 2016.
70
Capital expenditures
• CLN S11D. Increase in the logistics capacity of the Northern System to support the S11D project,
including the duplication of approximately 570 km of railway, construction of a rail spur with 101
km, acquisition of wagons and locomotives and onshore and offshore expansions at Ponta da
Madeira maritime terminal. This project is expected to increase EFC’s estimated nominal logistics
capacity to approximately 230 Mtpy. We have obtained the environmental installation license and
the authorization from ANTT for civil works required for the construction. Earthworks for railway
duplication and civil works of the rail spur to connect the mine to the EFC are in progress. The
project is 13% complete, with total realized expenditures of US$1.2 billion. The start-up is expected
from the first half of 2014 to second half of 2018.
•
Serra Leste. Construction of a new processing plant located in Carajás, in the Brazilian state of
Pará. The project has an estimated nominal capacity of 6 Mtpy. The installation license has already
been issued. We have concluded eletromechanical assembly of the substation and energizing the
processing plant, and we have intiated the pre-stripping and commissioning of the iron ore treatment
facility. The project is 78% complete, with total realized expenditures of US$432 million. The
start-up is expected in the second half of 2014.
• Vargem Grande Itabiritos. Construction of a new iron ore treatment plant in the Southern System,
with an estimated nominal additional capacity of 10 Mtpy. We are currently assembling steel
structures and equipment for the iron ore beneficiation plant and conducting civil works for the long
distance conveyor belt and Andaime railway terminal. We expect to receive the environmental
operating license in the second half of 2014. The project is 80% complete, with total realized
expenditures of US$1.3 billion. The start-up is expected in the second half of 2014.
• Conceição Itabiritos II. Adaptation of the plant to process low-grade itabirites, located in the
Southeastern System. The project has an estimated nominal capacity of 19 Mtpy, without net
additional capacity. We have completed the assembly of steel structures of the flotation cells and
civil works for the ball mill with feed type system. We are currently conducting civil engineering
work and steel structure and equipment electromechanical assembly. The project is 79% complete,
with total realized expenditures of US$652 million. The start-up is expected in the second half of
2014.
• Cauê Itabiritos. Adaptation of the plant to process low-grade itabirites, located in the Southeastern
System. The project has an estimated nominal capacity of 24 Mtpy, with net additional capacity of
4 Mtpy in 2017. We have started the electromechanical assembly of the quaternary screening and
grinding. We are conducting civil works and have received the steel structure and equipment. The
project is 47% complete, with total realized expenditures of US$353 million. The start-up is
expected in the second half of 2015.
• Teluk Rubiah. Construction of a distribution center in Teluk Rubiah, Malaysia, with a private jetty
with enough depth to receive 400,000 DWT vessels and a storage yard. The distribution center will
have a throughput of 30 Mtpy of iron ore products. The import system is already commissioned and
ready to receive the first vessel. The preliminary, construction and installation environmental
licenses have been issued. The operating license is expected to be issued in the first half of 2014.
The project is 94% complete, with total realized expenditures of US$1.0 billion. The start-up of the
integrated system (import and export systems) is expected in the second half of 2014.
Pellet plant projects:
• Tubarão VIII. Eighth pellet plant at our existing complex at the Tubarão Port, Espírito Santo,
Brazil, with expected production capacity of 7.5 Mtpy. We have performed tests with pelletizing
cargo and are in the final stage of the commissioning activities. We expect to receive the operating
license in the first half of 2014. The plant is 95% complete, with total realized expenditures of
US$1.1 billion. The start-up is expected in the first half of 2014.
71
Coal mining and logistics projects:
• Moatize II. New pit and duplication of the Moatize coal handling processing plant (CHPP), as well
as all related infrastructure, located in Tete, Mozambique. The project will increase Moatize’s total
nominal capacity to 22 Mtpy, mostly comprised of coking coal. We concluded earthworks and are
well advanced in civil works, with concrete foundations at the primary crusher, CHPP and heavy
duty vehicles area. The project is 53% complete, with total realized expenditures of US$839
million. The start-up is expected in the second half of 2015.
• Nacala Corridor. Railway and port infrastructure connecting Moatize site to the Nacala-à-Velha
maritime terminal, located in Nacala, Mozambique. The total realized expenditures is US$1.3
billion. The greenfield sections in Mozambique and Malawi are 56% complete, and the first train is
expected to be operational by the end of 2014 with rail capacity at 11 Mtpy. Construction on
rehabilitating existing railway sections will extend through 2016 and increase capacity up to 18
Mtpy.
Base metals projects
Copper mining project:
•
Salobo II. Salobo expansion, raising of the tailing dam height and increasing the mine capacity,
located in Marabá, in the Brazilian state of Pará. The project is expected to provide an additional
estimated nominal capacity of 100,000 tpy of copper in concentrate. We have concluded testing of
the pipes from the filtering facility and are progressing on the electromechanical assembly of the
plant. The project is 93% complete, with total realized expenditures of US$1.1 billion. The start-up
is expected in the first half of 2014.
Steel projects
• Companhia Siderúrgica do Pecém (“CSP”). Construction of a steel slab plant in the Brazilian state
of Ceará in partnership with Dongkuk Steel Mill Co. and Posco, two major steel producers in South
Korea. The project will have an estimated nominal capacity of 3.0 Mtpy. Vale holds 50% of the
joint venture. The civil construction and electromechanical work are in progress. We have already
obtained preliminary and installation environmental licenses. US$873 million of expenditures have
been realized. The start-up is expected in the second half of 2015.
72
REGULATORY MATTERS
We are subject to a wide range of governmental regulation in all the jurisdictions in which we operate
worldwide. The following discussion summarizes the kinds of regulation that have the most significant impact on our
operations.
Mining rights and regulation of mining activities
Mining and mineral processing are subject to extensive regulation. In order to conduct these activities, we are
generally required to obtain and maintain some form of governmental or private permits, which may include
concessions, licenses, claims, tenements, leases or permits (all of which we refer to below as “concessions”). The
legal and regulatory regime applicable to the mining industry and governing concessions differs among jurisdictions,
often in important ways. In most jurisdictions, including Brazil, mineral resources belong to the State and may only be
exploited pursuant to a governmental concession. In other jurisdictions, such as Ontario in Canada, a substantial part
of our mining operations is conducted pursuant to mining rights we own (private permits). Government agencies are
typically in charge of granting mining concessions and monitoring compliance with mining law and regulations.
The table below summarizes our principal concessions and other similar rights. In addition to the
concessions described below, we have exploration licenses and exploration applications covering 5.63 million
hectares in Brazil and 10.6 million hectares in other countries.
Location
Concession or other right
Approximate area covered
(in hectares)
Expiration date
Brazil
Mining concessions (including applications)
Canada
Mining concessions (terminology varies among provinces)
Indonesia(1)
Australia
Contract of work
Mining leases
New Caledonia
Mining concessions
Peru(2)
Argentina
Chile
Mining concessions
Mining concessions
Mining concessions
Mozambique(3)
Mining concessions
Guinea
Mining concessions
662,076
279,977
190,510
19,209
21,269
154,867
161,628
71,433
23,780
102,400
Indefinite
2014-2034
2025
2015-2041
2015-2051
Indefinite
Indefinite
Indefinite
2032
2035
(1) May be entitled to at least one 10-year extension.
(2) The area reported reflects only licenses involving mining activities.
(3) Our mining concession covers 23,780 hectares. The definitive land license granted by the Council of Ministers, which is required to mine and
utilize our concession, currently covers 22,096 hectares.
There are several proposed or recently adopted changes in mining legislation and regulations in the
jurisdiction where we have operations that could materially affect us. These include the following:
• Brazil. In June 2013, the Brazilian government sent to Congress a bill with proposed changes to the
Brazilian mining law. This bill provides for: the preservation of the main provisions for existing
mining rights as of the date of its enactment; a new royalties regime; a new regime for mining
concessions; and the creation of a mining agency. The bill is under discussion in Congress.
73
•
Indonesia. A mining law that came into effect in 2009 introduced a new licensing regime (Ijin
Usaha Pertambangan, or IUP) and called for certain adjustments to, and ultimate replacement of,
existing mining contracts with the Indonesian government. Regulations implementing that law have
gradually been promulgated by the government, but more are expected in 2014. PTVI does not
currently hold any licenses under the IUP regime. As required by the 2009 mining law, PTVI started
the renegotiation of its contract of work in 2012, which is expected to be completed in the first half
of 2014. The Indonesian government seeks to renegotiate six strategic issues with each contract of
work holder: (1) size of the concession area; (2) term and form of contract extension; (3) financial
obligations (royalties and taxes); (4) divestment; (5) domestic processing and refining; and (6)
priority use of domestic goods and services. See additional comments below on mining royalties.
• New Caledonia. A mining law passed in 2009 requires mining projects to obtain authorization,
rather than a declaration, from governmental authorities. We submitted an updated application for
this authorization in March 2014. While under the law the authorities may take up to three years to
issue the authorization, we currently expect to receive it within the next twelve months. Our
existing mining declaration will remain valid and effective until our application is approved.
Although we believe it is unlikely that our application will be rejected, the authorities may impose
new conditions in connection with the authorization. The local authorities of New Caledonia
proposed the creation of a protected wetland area, which will cover 27% of the surface area of the
total VNC tenements and could affect potential mining activities. The proposed protected wetland
area boundary also overlaps with the footprint of the next tailings storage facility, which may result
in additional capital costs.
• Guinea. We own a 51% interest in VBG—Vale BSGR Limited, which holds iron ore concession
rights in Simandou South (Zogota) and iron ore exploration permits in Simandou North (Blocks 1 &
2) in Guinea. VBG has also made an application for concession rights over Simandou North Blocks
1 & 2 and is awaiting a determination from the Government of Guinea. VBG has suspended work
pending the outcome of the review of its concession described below.
A mining code adopted in 2011 and amended in 2013 imposes on all iron ore mining projects a
requirement for 15% government participation free of charge, and allows the government to
purchase an additional 20% stake. The mining code has also introduced more stringent
requirements for all mining companies with existing operations in Guinea, including as regards
mining tax, customs duties, employment, training, transparency and anti-corruption obligations.
The 2013 amendments, which were aimed at addressing certain legal uncertainties created by the
2011 mining code, introduced new restrictive rules on matters such as taxes and royalties, foreign
exchange regulations, transfers of interests in mining rights and marketing rights.
Additionally, the Government of Guinea has launched a contract review process to harmonize
existing mining contracts with the new mining code. Regulations provide that the contract review
process may result in the cancellation or the renegotiation of mining rights depending on the
findings and the recommendations of a technical committee responsible for conducting the contract
review process. Following its review of the mining titles, the technical committee has notified VBG
that it intends to recommend that the Government of Guinea revoke the mining rights held by
VBG. We do not have access to the full report of the technical committee, but we understand that its
determination is based on corrupt practices in relation to the award of the VBG mining rights, before
Vale acquired its interests in VBG. As far as we are aware, the technical committee has not alleged
any wrongdoing by Vale. Vale acquired its interest in VBG after the completion of extensive due
diligence conducted by outside advisors and on the basis of representations that VBG had obtained
its mining rights lawfully and without any improper promises or payments. If the technical
committee recommends revocation and the Government decides to accept that recommendation,
Vale may lose its entire investment in the Simandou project subject to any rights to recourse Vale
may have.
74
Regulatory matters
• Mozambique. The government proposed to Congress a bill with a new mining code in December
2012. Expected changes in the new code include introducing national preference for procurement,
subjecting transfers of mining rights and share capital participation to Mozambican law and
governmental approval, requiring foreign companies to partner with local service providers and
reducing periods for exploration activities. Additionally, the resettlement regulation enacted in June
2012 contains stricter requirements that may result in increased costs and delays in the
implementation of our projects. In addition, the Government of Mozambique passed a new
regulation on explosives that came into effect in August 2013, which may result in significant
increases in the cost of importing explosives critical to the operation of our mining activities in Tete.
Following concerns from various companies in the extractive sector, the Government is currently
reviewing the possibility of decreasing these new taxes, but it is not yet certain if and when such
changes will be implemented.
Royalties and other taxes on mining activities
We are required in many jurisdictions to pay royalties or taxes on our revenues or profits from mineral
extractions and sales. These payments are an important element of the economic performance of a mining operation.
The following royalties and taxes apply in some of the jurisdictions in which we have our largest operations:
• Brazil. We pay a royalty known as the CFEM (Compensação Financeira pela Exploração de
Recursos Minerais) on the revenues from the sale of minerals we extract, net of taxes, insurance
costs and costs of transportation. The current rates on our products are: 2% for iron ore, copper,
nickel, fertilizers and other materials; 3% on bauxite, potash and manganese ore; and 1% on gold.
• Brazilian states. Several Brazilian states impose a tax on mineral production (Taxa de Fiscalização
de Recursos Minerais – TFRM), which is assessed at rates ranging from R$0.50 to R$2.5697 per
metric ton of minerals produced in or transferred from the state.
• Canada. The Canadian provinces in which we operate charge us a tax on profits from mining
operations. Profit from mining operations is generally determined by reference to gross revenue
from the sale of mine output and deducting certain costs, such as mining and processing costs and
investment in processing assets. The statutory mining tax rates are 10% in Ontario; with graduated
rates up to 17% in Manitoba; and a combined mining and royalty tax rate of 16% in Newfoundland
and Labrador. The mining tax paid is deductible for corporate income tax purposes.
•
Indonesia. Our subsidiary PTVI pays a royalty fee on, among other items, nickel produced in its
concession area. The royalty payment is based on sales volume (for contained nickel matte, US$78
per metric ton, and for contained cobalt, US$140 per metric ton for total production below 500 tons,
or US$156 per metric ton for total production above 500 tons). In 2013, the royalty payment was
equal to 0.68% of revenues from the sale of nickel in matte products, while the average yearly
royalty payment for the period from 2010 to 2013 was equal to 0.63% of revenues from the sale of
nickel in matte products, including the additional royalty payment in 2011 for production beyond
160 million pounds in 2010. As part of ongoing renegotiations of our existing mining contract, as
required by the new mining law, the Indonesian government is seeking to review our royalty regime.
75
• Australia. Royalties are payable on revenues from the sale of minerals. In the state of Queensland,
for coal, the applicable royalty is 7% of the value (net of freight, late dispatch and other certain
costs) up to A$100 per ton; 12.5% of the value between A$100 and A$150 per ton; and 15%
thereafter. In the state of New South Wales, for coal, the applicable royalty is a percentage of the
value of production—total revenue (which is net of certain costs and levies) less allowable
deductions—of 6.2% for deep underground mines, 7.2% for underground mines and 8.2% for open
cut mines. There is also a supplementary royalty payable of 1.95% (for coal recovered between
December 1, 2012 and June 30, 2013) and 1% (for coal recovered on or after July 1, 2013) of the
value of coal recovered. In July 2012, the Australian government introduced a mineral resource rent
tax, MRRT. The MRRT taxes profits over a certain threshold generated from the exploitation of
coal and iron ore resources in Australia. The tax is levied at an effective rate of 22.5% of assessable
profit and is deductible for corporate income tax purposes. Unlike state royalties, which are based
on the volume and value of the resource, the MRRT is based on profits. However, companies may
credit state-based royalties against the MRRT. For the year ended December 31, 2013, Vale
Australia was not liable for any MRRT.
• Mozambique. The Government proposed a new tax regime for the mining and oil sectors in
September 2013. With regards to the mining tax regime, the proposal has concepts and provisions
that can affect mining projects in Mozambique, including a new royalty assessment rule, increase of
mining production taxes, separate accounting for each mining title, among others. The new proposal
is not clear with respect to the stabilization and security of the mining contracts signed prior to the
proposed tax regime.
Environmental regulations
We are also subject to environmental regulations that apply to the specific types of mining and processing
activities we conduct. We require approvals, licenses, permits or authorizations from governmental authorities to
operate, and in most jurisdictions the development of new facilities requires us to submit environmental impact
statements for approval and often to make investments to mitigate environmental impacts. We must also operate our
facilities in compliance with the terms of the approvals, licenses, permits or authorizations.
We are taking several steps to improve the efficiency of the licensing process, including stronger integration
of our environmental and project development teams, the implementation of a Best Practices Guide for Environmental
Licensing and the Environment, the deployment of highly-skilled specialist teams, closer interaction with
environmental regulators and the creation of an Executive Committee to expedite internal decisions regarding
licensing.
Environmental regulations affecting our operations relate, among other matters, to emissions into the air, soil
and water; recycling and waste management; protection and preservation of forests, coastlines, caves, watersheds and
other features of the ecosystem; water use; climate change and decommissioning and reclamation. Environmental
legislation is becoming stricter worldwide, which could lead to greater costs for environmental compliance. In
particular, we expect heightened attention from various governments to reducing greenhouse gas emissions as a result
of concern over climate change. There are several examples of environmental regulation and compliance initiatives
that could affect our operations. In Canada and Indonesia, we are making significant capital investments to ensure
compliance with air emission regulations that address, among other things, sulfur dioxide, particulates and metals. In
Australia, we started acquiring and acquitting permits from the federal government in June 2013 under the carbon
pricing scheme. This scheme may be repealed under the new federal government (elected in 2013) and replaced with a
new carbon reduction scheme. The details and timing for this new scheme are yet to be finalized.
A proposed new law in the South Province of New Caledonia will impose stricter limits on emissions of
nitrogen oxide and sulphur oxide and particulates from large combustion power stations, which will affect the power
station that supplies electricity to VNC. To meet these standards, this 100 MW power station will need to be
upgraded, which is expected to result in the increase in the price of power paid by VNC.
In Canada, more stringent water effluent regulations are being proposed, which may affect our operations. In
the UK, a recent effluent regulatory change has been introduced, which resulted in a significant increase in soil
disposal and other environmental compliance costs at our Clydach facility.
76
Regulatory matters
In Brazil, there is legislation for the protection of caves, including a broad decree published in October 1990
and revised in 2008. As a consequence of that revision, the Ministry of Environment published an ordinance in 2009
that established a methodology to classify the relevance of caves. These regulations require us to conduct extensive
technical studies and to engage in complex discussions with Brazilian environmental regulators. These discussions are
ongoing, and as a result, we cannot yet assess the final impact of these regulations on our operations. However, it is
possible that in certain of our iron ore mining operations or projects, we may be required to limit or modify our mining
plans or to incur additional costs to preserve caves or to compensate for the impact on them, with potential
consequences for production volumes, costs or reserves in our iron ore business.
Regulation of other activities
In addition to mining and environmental regulation, we are subject to comprehensive regulatory regimes for
some of our other activities, including rail transport, port operations and electricity generation. We are also subject to
more general legislation on workers’ health and safety, safety and support of communities near mines, and other
matters. The following descriptions relate to some of the other regulatory regimes applicable to our operations:
• Brazilian railway regulation. Our Brazilian railroad business operates pursuant to concession
contracts granted by the federal government, and our railroad concessions are subject to regulation
and supervision by the Brazilian Ministry of Transportation and the transportation regulatory
agency (ANTT). Our railroad concession contracts have duration of 30 years and may be renewed
at the federal government’s discretion. The FCA and MRS concessions expire in 2026, and the
concessions for EFC and EFVM expire in 2027. VLI also owns a subconcession for commercial
operation of a 720-kilometer segment of the FNS railroad in Brazil, which expires in 2037. The
actual prices we charge can be negotiated directly with the users of such services, subject to tariff
ceilings approved by ANTT for each of the concessionaires and each of the different products
transported. ANTT regulations also require concessionaires to give trackage rights to other
concessionaires, make investments in the railway network, meet certain productivity requirements,
among other obligations.
• Brazilian port regulation. Port operations in Brazil are subject to regulation and supervision by
ANTAQ, the federal agency in charge of maritime transportation, and the Secretary of Ports of the
Federal Government (SEP). In June 2013, a new law provided a new set of rules for projects and
existing terminals. The statute removed restrictions on servicing third party cargo and permitted
ANTAQ’s involvement in determining third party access to private terminals. In 2014, the private
terminals will execute new contracts with SEP in order to adapt the provisions to the new regime.
• Regulation of chemicals. Some of our products are subject to regulations applicable to the
marketing, distribution and use of chemical substances present in their composition. For example,
the European Commission has adopted a European Chemicals Policy, known as REACH
(“Registration, Evaluation and Authorization of Chemicals”). Under REACH, European
manufacturers and importers are required to register substances prior to their entry into the
European market and in some cases may be subject to an authorization process. A company that
fails to comply with the REACH regulations could face fines and penalties.
• Regulation of the seaborne transport of iron ore and iron ore fines. The International Maritime
Organization has prepared amendments to existing rules governing safe shipping of products,
including iron ore.
77
II. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
OVERVIEW
We delivered a strong operational performance in 2013, with solid results across all of our lines of
business. Our cost-cutting efforts, discipline in capital expenditures and focus on our core business throughout the
year improved our financial position, and we were able to lay the foundations for future growth in volume and free
cash flow.
We registered record sales volumes in 2013 in iron ore and pellets, with 306 Mt, along with record sales of
copper, gold and coal, and our highest nickel sales since 2008. Even as our sales volumes increased, we achieved
substantial reductions in costs and expenses, in part through the simplification of our organizational structure.
By continuing to focus selectively on a narrower exploration and project development portfolio, we have
been able to maintain our commitment to growth while reducing both 2013 research and development expenditures
and capital expenditures. We also successfully sold non-core assets and investments in 2013 totaling US$6.0 billion,
which demonstrated our continued commitment to the simplification of our asset base and management focus. Our
cash generation allowed us to distribute dividends of US$4.5 billion in 2013.
We succeeded in mitigating some significant uncertainties in our business in 2013, allowing management to
focus on our operational and strategic objectives. In particular, we elected to participate in the REFIS, a federal tax
settlement program for payment of amounts relating to Brazilian corporate income tax and social contribution, in order
to settle the claims related to the net income of our non-Brazilian subsidiaries and affiliates from 2003 to 2012.
Our receipt of implementation licenses for the S11D project and associated logistics was an important
advance in a key part of our plan to increase our iron ore production beyond 2016. We also received authorization to
mine additional areas around the N4 mine, which will support our production plans for 2014 and our growth program
for 2015 and 2016.
We completed a number of projects necessary to expand our iron ore production in the period from 2014 to
2016: Conceição Itabiritos, Carajás plant 2 (formerly known as Additional 40 Mtpy), and CLN 150, including Pier IV
with its first berth in Ponta da Madeira. In addition, we ramped up base metals projects at Salobo I, Onça Puma and
New Caledonia, and we completed other key projects at Long Harbour and Totten. These investments mark the end of
an investment cycle and position our business to achieve our cash generation target in the coming years.
Underpinning our solid performance this year is a relentless focus on health and safety. Our health and safety
indicators improved in 2013, with our total recordable injury frequency rate (TRIFR) decreasing from 2.8 to 2.6 per
million hours worked. We remain focused on achieving a record of zero harm in our operations.
Sales volumes
Our financial performance depends, among other factors, on the volume of production at our facilities. We
publish a quarterly production report, which is available on our website and filed with the SEC on Form 6-K.
Increases in the capacity of our facilities resulting from our capital expenditure program have an important effect on
our performance. Our results are also affected by acquisitions and dispositions of businesses or assets, and they may
be affected in the future by new acquisitions or dispositions. For more information on acquisitions since the beginning
of 2013, see Information on the company―Business overview―Significant changes in our business.
78
The following table sets forth, for our principal products, the total volumes we sold in each of the periods
indicated.
Overview
Iron ore .............................................
Iron ore pellets..................................
Manganese ........................................
Ferroalloys ........................................
Coal:
Thermal coal .............................
Metallurgical coal .....................
Nickel ...............................................
Copper ..............................................
PGMs (oz) ........................................
Gold (oz) ..........................................
Silver (oz) .........................................
Cobalt ...............................................
Potash ...............................................
Phosphates:
MAP ...........................................
TSP .............................................
SSP .............................................
DCP ............................................
Phosphate rock ...........................
Nitrogen ............................................
Average realized prices
2011
Year ended December 31,
2012
(thousand metric tons)
2013
257,287
41,861
1,032
386
258,061
45,382
1,745
267
264,631
40,991
2,115
183
5,342
2,330
252
302
446
198
2,626
2.721
568
907
594
2,501
556
2,652
1,278
3,134
4,864
232
285
386
168
1,862
2.033
581
1,221
713
2,446
474
3,314
1,342
726
7,353
261
353
510
297
2,154
2,939
531
1,133
681
1,969
461
3,154
890
The following table sets forth our average realized prices for our principal products for each of the periods
indicated. We determine average realized prices based on gross operating revenues, which reflect the price charged to
customers including items, principally value-added tax, that we deduct in arriving at net operating revenues.
Iron ore .........................................
Iron ore pellets .............................
Manganese ...................................
Ferroalloys ...................................
Coal:
Thermal coal .........................
Metallurgical coal .................
Nickel ...........................................
Copper ..........................................
Platinum (US$/oz) .......................
Gold (US$/oz) ..............................
Silver (US$/oz) ............................
Cobalt (US$/lb) ............................
Potash ...........................................
Phosphates:
MAP ......................................
TSP ........................................
SSP ........................................
DCP .......................................
Phosphate rock ......................
Nitrogen .......................................
2011
Year ended December 31,
2013
2012
(US$ per metric ton, except where indicated)
107.43
150.22
157.37
105.41
148.89
134.10
143.46
195.98
165.70
1,443.01
1,340.82
1,303.92
95.54
235.27
22,680.41
8,420.73
1,716.81
1,558.55
82.39
171.38
17,866.38
7,595.44
1,590.87
1,755.52
81.17
129.34
14,900.24
6,709.18
1,469.78
1,339.37
31.64
15.63
505.28
679.65
585.98
281.53
679.63
112.80
612.01
33.82
12.27
530.12
646.58
526.67
268.58
628.36
124.82
597.01
20.02
10.95
417.32
571.86
472.51
271.88
611.54
90.68
610.27
79
Major factors affecting prices
Iron ore and iron ore pellets
Demand for our iron ore and iron ore pellets is a function of global demand for carbon steel. Demand for
carbon steel, in turn, is strongly influenced by global industrial production. Iron ore and iron ore pellets are priced
based on a wide array of quality levels and physical characteristics. Various factors influence price differences among
the several types of iron ore, such as the iron content of specific ore deposits, the various beneficiation and purifying
processes required to produce the desired final product, particle size, moisture content and the type and concentration
of contaminants (such as phosphorus, alumina, silica and manganese ore) in the ore. Fines, lump ore and pellets
typically command different prices.
Demand from China has been a principal driver of world demand and prices. Chinese iron ore imports
reached 820 million metric tons in 2013, 10.1% above the 745.5 million metric tons imported in 2012 and 19.4%
higher than 2011 levels, due mainly to the continued growth in Chinese steel production throughout 2013. We expect
China’s economic growth to continue during 2014, mainly driven by domestic demand. The reforms announced by the
national government of China at the end of 2013 may affect demand for steel, as local governments will likely face
budgetary restrictions on investments in infrastructure construction. On the other hand, demand from the property
sector is expected to continue to grow, supported by continued urbanization. As a result, we expect iron ore demand
from the steel industry to continue to grow, but at a slower pace.
Our iron ore prices are based on a variety of pricing options, which generally use spot price indices as a basis
for determining the customer price. In 2012, there was a significant shift from agreements to price our iron ore on a
quarterly basis, using the current quarter’s three-month average of price indices, to using pricing options based on spot
prices. That shift exposed us to greater price volatility, but it also allowed us to capture more value by bringing our
point of sale closer to key Asian markets.
Coal
Demand for metallurgical coal is driven by steel demand, and future growth continues to be expected across
Asia and the Indian sub-continent. Asia accounts for more than half of the steel market and consumes 75% of seaborne
metallurgical coal. Chinese seaborne demand increased by 48%, to 77 million metric tons in 2013 compared to 52
million metric tons in 2012.
Despite firm demand, prices have remained depressed by the excess of supply. Seaborne exports grew by
11% in 2013, fueled by Australian exports, which grew by 9% in 2012 and 18% in 2013, gaining market share and
accounting for 58% of seaborne trade. Due to the current over-supplied market, there is no incentive to expand
metallurgical coal supply in the short term. Moreover, high-cost production has been displaced, which resulted in mine
closures in 2013.
Demand for thermal coal is closely related to electricity consumption, which continues to be driven by global
economic growth and urbanization, with the highest levels of growth found in Asia and emerging markets. Demand
decreased recently as natural gas gained market share. The appeal of natural gas increases as pollution concerns rise.
In 2013, the production of shale gas in the United States reduced supply costs, and the gas price has a direct impact on
coal prices. These trends are exacerbated by the oversupply of thermal coal, further depressing coal prices.
80
Overview
Various other factors influence coal prices, including changing trends in mechanisms used to price
metallurgical coal. Quarterly pricing remains predominant, but short term pricing trends continue to evolve slowly
with more monthly pricing on term business, and a larger spot market in volume terms has been notable in 2013. The
spot market for coal is mostly cleared in China, with some volume in India as well, although liquidity in the spot
market is still limited. In 2013, there was only modest growth in the derivative market for metallurgical coal. Most of
our term contracts are still priced on a quarterly basis, and alternate mechanisms are gradually being removed from the
market. Price negotiations for thermal coal, which accounts for less than 10% of our coal sales, are held on spot and
annual basis.
Nickel
Nickel is an exchange-traded metal, listed on the LME. Most nickel products are priced using a discount or
premium to the LME price, depending on the nickel product’s physical and technical characteristics. Demand for
nickel is strongly affected by stainless steel production, which represents, on average, 66% of global nickel
consumption.
We have short-term fixed-volume contracts with customers for the majority of our expected annual nickel
sales. These contracts, together with our sales for non-stainless steel applications (alloy steels, high nickel alloys,
plating and batteries), provide stable demand for a significant portion of our annual production. In 2013, 63% of our
refined nickel sales were made for non-stainless steel applications, compared to the industry average for primary
nickel producers of 34%, bringing more stability to our sales volumes. As a result of our focus on such higher-value
segments, our average realized nickel prices for refined nickel have typically exceeded LME cash nickel prices.
Primary nickel (including ferro-nickel, nickel pig iron and nickel cathode) and secondary nickel (i.e., scrap)
are competing nickel sources for stainless steel production. The choice between different types of primary and
secondary nickel is largely driven by their relative price and availability. In recent years, secondary nickel has
accounted for about 45% of total nickel used for stainless steels, and primary nickel has accounted for about 55%. In
2013, Chinese nickel pig iron and ferro-nickel production is estimated at 590,000 metric tons, representing 25% of
world primary nickel supply, compared to 20% and 16% of the world’s supply in 2012 and 2011, respectively.
However, the implementation of the Indonesian mining law restricting the export of unprocessed ores may affect
Chinese nickel pig iron and ferro-nickel production going forward. We estimate that Indonesia represents more than
80% of the critical saprolite ores used in the production of ferro-nickel in China and over 20% of world refined
production. If it remains in place, the ban on Indonesian ore exports enacted in January 2014 is expected to have a
significant impact on the market in the coming years.
Copper
Growth in copper demand in recent years has been driven primarily by Chinese imports, given the important
role copper plays in construction in addition to electrical and consumer applications. Copper prices are determined on
the basis of (i) prices of copper metal on terminal markets, such as the LME and the NYMEX, and (ii) in the case of
intermediate products such as copper concentrate (which comprise most of our sales) and copper anode, treatment and
refining charges negotiated with each customer. Under a pricing system referred to as MAMA (“month after month of
arrival”), sales of copper concentrates and anodes are provisionally priced at the time of shipment, and final prices are
settled on the basis of the LME price for a future period, generally one to three months after the shipment date.
Demand for refined copper grew by an estimated 5% in 2013, and China was responsible for an equivalent of
44% of worldwide consumption. The supply of refined copper increased with the 8% growth in global mine output in
2013, which reflect both the ramp-up of new projects and improvements at existing operations. Throughout 2013,
prices remained under pressure. For 2014 and 2015, we expect mine production to continue expanding based on prior
investments.
81
Fertilizers
Demand for fertilizers is based on market fundamentals similar to those underlying global demand for
minerals, metals and energy. Rapid per capita income growth in emerging economies generally causes dietary
changes marked by an increase in the consumption of proteins, which ultimately contributes to increased demand for
fertilizer nutrients, including potash and phosphates, as they help boost production of grains to feed more livestock.
Demand is also driven by the demand for bio-fuels, which have emerged as an alternative source of energy to reduce
world reliance on sources of climate-changing greenhouse gases, because key inputs for the production of biofuels –
sugar cane, corn and palm – are intensive in the use of fertilizers.
Sales of fertilizers are mainly on a spot basis using international benchmarks, although some large importers
in China and India often sign annual contracts. Seasonality is an important factor for price determination throughout
the year, since agricultural production in each region depends on climate conditions for crop production.
In 2013, global fertilizer market conditions were weak as a result of lower prices due to declining demand for
in India and China. As a result, some production was redirected from these markets to Brazil, where seasonal effects
determined by the end of crop season were already weighing on prices.
Currency price changes
Our results of operations are affected in several ways by changes in currency exchange rates. The most
important of these are the following:
• Most of our revenues are denominated in U.S. dollars, while most of our costs of goods sold are
denominated in other currencies, including the real (54% in 2013) and the Canadian dollar (14% in
2013). In 2013, 27% of our costs of goods sold were denominated in U.S. dollars. As a result,
changes in exchange rates, particularly with respect to the U.S. dollar, affect our costs and operating
margins.
• Most of our long-term debt is denominated in currencies other than the real (US$20.539 billion at
December 31, 2013, not considering accrued charges), principally the U.S. dollar. Because our
functional currency for accounting purposes is the Brazilian real, changes in the value of the U.S.
dollar against the real result in exchange gain or loss on our net liabilities.
• We had real-denominated debt of US$7.131 billion at December 31, 2013, excluding accrued
charges. Since most of our revenue is in U.S. dollars, we use swaps to convert our debt service from
reais to U.S. dollars. Changes in the value of the U.S. dollar against the real result in fair value
variation on these derivatives, affecting our financial results. For more information on our use of
derivatives, see ―Risk management.
A decline in the value of the U.S. dollar tends to result in: (i) lower operating margins and (ii) higher financial
results due to currency gains on our net U.S. dollar-denominated liabilities and fair value gains on our currency
derivatives. Conversely, an increase in the value of the U.S. dollar tends to result in: (i) better operating margins and
(ii) lower financial results due to exchange losses on our net U.S. dollar-denominated liabilities and fair value losses
on our currency derivatives.
The U.S. dollar appreciated against the real during the first quarter of 2013, as Eurozone-related uncertainties
diminished. Several factors, including lower output growth in Brazil, led to a sharp nominal appreciation of the U.S.
dollar against the real during the second quarter of 2013. This escalation of the dollar was partially reversed for a short
period, but resumed in the fourth quarter of 2013, remaining roughly stable thereafter. On average, the U.S. dollar was
10.5% stronger in 2013 against the real than in 2012. As of December 31, 2013, the U.S. dollar had appreciated 15.1%
against the real relative to December 31, 2012.
82
Overview
Compared to the Canadian dollar, the average value of the U.S. dollar in 2013 was 2.9% lower than in 2012,
but as of December 31, 2013, the U.S. dollar had appreciated 7% against the Canadian currency relative to December
31, 2012.
Overall, in 2013 exchange rate fluctuations affected our operating margins positively but resulted in net
foreign exchange losses and losses on derivatives, as described under ―Critical accounting policies and
estimates―Derivatives.
Effects of the REFIS in 2013
In November 2013, we elected to participate in the REFIS, a federal tax settlement program for payment of
amounts relating to Brazilian corporate income tax and social contribution, in order to settle the claims related to the
net income of our non-Brazilian subsidiaries and affiliates from 2003 to 2012. Before this settlement, the total amount
of tax contingency for the period from 2003 to 2012, including the years for which tax assessments had not yet been
issued, was estimated at US$19.4 billion (equivalent to R$45.0 billion, including R$17.1 billion in principal, R$9.8
billion in penalties, R$12.0 billion in interest and interest on penalties and R$6.0 billion in statutory fees).
Participating in the REFIS had an impact of US$6.7 billion (R$14.8 billion) on net income in 2013 as
described in note 20 to our consolidated financial statements. In future years, financial expenses will include the
interest component of the REFIS payments. Our future cash flows will be affected by the monthly installments. For
more information about the REFIS, see Legal proceedings—Litigation on Brazilian taxation of foreign subsidiaries.
Change in accounting presentation
We have discontinued the preparation of financial statements in accordance with U.S. GAAP. We have
adopted IFRS, as issued by the IASB, as the basis for the preparation and presentation of our financial statements and
reporting to the SEC beginning with our financial statements as of and for the year ending December 31, 2013
presented in this annual report. This annual report and future reports filed with the SEC will only present financial
information prepared in accordance with IFRS.
We first adopted IFRS, as issued by the IASB, for our financial statements for the year ended December 31,
2010, which we published and filed with the CVM. Our transition date from Brazilian GAAP to IFRS was January 1,
2009, and we used certain mandatory or elective exceptions under IFRS 1 in those financial statements. Since we have
previously adopted IFRS in Brazil, we are not a “first time adopter” of IFRS for purposes of this annual report on Form
20-F.
For a reconciliation of our financial statements in accordance with IFRS from U.S. GAAP, see Note 33 to our
consolidated financial statements.
Change in accounting policies
In 2013, we started to account for our employment benefits according to IAS 19R. In accordance with its
transition provisions, we applied this standard restrospectively to the years 2011 and 2012 as well. The revisions
under IAS 19R (i) eliminated the “corridor” method for recognition of actuarial gains and losses; (ii) simplified the
accounting for changes in the assets and liabilities of plans, recognizing in the income statement service costs and net
interest cost based on the net benefit asset or liability; and (iii) provided for recognition in comprehensive income of
remeasurements of actuarial gains and losses, return on plan assets (net of interest income on assets) and changes in
the effect of the asset ceiling. For more information, see Note 6 to our consolidated financial statements.
83
RESULTS OF OPERATIONS
In 2013, we generated net income attributable to the Company’s stockholders of US$584 million compared
to US$5.454 billion in 2012. This decrease was partly due to certain major non-recurring items in 2013, including: (i)
US$4.048 billion of income taxes from continued operations paid in connection with the REFIS, after deductions, (ii)
US$2.637 billion of net financial expenses related to the REFIS, (iii) US$2.940 billion of foreign exchange and
monetary losses, (iv) US$2.298 billion in charges for impairment on assets, mainly related to the Rio Colorado potash
project and (v) US$861 million of net fair value losses on foreign exchange and interest rate risk derivatives.
The following discussion addresses our continuing operations only, except as otherwise specified.
Revenues
In 2013, our net operating revenues increased 0.5% to US$46.767 billion, primarily as a result of increases in
the sales volumes of base metals, iron ore and metallurgical coal and higher prices of iron ore, which were partially
offset by lower prices for base metals, fertilizers and metallurgical coal, and a decrease in the sales volume of iron ore
pellets and fertilizers. Net operating revenues of each business segment are discussed below under —Results of
operations by segment.
The following table summarizes our net operating revenues by product for the periods indicated.
2011
% change
Year ended December 31,
2012
% change
2013
(US$ million, except for %)
Bulk materials:
Iron ore ......................................................
Iron ore pellets ..........................................
Ferroalloys and manganese .......................
Coal ...........................................................
Other ferrous products and services .........
Subtotal .................................................
US$36,416
7,938
676
1,058
585
46,673
Base metals:
Nickel and other products(1) ....................
Copper concentrate(2) ...............................
Subtotal .................................................
8,118
1,103
9,221
Fertilizers:
Potash ........................................................
Phosphates .................................................
Nitrogen ....................................................
Others fertilizer products ..........................
Subtotal .................................................
Other products and services:(3).....................
Net operating revenues .........................
273
2,300
679
70
3,322
859
US$60,075
(26.0)%
(17.4)
(19.7)
3.2
(57.9)
(24.2)
(26.4)
4.8
(22.7)
6.2
9.0
2.9
5.7
7.5
(44.1)
(22.5)%
US$26,931
6,560
543
1,092
246
35,372
5,975
1,156
7,131
290
2,507
699
74
3,570
480
US$46,553
4.5%
(8.5)
(3.7)
(7.5)
(46.3)
1.2
(2.3)
25.2
2.2
(30.7)
(17.6)
(32.9)
6.8
(21.2)
80.2
0.5%
US$28,137
6,000
523
1,010
132
35,802
5,839
1,447
7,286
201
2,065
469
79
2,814
865
US$46,767
Includes nickel co-products and by-products (copper, precious metals, cobalt and others).
(1)
(2) Does not include copper produced as a nickel co-product.
(3)
Includes pig iron and energy.
84
The following table summarizes, for the periods indicated, the distribution of our net operating revenues
based on the geographical location of our customers.
2011
Net operating revenues by destination
2012
2013
(US$ million)
(% of total)
(US$ million)
(% of total)
(US$ million)
(% of total)
Results of operations
North America
Canada ...............................
United States .....................
Mexico ...............................
South America
Brazil .................................
Other ..................................
Asia
China..................................
Japan ..................................
South Korea .......................
Taiwan ...............................
Other ..................................
Europe
Germany ............................
United Kingdom ................
Italy ....................................
France ................................
Other ..................................
Rest of the world ..............
Total ..............................
US$1,403
1,672
114
3,189
8,644
1,110
9,754
21,420
7,238
2,780
1,281
1,007
33,726
3,839
1,351
1,908
804
3,584
11,486
1,919
US$60,075
Operating costs and expenses
2.3%
2.8
0.2
5.3
14.4
1.8
16.2
35.7
12.0
4.6
2.1
1.7
56.1
6.4
2.2
3.2
1.3
6.0
19.1
3.2
100.0%
US$1,015
1,334
29
2,378
6,926
779
7,705
17,636
4,931
2,103
901
1,047
26,617
2,935
920
1,310
658
2,376
8,199
1,653
US$46,553
2.2%
2.9
0.1
5.2
14.9
1.7
16.6
37.9
10.6
4.5
1.9
2.2
57.1
6.3
2.0
2.8
1.4
5.1
17.6
3.6
100.0%
US$1,043
1,311
29
2,383
6,190
776
6,966
18,920
4,035
1,795
982
825
26,558
3,285
1,003
1,055
977
2,442
8,762
2,099
US$46,767
2.2%
2.8
0.1
5.1
13.2
1.7
14.9
40.5
8.6
3.8
2.1
1.8
56.8
7.0
2.1
2.3
2.1
5.2
18.7
4.5
100.0%
The following table summarizes the components of our operating costs and expenses for the periods
indicated.
2011
% change
2012
% change
2013
Year ended December 31,
Cost of goods sold and services rendered ..................
Selling, general and administrative expenses ............
Research and evaluation expenses .............................
Pre-operating and stoppage expenses ........................
Other operating expenses, net ....................................
Impairment on non-current assets ..............................
Gain (loss) on measurement or sales of non-current
assets .......................................................................
Total operating costs and expenses ............................
US$(24,528)
(2,271)
(1,671)
(1,293)
(1,482)
(cid:31)
1,494
US$(29,751)
(US$ million, except for %)
3.5%
(4.4)
(12.3)
23.1
34.7
(cid:31)
US$(25,390)
(2,172)
(1,465)
(1,592)
(1,996)
(4,023)
(4.5)%
(40.1)
(45.3)
16.8
(50.7)
(42.9)
US$(24,245)
(1,302)
(801)
(1,859)
(984)
(2,298)
(cid:31)
24.8%
(506)
US$(37,144)
(57.5)
(14.6)%
(215)
US$(31,704)
85
Cost of goods sold and services rendered
The following table summarizes, for the periods indicated, the components of our cost of goods sold by their
nature.
Outsourced services......................................................
Materials costs ..............................................................
Energy:
Fuel .........................................................................
Electric energy .......................................................
Subtotal ..................................................................
Acquisition of products:
Iron ore and pellets ................................................
Nickel .....................................................................
Other .......................................................................
Subtotal ..................................................................
Personnel ......................................................................
Depreciation and depletion ..........................................
Freight ..........................................................................
Others ...........................................................................
Total ..............................................................................
2011
US$4,156
3,716
2,066
966
3,032
1,411
606
257
2,274
3,017
2,452
1,956
3,925
US$24,528
% change
Year ended December 31,
2012
% change
2013
(US$ million)
11.8%
13.6
US$4,645
4,222
(18.1)%
(2.6)
US$3,805
4,112
(5.8)
(10.7)
(7.3)
(50.4)
(44.2)
28.0
(39.9)
13.1
49.2
43.2
(37.0)
3.5%
1,947
863
2,810
700
338
329
1,367
3,413
3,659
2,801
2,473
US$25,390
(7.3)
(23.2)
(12.2)
(42.1)
36.7
64.7
3.1
(4.3)
1.8
13.9
(8.0)
(4.5)%
1,804
663
2,467
405
462
542
1,409
3,265
3,724
3,189
2,274
US$24,245
2013 compared to 2012. In 2013, our cost of goods sold was US$24.245 billion, a decrease of 4.5%, or
US$1.145 billion, compared to 2012. The decrease in costs was mainly a result of US$1.638 billion in nominal
exchange rate variations and US$1.198 billion primarily from the renegotiation of contracts and the increased supply
of energy from our own plants. Those effects were partially offset by an increase of US$1.691 billion in costs resulting
from higher volumes sold, especially of iron ore, base metals and metallurgical coal.
• Outsourced services costs (primarily for operational services such as waste removal, cargo freight and
maintenance of equipment and facilities) decreased 18.1%, which was primarily driven by the
depreciation of the Brazilian real against the U.S. dollar, reassessment of contracts with suppliers and
the relocation of some personnel of our outsourced service providers to other operational activities due to
the stoppage of some of our plants.
• Materials costs decreased 2.6% reflecting the depreciation of the Brazilian real against the U.S. dollar,
partially offset by an increase in costs of maintenance materials in our iron ore and phosphates
operations, as a result of the maintenance activities we conducted in 2013.
• Energy costs decreased 12.2%, primarily reflecting the depreciation of the Brazilian real against the U.S.
dollar, lower prices and the increased use of energy from our power plants, which have a lower cost in
our energy portfolio, despite higher fuel prices.
• Costs of purchasing products from third parties increased 3.1%, primarily driven by increased purchases
of precious metals to be processed at our refinery in Acton, England, to reduce idle capacity and sales of
surplus energy at the spot market that we receive from our long-term energy contracts.
• Personnel costs decreased 4.3%, primarily due to the depreciation of the Brazilian real against the U.S.
dollar, partially offset by a 6% increase in wages.
• Depreciation and depletion increased 1.8% reflecting the ramp-up of new projects, partially offset by the
depreciation of the Brazilian real against the U.S. dollar.
86
Results of operations
• Freight costs increased 13.9%, primarily due to the increased volume of iron ore and iron ore pellets we
sold on a CFR basis relative to sales on an FOB basis.
• Other costs of goods sold decreased 8.0% in 2013. These costs consist mainly of leasing fees related to
our joint-venture pelletizing assets, demurrage and royalties and a full year of TFRM, which is a tax on
mineral production created by certain Brazilian states in 2012.
2012 compared to 2011. In 2012, our cost of goods sold was US$25.390 billion, an increase of 3.5%, or
US$862 million, compared to 2011. The increase primarily resulted from US$4.414 billion related to equipment
maintenance, enhancements to iron ore, pellets and nickel operations, the start-up of Salobo and higher personnel
costs, which were only partially offset by decreases of US$1.246 billion in costs resulting from lower volumes sold,
mainly base metals, and of US$2.258 billion from exchange rate variations.
• Outsourced services costs (primarily for operational services such as waste removal, cargo freight and
maintenance of equipment and facilities) increased 11.8%, which was primarily driven by (i) increased
maintenance services after heavy rainfall in Brazil during the first months of 2012 and (ii) higher
maintenance costs for our nickel operations in Canada during the first half of 2012, after the suspension
of mining activities at Sudbury to address certain safety concerns. The increase was partially offset by
the reallocation of some of our employees in the fourth quarter of 2012 as part of our effort to lower costs
with outsourced services.
• Materials costs increased 13.6% as result of maintenance work on our iron ore, pellet and nickel
operations and higher prices for ammonia and oil products, which are key inputs in our fertilizer
operations.
• Energy costs decreased 7.3%, primarily reflecting the depreciation of the Brazilian real against the U.S.
dollar and the divestment of our aluminum assets in February 2011. These factors were partially offset
by increased prices of fuel (principally used in our nickel operations).
• Costs of purchasing products from third parties decreased 39.9%, mainly driven by lower purchases of
nickel and reduced iron ore and iron ore pellet prices. In the first half of 2011, we purchased a large
amount of finished nickel to fill contracts because of problems with our Copper Cliff smelter in Sudbury.
• Personnel costs increased 13.1%, primarily as a result of the higher number of employees we hired for
project execution and an 8.0% wage increase in Brazil.
• Depreciation and depletion expense increased 49.2% due to the ramp-up of new projects in 2012. It was
partially offset by the depreciation of the Brazilian real against the U.S. dollar.
• Other costs of goods sold decreased 37.0% in 2012. These costs consist mainly of freight, leasing fees
related to our joint-venture pelletizing assets, demurrage and royalties.
Selling, general and administrative expenses
2013 compared to 2012. In 2013, selling, general and administrative expenses decreased 40.1%, or US$870
million, mainly as a result of the simplification of our organizational structure and the depreciation of the Brazilian
real against the U.S. dollar, which was partially offset by the effects of a new two-year collective bargaining
agreement in Brazil that increased wages by 6.0%.
2012 compared to 2011. In 2012, selling, general and administrative expenses decreased 4.4%, or US$99
million, mainly as a result of the depreciation of the Brazilian real against the U.S. dollar, which was partially offset by
the impact of increased wages in Brazil by 8.0%.
87
Research and development expenses
Our research and development expenses consist primarily of (i) expenditures for feasibility and other studies
for new projects, (ii) expenditures on mineral exploration, which are recorded as expenses until the economic viability
of the related mining activities can be established and (iii) expenditures to develop new processes and technological
innovation.
2013 compared to 2012. In 2013, research and development expenses decreased 45.3%, which reflects the
reduction of our portfolio of projects and the closure of certain exploration activities.
2012 compared to 2011. In 2012, research and development expenses decreased 12.3%, which reflects our
focus on our most promising exploration projects and on a smaller number of projects under active study due to
significant decreases in expenditures for feasibility and other studies for new project and mineral exploration, while
expenditures for the development of new processes and technological improvements increased. The change reflected
our renewed focus on long-term growth opportunities.
Pre-operating and stoppage expenses
Pre-operating expenses refers to expenses incurred by a project shortly before initial sales are made, and
stoppage expenses are expenses incurred by suspension of projects and shut down of operations.
2013 compared to 2012. Pre operating and stoppage expenses increased by US$267 million in 2013, from
US$1.592 billion in 2012 to US$1.859 billion in 2013, mainly due to the expense of US$381 million related to
stoppage of our Rio Colorado project.
2012 compared to 2011. Pre operating and stoppage operation increased by US$299 million in 2012, from
US$1.293 billion in 2011 to US$1.592 billion in 2012, mainly due to our Onça Puma and Vale New Caledonia
projects.
Other operating expenses, net
Other operating expenses, net, include provisions for losses, litigation and contingencies, among other items.
2013 compared to 2012. Other operating expenses, net, decreased by US$1.012 billion in 2013, from
US$1.996 billion in 2012 to US$984 million in 2013, mainly due to the one-off effect of CFEM expenses incurred in
2012, as described below.
2012 compared to 2011. Other operating expenses, net, increased by US$514 million in 2012, from
US$1.482 billion in 2011 to US$1.996 billion in 2012, mainly due to the recognition of US$542 million as a probable
loss related to the deductibility of transportation costs in determining the amount of CFEM payments.
Impairment of non-current assets
2013 compared to 2012. In 2013, we recognized impairments of non-current assets amounting to US$2.298
billion. We recognized impairments of (i) US$2.116 billion with respect to our potash assets at the Rio Colorado
project, following our decision to cancel the implementation of the project and (ii) US$182 million with respect to the
temporary stoppage and uncertainty regarding the resumption of pelletizing plants in Brazil. See Note 16 to our
consolidated financial statements.
88
Results of operations
2012 compared to 2011. In 2012, we recognized impairments of non-current assets amounting to US$4.023
billion. We recognized impairments of (i) US$2.848 billion with respect to our nickel assets at Onça Puma, triggered
by the failure of a furnace, (ii) US$1.029 billion with respect to coal assets in Australia due to increasing costs, falling
market prices and reduced production levels, among other factors, and (iii) US$145 million with respect to other
assets. See Note 14 to our 2012 consolidated financial statements.
Gain (loss) on measurement or sales of non-current assets
2013 compared to 2012. In 2013 we had a loss of US$215 million on the sale of assets at Tres Valles, while in
2012 we had a loss of US$506 million on the sale of assets, including (i) a US$22 million loss from the sale of our
European manganese ferroalloy operations, (ii) a US$355 million loss from the sale of our coal operations in
Colombia and (iii) a US$129 million loss from the sale of a wholly-owned subsidiary in the fertilizer business,
Araucaria.
2012 compared to 2011. In 2012 we had a loss of US$506 million on the sale of assets, while in 2011 we had
a gain of US$1.494 billion from the sale of our aluminum operations to Norsk Hydro.
Operating income
The following table provides, for the years indicated, information about our operating income (loss) by
product and, for each product, as a percentage of net operating revenues from sales of that product. Operating income
of each business segment is discussed below under —Results of operations by segment.
2011
Segment operating income (loss)
Year ended December 31,
2012
Segment operating income
(loss)
2013
Segment operating income
(loss)
(US$ million)
(% of net
operating
revenues)
(US$
million)
(% of net
operating
revenues)
(US$
million)
(% of net
operating
revenues)
Bulk materials:
Iron ore ....................................
Iron ore pellets ........................
Manganese ore and
ferroalloys ...............................
Coal .........................................
Other ferrous products and
services ....................................
Base metals:
Nickel and other products .......
Copper concentrate .................
Other ........................................
Fertilizers:
Potash ......................................
Phosphates ...............................
Nitrogen ..................................
Other fertilizer products ..........
Other ............................................
Total .............................................
US$24,192
4,325
66.4%
54.5
US$12,482
3,556
46.3%
54.2
US$15,754
3,083
13
(484)
109
1,044
146
(cid:31)
(87)
243
6
70
747
US$30,324
1.9
(cid:31)
18.6
13.1
13.2
(cid:31)
(cid:31)
10.6
0.9
100.0
87.0
50.5%
123
(2,031)
(148)
(3,817)
(76)
(cid:31)
23
100
(159)
74
(718)
US$9,409
22.7
18.2
(cid:31)
(cid:31)
(cid:31)
(cid:31)
130
(668)
(67)
(459)
(127)
244
7.9
4.0
(cid:31)
100.0
20.2%
(2,525)
(133)
(20)
77
(226)
US$15,063
56.0%
51.4
24.9
(cid:31)
(cid:31)
(cid:31)
(cid:31)
(cid:31)
(cid:31)
(cid:31)
(cid:31)
97.5
32.2%
89
2013 compared to 2012. Operating income as a percentage of net operating revenues increased from 20.2% in
2012 to 32.2% in 2013. Disregarding the impact of impairment of non-current assets (US$4.023 billion in 2012 and
US$2.298 billion in 2013), our operating income as a percentage of net operating revenues would have been 28.9% in
2012 and 37.1% in 2013. The principal elements in the improved margin were our efforts to cut costs and expenses,
followed by higher prices and sales volumes for iron ore and the sale of the mineral rights related to the gold stream
transaction with Silver Wheaton. These elements were partially offset by lower prices of base metals, fertilizers and
metallurgical coal and volumes of iron ore pellets, the stoppage and impairment of our potash project in Argentina
(Rio Colorado), the shutdown of Tubarão I and II and São Luis plants and the loss on the sale of Tres Valles.
2012 compared to 2011. Operating income as a percentage of net operating revenues decreased from 50.5%
in 2011 to 20.2% in 2012. Without the impact of the US$4.023 billion impairment of fixed assets in 2012, operating
income as a percentage of net operating revenues would have been 28.9% in 2012. The decline primarily resulted from
significantly lower prices for all of our main products, while sales volumes showed little or no growth in 2012 for most
of our operations. Other factors contributing to the decrease include the temporary stoppage of our nickel operations at
Sudbury, pre-operating costs at Onça Puma and pre-operating costs and inventory adjustments at VNC.
Non-operating income (expenses)
The following table details our net non-operating income (expenses) for the periods indicated.
Financial income .............................................................
Financial expenses...........................................................
Gains (losses) on derivatives, net ....................................
Foreign exchange gains (losses), net ..............................
Indexation gains (losses), net ..........................................
Non-operating income (expenses) ..................................
2011
US$701
(2,715)
75
(1,382)
(228)
US$(3,549)
Year ended December 31,
2012
(US$ million)
US$411
(2,421)
(120)
(1,918)
26
US$(4,022)
2013
US$643
(5,002)
(1,033)
(2,765)
(175)
US$(8,332)
2013 compared to 2012. Our non-operating expenses increased 107.2%, to US$8.332 billion in 2013 from
US$4.022 billion in 2012. This increase principally resulted from:
• An increase in financial expenses of US$2.581 billion, attributable primarily to the US$2.637 billion net
effect of fines and interest recognized under the REFIS.
• The net effect of fair value changes in derivatives, which represented a loss of US$1.033 billion in 2013
compared to a loss of US$120 million in 2012. This reflected the following main categories of
derivatives transactions:
o Currency and interest rate swaps. We recognized a net loss of US$861 million in 2013 from
currency and interest rate swaps, compared to net loss of US$263 million in 2012. These swaps
are primarily made to convert debt denominated in other currencies into U.S. dollars in order to
protect our cash flow from exchange rate volatility.
o Nickel derivatives. We recognized a net gain of US$11 million in 2013 compared to a gain of
US$171 million in 2012. These derivatives are part of our nickel price protection program.
o Bunker oil derivatives. We recognized a net loss of US$114 million in 2013 compared to a net
gain of US$14 million in 2012. These derivatives are structured to minimize the volatility of the
cost of maritime freight.
90
Results of operations
o Warrants. We recognized a net loss of US$60 million in 2013. These derivatives were part of
the payment received under the 2013 gold sale contract with Silver Wheaton.
• Net foreign exchange losses of US$2.765 billion in 2013 compared to net foreign exchange losses of
US$1.918 billion in 2012, principally due in both years to the depreciation of the Brazilian real against
the U.S. dollar.
• A net indexation loss of US$175 million in 2013 compared to a gain of US$26 million in 2012, primarily
due to the retrospective application of IAS 19 resulting in a gain for 2012.
• An increase in other financial income of US$232 million, mainly due to fair value gains of US$214
million as a result of the sale of Hydro shares, which was classified as held for sale.
2012 compared to 2011. Our non-operating increased 13.3%, to US$4.022 billion in 2012 from US$3.549
billion in 2011. This increase principally resulted from:
• A decrease in financial income of US$290 million, mainly due to a lower average cash balance.
• A decrease in financial expenses of US$294 million, attributable in part to lower interest expense on
domestic debt.
• The net effect of fair value changes in derivatives, which represented a loss of US$120 million in 2012
compared to a gain of US$75 million in 2011. This reflected the following main categories of
derivatives transactions:
o Currency and interest rate swaps. We recognized a net loss of US$263 million in 2012 from
currency and interest rate swaps, compared to net loss of US$96 million in 2011. These swaps
are primarily made to convert debt denominated in other currencies into U.S. dollars in order to
protect our cash flow from exchange rate volatility.
o Nickel derivatives. We recognized a net gain of US$171 million in 2012 compared to a gain of
US$103 million in 2011. These derivatives are part of our nickel price protection program.
o Bunker oil derivatives. We recognized a net gain of US$1 million in 2012 compared to a net
gain of US$37 million in 2011. These derivatives are structured to minimize the volatility of the
cost of maritime freight.
• Net foreign exchange losses of US$1.918 billion in 2012 compared to net foreign exchange losses of
US$1.382 billion in 2011, principally due to the depreciation of the Brazilian real against the U.S. dollar
in 2012 and 2011.
• A net indexation gain of US$26 million in 2012 compared to a loss of US$228 million in 2011, primarily
due to the monetary variation in social contribution taxes paid in the third quarter of 2011, which offset
increases in assets subject to indexation. This net variation is mainly due to judicial deposits, which are
adjusted by a Brazilian inflation index.
91
Income taxes
For 2013, we recorded net income tax expense of US$6.833 billion, compared to an income tax expense of
US$1.174 billion in 2012. In 2013, we had a tax expense from continued operations of US$4.048 billion in connection
with the REFIS, a federal tax settlement program for payment of amounts relating to Brazilian corporate income tax
and social contribution, in order to settle the claims related to the net income of our non-Brazilian subsidiaries and
affiliates from 2003 to 2012. Our participation in the REFIS resulted in a substantial reduction in the amounts in
dispute. For more information, see Legal proceedings—Litigation on Brazilian taxation of foreign subsidiaries and
Notes 6, 20 and 21 to our consolidated financial statements. The effective tax rate on our pretax income, excluding the
income tax expense and financial expenses in connection with the REFIS, as well as the impairment of fixed assets,
was 23.3%, which is lower than the statutory rate, mainly because of the tax benefit of shareholder distributions
categorized as interest on shareholders’ equity.
For 2012, we recorded an income tax gain of US$1.174 billion, resulting from the reversal of the US$1.236
billion deferred tax liability generated by the acquisition of Vale Fertilizantes S.A. (Vale Fertilizantes) by our
subsidiary Mineração Naque S.A. (Naque) in 2010, which was followed by the merger of Naque and Vale
Fertilizantes in June 2012. Excluding this factor, as well as the impact of the impairment of fixed assets, our effective
tax rate was 17.2% in 2012.
In 2011, we had income tax expense of US$5.265 billion, and our effective tax rate was 18.9%.
Equity in results of affiliates, joint ventures and other investments
Our equity in the results of affiliates and joint ventures was a net gain of US$469 million in 2013, compared
to a net gain of US$645 million in 2012 and US$1.138 billion in 2011. The decrease from 2011 to 2012 and from 2012
to 2013 was principally attributable to lower sales prices and lower results, respectively, for iron ore pellets through
our joint venture Samarco.
Impairment on investments
In 2013, we recognized no impairment. In 2012, we recognized an impairment of US$1.941 billion on our
investments, including (i) US$975 million on our interest in Norsk Hydro, due to volatility of aluminum prices and
uncertainties about the European economy, (ii) US$883 million on our interest in CSA Thyssenkrupp due to changed
expectations about future performance and (iii) US$83 million corresponding to Vale Soluções em Energia due to
changes in our investment strategy.
Results of operations by segment
Bulk materials
2013 compared to 2012. Net operating revenues from sales of bulk materials increased to US$35.802 billion
in 2013, from US$35.372 billion in 2012. The 1.2% increase primarily reflected higher prices and volumes of iron ore
and higher metallurgical coal volumes, partly offset by lower volumes of iron ore pellets.
Our average realized prices were 1.9% higher for iron ore and 0.9% for iron ore pellets, reflecting the
increase in the average value of Platt’s IODEX 62% CFR China index in 2013 and higher sales on a CFR basis. The
volume of our iron ore pellets sales in 2013 decreased by 9.7% due to the stoppage of our Tubarão I and II and São
Luis pelletizing plant.
Our revenues from bulk materials in 2013 were positively affected by the 51.2% increase in metallurgical
coal volumes that resulted from the ramp-up of Moatize and better performance at Carborough Downs due to
improvements in mine operations. Although the demand for coal has increased in Asia due to higher consumption of
steel, prices for coal have remained depressed by excess supply.
92
Results of operations
Operating income on sales of bulk materials was US$18.232 billion in 2013 and US$13.982 billion in 2012.
The 30.4% increase reflects higher operating income on iron ore, resulting from higher prices and sales volume.
Margins were negatively affected by the impairment at pelletizing plant and lower coal prices.
2012 compared to 2011. Net operating revenues from sales of bulk materials decreased to US$35.372 billion
in 2012 from US$46.673 billion in 2011. The 24.2% decrease primarily reflected lower prices for iron ore and iron ore
pellets.
Our average realized prices were down 28.9% for iron ore and 23.7% for iron ore pellets due a decline in the
average price premium and the general slowdown in global economic growth in 2012. After a sharp downward trend
in prices in the third quarter of 2012 associated with a destocking cycle that resulted primarily from weak global
demand for steel, market conditions improved in the last quarter. Both the supply response by high-cost producers to
lower prices and the resumption of growth in Chinese demand influenced by investments in infrastructure and
construction and sales of cars set the stage for a V-shaped recovery in prices. The volume of our iron ore sales in 2012
increased slightly (0.3%).
Our revenues from bulk materials in 2012 were positively affected by the 108.8% increase in metallurgical
coal volumes that resulted from the ramp-up of Moatize and the recovery of Australian output. After the 2011 supply
shock arising from the disruption of Australian production and exports due to heavy rains and flooding, prices of
metallurgical coal have trended down, in line with the slower growth of global steel consumption, and the average
realized price for metallurgical coal declined 27.2% in 2012. The volume of thermal coal we sold in 2012 decreased
41.3%, primarily resulting from the sale of our coal assets in Colombia, and our average realized prices for thermal
coal fell 13.8%.
Operating income on sales of bulk materials was US$13.982 billion in 2012 and US$28.155 billion in 2011.
The 50.3% decrease reflects lower operating income on iron ore and iron ore pellets, which decreased because of
lower prices. Margins were negatively affected by wage increases, higher maintenance and higher freight cost, which
were partially offset by the decrease in prices of iron ore and iron ore pellets acquired from third parties. We had a
small operating loss on sales of coal in both periods.
Base metals
2013 compared to 2012. Net operating revenues from sales of base metals increased to US$7.286 billion in
2013 from US$7.131 billion in 2012. The 2.2% increase primarily reflected higher volume sold from Salobo
operations, partially offset by lower prices for the segment.
We recorded an operating loss on sales of base metals of US$342 million in 2013, while we had an operating
loss of US$3.893 billion in 2012. The decrease in SG&A and other expenses contributed positively to the result in
2013, while the loss on sale of Tres Valles contributed negatively with US$215 million. In 2012 we registered the
US$2.848 billion impairment of our Onça Puma nickel assets.
2012 compared to 2011. Net operating revenues from sales of base metals decreased to US$7.131 billion in
2012 from US$9.221 billion in 2011. The 22.7% decrease primarily reflected lower prices and volumes of nickel sold
due to weaker demand from the stainless steel industry. Positive expectations led to a price recovery in the fourth
quarter of 2012, but the decline in our sales volume was due to the longer than expected temporary suspension of
mining operations in Sudbury for a health and safety review, a decrease of in-process inventory sales and lower
purchased finished nickel sales. Although revenues from sales of copper concentrate also declined due to lower prices,
the decrease was partially offset by the start-up of Salobo.
We recorded an operating loss on sales of base metals of US$3.893 billion in 2012, while we had operating
income of US$1.190 billion in 2011. This significant decline was primarily due to lower prices for base metals
products, and the US$2.848 billion impairment of our Onça Puma nickel assets.
93
Fertilizers
2013 compared to 2012. Net operating revenues from sales of fertilizers decreased to US$2.814 billion in
2013 from US$3.570 billion in 2012. The 21.2% decrease was a result of lower sales prices and volumes. The main
reason for reduced volumes was the sale of Araucária, a nitrogen producing operation, on June 1, 2013.
Operating loss on sales of fertilizers was US$2.601 billion in 2013 compared to an operating income of
US$38 million in 2012. The change primarily reflected the impairment of the Rio Colorado project amounting to
US$2.116 billion.
2012 compared to 2011. Net operating revenues from sales of fertilizers increased to US$3.570 billion in
2012 from US$3.322 billion in 2011. The 7.5% increase was mainly a result of an overall increase in sales volume of
phosphate nutrients and the increase in phosphates production at our operations in Bayóvar, Peru and our plant in
Uberaba, state of Minas Gerais. The increase in sales volume was partially offset by lower realized prices of most of
the phosphate nutrients.
Operating income on sales of fertilizers was US$38 million in 2012 and US$232 million in 2011. The 83.6%
decrease primarily reflected the 58.8% decrease in operating income from the sale of phosphates as a result of higher
costs and expenses. We had a small operating loss on sales of nitrogen in 2012.
LIQUIDITY AND CAPITAL RESOURCES
Overview
In the ordinary course of business, our principal funding requirements are for capital expenditures, dividend
payments and debt service. We have historically met these requirements by using cash generated from operating
activities and through borrowings, supplemented occasionally by dispositions of assets.
For 2014, we have budgeted capital expenditures of US$13.8 billion, including US$9.3 billion for project
execution and US$4.5 billion for sustaining existing operations. Our Board of Executive Officers has proposed a
minimum dividend payment for 2014 of US$4.2 billion, subject to approval by our Board of Directors. We paid
US$4.5 billion in dividends in 2013.
We expect our operating cash flow and cash holdings to be sufficient to meet these anticipated requirements.
We also regularly review acquisition and investment opportunities and, when suitable opportunities arise, we make
acquisitions and investments to implement our business strategy. We may fund these investments with borrowings.
Sources of funds
Our principal sources of funds are operating cash flow and borrowings. The amount of operating cash flow is
strongly affected by global prices for our products. In 2013, our operating activities generated cash flows from
continued operations of US$14.542 billion, compared to US$15.721 billion in 2012, reflecting primarily the initial
payment of US$2.594 billion we made under the REFIS in November 2013.
Our major new borrowing transactions in 2013 and 2014 are summarized below:
•
In June 2013, we entered into a new credit facility with Banco Nacional de Desenvolvimento
Econômico Social (“BNDES”) of R$109 million, or US$47 million, to finance the acquisition of
equipment in Brazil.
94
Results of operations
•
•
•
In November and December 2013, we entered into pre-export financing facilities that are linked to
future receivables from export sales, in the total amount of US$1.38 billion. These facilities will
mature in five and seven years.
In December 2013, we issued R$650 million (approximately US$276 million) in export credit notes
that will mature in 2023 to Brazilian commercial banks.
In February 2014, we issued R$1.0 billion in infrastructure debentures that will mature between
2021 and 2029 to finance part of our CLN S11D Project.
In addition to the transactions described above, during 2013 we also borrowed US$1.24 billion under our
existing financing agreements.
In March 2013, we received US$1.9 billion as part of the consideration for our sale to Silver Wheaton of 25%
of the gold produced as a by-product at our Salobo copper mine for the life of that mine and 70% of the gold produced
as a by-product at our Sudbury nickel mines for the next 20 years. We will also receive ongoing payments of the lesser
of US$400 (which in the case of Salobo is subject to a 1% annual inflation adjustment) and the prevailing market price
for each ounce of gold that we deliver in connection with the transaction. As further consideration, we also received
ten million warrants exercisable into Silver Wheaton shares, with a strike price of US$65.0 and a 10-year term.
In July 2013, we entered into a five-year revolving credit facility with a syndicate of 16 commercial banks
that added US$2.0 billion to the total amount available under our revolving credit facilities. Considering the existing
US$3.0 billion facility that will mature in 2016, the total amount we have available under revolving credit lines is
currently US$5.0 billion.
In 2013, we received proceeds of US$2.030 billion from the disposal of assets, including our minority stake
in Hydro. See Information on the company―Business overview―Significant changes in our business.
Uses of funds
Capital expenditures
Capital expenditures in 2013 amounted to US$14.2 billion, including US$9.6 billion for project execution
and US$4.6 billion dedicated to sustaining existing operations. Our actual capital expenditures may differ from those
reported in our cash flow statements, because actual figures include some amounts that are treated as current expenses
for accounting purposes, such as expenses for project development and maintenance of existing assets. There may also
be differences due to the fact that some actual figures are converted into U.S. dollars at the exchange rate on the date of
each cash disbursement, whereas figures reported in our cash flow statements are converted into U.S. dollars based on
average exchange rates. For more information about the specific projects for which we have budgeted funds, see
―Capital expenditures.
Distributions and repurchases
We paid total dividends of US$4.5 billion in 2013 (including distributions classified as interest on
shareholders’ equity), consisting of US$2.250 billion in April and US$2.250 billion in October. The minimum
dividend proposed by our Board of Executive Officers for 2014 is US$4.2 billion, subject to approval by our Board of
Directors.
We did not repurchase any of our shares in 2013.
95
Tax payments
We paid US$2.405 billion in income tax in 2013, disregarding the payments in connection with REFIS,
compared with US$1.238 billion in 2012. In connection with our participation in the REFIS, we paid US$2.6 billion
in income tax during 2013 and the remaining US$7.0 billion will be paid in 178 monthly installments.
Debt
At December 31, 2013, our outstanding debt was US$29.445 billion (including US$28.996 billion of
principal and US$449 million of accrued interest) compared with US$30.270 billion at the end of 2012. At December
31, 2013, US$1.456 billion of our debt was secured by liens on some of our assets. At December 31, 2013, the debt
amortization average term was 9.89 years, compared to 10.14 years in 2012.
At December 31, 2013, we had no outstanding short-term debt.
Our major categories of long-term indebtedness are as follows. The principal amounts given below include
the current portion of long-term debt and exclude accrued charges.
• U.S. dollar-denominated loans and financing (US$4.996 billion at December 31, 2013). This
category includes export financing lines, loans from export credit agencies, and loans from
commercial banks and multilateral organizations.
• U.S. dollar-denominated fixed rate notes (US$13.820 billion at December 31, 2013). We have
issued in public offerings several series of fixed-rate debt securities, directly by Vale and through
our finance subsidiary Vale Overseas Limited, guaranteed by Vale, totaling US$12.757 billion. Our
subsidiary Vale Canada has outstanding fixed rate debt in the amount of US$700 million.
• Euro-denominated fixed rate notes (US$2.066 billion at December 31, 2013). We have issued in
public offerings two series of fixed-rate debt securities denominated in Euro totaling €1.500 billion.
• Other debt (US$8.114 billion at December 31, 2013). We have outstanding debt, principally owed
to BNDES and Brazilian commercial banks, denominated in Brazilian reais and other currencies.
In addition to the indebtedness described above, we have a variety of credit lines. At December 31, 2013,
these included the following:
• A US$1.2 billion facility with The Export-Import Bank of China and the Bank of China Limited to
finance the construction of 12 very large ore carriers. As of December 31, 2013, we had drawn
US$985.5 million under this facility.
• Credit lines for R$7.3 billion, or US$3.116 billion, with BNDES to finance our investment program.
As of December 31, 2013, we had drawn the equivalent of US$1.97 billion under these facilities.
• Facilities with BNDES totaling R$985 million, or US$421 million, to finance the acquisition of
equipment in Brazil. As of December 31, 2013, we had drawn the equivalent of US$388 million
under these facilities.
• A R$3.9 billion, or US$1.7 billion, financing agreement with BNDES to finance part of the
implementation of the CLN 150 Mtpy project, which will expand the logistics infrastructure in
Vale’s Northern System. As of December 31, 2013, we had drawn the equivalent of US$1.3 billion
under this facility.
96
Results of operations
In addition the credit lines described above, in January 2014, we signed a new credit line amounting to
US$775 million with Export Development Canada that can be disbursed until July 2014. As of February 28, 2014, we
had not made any drawing under this facility.
We have two revolving credit facilities with syndicates of international banks, which will mature in April
2016 and July 2018. At December 31, 2013, the total amount available under these facilities was US$5.0 billion,
which can be drawn by Vale, Vale Canada and Vale International. As of December 31, 2013, we had not drawn any
amounts under this facility.
Some of our long-term debt instruments contain financial covenants. Our principal covenants require us to
maintain certain ratios, such as debt to EBITDA and interest coverage. We believe that our existing covenants will not
significantly restrict our ability to borrow additional funds as needed to meet our capital requirements.
We have a 9% interest in Norte Energia, a joint venture formed to build the Belo Monte hydroelectric facility.
We have committed to guarantee a portion, equal to our share ownership percentage, of the debt incurred by Norte
Energia under a R$22.5 billion credit facility from BNDES and other lenders to finance the construction. We have also
agreed to pledge our interest in Norte Energia to secure the financing. As part of the restructuring of our investments in
power generation, we are in the process of selling 49% of our 9% interest in Norte Energia. As a result, our interest in
the Belo Monte project will be reduced to 4.59%, and we are seeking to reduce our guarantee of the debt under the
credit facility to the corresponding percentage.
97
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations at December 31, 2013. This table excludes other
common non-contractual obligations that we may have, including pension obligations, deferred tax liabilities and
contingent obligations arising from uncertain tax positions, all of which are discussed in the notes to our consolidated
financial statements.
Long-term debt, including current
portion, less accrued interest .........
Interest payments(1) ............................
Operating lease obligations(2) ............
Purchase obligations(3) .......................
Total ...............................................
Payments due by period
Total
Less than
1 year
2015-2016
(US$ million)
2017-2018
Thereafter
US$28,996
18,544
1,278
13,074
US$61,892
US$1,326
1,545
152
6,602
US$9,625
US$3,226
3,007
298
3,895
US$10,426
US$6,436
2,766
219
1,319
US$10,740
US$18,008
11,226
609
1,258
US$31,101
(1) Consists of estimated future payments of interest on our loans, financings and debentures, calculated based on interest rates and foreign
exchange rates applicable at December 31, 2013 and assuming that (i) all amortization payments and payments at maturity on our loans,
financings and debentures will be made on their scheduled payments dates, and (ii) our perpetual bonds are redeemed on the first permitted
redemption date.
(2) Amounts include fixed payments related to the operating lease contracts for the pellet plants.
(3) Obligations to purchase materials. Amounts are based on contracted prices, except for purchases of iron ore from mining companies located
in Brazil.
OFF-BALANCE SHEET ARRANGEMENTS
At December 31, 2013, we did not have any off-balance sheet arrangements as defined in the SEC’s Form
20-F. For information on our contingent liabilities see Note 31 to our consolidated financial statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We believe that the following are our critical accounting policies. We consider an accounting policy to be
critical if it is important to our financial condition and results of operations and if it requires significant judgments and
estimates on the part of our management. For a summary of all of our significant accounting policies, see Note 3 to our
consolidated financial statements.
Mineral reserves and useful life of mines
We regularly evaluate and update our estimates of proven and probable mineral reserves. Our proven and
probable mineral reserves are determined using generally accepted estimation techniques. Calculating our reserves
requires us to make assumptions about future conditions that are highly uncertain, including future ore and metal
prices, currency prices, inflation rates, mining technology, availability of permits, production and capital costs.
Changes in some or all of these assumptions could have a significant impact on our recorded proven and probable
reserves.
One of the ways we make our ore reserve estimates is to determine the mine closure dates used in recording
the fair value of our asset retirement obligations for environmental and site reclamation costs and the periods over
which we amortize our mining assets. Any change in our estimates of total expected future mine or asset lives could
have an impact on the depreciation, depletion and amortization charges recorded in our consolidated financial
statements under cost of goods sold. Changes in the estimated lives of our mines could also significantly impact our
estimates of environmental and site reclamation costs, which are described in greater detail below.
Environmental and site reclamation costs
Expenditures relating to ongoing compliance with environmental regulations are charged against earnings or
capitalized as appropriate. These ongoing programs are designed to minimize the environmental impact of our
activities.
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We recognize a liability for the fair value of our estimated asset retirement obligations in the period in which
they are incurred, if a reasonable estimate can be made. We consider the accounting estimates related to reclamation
and closure costs to be critical accounting estimates because:
Critical accounting policies and estimates
• we will not incur most of these costs for a number of years, requiring us to make estimates over a
long period;
•
•
•
reclamation and closure laws and regulations could change in the future or circumstances affecting
our operations could change, either of which could result in significant changes to our current plans;
calculating the fair value of our asset retirement obligations requires us to assign probabilities to
projected cash flows, to make long-term assumptions about inflation rates, to determine our
credit-adjusted risk-free interest rates and to determine market risk premiums that are appropriate
for our operations; and
given the significance of these factors in the determination of our estimated environmental and site
reclamation costs, changes in any or all of these estimates could have a material impact on net
income. In particular, given the long periods over which many of these charges are discounted to
present value, changes in our assumptions about credit-adjusted risk-free interest rates could have a
significant impact on the size of our provision.
Our Environmental Department defines the rules and procedures that should be used to evaluate our asset
retirement obligations. The future costs of retirement of our mines and sites are reviewed annually, in each case
considering the actual stage of exhaustion and the projected exhaustion date of each mine and site. The future
estimated retirement costs are discounted to present value using a credit-adjusted risk-free interest rate. At
December 31, 2013, we estimated the fair value of our aggregate total asset retirement obligations to be US$2.644
billion.
Impairment of long-lived assets and goodwill
We annually assess whether there is any objective evidence of impairment of our financial assets and
long-lived, non-financial assets. For financial assets measured through amortized cost, we compare the carrying
amount with the expected cash flows of the asset, adjusted to reflect the present value. For long-lived, non-financial
assets (such as intangible assets or property plant and equipment), when there are indications of possible impairment,
we conduct the test by comparing the recoverable value of these assets (which are grouped at the lowest levels for
which there are separately identifiable cash flows of the corresponding cash-generating unit) to their carrying amount.
If we identify the need for adjustment for a particular asset, we apply that adjustment consistently for the
corresponding cash-generating unit. The recoverable amount for an asset is the higher of (i) its value in use and (ii) its
fair value less the cost of selling it.
99
We determine our discounted cash flows based on approved budgets, considering mineral reserves and
mineral resources calculated by internal experts, costs and investments. These determinations also take into account
our past performance, sales prices consistent with projections used in industry reports and information about market
prices when available and appropriate. Cash flows used in our impairment testing are based on the life of each
cash-generating unit, or on the consumption of reserve units in the case of minerals, and considering discount rates that
reflect specific risks relating to the relevant assets in each cash-generating unit, depending on their composition and
location.
For investments in affiliated companies with publicly-traded stock, we assess recoverability of assets when
there is a prolonged or significant decline in market value. The balance of these investments is compared to the market
value of the shares, when available. If the market value is less than the carrying value of these investments, and the
decrease is considered prolonged and significant, we make the adjustment to the realizable value based on the price
quoted in the market.
Goodwill balances arising from business combinations, intangible assets with indefinite useful lives and
lands are tested for impairment at least once a year, regardless of any indication of impairment of their carrying value.
Derivatives
We are required to recognize all derivative financial instruments, whether designated in hedging
relationships or not, on our balance sheet and to measure such instruments at fair value. The gain or loss in fair value
is included in current earnings, unless the derivative to which the gain or loss is attributable qualifies for hedge
accounting. We have entered into some cash flow hedges that qualify for hedge accounting. Unrealized fair value
adjustments to cash flow hedges are recognized in other comprehensive income. We use well-known market
participants’ valuation methodologies to compute the fair value of instruments. To evaluate the financial instruments,
we use estimates and judgments related to present values, taking into account market curves, projected interest rates,
exchange rates, counterparty (credit) risk adjustments, forward market prices and their respective volatilities, when
applicable. We evaluate the impact of credit risk on financial instruments and derivative transactions, and we enter
into transactions with financial institutions that we consider to have a high credit quality. The exposure limits to
financial institutions are proposed annually by the Executive Risk Committee and approved by the Board of Executive
Officers. The financial institution’s credit risk tracking is performed making use of a credit risk valuation
methodology that considers, among other information, published ratings provided by international rating agencies and
other management judgments. During 2013, we implemented hedge accounting for foreign exchange hedge and
bunker costs hedge. At December 31, 2013, we had US$11 million of realized losses related to derivative instruments
designated as cash flow hedges. In 2013, we recorded to the income statement net losses of US$1.033 billion in
relation to derivative instruments.
Income taxes
We recognize deferred tax effects of tax loss carryforwards and temporary differences in our consolidated
financial statements. We record a valuation allowance when we believe that it is more likely than not that tax assets
will not be fully recoverable in the future.
When we prepare our consolidated financial statements, we estimate our income taxes based on regulations
in the various jurisdictions where we conduct business. This requires us to estimate our actual current tax exposure
and to assess temporary differences that result from deferring treatment of certain items for tax and accounting
purposes. These differences result in deferred tax assets and liabilities, which we show on our consolidated balance
sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income.
To the extent we believe that recovery is not likely, we record a provision against a tax expense in our statement of
income. When we reduce the provision, we record a tax benefit in our statement of income.
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Critical accounting policies and estimates
Determining our provision for income taxes, our deferred tax assets and liabilities and any valuation
allowance to be recorded against our net deferred tax assets requires significant management judgment, estimates and
assumptions about matters that are highly uncertain. For each income tax asset, we evaluate the likelihood of whether
some portion or the entire asset will not be realized. The valuation allowance made in relation to accumulated tax loss
carryforwards depends on our assessment of the probability of generation of future taxable profits within the legal
entity in which the related deferred tax asset is recorded, based on our production and sales plans, selling prices,
operating costs, environmental costs, group restructuring plans for subsidiaries and site reclamation costs and planned
capital costs.
Litigation
We disclose material contingent liabilities unless the possibility of any loss arising is considered remote, and
we disclose material contingent assets where the inflow of economic benefits is probable. We discuss our material
contingencies in Note 19 to our consolidated financial statements.
We record an estimated loss from a loss contingency when information available prior to the issuance of our
financial statements indicates that it is probable that a future event will confirm that an asset has been impaired or a
liability has been incurred at the date of the financial statements, and the amount of the loss can be reasonably
estimated. In particular, given the nature of Brazilian tax legislation, the assessment of potential tax liabilities requires
significant management judgment. By their nature, contingencies will only be resolved when one or more future
events occurs or fails to occur, and typically those events will occur a number of years in the future. Assessing such
liabilities, particularly in the Brazilian legal environment, inherently involves the exercise of significant management
judgment and estimates of the outcome of future events.
The provision for litigation at December 31, 2013, totaling US$1.276 billion, consists of provisions of
US$709 million for labor, US$209 million for civil, US$330 million for tax and US$28 million for other claims.
Claims where in our opinion, and based on the advice of our legal counsel, the likelihood of loss is reasonably possible
but not probable, and for which we have not made provisions, amounted to a total of US$8.622 billion at December 31,
2013, including claims of US$2.900 billion for labor, US$768 million for civil, US$3.789 billion for tax and
US$1.165 billion for other claims.
Employee post-retirement benefits
We sponsor defined benefit pension and other post-retirement benefit plans covering some of our employees.
The determination of the amount of our obligations for these benefits depends on certain actuarial assumptions. These
assumptions are described in Note 22 to our consolidated financial statements and include, among others, the expected
long-term rate of return on plan assets and increases in salaries.
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RISK MANAGEMENT
The aim of our risk management strategy is to promote enterprise-wide risk management that supports our
growth strategy, strategic plan, corporate governance practices and financial flexibility to support maintenance of
investment grade status. We developed an integrated framework for managing risk, which considers the impact on our
business of not only market risk factors (market risk), but also risks arising from third party obligations (credit risk),
risks associated with inadequate or failed internal processes, people, systems or external events (operational risk) and
risks associated with political and regulatory conditions in countries in which we operate (political risk).
In furtherance of this objective and in order to further improve our corporate governance practices, our Board
of Directors has established a company-wide risk management policy and an Executive Risk Management Committee.
The risk management policy requires that we regularly evaluate and monitor the corporate risk on a consolidated basis
in order to guarantee that our overall risk level remains in accordance with the acceptable corporate risk guidelines.
See Note 25 to our consolidated financial statements for quantitative information about risks relating to
financial instruments, including financial instruments entered into pursuant to our risk management policies.
Market risk
We are exposed to various market risk factors that can impact our financial stability and cash flow. An
assessment of the potential impact of the consolidated market risk exposure is performed periodically to inform our
decision making processes and growth strategy, ensure financial flexibility and monitor future cash flow volatility.
When necessary, market risk mitigation strategies are evaluated and implemented. Some of these strategies
may incorporate financial instruments, including derivatives. The financial instrument portfolios are monitored on a
monthly basis, enabling us to properly evaluate financial results and their impact on cash flow, and ensure correlation
between the strategies implemented and the proposed objectives.
Considering the nature of our business and operations, the main market risk factors that we are exposed to
are:
• Foreign exchange rates and interest rates: our cash flows are exposed to the volatility of several
currencies against the U.S. dollar. While most of our product prices are indexed to U.S. dollars,
most of our costs, disbursements and investments are indexed to currencies other than the U.S.
dollar, principally the Brazilian real and the Canadian dollar. We frequently use derivative
instruments, primarily forward transactions and swaps, in order to reduce our potential cash flow
volatility arising from this currency mismatch.
We are also exposed to interest rate risk on loans and financings. Our floating rate debt consists
mainly of loans including export pre-payments, commercial bank loans and multilateral
organization loans. In general, the U.S. dollar floating rate debt is subject to changes in LIBOR
(London Interbank Offer Rate) in U.S. dollars. To mitigate the impact of interest rate volatility on
our cash flows, we take advantage of natural hedges resulting from the correlation between
commodity prices and U.S. dollar floating interest rates. If such natural hedges are not present, we
may opt to obtain the same effect by using financial instruments.
• Product prices and input costs: we are also exposed to market risks associated with commodities
price volatilities. In line with our risk management policy, we may also employ risk mitigation
strategies to manage this risk that can include forward transactions, futures contracts and zero-cost
collars.
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Risk management
Credit risk
We are exposed to credit risk arising from trade receivables, derivative transactions, guarantees, down
payment for suppliers and cash investments. Our credit risk management process provides a framework for assessing
and managing counterparties’ credit risk and for maintaining our risk at an acceptable level.
Commercial credit risk management
We assign an internal credit rating to each counterparty using our own quantitative methodology for credit
risk analysis, which is based on market prices, external credit ratings and financial information of the counterparty, as
well as qualitative information regarding the counterparty’s strategic position and history of commercial relations.
Based on the counterparty’s credit risk, or based on our consolidated credit risk profile, risk mitigation
strategies may be used to manage credit risk. The main credit risk mitigation strategies include credit risk insurance,
letters of credit, corporate guarantees, mortgages, among others.
From a geographic standpoint, we have a diversified accounts receivable portfolio, with China, Europe,
Brazil and Japan the regions with the most significant exposure. According to each region, different guarantees can be
used to enhance the credit quality of the receivables. We monitor counterparty position in the portfolio periodically
and we block additional sales to customers in delinquency.
Treasury credit risk management
To manage the credit exposure arising from cash investments and derivative instruments, our Board of
Executive Officers approves, on an annual basis, credit limits by counterparty. Furthermore, the risk management
department controls the portfolio diversification, the overall credit risk of the treasury portfolio and the risk of each
counterparty by monitoring market information such as Credit Default Swaps (CDS) and Moody’s Expected Default
Frequency (EDF).
Operational risk
Operational risk management is the structured approach we take to manage uncertainty related to inadequate
or failed internal processes, people and systems and to external events.
We mitigate operational risk with new controls and improvement of existing ones, new mitigation plans and
transfer of risk through insurance. As a result, the Company seeks to have a clear view of its major risks, the
cost-benefit on mitigation plans and the controls in place to monitor the impact of operational risk closely and to
efficiently allocate capital to reduce it.
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III. SHARE OWNERSHIP AND TRADING
MAJOR SHAREHOLDERS
Valepar is Vale’s controlling shareholder. Valepar is a special-purpose company organized under the laws of
Brazil that was incorporated for the sole purpose of holding an interest in Vale. Valepar does not have any other
business activity. Valepar acquired its controlling stake in Vale from the Brazilian government in 1997 as part of the
first stage of Vale’s privatization.
The following table sets forth information regarding ownership of Vale shares as of December 31, 2013 by
the shareholders we know beneficially own more than 5% of any class of our outstanding capital stock, and by our
directors and executive officers as a group.
Valepar(1) ..........................................................
BNDESPAR(2) ..................................................
Directors and executive officers as a group ......
1,716,435,045
206,378,881
31,816
52.7%
6.3%
Less than 1.0%
Common shares owned % of class
Preferred shares owned
20,340,000
67,342,083
829,771
% of class
1.0%
3.1%
Less than 1.0%
(1) See the tables below for information about Valepar’s shareholders.
(2) BNDESPAR is a wholly-owned subsidiary of BNDES. The figures do not include common shares beneficially (as opposed to directly) owned
by BNDESPAR.
The Brazilian government also owns 12 golden shares of Vale, which give it veto powers over certain
actions, such as changes to our name, the location of our headquarters and our corporate purpose as it relates to mining
activities.
The table below sets forth information regarding ownership of Valepar common shares as of December 31,
2013.
Valepar shareholders
Litel Participações S.A.(1) ...................................................
Eletron S.A.(2) ......................................................................
Bradespar S.A.(3) .................................................................
Mitsui(4) ...............................................................................
BNDESPAR(5) .....................................................................
Total ...................................................................................
Common shares owned
% of class
637,443,857
380,708
275,965,821
237,328,059
149,787,385
1,300,905,830
49.00%
0.03%
21.21%
18.24%
11.51%
100.00%
(1) Litel owns 200,864,272 preferred class A shares of Valepar, which represents 71.41% of the preferred class A shares. LitelA, an affiliate of
Litel, owns 80,416,931 preferred class A shares of Valepar, which represents 28.59% of the preferred class A shares. LitelB, also an affiliate
of Litel, owns 15,175,602 preferred class C shares of Valepar, which represents 29.25% of the preferred class C shares.
(2) Eletron owns 19,205 preferred class C shares of Valepar, which represents 0.04% of the preferred class C shares.
(3) Bradespar is controlled by a control group consisting of Cidade de Deus — Cia. Comercial Participações, Fundação Bradesco, NCF
Participações S.A. and Nova Cidade de Deus Participações S.A. Bradespar owns 6,334,119 preferred class C shares of Valepar, which
represents 12.21% of the preferred class C shares. Brumado Holdings Ltda., a subsidiary of Bradespar, owns 7,587,000 preferred class C
shares of Valepar, which represents 14.62% of the preferred class C shares.
(4) Mitsui owns 11,972,033 preferred class C shares of Valepar, which represents 23.08% of the preferred class C shares.
(5) BNDESPAR owns 10,793,499 preferred class C shares of Valepar, which represents 20.80% of the preferred class C shares.
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Major shareholders
The table below sets forth information regarding ownership of Litel Participações S.A., one of Valepar’s
shareholders, as of December 31, 2013.
Litel Participações S.A. shareholders(1)
BB Carteira Ativa ................................................................................
Carteira Ativa II ..................................................................................
Carteira Ativa III .................................................................................
Singular ...............................................................................................
Caixa de Previdência dos Funcionários do Banco do Brasil ..............
Others ..................................................................................................
Total ..................................................................................................
Common shares owned
% of class
193,740,121
31,688,443
19,115,620
2,583,919
22
220
247,128,345
78.40%
12.82%
7.74%
1.05%
−
−
100.00%
(1) Each of BB Carteira Ativa and Carteira Ativa II is a Brazilian investment fund. BB Carteira Ativa is 100.00% owned by Caixa de Previdência
dos Funcionários do Banco do Brasil (“Previ”). Carteira Ativa II is 100% owned by Funcef. Carteira Ativa III is 100% owned by Petros.
Singular is 100% owned by Fundo de Investimentos em Cotas de Fundo de Investimento em Ações VRD (“FIC de FI em Ações VRD”). FIC
de FI em Ações VRD is 100% owned by Fundação Cesp. Each of Previ, Petros, Funcef and Fundação Cesp is a Brazilian pension fund.
The shareholders of Valepar are parties to a shareholders’ agreement, which expires in 2017. The Valepar
shareholders’ agreement also:
•
•
•
•
•
•
•
•
•
grants rights of first refusal on any transfer of Valepar shares and preemptive rights on any new
issue of Valepar shares;
prohibits the direct acquisition of Vale shares by Valepar’s shareholders unless authorized by the
other shareholders party to the agreement;
prohibits encumbrances on Valepar shares (other than in connection with financing an acquisition of
Vale shares);
requires each party generally to retain control of its special purpose company holding its interest in
shares of Valepar, unless the rights of first refusal previously mentioned are observed;
allocates seats on Valepar’s and Vale’s boards among representatives of the parties;
commits the Valepar shareholders to support a Vale dividend policy of distributing 50% of Vale’s
net profit for each fiscal year, unless the Valepar shareholders commit to support a different
dividend policy for a given year;
provides for the maintenance by Vale of a capital structure that does not exceed specified debt to
equity thresholds;
requires the Valepar shareholders to vote their indirectly held Vale shares and to cause their
representatives on Vale’s Board of Directors to vote only in accordance with decisions made at
Valepar meetings held prior to meetings of Vale’s Board of Directors or shareholders; and
establishes supermajority voting requirements for certain significant actions relating to Valepar and
to Vale.
Pursuant to the Valepar shareholders’ agreement, Valepar cannot support any of the following actions with
respect to Vale without the consent of at least 75% of the holders of Valepar’s common shares:
•
any amendment of Vale’s bylaws;
105
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
any increase of Vale’s capital stock by share subscription, creation of a new class of shares, change
in the characteristics of the existing shares or any reduction of Vale’s capital stock;
any issuance of debentures of Vale, whether or not convertible into shares of Vale, participation
certificates upon compensation (partes beneficiárias), call options (bônus de subscrição) or any
other security of Vale;
any determination of issuance price for any new shares of capital stock or other security of Vale;
any amalgamation, spin-off or merger to which Vale is a party, as well as any change to Vale’s
corporate form;
any dissolution, receivership, bankruptcy or any other voluntary act for financial reorganization or
any suspension thereof;
the election and replacement of Vale’s Board of Directors, including the Chairman of the Board, and
any executive officer of Vale;
the disposal or acquisition by Vale of an equity interest in any company, as well as the acquisition of
any shares of capital stock of Vale or Valepar;
the participation by Vale in a group of companies or in a consortium of any kind;
the execution by Vale of agreements relating to distribution, investment, sales exportation,
technology transfer, trademark license, patent exploration, license to use and leases;
the approval and amendment of Vale’s business plan;
the determination of the compensation of the executive officers and directors of Vale, as well as the
duties of the Board of Directors and the Board of Executive Officers;
any profit sharing among the members of the Board of Directors or Board of Executive Officers of
Vale;
any change in the corporate purpose of Vale;
the distribution or non-distribution of any dividends (including distributions classified as interest on
shareholders’ equity) on any shares of capital stock of Vale other than as provided in Vale’s bylaws;
the appointment and replacement of Vale’s independent auditor;
the creation of any “in rem” guarantee, granting of guarantees including rendering of sureties by
Vale with respect to obligations of any unrelated party, including any affiliates or subsidiaries;
the passing of any resolution on any matter which, pursuant to applicable law, entitles a shareholder
to withdrawal rights;
the appointment and replacement by the Board of Directors of any representative of Vale in
subsidiaries, companies related to Vale or other companies in which Vale is entitled to appoint
directors and officers; and
•
any change in the debt to equity threshold, as defined in the shareholders’ agreement.
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Major shareholders
In addition, the shareholders’ agreement provides that any issuance of participation certificates by Vale and
any disposition by Valepar of Vale shares requires the unanimous consent of all of Valepar’s shareholders.
RELATED PARTY TRANSACTIONS
We have engaged, and expect to continue to engage, in arm’s-length transactions with certain entities
controlled by, or affiliated with, our controlling shareholders, including the following:
• Bradesco - Bradespar, a controlling shareholder of Valepar, is controlled by a group of entities that
also control Banco Bradesco S.A. (“Bradesco”). Bradesco and its affiliates are full service financial
institutions that have performed, and may perform in the future, certain investment banking,
advisory or general financing and banking services for us and our affiliates, from time to time, in
ordinary course of business.
• Banco do Brasil - Previ, a pension fund of the employees of Banco do Brasil, owns 100% of the
investment fund BB Carteira Ativa, which holds the majority of the common equity of Litel
Participações S.A., which holds 49% of the common equity of Valepar. Banco do Brasil appoints
three out of the six members of Previ’s senior management. An affiliate of Banco do Brasil is the
manager of BB Carteira Ativa. Banco do Brasil is also a full service financial institution, and Banco
do Brasil and its affiliates have performed, and may perform in the future, certain investment
banking, advisory or general financing and banking services for us and our affiliates, from time to
time, in ordinary course of business.
• Mitsui - We have commercial relationships in the ordinary course of our business with Mitsui, a
large Japanese conglomerate and a shareholder of Valepar.
• BNDES, the Brazilian state-owned development bank, is the parent company of one of our major
shareholders, BNDESPAR.
We and BNDES are parties to a contract relating to authorizations for mining exploration. This
contract, which we refer to as the Mineral Risk Contract, provides for the joint development of
certain unexplored mineral deposits that form part of our Northern System, except for our iron ore
and manganese deposits which were specifically excluded from the contract, as well as proportional
participation in any profits earned from the development of such resources. In 2007, the Mineral
Risk Contract was extended indefinitely, with specific rules for all exploration projects and
exploration targets and mineral rights covered under the contract.
BNDES has provided us with credit lines of R$7.3 billion to finance our investment program,
facilities totaling R$985 million to finance the acquisition of equipment in Brazil and a R$3.9 billion
financing for our CLN 150 Mtpy project.
BNDES holds a total of R$871 million, or US$372 million, in debentures of our subsidiary Salobo
Metais S.A. with a right to subscribe for Salobo’s preferred shares in exchange for part of the
outstanding debentures, which right expires two years after Salobo reaches an accumulated revenue
equivalent to 200,000 tons of copper.
BNDESPAR also holds a total of R$1.407 billion, or US$601 million, in debentures that we issued
to finance the expansion of the FNS railroad, which are exchangeable into FNS common shares
beginning in December 2017, or at BNDESPAR’s option, into a certain number of VLI common
shares, after the eleventh anniversary of each issuance date.
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For more information on our transactions with BNDES, see Operating and financial review and
prospects—Liquidity and capital resources. BNDESPAR is in the control group of several
Brazilian companies with which we have commercial relationships in the ordinary course of our
business.
Our controlling shareholders Mitsui and BNDESPAR have direct investments in some of our subsidiaries.
Mitsui has a minority stake in our subsidiary MVM Resources International B.V., which controls the Bayóvar (Peru)
phosphate operations, and is part of a joint venture that holds an equity stake in our subsidiary VNC. BNDESPAR has
a direct stake in our subsidiaries Vale Soluções em Energia S.A. and Vale Florestar Fundo de Investimento em
Participações.
In December 2013, our Board of Directors approved our Policy on Related Party Transactions, which sets
forth rules and principles to ensure transparency and arm’s-length conditions in our transactions with related parties
and other situations of potential conflicts of interest. Pursuant to that policy and our bylaws, our Governance and
Sustainability Committee is responsible for issuing reports about potential conflicts of interest between us and our
shareholders or management and for reviewing the procedure and terms of related party transactions that are submitted
to our Board of Directors for approval. Under the policy, if we identify a conflict of interest with a shareholder, then
that shareholder or its representative may not participate in any discussions related to the transaction at any
shareholders’ meeting and will only have access to publicly available information about the matter. The policy also
prohibits the extension of any loans to related parties other than our subsidiaries and affiliated companies.
For information regarding investments in affiliated companies and joint ventures and for information
regarding transactions with major related parties, see Notes 13 and 32 to our consolidated financial statements.
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Distributions
DISTRIBUTIONS
Under our dividend policy, our Board of Executive Officers announces, by no later than January 31 of each
year, a proposal to be approved by our Board of Directors of a minimum amount, expressed in U.S. dollars, that will be
distributed in that year to our shareholders. Distributions may be classified either as dividends or interest on
shareholders’ equity, and references to “dividends” should be understood to include all distributions regardless of their
classification, unless stated otherwise. We determine the minimum dividend payment in U.S. dollars, considering our
expected free cash flow generation in the year of distribution. The proposal establishes two installments, to be paid in
April and October of each year. Each installment is submitted to the Board of Directors for approval at meetings in
April and October. Once approved, dividends are converted into and paid in reais at the Brazilian real/U.S. dollar
exchange rates announced by the Central Bank of Brazil on the last business day before the Board meetings in April
and October of each year. The Board of Executive Officers can also propose to the Board of Directors, depending on
the evolution of our cash flow performance, an additional payment to shareholders of an amount over and above the
minimum dividend initially established.
For 2014, our Board of Executive Officers has proposed a minimum dividend of US$4.2 billion, subject to
approval by our Board of Directors. We pay the same amount per share on both common and preferred shares in
accordance with our bylaws.
Under Brazilian law and our bylaws, we are required to distribute to our shareholders an annual amount equal
to not less than 25% of the distributable amount, referred to as the mandatory dividend, unless the Board of Directors
advises our shareholders at our shareholders’ meeting that payment of the mandatory dividend for the preceding year
is inadvisable in light of our financial condition. For a discussion of dividend distribution provisions under Brazilian
corporate law and our bylaws, see Additional information.
The tax regime applicable to distributions to ADR and HDR holders and to non-resident shareholders will
depend on whether those distributions are classified as dividends or as interest on shareholders’ equity. See Additional
information—Taxation—Brazilian tax considerations.
By law, we are required to hold an annual shareholders’ meeting by April 30 of each year at which an annual
dividend may be declared. Additionally, our Board of Directors may declare interim dividends. Under Brazilian
corporate law, dividends are generally required to be paid to the holder of record on a dividend declaration date within
60 days following the date the dividend was declared, unless a shareholders’ resolution sets forth another date of
payment, which, in either case, must occur prior to the end of the fiscal year in which the dividend was declared. A
shareholder has a three-year period from the dividend payment date to claim dividends (or payments of interest on
shareholders’ equity) in respect of its shares, after which we will have no liability for such payments. From 1997 to
2003, all distributions took the form of interest on shareholders’ equity. In many years, part of the distribution has
See Additional
been made in the form of interest on shareholders’ equity and part as dividends.
information—Memorandum and articles of association—Common shares and preferred shares.
We make cash distributions on the common shares and preferred shares underlying the ADSs in reais to the
custodian on behalf of the depositary. The custodian then converts such proceeds into U.S. dollars and transfers such
U.S. dollars to be delivered to the depositary for distribution to holders of ADRs and HDRs, net of the depositary’s
fees. For information on taxation of dividend distributions, see Additional information—Taxation—Brazilian tax
considerations.
109
The following table sets forth the cash distributions we paid to holders of common shares and preferred
shares for the periods indicated. Amounts have been restated to give effect to stock splits that we carried out in
subsequent periods. We have calculated U.S. dollar conversions using the commercial selling rate in effect on the date
of payment. Amounts are stated before any applicable withholding tax.
Year
Payment
date
2008 .............................................................. April 30
October 31
2009 .............................................................. April 30
October 30
2010 .............................................................. April 30
2011 ..............................................................
October 31
January 31
April 29
August 26
October 31
2012 .............................................................. April 30
October 31
2013 .............................................................. April 30
October 31
Reais per share
Interest on
equity
Total
0.24
0.51
–
0.49
0.42
0.56
0.32
0.61
–
0.63
1.08
0.53
0.71
0.82
0.44
0.65
0.52
0.49
0.42
0.56
0.32
0.61
0.93
1.02
1.08
1.19
0.86
0.94
Dividends
0.20
0.14
0.52
–
–
–
–
–
0.93
0.39
–
0.66
0.15
0.12
TRADING MARKETS
U.S. dollars per
share at
payment date
U.S. dollars total
at payment date
(US$ million)
0.26
0.30
0.24
0.29
0.24
0.34
0.19
0.38
0.58
0.58
0.59
0.58
0.44
0.44
1,250
1,600
1,255
1,469
1,250
1,750
1,000
2,000
3,000
3,000
3,000
3,000
2,250
2,250
Our publicly traded share capital consists of common shares and preferred shares, each without par value.
Our common shares and our preferred shares are publicly traded in Brazil on the BM&FBOVESPA, under the ticker
symbols VALE3 and VALE5, respectively. Our common shares and preferred shares also trade on the LATIBEX,
under the ticker symbols XVALO and XVALP, respectively. The LATIBEX is a non-regulated electronic market
created in 1999 by the Madrid stock exchange in order to enable trading of Latin American equity securities.
Our common ADSs, each representing one common share, and our preferred ADSs, each representing one
preferred share, are traded on the New York Stock Exchange (“NYSE”), under the ticker symbols VALE and
VALE.P, respectively. Our common ADSs and preferred ADSs are traded on Euronext Paris, under the ticker symbols
VALE3 and VALE5, respectively. JPMorgan Chase Bank serves as the depositary for both the common and the
preferred ADSs. On February 28, 2014, there were 1,366,373,079 ADSs outstanding, 749,787,770 common ADSs
and 616,585,309 preferred ADSs, representing 23.02% of our common shares and 29.24% of our preferred shares, or
25.47% of our total share capital.
Our common HDSs, each representing one common share, and our preferred HDSs, each representing one
class A preferred share, are traded on the HKEx, under the stock codes 6210 and 6230, respectively. JPMorgan Chase
Bank serves as the depositary for both the common and the preferred HDSs. On February 28, 2014, there were 593,700
HDSs outstanding, consisting of 562,300 common HDSs and 31,400 preferred HDSs.
110
SHARE PRICE HISTORY
The following table sets forth trading information for our ADSs, as reported by the New York Stock
Exchange and our shares, as reported by the BM&FBOVESPA, for the periods indicated. Share prices in the table
have been adjusted to reflect stock splits.
BM&F BOVESPA (Reais per share)
NYSE (US$ per share)
Common share
High
Low
Preferred share
Low
High
Common ADS
High
Low
Preferred ADS
High
Low
2009 ............................
2010 ............................
2011 ............................
2012 ............................
1Q ...........................
2Q ...........................
3Q ...........................
4Q ...........................
2013 ............................
1Q ...........................
2Q ...........................
3Q ...........................
4Q ...........................
Q4 2013 and Q1 2014
October 2013. ......
November 2013. ..
December 2013 ....
January 2014 ........
February 2014. .....
50.30
59.85
60.92
45.87
45.87
44.01
44.01
42.82
44.10
44.1
36.19
37.85
38.47
35.89
38.47
35.90
34.81
34.92
27.69
42.85
38.59
32.45
39.45
35.83
32.45
35.32
28.39
33.58
28.45
28.39
33.2
33.45
33.54
34.27
30.93
32.13
43.37
51.34
53.41
53.41
43.97
42.85
42.85
41.00
42.60
42.60
34.08
33.68
34.44
32.84
34.44
33.13
31.92
30.96
23.89
37.50
36.54
32.12
37.82
34.78
32.12
34.29
26.00
32.39
26.70
26.00
30.47
30.47
30.87
31.74
28.15
29.00
29.53
34.65
37.02
37.08
26.61
23.93
23.93
20.96
21.49
21.49
18.25
16.81
17.08
16.66
17.08
15.45
14.53
14.73
11.90
23.98
20.51
15.88
21.45
17.93
15.88
17.11
12.63
16.98
12.94
12.63
14.43
15.07
14.72
14.43
12.90
13.18
25.66
30.50
32.50
32.50
25.53
24.25
24.25
20.29
20.88
20.88
17.14
14.98
15.33
15.12
15.33
14.23
13.26
12.99
10.36
20.20
19.58
15.67
20.60
17.39
15.67
16.60
11.47
16.23
11.97
11.47
13.28
13.78
13.45
13.28
11.82
11.88
DEPOSITARY SHARES
JPMorgan Chase Bank serves as the depositary for our ADSs and HDSs. ADR holders and HDR holders are
required to pay various fees to the depositary, and the depositary may refuse to provide any service for which a fee is
assessed until the applicable fee has been paid.
ADR holders and HDR holders are required to pay the depositary amounts in respect of expenses incurred by
the depositary or its agents on behalf of ADR holders and HDR holders, including expenses arising from compliance
with applicable law, taxes or other governmental charges, facsimile transmission or conversion of foreign currency
into U.S. or Hong Kong dollars. In this case, the depositary may decide in its sole discretion to seek payment by either
billing holders or by deducting the fee from one or more cash dividends or other cash distributions. The depositary
may recover any unpaid taxes or other governmental charges owed by an ADR holder or HDR holder by billing such
holder, by deducting the fee from one or more cash dividends or other cash distributions, or by selling underlying
shares after reasonable attempts to notify the holder, with the holder liable for any remaining deficiency.
ADR holders are also required to pay additional fees for certain services provided by the depositary, as set
forth in the table below.
Depositary service
Fee payable by ADR holders
Issuance, cancellation and delivery of ADRs, including in connection with share distributions,
stock splits ...........................................................................................................................................
US$5.00 or less per 100 ADSs (or portion
thereof)
Distribution of dividends......................................................................................................................... US$0.02 or less per ADS
Withdrawal of shares underlying ADSs ................................................................................................. US$5.00 or less per 100 ADSs (or portion
thereof)
Transfers, combining or grouping of ADRs ........................................................................................... US$1.50 or less per ADS
111
HDR holders are also required to pay additional fees for certain services provided by the depositary, as set
forth in the table below.
Depositary service
Fee payable by HDR holders
Issuance, cancellation and delivery of HDRs, including in connection with share distributions,
stock splits ...........................................................................................................................................
HK$0.40 or less per HDS (or portion
thereof)
Distribution of dividends and other cash distributions ........................................................................... HK$0.40 or less per HDS
Transfer of certificated or direct registration HDRs ............................................................................... HK$2.50 or less per HDS
Administration fee assessed annually .....................................................................................................
HK$0.40 or less per HDS (or portion
thereof)
The depositary reimburses us for certain expenses we incur in connection with the ADR and HDR programs,
subject to a ceiling agreed between us and the depositary from time to time. These reimbursable expenses currently
include legal and accounting fees, listing fees, investor relations expenses and fees payable to service providers for the
distribution of material to ADR holders and HDR holders. For the year ended December 31, 2013, the depositary
reimbursed us US$12 million in connection with the ADR and HDR programs.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Vale did not engage in any share repurchase program during 2013.
IV. MANAGEMENT AND EMPLOYEES
MANAGEMENT
Board of Directors
Our Board of Directors sets general guidelines and policies for our business and monitors the implementation
of those guidelines and policies by our executive officers. Our bylaws provide that the Board of Directors consist of
11 members and 11 alternates, each of whom serves on behalf of a particular director. All members (and their
respective alternate) are elected for the same two-year term at a general shareholders’ meeting, can be re-elected, and
are subject to removal at any time. Our bylaws provide that the chief executive officer cannot serve as chairman of the
Board of Directors.
The Board of Directors holds regularly scheduled meetings on a monthly basis and holds additional meetings
when called by the chairman, vice-chairman or any two directors. Decisions of the Board of Directors require a
quorum of a majority of the directors and are taken by majority vote. Alternate directors may attend and vote at
meetings in the absence of the director for whom the alternate director is acting.
Our bylaws establish the following technical and advisory committees to the Board of Directors:
• The Executive Development Committee is responsible for reporting on general human resources
policies, analyzing and reporting on the adequacy of compensation levels for our executive officers,
proposing and updating guidelines for evaluating the performance of our executive officers and
reporting on policies relating to health and safety.
112
Management
• The Strategy Committee is responsible for reviewing and making recommendations to the Board of
Directors concerning the strategic guidelines and plan submitted annually to the Board by our
executive officers, our annual and multi-annual investment budgets, investment or divestiture
opportunities submitted by executive officers and mergers and acquisitions.
• The Finance Committee is responsible for reviewing and making recommendations to the Board of
Directors concerning our corporate risks and financial policies and the internal financial control
systems, compatibility between the level of distributions to shareholders and the parameters
established in the annual budget and the consistency between our general dividend policy and
capital structure.
• The Accounting Committee is responsible for recommending to the Board of the Directors the name
of an employee to be responsible for our internal auditing, reporting on auditing policies and the
execution of our annual auditing plan, tracking the results of our internal auditing, and identifying,
prioritizing, and submitting recommendations to the executive officers.
• The Governance and Sustainability Committee is responsible for evaluating and recommending
improvements to the effectiveness of our corporate governance practices and the functioning of our
Board of Directors, recommending improvements to the code of ethical conduct and our
management system in order to avoid conflicts of interests between Vale and its shareholders or
management, issuing reports on potential conflicts of interest between Vale and its shareholders or
management and reporting on policies relating to corporate responsibility, such as environmental
and social responsibility.
Nine of our 10 current directors (and nine of our 10 alternate directors) were appointed by Valepar. This
includes an additional director appointed by Valepar, because no individual or group of common and preferred
shareholders met the thresholds described under our bylaws and Brazilian corporate law. One director and his
respective alternate are appointed by our employees, pursuant to our bylaws. Non-controlling shareholders holding
common shares representing at least 15% of our voting capital, and preferred shares representing at least 10% of our
total share capital, have the right to appoint one member and an alternate to our Board of Directors. Our employees
and our non-controlling shareholders each have the right, as a class, to appoint one director and an alternate. All of our
current directors were elected or re-elected, as the case may be, at our annual shareholders’ meeting held on April 17,
2013, except for (i) Hidehiro Takahashi, who was elected alternate director of Fuminobu Kawashima at the Board of
Directors meeting held on May 25, 2013 and (ii) Laura Bedeschi Rego de Mattos, who was elected alternate director of
Luciano Coutinho at the Board of Directors meeting on February 26, 2014. Their terms will expire at the Ordinary
General Shareholder’s meeting of 2015, except for Ms. Laura Bedeschi and Mr. Hidehiro Takahashi whose term will
expire at the General Shareholder’s meeting of 2014.
The following table lists the current members of the Board of Directors and each director’s alternate.
Director(1)
Year first elected
Alternate director(1)
Year first elected
Dan Antonio Marinho Conrado
(chairman) .........................................
Mário da Silveira Teixeira Júnior
(vice-chairman) .......................................
Marcel Juviniano Barros .........................
Robson Rocha .........................................
Vacant (3) ................................................
Renato da Cruz Gomes ...........................
Fuminobu Kawashima ............................
Oscar Augusto de Camargo Filho ..........
Luciano Galvão Coutinho .......................
José Mauro Mettrau Carneiro da Cunha
João Batista Cavaglieri(2) .......................
2012
2003
2012
2011
-
2001
2011
2003
2007
2010
2013
Marco Geovanne Tobias da Silva ...........
Luiz Maurício Leuzinger ........................
Francisco Ferreira Alexandre..............
Sandro Kohler Marcondes ......................
Hayton Jurema da Rocha ........................
Luiz Carlos de Freitas .............................
Hidehiro Takahashi(4) ............................
Eduardo de Oliveira Rodrigues Filho
Laura Bedeschi Rego de Mattos(5) ........
Vacant .....................................................
Eduardo Fernando Jardim Pinto(2) ........
2011
2012
2013
2011
2013
2007
2013
2011
2014
(cid:31)
2013
(1) Appointed by Valepar and approved at the shareholders’ meeting unless otherwise indicated.
(2) Appointed by our employees and approved at the shareholders’ meeting.
(3) Vacant since August 2013. Mr. Hayton Jurema da Rocha has been attending the Board of Directors’ meetings during the vacancy of the
respective effective member position.
(4) Mr. Hidehiro Takahashi was elected alternate director of Fuminobu Kawashima at the Board of Directors meeting held on May 25, 2013.
(5) As a result of the resignation of Mr. Caio Marcelo de Medeiros Melo in February 2014, Ms. Laura Bedeschi was appointed by the Board of
Directors as alternate of Mr. Luciano Coutinho, until the General Shareholder’s Meeting of 2014.
113
Below is a summary of the business experience, activities and areas of expertise of our current directors.
Dan Antonio Marinho Conrado, 49: Chairman of Vale’s Board of Directors since October 2012.
Other current director or officer positions: Chief Executive Officer of Previ, the pension fund of the
employees of Banco do Brasil S.A. (“Banco do Brasil”), since June 2012; Chairman of Valepar since November 2012;
Chief Executive Officer of Valepar since October 2012; Alternate Member of the Board of Directors of Mapfre
BBSH2 Participações S.A., a publicly-held insurance company, since June 2011.
Professional experience: Member of the Board of Directors of FRAS-LE S.A., a publicly-held friction
materials manufacturer, from April 2010 to March 2013; Alternate Member of the Board of Directors of Aliança do
Brasil, a publicly-held insurance company, from June 2010 to June 2011; Alternate Member of the Board of Directors
of BRASILPREV S.A., a publicly-held pension fund, from January 2010 to March 2010; Director for Marketing and
Communications for Banco do Brasil S.A., a publicly-held financial institution, in 2009, where he also served as
Director of Distribution, from 2010 to 2011, and Vice-President for Retail, Distribution and Operations, from
December 2011 to May 2012; Member of the Fiscal Council of Centrais Elétricas de Santa Catarina S.A., a
publicly-held electric utility company, from April 2000 to April 2002; Member of the Fiscal Council of WEG S.A.
(“WEG”), a publicly-held engines manufacturer and full industrial electrical systems provider, from April 2002 to
April 2005.
Academic background: Degree in Law from Universidade Dom Bosco, Mato Grosso do Sul; MBA degree
from COPPEAD /Universidade Federal do Rio de Janeiro (“UFRJ”) and an MBA degree from Instituto de Ensino e
Pesquisa em Administração (“INEPAD”).
Mário da Silveira Teixeira Júnior, 68: Director of Vale since April 2003, Vice-Chairman of Vale’s Board
of Directors since May 2003.
Other current director or officer positions: Vice-Chairman of the Board of Directors of Valepar since May
2007; Member of Vale’s Strategy Committee since March 2006; Member of the Board of Directors of Banco Bradesco
S.A. (“Banco Bradesco”), a publicly-held financial institution, since March 1999; Member of the Board of Directors
of Bradespar S.A. (‘‘Bradespar’’), a publicly-held investment holding company, since April 2002; Member of the
Board of Directors of Bradesco Leasing S.A.—Arrendamento Mercantil, a subsidiary of Banco Bradesco engaged in
the provision of financial leasing operations, since July 2004; Member of the Board of Directors of BBD Participações
S.A. since August 2006; Member of the Board of Directors and Strategy Committee of BSP Empreendimentos
Imobiliários S.A. since October 2011 and April 2013; and Member of the Board of Directors of BSP Park
Estacionamentos e Participações S.A since November 2012.
Professional experience: Chief Executive Officer of Bradespar, from July 2001 to March 2002; Executive
Vice-President, from March 1998 to march 1999; Executive Managing Officer, from March 1992 to March 1998; and
Department Officer at Banco Bradesco from January 1984 to March 1992; Officer of Bradesco S.A. Corretora de
Títulos e Valores Mobiliários, a subsidiary of Banco Bradesco that provides securities brokerage and research
services, from March 1983 to January 1984; Executive Vice-President of the Associação Nacional dos Bancos de
Investimento (“ANBID”), an association of investment banks, from August 1994 to August 1996; Member of the
Board of Directors of the Associação Brasileira das Companhias Abertas (“ABRASCA”), an association of Brazilian
publicly held companies, from May 1996 to July 2000; Vice-Chairman of the Board of Directors of BES Investimento
do Brasil S.A. – Banco de Investimento, an investment bank and subsidiary of Banco Espírito Santo, from February
2001 to February 2007; Member of the Board of Directors of Companhia Siderúrgica Nacional - CSN, a publicly-held
steel company, from March 1996 to April 2000; of Latasa S.A. (“Latasa”), now called Rexam Beverage Can South
America S.A., an aluminum products manufacturer, from April 1992 to April 2000; of São Paulo Alpargatas S.A., a
clothing and sporting goods manufacturer, from March 1996 to April 1999; of Tigre S.A. – Tubos e Conexões, a pipe
and construction materials manufacturer, from April 1997 to April 1998; of Everest Leasing S.A. Arrendamento
Mercantil, a leasing company affiliated with Banco Bradesco, from February 2004 to July 2004; as well as the electric
utility companies Companhia Paulista de Força e Luz – CPFL, from November 1997 to April 2005; CPFL de Energia
S.A., from August 2001 to April 2005; Companhia Piratininga de Força e Luz, from April 2003 to April 2005; and the
electric utility holding companies CPFL Energia S.A. (“CPFL Energia”), from March 2000 to April 2006; and VBC
Energia S.A. from March 1997 to April 2005.
114
Management
Academic background: Degree in Civil Engineering and in Business Administration from Universidade
Presbiteriana Mackenzie, São Paulo.
Marcel Juviniano Barros, 51: Director of Vale since October 2012.
Other current director or officer positions: Officer of Securities of Previ since June 2012 and Member of
Vale’s Executive Development Committee since February 2013.
Professional experience: Held several positions in over 34 years at Banco do Brasil, a publicly-held financial
institution, including the positions of Union Auditor and General-Secretary of the National Confederation of Financial
Branch Workers, where he coordinated international networks.
Academic background: Degree in History from Fundação Municipal de Ensino Superior de Bragança
Paulista.
Robson Rocha, 55: Director of Vale since April 2011.
Other current director or officer positions: Vice-President for Human Resources Management and
Sustainable Development of Banco do Brasil since April 2010.
Professional experience: Vice-Chairman of CPFL Energia from April 2010 to April 2011; Member of the
Board of Directors of Banco Nossa Caixa S.A. from May to November 2009; Officer of Banco do Brasil from May
2008 to April 2009.
Academic background: Degree in Business Administration from UNICENTRO – Newton Paiva, Belo
Horizonte; post-graduate degree in Strategic Management and Basic General Training for Senior Executives from
Universidade Federal de Minas Gerais (“UFMG”); Master’s degree in Marketing from Fundação Ciências Humanas –
Pedro Leopoldo; and an MBA degree in Finance from Fundação Dom Cabral.
Hayton Jurema da Rocha, 56: Alternate member of the board of directors of Vale since April 2013.
Other current director or officer positions: Director for Marketing and Communications for Banco do Brasil.
Professional Experience: Chief Executive Officer of the healthcare company CASSI – Caixa de Assistência
de Funcionários do Branco do Brasil from 2010 to 2011; Superintendent of Banco do Brasil for the states of Alagoas
(1995), Pernambuco (1996 to 1998), Bahia (1999 to 2000) and the Federal District (2003 to 2005); Human Resources
director of Banco do Brasil (from 2000 to 2002); member of the fiscal council of WEG from 2010 to 2013.
Academic background: Degree in Economics from the Federal University of the State of Alagoas; MBA
degree from the Federal University of the State of Pernambuco; specialization in Marketing from the Pontifícia
Universidade Católica do Rio de Janeiro.
Renato da Cruz Gomes, 61: Director of Vale since April 2001.
Other current director or officer positions: Executive Officer and Member of the Board of Directors of
Valepar since 2001; Investor Relations Executive Officer of Bradespar since 2000; and Member of Vale’s Governance
and Sustainability Committee since December 2001.
Professional experience: Various positions at BNDES from 1976 to 2000; Member of the Board of Directors
of Iochpe Maxion S.A., a publicly-held company with investments in the auto parts and railway equipment industries,
Globo Cabo S.A., now called Net Serviços de Comunicação S.A. (“Net”), a Brazilian cable TV operator, Latasa and
the Brazilian pulp and paper manufacturers Aracruz Celulose S.A., now called Fibria S.A., and Bahia Sul Celulose
S.A., now called Suzano Celulose S.A.
115
Academic background: Degree in Engineering from UFRJ and post-graduate degree in Management
Development from Sociedade de Desenvolvimento Empresarial (“SDE”).
Fuminobu Kawashima, 61: Director of Vale since April 2011.
Other current director or officer positions: Representative Director and Executive Vice President of Mitsui, a
publicly-held trading company, since June 2012.
Professional experience: Senior Executive Managing Officer at Mitsui from June 2011 to May 2012, where
he also served as Executive Managing Officer and Chief Operating Officer of the Marine & Aerospace business unit
from April 2010 to March 2011, Managing Officer and Chief Operating Officer of the Energy business unit from 2007
to 2010; Director of Japan Australia LNG (MIMI) Pty Ltd., an oil and gas company, from 2005 to 2007; Director of
Mitsui Oil Co. Ltd., a petroleum products company, from 2007 to 2009 and Director of Kyokuto Petroleum Industries
Ltd., an oil refinery, from 2007 to 2009.
Academic background: Degree in Economics from Hitotsubashi University in Japan; post-graduate degree in
Economic Development from Keble College, Oxford.
Oscar Augusto de Camargo Filho, 76: Director of Vale since September 2003.
Other current director or officer positions: Director of Valepar since 2003; Member of Vale’s Strategy and
Executive Development Committee since 2003; partner of CWH Consultoria Empresarial, a business consulting firm
since 2003.
Professional experience: Chairman of the Board of Directors of MRS from 1996 to 2003 and Chief
Executive Officer and Member of the Board of Directors of CAEMI – Mineração e Metalurgia S.A. (“CAEMI”), a
mining holding company that was acquired by Vale in 2006, from 1990 to 2003, where Mr. Camargo Filho also held
various positions from 1973 to 2003; various positions at Motores Perkins S.A., including commercial officer and
sales and services manager, from 1963 to 1973.
Academic background: Law degree from USP and post graduate degree in International Marketing from
Cambridge University.
Luciano Galvão Coutinho, 67: Director of Vale since August 2007.
Other current director or officer positions: President of BNDES since 2007; Member of the Board of
Directors of Petróleo Brasileiro S.A. - Petrobras since April 2013 and Member of Vale’s Strategic Committee, since
May 2009.
Professional experience: Partner of LCA Consultores, a business consulting firm, from 1995 until 2007 and
partner of Macrotempo Consultoria, also a business consulting firm, from 1990 to 2007; Member of the Board of
Directors of Ripasa S.A. Celulose e Papel, a paper manufacturer, from 2002 to 2005, and of Guaraniana, now
Neoenergia S.A., an energy company, from 2003 to 2004, and Executive Secretary of the Ministry of Science and
Technology from 1985 to 1988. Mr. Coutinho is an invited professor at the Universidade Estadual de Campinas
(“UNICAMP”) and has been a visiting professor at USP, the University of Paris XIII, the University of Texas and the
Ortega y Gasset Institute.
Academic background: Degree in Economics from USP; Master’s degree in Economics from the Economic
Research Institute of USP and a Ph.D. in Economics from Cornell University.
116
Management
José Mauro Mettrau Carneiro da Cunha, 64: Director of Vale since June 2010.
Other current director or officer positions: Member of the Board of Directors of a number of publicly-held
Brazilian telecommunication companies, including Calais Participações S.A. since 2007, Telemar Participações S.A.
since 2008 and Oi S.A. since 2009 (as Chairman); Member of the Board of Directors of Santo Antonio Energia S.A., a
Brazilian energy company, since 2008; Chairman of the Board of Directors since 2007 of Dommo Empreendimentos
Imobiliários, a holding company.
Professional experience: Chief Executive Officer of Oi S.A. in 2013; Member of the Board of Directors of
Tele Norte Celular Participações S.A., from 2008 to 2012, Tele Norte Leste Participações S.A. from 2007 to 2012,
Telemar Norte Leste S.A. from 2007 to 2012, Coari Participações S.A. from 2007 to 2012, TNL PCS S.A. from 2007
to 2012, where he served as chairman, Lupatech S.A., a publicly-held oil and gas production support company, from
2006 to 2012, Log-In from 2007 to 2011, Braskem S.A., a Brazilian petrochemical company, from 2007 to April
2010, where he previously served as Vice-President of Strategic Planning from 2003 to 2005 and as Director, from
2007 to 2010, Politeno Indústria e Comércio S.A., a manufacturer of polyethylene and thermoplastic resins, from 2003
to 2004, Banco do Estado do Espírito Santo (“BANESTES”), a financial institution, from 2008 to 2009, LIGHT
Serviços de Eletricidade S.A., an energy distributor, from 1997 to 2000, Aracruz Celulose S.A., a paper manufacturer,
from 1997 to 2002, and TNL from 1999 to 2003, where he also served as an Alternate Member of the Board of
Directors in 2006.
Academic background: Degree in Mechanical Engineering from Universidade Católica de Petrópolis in Rio
de Janeiro; executive education program in management at the Anderson School of Management at the University of
California at Los Angeles.
João Batista Cavaglieri, 57: Director of Vale since April 2013
Professional experience: Vale employee since 1973, when he was licensed to hold the position of treasurer of
SINDFER ES/MG (Sindicato dos Trabalhadores em Empresas Ferroviárias dos Estados do Espírito Santo e Minas
Gerais). Interim president of SINDFER ES/MG from 2002 to 2005, and since then current president of SINDFER
ES/MG. Member of the Board of Directors of Vale from 2007 to 2009.
Academic background: High school diploma and degree in mechanical maintenance from SENAI.
Executive officers
The executive officers are responsible for day-to-day operations and the implementation of the general
policies and guidelines set forth by the Board of Directors. Our bylaws provide for a minimum of six and a maximum
of 11 executive officers. The executive officers hold weekly meetings and hold additional meetings when called by
any executive officer. Under Brazilian corporate law, executive officers must be Brazilian residents.
117
The Board of Directors appoints executive officers for two-year terms and may remove them at any time.
The following table lists our current executive officers.
Year of
appointment
Position
Murilo Pinto de Oliveira Ferreira..........
Luciano Siani Pires............................
José Carlos Martins ...............................
Galib Abrahão Chaim ...........................
Humberto Ramos de Freitas ..................
Gerd Peter Poppinga .............................
2011
2012
2004
2011
2011
2011
Vânia Lucia Chaves Somavilla .............
2011
Chief Executive Officer
Chief Financial Officer and Executive Officer for Investor Relations
Executive Officer (Ferrous Minerals and Strategy)
Executive Officer (Implementation of Capital Projects)
Executive Officer (Logistics and Mineral Research)
Executive Officer (Base Metals Operations and Information
Technology)
Executive Officer (Human Resources, Health and Safety,
Sustainability and Energy)
Roger Allan Downey .............................
2012
Executive Officer (Fertilizer and Coal)
Age
60
44
64
63
60
54
53
46
Below is a summary of the business experience, activities and areas of expertise of our current executive
officers.
Murilo Pinto de Oliveira Ferreira, 60: Chief Executive Officer of Vale and Member of Vale’s Strategy and
Disclosure Committees since May 2011.
Professional experience: Executive Officer of Vale with responsibility over several different departments
from 2005 to 2008, including Aluminum, Holdings, Business Development, Energy, Nickel and Base Metals; Chief
Executive Officer of Vale Canada from 2007 to 2008 and member of the Board of Directors from 2006 to 2007;
Chairman of the Board of Directors of Alunorte from 2005 to 2008, MRN from 2006 to 2008 and Valesul Alumíno
S.A., a subsidiary of Vale involved in the production of aluminum, from 2006 to 2008; Member of the Board of
Commissioners of PTVI, from 2007 to 2008. Mr. Ferreira has been a Member of the Board of Directors of several
companies, including Usiminas, a Brazilian steel company, from 2006 to 2008, and was a partner at Studio
Investimentos, an asset management firm with a focus on the Brazilian stock market, from October 2009 to March
2011.
Academic background: Degree in Business Administration from FGV in São Paulo; post-graduate degree in
Business Administration and Finance from FGV in Rio de Janeiro and an executive education program in M&A at the
IMD, Lausanne, Switzerland.
Luciano Siani Pires, 44: Chief Financial Officer and Executive Officer for Investor Relations of Vale since
August 2012 and Member of Vale’s Executive Risk Management, Finance and Disclosure Committees since August
2012.
Professional experience: Alternate Member of the Board of Directors of Vale, from 2005 to 2007; Global
Director of Strategic Planning, from 2008 to 2009 and in 2011, and Global Director of Human Resources, from 2009
to 2011 of Vale; Member of the Board of Directors of Valepar, from 2007 to 2008; Several executive positions at
BNDES, including Executive Secretary and Chief of Staff of the Presidency, Head of Capital Markets and Head of
Export Finance, from 1992 to 2008; Consultant at McKinsey & Company from 2003 to 2005; Member of the Board of
Directors of Telemar Participações S.A., from 2005 to 2008; Member of the Board of Directors of Suzano Papel e
Celulose S.A., from 2005 to 2008.
Academic background: Degree in Mechanical Engineering from Pontifícia Universidade Católica do Rio de
Janeiro and an MBA degree in Finance from the Stern School of Business, New York University.
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Management
José Carlos Martins, 64: Executive Officer for Ferrous Minerals and Strategy of Vale since November
2011.
Other current director or officer positions: Member of the Board of Directors of Samarco.
Professional experience: Executive Officer of Vale with responsibility over several different departments
since 2004, including Marketing, Sales and Strategy, Ferrous Minerals, and New Business Development; Member of
the Board of Directors of Usiminas from 2005 to 2006 and from 2008 to 2009; President of South America Aluminum
Can Production and Marketing for Rexam PLC, a global consumer packaging group; President of Latasa from 1999
until Rexam PLC bought Latasa in 2003; Executive Officer for Steel Production of CSN from 1997 until 1999; and
Chief Executive Officer at Aços Villares, a steel manufacturer, where Mr. Martins also held several other important
positions from 1986 until 1996.
Academic background: Degree in Economics from Pontifícia Universidade Católica in São Paulo.
Galib Abrahão Chaim, 63: Executive Officer for Implementation of Capital Projects of Vale since
November 2011.
Professional experience: Project Director of Vale for the Department of Coal for projects in Australia,
Mozambique, Zambia and Indonesia and Country Manager for Mozambique from 2005 to 2011; Industrial Director
for Alunorte from 1994 to 2005; Industrial Superintendent for Albras from 1984 to 1994; and Technical
Superintendent of MRN from 1979 to 1984.
Academic Background: Degree in Engineering from the Universidade Federal de Minas Gerais; Master’s
degree in Business Administration from Fundação Getúlio Vargas.
Humberto Ramos de Freitas, 60: Executive Officer for Logistics and Mineral Research of Vale since
November 2011.
Other current director or officer positions: Chairman of the Board of ABTP – Associação Brasileira de
Terminais Portuários, a non-profit organization that deals with issues related to Brazilian ports, since May 2009.
Professional experience: Member of the Board of Directors of MRS from December 2010 to October 2012;
Logistics Operations Director of Vale from September 2009 to June 2010; Director for Ports and Navigation of Vale
from March 2007 to August 2009; President and Chief Executive Officer, from August 2003 to February 2007, of
Valesul Alumínio S.A., a subsidiary of Vale involved in the production of aluminum; General Superintendent of Ports
for CSN from December 1997 to November 1999.
Academic background: Degree in Metallurgical Engineering from the Ouro Preto School of Mines;
Executive Development Program at the Kellogg School of Management at Northwestern University; Advanced
Management and Business Development Partnership (EDP) programs from Fundação Dom Cabral; senior executive
education program at M.I.T.
Gerd Peter Poppinga, 54: Executive Officer for Base Metals Operations and Information Technology of
Vale since November 2011.
Other current director or officer positions: Member of the Board of Commissioners of PTVI since April
2009; President and Chief Executive Officer of Vale Canada since January 2012.
119
Professional experience: Executive Vice President for Asia Pacific of Vale Canada from November 2009 to
November 2011; Director for Strategy, Business Development, Human Resources and Sustainability of Vale Canada
from May 2008 to October 2009; Director for Strategy and Information Technology of Vale Canada from November
2007 to April 2008. In connection with his roles at Vale, Mr. Poppinga was also member of the board of directors and
the executive board of several companies from 2005 to 2009. From 1985 until 1999, Mr. Poppinga also held several
positions at Mineração da Trinidade S.A. – SAMITRI, a publicly held mining company that was acquired by Vale in
2001.
Academic Background: Degree in Geology from UFRJ and Universität Erlangen, Germany; Post-graduate
degree in Geology and Mining Engineering from the Universität Clausthal – Zellerfeld, Germany; Specialization in
Geostatistics from the Universidade Federal de Ouro Preto (UFOP); Executive MBA from Fundação Dom Cabral;
Industrial Marketing, Negotiation Dynamics Supply Chain Management at INSEAD; Senior Leadership Program at
M.I.T.; Leadership Program at IMD Business School, Lausanne, Switzerland; and Strategic Megatrends with Asia
Focus program at Kellogg Singapore.
Vânia Lucia Chaves Somavilla, 54: Executive Officer for Human Resources, Health and Safety,
Sustainability and Energy of Vale since May 2011.
Other current director or officer positions: President of the Board of Directors (Conselho de Curadores) of
Fundação Vale, since January 2013.
Professional experience: Director of the Department of the Environment and Sustainability at Vale from
April 2010 until May 2011; Director for Energy Commercialization of Vale from March 2004 until March 2010;
Member of the Board of Directors of Albras from 2009 to 2011; Chief Executive Officer of Vale Florestar S.A., from
November 2010 to August 2011. In connection with her roles at Vale, Ms. Somavilla was also member of the board of
directors and the executive board of several companies and consortia in the energy sector from 2004 until 2010. She
was also head of New Business Development for Energy Generation and of Project Development and Implementation
for large and small hydroelectric plant projects at Companhia Energética de Minas Gerais – CEMIG, a publicly held
company involved in the generation, transmission, distribution and sale of electricity, from 1995 until 2001.
Academic Background: Degree in Civil Engineering from UFMG; post-graduate degree in Dam Engineering
from UFOP; specialization in Management of Hydro Power Utilities from SIDA, Stockholm, Sweden; MBA degree in
Corporate Finance from IBMEC, Belo Horizonte; Transformational Leadership program from M.I.T. and Mastering
Leadership program from IMD.
Roger Allan Downey, 46: Executive Officer for Fertilizer and Coal of Vale since May 2012.
Professional experience: Managing partner of CWH Consultoria Empresarial SC Ltda., a privately-held
consulting company, from January 2012 to April 2012; Alternate Member of the Board of Directors of Valepar from
February 2012 to April 2012; Chief Executive Officer and Executive Officer for Investor Relations of MMX
Mineração e Metálicos S.A., a publicly-held mining company, from August 2009 to November 2011; Director of
Equity Research for Banco de Investimentos Credit Suisse (Brasil) S.A., a privately-held brokerage and investment
bank, from August 2005 to August 2009; Commercial and New Business Manager for Rio Tinto, a publicly-held
mining company, from October 1996 to September 2002; Market Coordinator for CAEMI, from December 1991 to
October 1996.
Academic background: Degree in Business Management from the University of Western Australia, degree in
Business Administration from the Australian National Business School and an MBA degree from the University of
Western Australia.
120
Management
Conflicts of interest
Under Brazilian corporate law, if a director or an executive officer has a conflict of interest with the Company
in connection with any proposed transaction, the director or executive officer may not vote in any decision of the
Board of Directors or of the Board of Executive Officers regarding such transaction and must disclose the nature and
extent of the conflicting interest for transcription in the minutes of the meeting, and under our Policy on Related Party
Transactions, the director or executive officer should not receive any relevant documentation or information and
should not participate in any related discussions. In any case, a director or an executive officer may not transact any
business with the Company, except on reasonable or fair terms and conditions that are identical to the terms and
conditions prevailing in the market or offered by unrelated parties. For more details about our Policy on Related Party
Transactions see Related party transactions.
Fiscal Council
We have a fiscal council established in accordance with Brazilian law. The primary responsibilities of the
fiscal council under Brazilian corporate law are to monitor management’s activities, review the Company’s financial
statements, and report its findings to the shareholders. Pursuant to a written policy, our Fiscal Council requires
management to obtain the Fiscal Council’s approval before engaging the independent auditors to provide any audit or
permitted non-audit services to Vale or its consolidated subsidiaries. Under the policy, the Fiscal Council has
pre-approved a detailed list of services based on detailed proposals from our auditors up to specified monetary limits.
The list of pre-approved services is updated from time to time. Services that are not listed, that exceed the specified
limits, or that relate to internal controls must be separately pre-approved by the Fiscal Council. The policy also sets
forth a list of prohibited services. The Fiscal Council is provided with reports on the services provided under the
policy on a periodic basis, review and monitor the Company’s external auditor’s independence and objectivity. The
Fiscal Council has the power to review and evaluate the performance of the Company’s external auditors on an annual
basis and make a recommendation to the Board of Directors on whether the Company should remove and replace its
existing external auditors. The Fiscal Council may also recommend withholding the payment of compensation to the
independent auditors and has the power to mediate disagreements between management and the auditors regarding
financial reporting.
Under our bylaws, our Fiscal Council is also responsible for establishing procedures for the receipt, retention
and treatment of any complaints related to accounting, controls and audit issues, as well as procedures for the
confidential, anonymous submission of concerns regarding such matters.
Brazilian law requires the members of a fiscal council to meet certain eligibility requirements. A member of
our Fiscal Council cannot (i) hold office as a member of the board of directors, fiscal council or advisory committee of
any company that competes with Vale or otherwise has a conflicting interest with Vale, unless compliance with this
requirement is expressly waived by shareholder vote, (ii) be an employee or member of senior management or the
Board of Directors of Vale or its subsidiaries or affiliates, or (iii) be a spouse or relative within the third degree by
affinity or consanguinity of an officer or director of Vale.
We are subject to Exchange Act Rule 10A-3, which requires, absent an exemption, that a listed company
maintains a standing audit committee composed of members of the Board of Directors that meet specified
requirements. In lieu of establishing an independent audit committee, we have given our Fiscal Council the necessary
powers to qualify for the exemption set forth in Exchange Act Rule 10A-3(c)(3). We believe our Fiscal Council
satisfies the independence and other requirements of Exchange Act Rule 10A-3 that would apply in the absence of our
reliance on the exemption. Pursuant to our undertakings to the HKEx, the Fiscal Council must be comprised of at least
three members who satisfy specified independence requirements set out in the HKEx Listing Rules. We have received
a written confirmation of independence pursuant to Rule 3.13 of the HKEx Listing Rules from each of the members of
our Fiscal Council appointed by Valepar and consider them able to satisfy these independence requirements.
121
Our Board of Directors has determined that one of the members of our Fiscal Council, Mr. Aníbal Moreira
dos Santos, is an audit committee financial expert. In addition, Mr. Moreira dos Santos meets the applicable
independence requirements for Fiscal Council membership under Brazilian law and the NYSE independence
requirements that would apply to audit committee members in the absence of our reliance on the exemption set forth in
Exchange Act Rule 10A-3(c)(3).
Members of the Fiscal Council are elected by our shareholders for one-year terms. The current members of
the Fiscal Council and their respective alternates were elected on April 17, 2013. The terms of the members of the
Fiscal Council expire at the next annual shareholders’ meeting following election.
Two members of our Fiscal Council (and the respective alternates) may be elected by non-controlling
shareholders: one member may be appointed by our preferred shareholders and one member may be appointed by
minority holders of common shares pursuant to applicable CVM rules.
The following table lists the current and alternate members of the Fiscal Council.
Current member
Vacant(1) ................................................................
Arnaldo José Vollet(3) ...........................................
Marcelo Amaral Moraes(3) ....................................
Aníbal Moreira dos Santos(3) ................................
First year of
appointment
Alternate
First year of
appointment
(cid:31)
2011
2004
2005
Paulo Fontoura Valle (2) ........................................
Valeriano Durval Guimarães Gomes(3) ................
Oswaldo Mário Pêgo de Amorim Azevedo(3) ......
Vacant .....................................................................
2012
2013
2004
(cid:31)
(1) Vacant since the resignation of Mr. Antônio Henrique Pinheiro Silveira, with effect from October 2013. Mr. Paulo Fontoura Valle, as alternate
member of the Fiscal Council, has been attending Fiscal Council meetings.
(2) Appointed by preferred shareholders.
(3) Appointed by Valepar.
Below is a summary of the business experience, activities and areas of expertise of the members of our Fiscal
Council.
Paulo Fontoura Valle, 50: Alternate member of Vale’s Fiscal Council since April 2012. Mr. Valle is the
alternate member of Mr. Antônio Henrique Pinheiro Silveira, who resigned from his position on the fiscal council of
Vale in October 2013.
Other director or officer positions: Member of Petrobrás Distribuidora S.A. – BR Distribuídora’s Fiscal
Council since 2012 and Member of Banco Nacional de Desenvolvimento – BNDES’ Fiscal Council since 2011.
Professional experience: Member of the fiscal council of Petrobras Gás S.A. – Gaspetro from 2010 to 2011,
a Brazilian publicly-held oil and gas company; Member of the board of directors of Brasilprev Seguros e Previdência,
from 2007 to 2009, a Brazilian privately-held insurance company.
Academic background: Degree in Physical Education from Faculdade Dom Bosco de Educação Física;
MBA degree from Instituto Brasileiro de Mercado de Capitais – IBMEC; specialization in Economics from the
George Washington University, in the United States.
122
Management
Arnaldo José Vollet, 65: Member of Vale’s Fiscal Council since April 2011.
Other director or officer positions: Member of Caixa Econômica Federal's Audit Committee since October
2013.
Professional experience: Executive Officer of BB DTVM, a subsidiary of Banco do Brasil, from 2002 to
2009; Financial and Investor Relations Officer of Companhia de Energia Elétrica da Bahia – COELBA, a publicly
held electricity company, from 2000 to 2002; Member of the Fiscal Council of Telesp Celular Participações, a publicly
held telecommunications company, from 1999 to 2000; Member of the Fiscal Council of CELPE – Companhia de
Eletricidade de Pernambuco, a publicly held electricity company, from 2004 to 2009; Director of Guaraniana, now
Neoenergia S.A., from 2002 to 2003; Alternate Member of the Board of Directors of CEMIG, a publicly held
electricity company, from 2003 to 2005; Member of the Board of Directors of Pronor and Nitrocarbono, both chemical
companies, from 1997 to 1998.
Academic background: Degree in Mathematics from USP and MBA degree in Finance from IBMEC/RJ.
Marcelo Amaral Moraes, 46: Member of Vale’s Fiscal Council since April 2004.
Other director or officer positions: Managing Executive Officer at Capital Dynamics Investimentos Ltda.
since January 2012.
Professional experience: Member of the Deliberative Council of ABVCAP from 2010 to 2012; Managing
Executive Officer and partner responsible for specialized funds at Stratus Investimentos Ltda., a private equity and
venture capital firm, from 2006 to 2010; Investment Manager at Bradespar from 2000 to 2006; worked in the mergers
and acquisitions and capital markets departments of Banco Bozano, Simonsen from 1995 to 2000; Alternate Member
of the Board of Directors of Net Serviços de Telecomunicação S.A. from 2004 to 2005; Alternate Member of the
Board of Directors of Vale in 2003.
Academic background: Degree in Economics from UFRJ, an MBA with emphasis in Finance from
UFRJ/COPPEAD, and a post-graduate degree in Business law and Arbitration from FGV in São Paulo.
Aníbal Moreira dos Santos, 75: Member of Vale’s Fiscal Council since April 2005.
Other director or officer positions: Member of Fiscal Council of Log-In since 2009.
Professional experience: From 1998 until his retirement in 2003, Mr. Moreira dos Santos served as
Executive Officer of several CAEMI subsidiaries, including Caemi Canada Inc., Caemi Canada Investments Inc.,
CMM Overseas, Ltd., Caemi International Holdings BV and Caemi International Investments NV, and as Chief
Accounting Officer of CAEMI from 1983 to 2003. He also served as Member of the Fiscal Council of CADAM from
1999 to 2003 and as an Alternate Member of the Board of Directors of MBR and Empreedimentos Brasileiros de
Mineração, an iron ore asset holding company, from 1998 to 2003.
Academic background: Degree in Accounting from FGV in Rio de Janeiro.
123
MANAGEMENT COMPENSATION
Under our bylaws, our shareholders are responsible for establishing the aggregate compensation we pay to
the members of our Board of Directors and our Board of Executive Officers, and the Board of Directors allocates the
compensation among its members and the Board of Executive Officers.
Our shareholders determine this annual aggregate compensation at the general shareholders’ meeting each
year. In order to establish aggregate director and officer compensation, our shareholders usually take into account
various factors, which range from attributes, experience and skills of our directors and executive officers to the recent
performance of our operations. Once aggregate compensation is established, our Board of Directors is then
responsible for distributing such aggregate compensation in compliance with our bylaws among the directors and
executive officers. The Executive Development Committee makes recommendations to the Board concerning the
annual aggregate compensation of the executive officers. In addition to fixed compensation, our executive officers are
also eligible for bonuses and incentive payments.
For the year ended December 31, 2013, the amount paid to the executive officers is set forth in the table
below.
Fixed compensation and in kind benefits................................................................................................
Variable compensation ............................................................................................................................
Pension, retirement or similar benefits ...................................................................................................
Severance .................................................................................................................................................
Social security contributions(1) ..............................................................................................................
Total paid to the executive officers .........................................................................................................
For the year ended
December 31, 2013
(US$ million)
11.4
9.7
2.1
0.5
3.9
27.6
(1) Social security contributions to the Brazilian government with respect to the executive officers.
We paid US$2.2 million in aggregate to the members of our Board of Directors for services in all capacities,
all of which was fixed compensation. There are no pension, retirement or similar benefits for the members of our
Board of Directors. As of February 28, 2014, the total number of common shares owned by our directors and
executive officers was 31,816, and the total number of preferred shares owned by our directors and executive officers
was 821,271. None of our directors or executive officers beneficially owns 1% or more of any class of our shares.
Fiscal Council
We paid an aggregate of US$0.6 million to members of the Fiscal Council in 2013. In addition, the members
of the Fiscal Council are reimbursed for travel expenses related to the performance of their functions.
Advisory committees
We paid an aggregate of US$0.12 million to members of our advisory committees in 2013. Under Article 15
of our bylaws, those members who are directors or officers of Vale are not entitled to additional compensation for
participating on a committee. Members of our advisory committees are reimbursed for travel expenses related to the
performance of their duties.
124
The following tables set forth the number of our employees by business and by location as of the dates
EMPLOYEES
indicated.
By business:
Bulk materials ...................................................
Base metals operations......................................
Fertilizer nutrients .............................................
Corporate activities ...........................................
Total ...............................................................
By location:
South America ..................................................
North America ..................................................
Europe ...............................................................
Asia ...................................................................
Oceania..............................................................
Africa ................................................................
Total ...............................................................
2011(1)
51,059
15,027
7,283
6,277
79,646
2011
64,766
6,617
615
4,088
2,186
1,374
79,646
At December 31,
2012
55,074
16,116
7,476
6,639
85,305
At December 31,
2012
69,625
6,766
395
4,232
2,265
2,022
85,305
2013
54,898
15,772
6,772
5,844
83,286
2013
67,392
6,681
397
4,235
2,279
2,302
83,286
(1) For purposes of comparison, the information for 2011 about our employees by business was to reflect our new corporate structure implemented
in 2012.
We negotiate wages and benefits with a large number of unions worldwide that represent our employees. We
have collective agreements with unionized employees at our operations in Argentina, Australia, Brazil, Canada,
France, Indonesia, Malawi, Mozambique, New Caledonia, Norway, Paraguay, Peru and the United Kingdom.
Wages and benefits
Wages and benefits for Vale and its subsidiaries are generally established on a company-by-company basis.
Vale establishes its wage and benefits programs for Vale and its subsidiaries, other than Vale Canada, in periodic
negotiations with unions. In November 2013, Vale reached a two-year agreement with the Brazilian unions. A salary
increase of 6% was implemented in November 2013, and another salary increase of 5.4% will be implemented in
November 2014 for our employees (except managers and above) in Brazil as part of that agreement. The provisions of
Vale’s collective bargaining agreements with its unions also apply to Vale’s non-unionized employees. Vale Canada
establishes wages and benefits for its unionized employees through collective bargaining agreements. For
non-unionized employees, Vale Canada undertakes an annual review of salaries. Vale and its subsidiaries provide
their employees and their dependents with other benefits, including supplementary medical assistance.
Pension plans
Brazilian employees of Vale and of most of its Brazilian subsidiaries are eligible to participate in pension
plans managed by Valia. Sponsored by Vale and such subsidiaries, Valia is a nonprofit, complementary social
security foundation with both financial and administrative autonomy.
125
Most of the participants in plans held by Valia are participants in a plan named “Vale Mais”, which Valia
implemented in May 2000. This plan is primarily a defined contribution plan with a defined benefit feature relating to
service prior to May 2000 and another defined benefit feature to cover temporary or permanent disability, pension and
financial protection to dependents in case of death. Valia also operates a defined benefit plan, closed to new
participants since May 2000, with benefits based on years of service, salary and social security benefits. This plan
covers retired participants and their beneficiaries, as well as a relatively small number of employees that declined to
transfer from the old plan to the “Vale Mais” plan when it was established in May 2000.
Employees within our Base Metals operations, principally in Canada, the United States, the United Kingdom
and Indonesia, participate in defined benefit pension plans and defined contribution pension plans. All new
employees within our Base Metals operations participate in defined contribution pension plans. We have also private
pension plans with defined contribution in Switzerland, Malawi and Zambia. Since December 1, 2012, PTVI is no
longer managing the defined benefit pension plans. As a result, all participants of the pension plans have transferred
entirely to the defined contribution pension plans.
Performance-based compensation
All Vale parent-company employees receive incentive compensation each year in an amount based on the
performance of Vale, the performance of the employee’s department and the performance of the individual employee.
Similar incentive compensation arrangements are in place at our subsidiaries.
Certain Vale employees are also eligible to receive deferred bonuses with vesting periods of three years based
on Vale’s performance as measured by total shareholder return relative to a group of peer companies over the vesting
period.
Since 2008, qualifying management personnel have been eligible to participate at their option in a bonus
program tied to preferred share ownership. Under the program, each qualified employee may elect to invest part of
their bonus either in Vale preferred shares for eligible employees receiving an incentive payment in Brazil, or in ADRs
representing Vale preferred shares for eligible employees receiving an incentive payment outside Brazil. If the
employee continues to be employed by us and has held the preferred shares (or ADRs) for the entire duration of the
relevant cycle of the matching program, at the expiration of the applicable three year term of the program, the
employee will receive a cash payment to be applied to purchase in the open market a number of additional preferred
shares (or ADRs) equal to the number of preferred shares (or ADRs) purchased by the employee pursuant to the
program. During the three-year term of the incentive program, participating employees have the right to sell all or part
of the preferred shares (or ADRs) purchased through the program, however such employees forfeit the right to the
matching reward for all shares sold prior to the expiration of the term of the program. For the 2013 cycle, 1.912
employees participated in the program.
V. ADDITIONAL INFORMATION
LEGAL PROCEEDINGS
We and our subsidiaries are defendants in numerous legal actions in the ordinary course of business,
including civil, administrative, tax, social security and labor proceedings. The most significant proceedings are
discussed below. Except as otherwise noted below, the amounts claimed, and the amounts of our provisions for
possible losses, are stated as of December 31, 2013. See Note 19 to our consolidated financial statements for further
information.
126
Legal proceedings
Itabira suits
We are a defendant in two separate actions brought by the municipality of Itabira, in the Brazilian state of
Minas Gerais. In the first action, filed in August 1996, the municipality of Itabira alleges that our Itabira iron ore
mining operations have caused environmental and social harm, and claims damages with respect to the alleged
environmental degradation of the site of one of our mines, as well as the immediate restoration of the affected
ecological complex and the performance of compensatory environmental programs in the region. The damages
sought, as adjusted from the date of the claim, amount to approximately R$3.123 billion (US$1.333 billion). There
have been hearings in this action, a report favorable to Vale was issued and a request for additional expert evidence
presented by the municipality has been granted. A decision is pending.
In the second action, filed in September 1996, the municipality of Itabira claims the right to be reimbursed for
expenses it has incurred in connection with public services rendered as a consequence of our mining activities. The
damages sought, as adjusted from the date of the claim, amount to approximately R$3.616 billion (US$1.543 billion).
This case had been suspended pending consideration of our request to include favorable evidence from our other
Itabira action described above. In January 2012, that request was denied, and once the court is notified, the lawsuit
will resume.
CFEM-related proceedings
We are engaged in numerous administrative and judicial proceedings related to the mining royalty known as
the CFEM. For more information about CFEM, see Regulatory matters—Royalties and other taxes on mining
activities. These arise out of a large number of assessments by the DNPM, an agency of the Ministry of Mines and
Energy of the Brazilian government. The proceedings concern different interpretations of DNPM’s method of
estimating sales, the statute of limitations, due process of law, payment of royalties on pellet sales and CFEM charges
on the revenues generated by our subsidiaries abroad.
We are contesting DNPM’s claims using the available avenues under Brazilian law, beginning with
challenges in administrative tribunals and proceeding with challenges in the judicial courts. We have received some
favorable and unfavorable decisions, and we cannot predict the amount of time required before final judicial
resolutions.
We determined that we have a probable loss in connection with the dispute related to the deductibility of
transportation expenditures in arriving at the amount upon which the CFEM is calculated. At December 31, 2013 we
had a provision of approximately R$141 million (US$60 million) for this probable loss. The aggregate amount
claimed in the pending assessments is approximately R$4.568 billion (US$1.950 billion) (including interest and
penalties through December 31, 2013).
ICMS tax assessments
The tax authorities of the Brazilian state of Pará have issued tax assessments (autos de infração) against us
for additional payments of the value-added tax on services and circulation of goods (ICMS) on the iron ore we
transport from our mining sites in the state of Pará to our facilities in the state of Maranhão. The tax authorities assert
that the calculation of ICMS should be based on the market value of the iron ore transported, as opposed to the cost of
production of the ore, which we have used to calculate the ICMS owed in years past.
We are engaged in a legal proceeding challenging three tax assessments issued by the tax authorities of the
state of Pará, covering the years 2007, 2008 and 2009, in an aggregate amount of R$679.7 million (as of December
2013).
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Litigation on Brazilian taxation of foreign subsidiaries
We are engaged in legal proceedings concerning the contention of the Brazilian federal tax authority (Receita
Federal) that we should pay Brazilian corporate income tax and social security contributions on the net income of our
non-Brazilian subsidiaries and affiliates. The position of the tax authority is based on Article 74 of Brazilian
Provisional Measure 2,158-34/2001 (“Article 74”), a tax regulation issued in 2001 by Brazil’s President, and on
implementing regulations adopted by the tax authority under Article 74.
Participation in the REFIS
In November 2013, we elected to participate in the REFIS, a federal tax settlement program for payment of
amounts relating to Brazilian corporate income tax and social contribution, in order to settle the claims related to the
net income of our non-Brazilian subsidiaries and affiliates from 2003 to 2012. Before this settlement, the total amount
of tax contingency for the period from 2003 to 2012, including the years for which tax assessments had not yet been
issued, was estimated at US$19.4 billion (R$45.0 billion, including R$17.1 billion in principal, R$9.8 billion in
penalties, R$12.0 billion in interest and interest on penalties and R$6.0 billion in statutory fees).
Under the REFIS statute, there is a full waiver of penalties, interest and statutory fees for payments upfront,
and a reduction of 80% of penalties, 50% of interest and 100% of statutory fees for payments in installments. We
decided to pay upfront the taxes for the years 2003, 2004 and 2006, and in installments the principal, penalties and
interest for the years 2005 and 2007 to 2012, resulting in an obligation of US$9.6 billion, net of accumulated losses.
We paid US$2.6 billion in 2013, including the upfront payment and an initial installment, and we agreed to pay the
remaining US$7.0 billion in 178 further installments, bearing interest at the SELIC rate. See Note 19 to our
consolidated financial statements for further information.
Our participation in the REFIS resulted in the termination of three of the tax assessments (autos de infração)
against our parent company Vale S.A. and the tax assessment against our subsidiary MBR for payment of taxes in
accordance with Article 74. As required by the REFIS statute, we waived our legal arguments with respect to the
periods 2003 to 2012 in our direct challenge against the applicability of Article 74 (which is described below), but we
will continue the dispute with respect to 1996 to 2002 and 2013. In the event that our direct challenge, or another
party’s claims with general applicability, is eventually successful with respect to matters that are also applicable to the
periods that we have settled, we could be entitled to stop the payment of any further installment and to seek recovery of
the amounts we have paid, in the form of tax credits.
Participating in the REFIS had an impact of US$6.7 billion (R$14.8 billion) on net income in 2013 as
described in note 20 to our consolidated financial statements. In future years, financial expenses will include the
interest component of the REFIS payments. Our future cash flows will be affected by the monthly installments.
Our direct judicial challenge
In 2003, prior to receiving any assessment of taxes under Article 74, we initiated a legal proceeding
(mandado de segurança) challenging the applicability of the regulation based on the following arguments: (i) Article
74 disregards certain provisions on the taxation of profits in double taxation treaties between Brazil and the countries
where some of our subsidiaries and affiliates are based; (ii) the Brazilian Tax Code prohibits the establishment of
conditions and timing of any such tax by means of a provisional measure; (iii) even if Article 74 is valid, currency
exchange gains and losses must be excluded from the net income of our foreign subsidiaries and affiliates in the
calculation of taxes owed; and (iv) the application of the regulation to net income generated before December 2001
would violate the constitutional principle prohibiting retroactive application of tax laws.
In 2005, the court of first instance ruled against us on the merits of the case, and we appealed. In 2011, our
appeal was rejected by the Federal Court of Appeals (Tribunal Regional Federal da 2ª Região). In December 2011, we
filed new appeals before the Brazilian Superior Court of Justice, with respect to our arguments regarding the violations
to federal law and international treaties, and the Brazilian Supreme Court (Supremo Tribunal Federal), with respect to
our constitutional arguments. In May 2012, we obtained a new ruling from the Supreme Court suspending all
collection efforts by the tax authorities in respect of Article 74 assessments, pending a final ruling on the merits of the
case. In April 2013, the Supreme Court decided that Article 74 cannot be retroactively applied and therefore the tax
authorities cannot collect taxes based on Article 74 for periods before 2001.
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Legal proceedings
In December 2013, as required by the REFIS statute, we waived the legal arguments with respect to the
periods 2003 to 2012 in our direct challenge against the applicability of Article 74. We will continue the dispute
related to the periods 1996 to 2002, which were not included in the REFIS. A decision by the Superior Court of Justice
on the three remaining issues is still pending. The total amount discussed for the period between 1996 and 2002 is
R$1.832 billion.
PIS/COFINS fines
In November 2013, we received two assessments from the Brazilian federal tax authority imposing penalties
related to PIS and COFINS. PIS and COFINS are taxes imposed by the Brazilian government on our gross revenues,
which may be partially offset by credits resulting from PIS and COFINS payments made by our suppliers. The tax
authority contends that we incorrectly claimed PIS and COFINS tax credits for 2008, 2009 and 2010 (an assessment of
R$600 million) and that we failed to comply with certain information requirements in claiming those tax credits (an
assessment of R$1.2 billion). The amounts of the assessments are related entirely to penalties, which we consider
excessive. We have presented a written response to the tax authority, and a decision is pending. If the tax authorities do
not agree to review the penalties, we intend to take the matter to the judicial courts.
Railway litigation
In 1994, prior to our privatization, we entered into a contract with Rede Ferroviária Federal S.A. (“RFFSA”),
the Brazilian federal rail network, to build two railway networks in Belo Horizonte, Brazil, which were to be
incorporated into an existing railway segment, in a project called “Transposição de Belo Horizonte.” We
subsequently entered into a related agreement with the Brazilian government to begin the construction of an
alternative railway segment, because the initially agreed segments could not be built. In August 2006, RFFSA (now
succeeded as defendant by the Brazilian government) filed a breach of contract claim against us stemming from the
1994 contract regarding the construction of two railway networks. As of December 31, 2013, the amount claimed,
including adjustments for inflation and interest, was approximately R$3.855 billion (US$1.645 billion) in damages.
Before the RFFSA lawsuit was filed, we filed a claim against RFFSA challenging the inflation adjustment
provisions in the contract with RFFSA. We contend that the method of calculation employed by the Brazilian
government is not lawful under Brazilian law. Pursuant to a partial settlement of the original RFFSA lawsuit, if the
claim is decided in the Brazilian government’s favor, then the construction costs of the new railway segment assumed
by Vale will offset the damages due from Vale under such claim, representing a significant reduction in the amount we
would be required to pay.
In June 2012, the federal judge rejected both RFFSA’s claims and our contractual claim for review of the
inflation adjustment provisions. Both parties have appealed from these decisions.
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Transger suit
VLI’s subsidiary FCA is a defendant in a suit by Transger S.A. (“Transger”), a minority shareholder in FCA.
Transger seeks money damages and the annulment of certain general shareholders’ meetings that occurred in early
2003, at which shareholders approved an increase in FCA’s share capital, on the grounds of allegedly abusive actions
by FCA’s controlling group. The court of first instance initially ruled against the defendants, but subsequently
rescinded the judgment to allow for the preparation of an additional expert report. A decision is pending.
Praia Mole suit
We are among the defendants in a public civil action filed by the Federal Public Prosecutor’s Office
(Ministério Público Federal) in November 1997 seeking to annul the concession agreements under which the
defendants operate the Praia Mole maritime terminal in the Brazilian state of Espírito Santo. In July 2012, the Federal
Court of Appeals (Tribunal Regional Federal) affirmed the November 2007 decision that rejected the prosecutor’s
claim and recognized the validity of those concession agreements. The prosecutor has appealed that ruling, and final
disposition of the appeal is still pending.
Simandou project review in Guinea
We own a 51% interest in VBG, which holds iron ore concession rights and exploration permits in Simandou
in Guinea. The Government of Guinea has launched a contract review process that may result in the cancellation of
VBG’s mining rights. See Regulatory Matters.
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MEMORANDUM AND ARTICLES OF ASSOCIATION
Company objectives and purposes
Our corporate purpose is defined by our bylaws to include:
•
•
•
•
•
•
the exploration of mineral deposits in Brazil and abroad by means of research, extraction,
processing, industrialization, transportation, shipment and commerce of mineral goods;
the building and operation of railways and the provision of our own or unrelated-party rail traffic;
the building and operation of our own or unrelated-party maritime terminals, and the provision of
shipping activities and port services;
the provision of logistics services integrated with cargo transport, including inflow management,
storage, transshipment, distribution and delivery, all within a multimodal transport system;
the production, processing, transport, industrialization and commercialization of any and all sources
and forms of energy, including the production, generation, transmission, distribution and
commercialization of our own products, derivatives and sub products;
the engagement, in Brazil or abroad, of other activities that may be of direct or indirect consequence
for the achievement of our corporate purposes, including research, industrialization, purchases and
sales, importation and exportation, the development, industrialization and commercialization of
forest resources and the provision of services of any kind whatsoever; and
•
the establishment or participation, in any fashion, in other companies, consortia or associations
directly or indirectly related to our business purpose.
Common shares and preferred shares
Set forth below is certain information concerning our authorized and issued share capital and a brief summary
of certain significant provisions of our bylaws and Brazilian corporate law. This description does not purport to be
complete and is qualified by reference to our bylaws (an English translation of which we have filed with the SEC) and
to Brazilian corporate law.
Our bylaws authorize the issuance of up to 3.6 billion common shares and up to 7.2 billion preferred shares,
in each case based solely on the approval of the Board of Directors without any additional shareholder approval.
Each common share entitles the holder thereof to one vote at meetings of our shareholders. Holders of
common shares are not entitled to any preference relating to our dividends or other distributions.
Holders of preferred shares and the golden shares are generally entitled to the same voting rights as holders of
common shares, except with respect to the election of members of the Board of Directors, and are entitled to a
preferential dividend as described below. Non-controlling shareholders holding common shares representing at least
15% of our voting capital, and preferred shares representing at least 10% of our total share capital, have the right to
appoint each one member and an alternate to our Board of Directors. If no group of common or preferred shareholders
meets the thresholds described above, shareholders holding preferred or common shares representing at least 10% of
our total share capital are entitled to combine their holdings to appoint one member and an alternate to our Board of
Directors. Holders of preferred shares, including the golden shares, may elect one member of the permanent Fiscal
Council and the respective alternate. Non-controlling holders of common shares may also elect one member of the
Fiscal Council and an alternate, pursuant to applicable CVM rules.
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The Brazilian government holds 12 golden shares of Vale. The golden shares are preferred shares that entitle
the holder to the same rights (including with respect to voting and dividend preference) as holders of preferred shares.
In addition, the holder of the golden shares is entitled to veto any proposed action relating to the following matters:
•
•
•
•
•
a change in our name;
a change in the location of our head office;
a change in our corporate purpose as regards mining activities;
any liquidation of the Company;
any disposal or winding up of activities in any of the following parts of our iron ore mining
integrated systems:
(a) mineral deposits, ore deposits, mines;
(b) railways; or
(c) ports and maritime terminals;
•
any change in the bylaws relating to the rights afforded to the classes of capital stock issued by us;
and
•
any change in the bylaws relating to the rights afforded the golden shares.
Calculation of distributable amount
At each annual shareholders’ meeting, the Board of Directors is required to recommend, based on the
executive officers’ proposal, how to allocate our earnings for the preceding fiscal year. For purposes of Brazilian
corporate law, a company’s net income after income taxes and social contribution taxes for such fiscal year, net of any
accumulated losses from prior fiscal years and amounts allocated to employees’ and management’s participation in
earnings represents its “net profits” for such fiscal year. In accordance with Brazilian corporate law, an amount equal
to our net profits, as further reduced by amounts allocated to the legal reserve, to the fiscal incentive investment
reserve, to the contingency reserve or to the unrealized income reserve established by us in compliance with applicable
law (discussed below) and increased by reversals of reserves constituted in prior years, is available for distribution to
shareholders in any given year. Such amount, the adjusted net profits, is referred to herein as the distributable amount.
We may also establish discretionary reserves, such as reserves for investment projects.
The Brazilian corporate law provides that all discretionary allocations of net profits, including discretionary
reserves, the contingency reserve, the unrealized income reserve and the reserve for investment projects, are subject to
approval by the shareholders voting at the annual meeting and can be transferred to capital or used for the payment of
dividends in subsequent years. The fiscal incentive investment reserve and legal reserve are also subject to approval
by the shareholders voting at the annual meeting and may be transferred to capital but are not available for the payment
of dividends in subsequent years.
The sum of certain discretionary reserves may not exceed the amount of our paid-in capital. When such limit
is reached, our shareholders may vote to use the excess to pay in capital, increase capital or distribute dividends.
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Memorandum and articles of association
Our calculation of net profits and allocations to reserves for any fiscal year are determined on the basis of the
unconsolidated financial statements of our parent company, Vale S.A., in reais, prepared in accordance with Brazilian
corporate law. Our consolidated financial statements have been prepared in accordance with IFRS using U.S. dollars
as the reporting currency and, although our allocations to reserves and dividends will be reflected in these financial
statements, investors will not be able to calculate such allocations or required dividend amounts from our consolidated
financial statements in U.S. dollars.
Mandatory dividend
The Brazilian corporate law and our bylaws prescribe that we must distribute to our shareholders in the form
of dividends or interest on shareholders’ equity an annual amount equal to not less than 25% of the distributable
amount, referred to as the mandatory dividend, unless the Board of Directors advises our shareholders at our general
shareholders’ meeting that payment of the mandatory dividend for the preceding year is inadvisable in light of our
financial condition. To date, our Board of Directors has never determined that payment of the mandatory dividend
was inadvisable. The Fiscal Council must review any such determination and report it to the shareholders. In addition
to the mandatory dividend, our Board of Directors may recommend to the shareholders payment of dividends from
other funds legally available therefore. Any payment of interim dividends will be netted against the amount of the
mandatory dividend for that fiscal year. The shareholders must also approve the recommendation of the Board of
Directors with respect to any required distribution. The amount of the mandatory dividend is subject to the size of the
legal reserve, the contingency reserve, and the unrealized income reserve. The amount of the mandatory dividend is
not subject to the size of the discretionary tax incentive reserve. See Calculation of distributable amount.
Dividend preference of preferred shares
Pursuant to our bylaws, holders of preferred shares and the golden shares are entitled to a minimum annual
non-cumulative preferential dividend equal to (i) at least 3% of the book value per share, calculated in accordance with
the financial statements which serve as reference for the payment of dividends, or (ii) 6% of their pro rata share of our
paid-in capital, whichever is higher. To the extent that we declare dividends in any particular year in amounts which
exceed the preferential dividends on preferred shares, and after holders of common shares have received distributions
equivalent, on a per share basis, to the preferential dividends on preferred shares, holders of common shares and
preferred shares shall receive the same additional dividend amount per share. We regularly have had sufficient
distributable amounts to be able to distribute equal amounts to both common and preferred shareholders.
Other matters relating to our preferred shares
Our bylaws do not provide for the conversion of preferred shares into common shares. In addition, the
preferred shares do not have any preference upon our liquidation and there are no redemption provisions associated
with the preferred shares.
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Distributions classified as shareholders’ equity
Brazilian companies are permitted to pay limited amounts to shareholders and treat such payments as an
expense for Brazilian income tax purposes. Our bylaws provide for the distribution of interest on shareholders’ equity
as an alternative form of payment to shareholders. The interest rate applied is limited to the Brazilian long-term
interest rate, or TJLP, for the applicable period. The deduction of the amount of interest paid cannot exceed the greater
of (1) 50% of net income (after the deduction of the provision of social contribution on net profits and before the
deduction of the provision of the corporate income tax) before taking into account any such distribution for the period
in respect of which the payment is made or (2) 50% of the sum of retained earnings and profit reserves. Any payment
of
See Additional
information—Taxation. Under our bylaws, the amount paid to shareholders as interest on shareholders’ equity (net of
any withholding tax) may be included as part of any mandatory and minimum dividend. Under Brazilian corporate
law, we are obligated to distribute to shareholders an amount sufficient to ensure that the net amount received, after
payment by us of applicable Brazilian withholding taxes in respect of the distribution of interest on shareholders’
equity, is at least equal to the mandatory dividend.
interest on shareholders’ equity
to Brazilian withholding
is subject
income
tax.
Voting rights
Each common share entitles the holder thereof to one vote at meetings of our shareholders. Holders of
preferred shares are entitled to the same voting rights as holders of common shares except for the election of members
of the Board of Directors, which will no longer apply in the event of any dividend arrearage, as described below. One
of the members of the permanent Fiscal Council and his or her alternate are elected by majority vote of the holders of
preferred shares. Holders of preferred shares and common shares may, in certain circumstances, combine their
respective holdings to elect members of our Board of Directors, as described under —Common shares and preferred
shares.
The golden shares entitle the holder thereof to the same voting rights as holders of preferred shares. The
golden shares also confer certain other significant veto rights in respect of particular actions, as described under
—Common shares and preferred shares.
The Brazilian corporate law provides that non-voting or restricted-voting shares, such as the preferred shares,
acquire unrestricted voting rights beginning when a company has failed for three consecutive fiscal years (or for any
shorter period set forth in a company’s constituent documents) to pay any fixed or minimum dividend to which such
shares are entitled and continuing until payment thereof is made. Our bylaws do not set forth any such shorter period.
Any change in the preferences or advantages of our preferred shares, or the creation of a class of shares
having priority over the preferred shares, would require the approval of the holder of the golden shares, who can veto
such matters, as well as the approval of the holders of a majority of the outstanding preferred shares, voting as a class
at a special meeting.
Shareholders’ meetings
Our Ordinary General Shareholders’ Meeting is convened by April of each year for shareholders to resolve
upon our financial statements, distribution of profits, election of Directors and Fiscal Council Members, if necessary,
and compensation of senior management. Extraordinary General Shareholders’ Meetings are convened by the Board
of Directors as necessary in order to decide all other matters relating to our corporate purposes and to pass such other
resolutions as may be necessary.
Pursuant to Brazilian corporate law, shareholders voting at a general shareholders’ meeting have the power,
among other powers, to:
•
amend the bylaws;
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Memorandum and articles of association
•
•
•
•
•
•
•
elect or dismiss members of the Board of Directors and members of the Fiscal Council at any time;
establish the remuneration of senior management and members of the Fiscal Council;
receive annual reports by management and accept or reject management’s financial statements and
recommendations including the allocation of net profits and the distributable amount for payment of
the mandatory dividend and allocation to the various reserve accounts;
authorize the issuance of convertible and secured debentures;
suspend the rights of a shareholder in default of obligations established by law or by the bylaws;
accept or reject the valuation of assets contributed by a shareholder in consideration for issuance of
capital stock;
pass resolutions to reorganize our legal form, to merge, consolidate or split us, to dissolve and
liquidate us, to elect and dismiss our liquidators and to examine their accounts; and
•
authorize management to file for bankruptcy or to request a judicial restructuring.
Pursuant to CVM recommendations and as stipulated in our undertakings to the HKEx, all general
shareholders’ meetings, including the annual shareholders’ meeting, require no fewer than 30 days notice to
shareholders prior to the scheduled meeting date. Where any general shareholders’ meeting is adjourned, 15 days
prior notice to shareholders of the reconvened meeting is required. Pursuant to Brazilian corporate law, this notice to
shareholders is required to be published no fewer than three times, in the Diário Oficial do Estado do Rio de Janeiro
and in a newspaper with general circulation in the city where we have our registered office, in Rio de Janeiro. Our
shareholders have previously designated Jornal do Commercio for this purpose. Also, because our shares are traded
on the BM&FBOVESPA, we must publish a notice in a São Paulo based newspaper. Such notice must contain the
agenda for the meeting and, in the case of an amendment to our bylaws, an indication of the meeting’s subject matter.
In addition, under our bylaws, the holder of the golden shares is entitled to a minimum of 15 days prior formal notice
to its legal representative of any general shareholders’ meeting to consider any proposed action subject to the veto
rights accorded to the golden shares. See —Common shares and preferred shares.
A shareholders’ meeting may be held if shareholders representing at least one-quarter of the voting capital are
present, except as otherwise provided, including for meetings convened to amend our bylaws, which require a quorum
of at least two-thirds of the voting capital. If no such quorum is present, notice must again be given in the same
manner as described above, and a meeting may then be convened without any specific quorum requirement, subject to
the minimum quorum and voting requirements for certain matters, as discussed below. A shareholder without a right
to vote may attend a general shareholders’ meeting and take part in the discussion of matters submitted for
consideration.
Except as otherwise provided by law, resolutions of a shareholders’ meeting are passed by a simple majority
vote, abstentions not being taken into account. Under Brazilian corporate law, the approval of shareholders
representing at least one-half of the issued and outstanding voting shares is required for the types of action described
below, as well as, in the case of the first two items below, a majority of issued and outstanding shares of the affected
class:
•
creating a new class of preferred shares or disproportionately increasing an existing class of
preferred shares relative to the other classes of preferred shares, other than to the extent permitted by
the bylaws;
135
•
•
•
changing a priority, preference, right, privilege or condition of redemption or amortization of any
class of preferred shares or creating a new class of shares with greater privileges than the existing
classes of preferred shares;
reducing the mandatory dividend;
changing the corporate purposes;
• merging us with another company or consolidating or splitting us;
•
•
•
participating in a centralized group of companies as defined under Brazilian corporate law;
dissolving or liquidating us; and
canceling any ongoing liquidation of us.
Whenever the shares of any class of capital stock are entitled to vote, each share is entitled to one vote.
Annual shareholders’ meetings must be held by April 30 of each year. Shareholders’ meetings are called, convened
and presided over by the chairman or, in case of his absence, by the vice-chairman of our Board of Directors. In the
case of temporary impediment or absence of the chairman or vice-chairman of the Board of Directors, the
shareholders’ meetings may be chaired by their respective alternates, or in the absence or impediment of such
alternates, by a director especially appointed by the chairman of the Board of Directors. A shareholder may be
represented at a general shareholders’ meeting by a proxy appointed in accordance with applicable Brazilian law not
more than one year before the meeting, who must be a shareholder, a company officer, a lawyer or a financial
institution.
Redemption rights
Our common shares and preferred shares are not redeemable, except that a dissenting shareholder is entitled
under Brazilian corporate law to obtain redemption upon a decision made at a shareholders’ meeting approving any of
the items listed above, as well as:
•
•
•
any decision to transfer all of our shares to another company in order to make us a wholly-owned
subsidiary of such company, a stock merger;
any decision to approve the acquisition of control of another company at a price which exceeds
certain limits set forth in Brazilian corporate law; or
in the event that the entity resulting from (a) a merger, (b) a stock merger as described in clause (i)
above or (c) a spin-off that we conduct fails to become a listed company within 120 days of the
general shareholders’ meeting at which such decision was taken.
Only holders of shares adversely affected by shareholder decisions altering the rights, privileges or priority of
a class of shares or creating a new class of shares may require us to redeem their shares. The right of redemption
triggered by shareholder decisions to merge, consolidate or to participate in a centralized group of companies may
only be exercised if our shares do not satisfy certain tests of liquidity, among others, at the time of the shareholder
resolution. The right of redemption lapses 30 days after publication of the minutes of the relevant general
shareholders’ meeting, unless, as in the case of resolutions relating to the rights of preferred shares or the creation of a
new class of preferred shares, the resolution is subject to confirmation by the preferred shareholders (which must be
made at a special meeting to be held within one year), in which case the 30-day term is counted from the publication of
the minutes of the special meeting.
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Memorandum and articles of association
We would be entitled to reconsider any action giving rise to redemption rights within 10 days following the
expiration of such rights if the redemption of shares of dissenting shareholders would jeopardize our financial
stability. Any redemption pursuant to Brazilian corporate law would be made at no less than the book value per share,
determined on the basis of the last balance sheet approved by the shareholders; provided that if the general
shareholders’ meeting giving rise to redemption rights occurred more than 60 days after the date of the last approved
balance sheet, a shareholder would be entitled to demand that his or her shares be valued on the basis of a new balance
sheet dated within 60 days of such general shareholders’ meeting.
Preemptive rights
Each of our shareholders has a general preemptive right to subscribe for shares in any capital increase, in
proportion to his or her shareholding. A minimum period of 30 days following the publication of notice of a capital
increase is assured for the exercise of the right, and the right is transferable. Under our bylaws and Brazilian corporate
law, and subject to the requirement for shareholder approval of any necessary increase to our authorized share capital,
our Board of Directors may decide not to extend preemptive rights to our shareholders, or to reduce the 30-day period
for the exercise of preemptive rights, in each case with respect to any issuance of shares, debentures convertible into
shares or warrants in the context of a public offering. In the event of a capital increase that would maintain or increase
the proportion of capital represented by preferred shares, holders of preferred shares will have preemptive rights to
subscribe only to newly issued preferred shares. In the event of a capital increase that would reduce the proportion of
capital represented by preferred shares, shareholders will have preemptive rights to subscribe for preferred shares, in
proportion to their shareholdings, and for common shares only to the extent necessary to prevent dilution of their
overall interest in us. In the event of a capital increase that would maintain or increase the proportion of capital
represented by common shares, shareholders will have preemptive rights to subscribe only to newly issued common
shares. In the event of a capital increase that would reduce the proportion of capital represented by common shares,
holders of common shares will have preemptive rights to subscribe for preferred shares only to the extent necessary to
prevent dilution of their overall interest in us.
Tag-along rights
According to Brazilian corporate law, in the event of a sale of control of a company, the acquirer is obliged to
offer to holders of voting shares the right to sell their shares for a price equal to at least 80% of the price paid for the
voting shares representing control.
Form and transfer of shares
Our preferred shares and common shares are in book-entry form registered in the name of each shareholder.
The transfer of such shares is made under Brazilian corporate law, which provides that a transfer of shares is effected
by our transfer agent, Banco Bradesco S.A., upon presentation of valid share transfer instructions to us by a transferor
or its representative. When preferred shares or common shares are acquired or sold on a Brazilian stock exchange, the
transfer is effected on the records of our transfer agent by a representative of a brokerage firm or the stock exchange’s
clearing system. Transfers of shares by a foreign investor are made in the same way and are executed by the investor’s
local agent, who is also responsible for updating the information relating to the foreign investment furnished to the
Central Bank of Brazil.
The BM&FBOVESPA operates a central clearing system through Companhia Brasileira de Liquidação e
Custódia, or CBLC. A holder of our shares may participate in this system and all shares elected to be put into the
system will be deposited in custody with CBLC (through a Brazilian institution that is duly authorized to operate by
the Central Bank of Brazil and maintains a clearing account with CBLC). The fact that such shares are subject to
custody with the relevant stock exchange will be reflected in our registry of shareholders. Each participating
shareholder will, in turn, be registered in the register of our beneficial shareholders that is maintained by CBLC and
will be treated in the same way as registered shareholders.
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SHAREHOLDER DEBENTURES
At the time of the first stage of our privatization in 1997, we issued shareholder revenue interests known in
Brazil as “debentures participativas” to our then-existing shareholders. The terms of the debentures were established
to ensure that our pre-privatization shareholders, including the Brazilian government, would participate alongside us
in potential future financial benefits that we derive from exploiting certain mineral resources that were not taken into
account in determining the minimum purchase price of our shares in the privatization. In accordance with the
debentures deed, holders have the right to receive semi-annual payments equal to an agreed percentage of our net
revenues (revenues less value-added tax, transport fee and insurance expenses related to the trading of the products)
from certain identified mineral resources that we owned at the time of the privatization, to the extent that we exceed
defined thresholds of sales volume relating to certain mineral resources, and from the sale of mineral rights that we
owned at that time. Our obligation to make payments to the holders will cease when the relevant mineral resources are
exhausted.
We have been making semi-annual payments to holders of shareholder debentures, which reached US$14
million in 2011, US$10 million in 2012 and US$11 million in 2013. In October 2013, the accumulated sales volume
of iron ore from the Northern System reached the relevant threshold established in the debentures deed, which
triggered our obligation to make additional semi-annual payments of the premium on iron ore products, starting in
2014. See Note 31 to our consolidated financial statements for a description of the terms of the debentures.
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EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITY HOLDERS
Under Brazilian corporate law, there are no restrictions on ownership of our capital stock by individuals or
legal entities domiciled outside Brazil. However, the right to convert dividend payments and proceeds from the sale of
preferred shares or common shares into foreign currency and to remit such amounts outside Brazil is subject to
restrictions under foreign investment legislation, which generally requires, among other things, that the relevant
investment be registered with the Central Bank of Brazil. These restrictions on the remittance of foreign capital
abroad could hinder or prevent the depositary bank and its agents for the preferred shares or common shares
represented by ADSs and HDSs from converting dividends, distributions or the proceeds from any sale of preferred
shares, common shares or rights, as the case may be, into U.S. dollars or Hong Kong dollars and remitting such
amounts abroad. Delays in, or refusal to grant any required government approval for conversions of Brazilian
currency payments and remittances abroad of amounts owed to holders of ADSs and HDSs could adversely affect
holders of ADRs and HDRs.
Under Resolution No. 2,689/2000 of the CMN, foreign investors may invest in almost all financial assets and
engage in almost all transactions available in the Brazilian financial and capital markets, provided that certain
requirements are fulfilled. In accordance with Resolution No. 2,689/2000, the definition of foreign investor includes
individuals, legal entities, mutual funds and other collective investment entities, domiciled or headquartered outside
Brazil.
Under Resolution No. 2,689/2000, a foreign investor must:
(1)
(2)
(3)
(4)
appoint at least one representative in Brazil, with powers to perform actions relating to its
investment,
complete the appropriate foreign investor registration form,
register as a foreign investor with the CVM, and register its foreign investment with the Central
Bank of Brazil, and
appoint a custodian, duly licensed by the Central Bank of Brazil, if the Brazilian representative in
item (1) is not a financial institution.
Resolution No. 2,689/2000 specifies the manner of custody and the permitted means for trading securities
held by foreign investors under the resolution.
Moreover, the offshore transfer or assignment of securities or other financial assets held by foreign investors
pursuant to Resolution No. 2,689/2000 is prohibited, except for transfers resulting from a corporate reorganization, or
occurring upon the death of an investor by operation of law or will.
Resolution No. 1,927/1992 of the CMN provides for the issuance of depositary receipts in foreign markets in
respect of shares of Brazilian issuers. It provides that the proceeds from the sale of ADSs by holders of ADRs outside
Brazil are not subject to Brazilian foreign investment controls and holders of ADSs who are not residents of a low-tax
jurisdiction (país com tributação favorecida), as defined by Brazilian law, will be entitled to favorable tax treatment.
An electronic registration has been issued to the custodian in the name of the depositary with respect to the
ADSs and HDSs. Pursuant to this electronic registration, the custodian and the depositary are able to convert
dividends and other distributions with respect to the underlying shares into foreign currency and to remit the proceeds
outside Brazil. If a holder exchanges ADSs or HDSs for preferred shares or common shares, the holder must, within
five business days, seek to obtain its own electronic registration with the Central Bank of Brazil under Law No.
4,131/1962 and Resolution No. 2,689/2000. Thereafter, unless the holder has registered its investment with the
Central Bank of Brazil, such holder may not convert into foreign currency and remit outside Brazil the proceeds from
the disposition of, or distributions with respect to, such preferred shares or common shares.
Under Brazilian law, whenever there is a serious imbalance in Brazil’s balance of payments or reasons to
foresee a serious imbalance, the Brazilian government may impose temporary restrictions on the remittance to foreign
139
investors of the proceeds of their investments in Brazil, and on the conversion of Brazilian currency into foreign
currencies. Such restrictions may hinder or prevent the custodian or holders who have exchanged ADSs or HDSs for
underlying preferred shares or common shares from converting distributions or the proceeds from any sale of such
shares, as the case may be, into U.S. dollars or Hong Kong dollars and remitting such U.S. dollars or Hong Kong
dollars abroad. In the event the custodian is prevented from converting and remitting amounts owed to foreign
investors, the custodian will hold the reais it cannot convert for the account of the holders of ADRs or HDRs who have
not been paid. The depositary will not invest the reais and will not be liable for interest on those amounts. Any reais
so held will be subject to devaluation risk against the U.S. dollar or Hong Kong dollar.
140
TAXATION
The following summary contains a description of the principal Brazilian and U.S. federal income tax
consequences of the ownership and disposition of preferred shares, common shares, ADSs or HDSs. You should
know that this summary does not purport to be a comprehensive description of all the tax considerations that may be
relevant to a holder of preferred shares, common shares, ADSs or HDSs.
Holders of preferred shares, common shares, ADSs or HDSs should consult their own tax advisors to discuss
the tax consequences of the purchase, ownership and disposition of preferred shares, common shares, ADSs or HDSs,
including, in particular, the effect of any state, local or other national tax laws.
Although there is at present no treaty to avoid double taxation between Brazil and the United States, but only
a common understanding between the two countries according to which income taxes paid in one may be offset
against taxes to be paid in the other, both countries’ tax authorities have been having discussions that may result in the
execution of such a treaty. In this regard, the two countries signed a Tax Information Exchange Agreement on March
20, 2007, which the Brazilian government approved in May 2013. We cannot predict whether or when such a treaty
will enter into force or how, if entered into, such a treaty will affect the U.S. holders, as defined below, of preferred
shares, common shares or ADSs.
Brazilian tax considerations
The following discussion summarizes the principal Brazilian tax consequences of the acquisition, ownership
and disposition of preferred shares, common shares, ADSs or HDSs by a holder not deemed to be domiciled in Brazil
for purposes of Brazilian taxation (“Non-Brazilian Holder”). It is based on the tax laws of Brazil and regulations
thereunder in effect on the date hereof, which are subject to change (possibly with retroactive effect). This discussion
does not specifically address all of the Brazilian tax considerations applicable to any particular Non-Brazilian Holder.
Therefore, Non-Brazilian Holders should consult their own tax advisors concerning the Brazilian tax consequences of
an investment in preferred shares, common shares, ADSs or HDSs.
Shareholder distributions
For Brazilian corporations, such as the Company, distributions to shareholders are classified as either
dividend or interest on shareholders’ equity.
Dividends
Amounts distributed as dividends will generally not be subject to Brazilian withholding income tax if the
distribution is paid only from profits for the corresponding year, as determined under Brazilian tax principles.
Dividends paid from profits generated before January 1, 1996 may be subject to Brazilian withholding income tax at
varying rates depending on the year the profits were generated. Dividends paid from sources other than profits as
determined under Brazilian tax principles may be subject to withholding tax.
Interest on shareholders’ equity
Amounts distributed as interest on shareholders’ equity are generally subject to withholding income tax at the
rate of 15%, except where:
(1) the beneficiary is exempt from tax in Brazil, in which case the distribution will not be subject to
withholding income tax;
(2) the beneficiary is located in a jurisdiction that does not impose income tax or where the maximum
income tax rate is lower than 20% (a “Low Tax Jurisdiction”) or where internal legislation imposes
restrictions on the disclosure of the shareholding structure or the ownership of the investment, in
which case the applicable withholding income tax rate is 25%; or
(3) the effective beneficiary is resident in Japan, in which case the applicable withholding income tax
rate is 12.5%.
141
Interest on shareholders’ equity is calculated as a percentage of shareholders’ equity, as stated in the statutory
accounting records. The interest rate applied may not exceed TJLP, the benchmark Brazilian long-term interest rate.
In addition, the amount of distributions classified as interest on shareholders’ equity may not be more than the greater
of (1) 50% of net income (after the deduction of social contribution on net profits but before taking into account such
payment of interest and the provision for corporate income tax) for the period in respect of which the payment is made
and (2) 50% of the sum of retained earnings and profit reserves.
Payments of interest on shareholders’ equity are deductible for the purposes of corporate income tax and
social contribution on net profit, to the extent of the limits described above. The tax benefit to the Company in the case
of a distribution by way of interest on shareholders’ equity is a reduction in the Company’s corporate tax charge by an
amount equivalent to 34% of such distribution.
Taxation of capital gains
Taxation of Non-Brazilian Holders on capital gains depends on the status of the holder as either:
•
(i) not resident or domiciled in a Low Tax Jurisdiction or where internal legislation imposes
restrictions on the disclosure of shareholding structure or the ownership of the investment and
registered its investment in Brazil in accordance with Resolution No. 2,689 (a 2,689 Holder), or
(ii) a holder of ADSs or HDSs; or
•
any other Non-Brazilian Holder.
Investors identified in items (i) or (ii) are subject to favorable tax treatment, as described below.
Capital gains realized by a Non-Brazilian Holder from the disposition of “assets located in Brazil” are subject
to taxation in Brazil. Preferred shares and common shares qualify as assets located in Brazil, and the disposition of
such assets by a Non-Brazilian Holder may be subject to income tax on the gains assessed, in accordance with the rules
described below, regardless of whether the transaction is carried out with another Non-Brazilian resident or with a
Brazilian resident.
There is some uncertainty as to whether ADSs or HDSs qualify as “assets located in Brazil” for this purpose.
Arguably, neither ADSs nor HDSs constitute assets located in Brazil and therefore the gains realized by a
Non-Brazilian Holder on the disposition of ADSs or HDSs to another Non-Brazilian resident should not be subject to
income tax in Brazil. However, it is not certain that the Brazilian courts will uphold this interpretation of the definition
of “assets located in Brazil” in connection with the taxation of gains realized by a Non-Brazilian Holder on the
disposition of ADSs or HDSs. Consequently, gains on a disposition of ADSs or HDSs by a Non-Brazilian Holder
(whether in a transaction carried out with another Non-Brazilian Holder or a person domiciled in Brazil) may be
subject to income tax in Brazil in accordance with the rules applicable to a disposition of shares.
Although there are grounds to sustain otherwise, the deposit of preferred shares or common shares in
exchange for ADSs or HDSs may be subject to Brazilian income tax if the acquisition cost of the shares being
deposited is lower than the average price, determined as either:
•
•
the average price per preferred share or common share on the Brazilian stock exchange in
which the greatest number of such shares were sold on the day of deposit; or
if no preferred shares or common shares were sold on that day, the average price on the
Brazilian stock exchange in which the greatest number of preferred shares or common shares
were sold in the 15 trading sessions immediately preceding such deposit.
The positive difference between the average price of the preferred shares or common shares calculated as
described above and their acquisition cost will be considered to be a capital gain subject to income tax in Brazil. In
some circumstances, there are grounds to sustain that such taxation is not applicable with respect to any 2,689 Holder,
provided he is not located in a Low Tax Jurisdiction.
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Taxation
The withdrawal of ADSs or HDSs in exchange for preferred shares or common shares is not subject to
Brazilian income tax, subject to compliance with applicable regulations regarding the registration of the investment
with the Central Bank of Brazil.
For the purpose of Brazilian taxation, the income tax rules on gains related to disposition of preferred shares
or common shares vary depending on:
•
•
the domicile of the Non-Brazilian Holder;
the method by which such Non-Brazilian Holder has registered his investment with the Central
Bank of Brazil; and
•
how the disposition is carried out, as described below.
The gain realized as a result of a transaction on a Brazilian stock exchange is the difference between: (i) the
amount in Brazilian currency realized on the sale or disposition and (ii) the acquisition cost, without any adjustment
for inflation, of the securities that are the subject of the transaction.
Any gain realized by a Non-Brazilian Holder on a sale or disposition of preferred shares or common shares
carried out on the Brazilian stock exchange is:
•
•
•
exempt from income tax where the Non-Brazilian Holder (i) is a 2,689 Holder; and (ii) is not located
in a Low Tax Jurisdiction;
subject to income tax at a rate of 15% where the Non-Brazilian Holder either (A) (i) is not a 2,689
Holder and (ii) is not resident or domiciled in a Low Tax Jurisdiction or (B) (i) is a 2,689 Holder and
(ii) is resident or domiciled in a Low Tax Jurisdiction; or
subject to income tax at a rate of 25% where the Non-Brazilian Holder (i) is not a 2,689 Holder and
(ii) is resident or domiciled in a Low Tax Jurisdiction.
The sale or disposition of common shares carried out on the Brazilian stock exchange is subject to
withholding tax at the rate of 0.005% on the sale value. This withholding tax can be offset against the eventual income
tax due on the capital gain. A 2,689 Holder that is not resident or domiciled in a Low Tax Jurisdiction is not required
to withhold income tax.
Any gain realized by a Non-Brazilian Holder on a sale or disposition of preferred shares or common shares
that is not carried out on the Brazilian stock exchange is subject to income tax at a 15% rate, except for gain realized by
a resident in a Low Tax Jurisdiction, which is subject to income tax at the rate of 25%.
With respect to transactions arranged by a broker that are conducted on the Brazilian non-organized
over-the-counter market, a withholding income tax at a rate of 0.005% on the sale value is also levied on the
transaction and can be offset against the eventual income tax due on the capital gain. There can be no assurance that
the current favorable treatment of 2,689 Holders will continue in the future.
In the case of a redemption of preferred shares, common shares, ADSs or HDSs or a capital reduction by a
Brazilian corporation, the positive difference between the amount received by any Non-Brazilian Holder and the
acquisition cost of the preferred shares, common shares, ADSs or HDSs being redeemed is treated as capital gain and
is therefore generally subject to income tax at the rate of 15%, while the 25% rate applies to residents in a Low Tax
Jurisdiction.
Any exercise of pre-emptive rights relating to our preferred shares or common shares will not be subject to
Brazilian taxation. Any gain realized by a Non-Brazilian Holder on the disposition of pre-emptive rights relating to
preferred shares or common shares in Brazil will be subject to Brazilian income taxation in accordance with the same
rules applicable to the sale or disposition of preferred shares or common shares.
143
Tax on foreign exchange and financial transactions
Foreign exchange transactions
Brazilian law imposes a tax on foreign exchange transactions, or an IOF/Exchange Tax, due on the
conversion of reais into foreign currency and on the conversion of foreign currency into reais. Currently, for most
foreign currency exchange transactions, the rate of IOF/Exchange is 0.38%.
The outflow of resources from Brazil related to investments held by a Non-Brazilian Holder in the Brazilian
financial and capital markets is currently subject to IOF/Exchange at a zero percent rate. In any case, the Brazilian
government may increase such rates at any time, up to 25%, with no retroactive effect.
Transactions involving securities
Brazilian law imposes a tax on transactions involving securities, or an IOF/Securities Tax, including those
carried out on the Brazilian stock exchange. The rate of IOF/Securities Tax applicable to transactions involving
publicly traded securities in Brazil is currently zero. The rate of IOF/Securities Tax applicable to a transfer of shares
traded on the Brazilian stock exchange to back the issuance of depositary receipts has also been zero since December
24, 2013. However, the Brazilian Government may increase such rates at any time up to 1.5% of the transaction
amount per day, but the tax cannot be applied retroactively.
Other Brazilian taxes
There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or
disposition of preferred shares, common shares, ADSs or HDSs by a Non-Brazilian Holder, except for gift and
inheritance taxes which are levied by some states of Brazil on gifts made or inheritances bestowed by a Non-Brazilian
Holder to individuals or entities resident or domiciled within such states in Brazil. There are no Brazilian stamp, issue,
registration, or similar taxes or duties payable by holders of preferred shares or common shares or ADSs or HDSs.
U.S. federal income tax considerations
This summary does not purport to be a comprehensive description of all the U.S. federal income tax
consequences of the acquisition, holding or disposition of the preferred shares, common shares or ADSs. This
summary applies to U.S. holders, as defined below, who hold their preferred shares, common shares or ADSs as
capital assets and does not apply to special classes of holders, such as:
•
•
•
•
•
•
•
•
certain financial institutions,
insurance companies,
dealers in securities or foreign currencies,
tax-exempt organizations,
securities traders who elect to account for their investment in preferred shares, common shares or
ADSs on a mark-to-market basis,
persons holding preferred shares, common shares or ADSs as part of hedge, straddle, conversion or
other integrated financial transactions for tax purposes,
holders whose functional currency for U.S. federal income tax purposes is not the U.S. dollar,
partnerships or other holders treated as “pass-through entities” for U.S. federal income tax purposes,
144
Taxation
•
•
persons subject to the alternative minimum tax, or
persons owning, actually or constructively, 10% or more of our voting shares.
This discussion is based on the Internal Revenue Code of 1986, as amended to the date hereof, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury Regulations, all as in effect on the
date hereof. These authorities are subject to differing interpretations and may be changed, perhaps retroactively, so as
to result in U.S. federal income tax consequences different from those discussed below. There can be no assurance
that the U.S. Internal Revenue Service (the “IRS”) will not challenge one or more of the tax consequences discussed
herein or that a court will not sustain such a challenge in the event of litigation. This summary does not address any
aspect of state, local or non-U.S. tax law.
YOU SHOULD CONSULT YOUR TAX ADVISORS WITH REGARD TO THE APPLICATION OF
THE U.S. FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATIONS AS WELL AS ANY
TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING
JURISDICTION.
This discussion is also based, in part, on representations of the depositary and the assumption that each
obligation in the deposit agreement and any related agreement will be performed in accordance with its terms.
For purposes of this discussion, you are a “U.S. holder” if you are a beneficial owner of preferred shares,
common shares or ADSs that is, for U.S. federal income tax purposes:
•
•
•
a citizen or resident alien individual of the United States,
a corporation created or organized in or under the laws of the United States or of any political
subdivision thereof, or
otherwise subject to U.S. federal income taxation on a net income basis with respect to the preferred
shares, common shares or ADSs.
The term U.S. holder also includes certain former citizens of the United States.
In general, if you are the beneficial owner of American depositary receipts evidencing ADSs, you will be
treated as the beneficial owner of the preferred shares or common shares represented by those ADSs for U.S. federal
income tax purposes. Deposits and withdrawals of preferred shares or common shares by you in exchange for ADSs
will not result in the realization of gain or loss for U.S. federal income tax purposes. Your tax basis in such preferred
shares or common shares will be the same as your tax basis in such ADSs, and the holding period in which preferred
shares or common shares will include the holding period in such ADSs.
Taxation of dividends
The gross amount of a distribution paid on ADSs, preferred shares or common shares, including distributions
paid in the form of payments of interest on capital for Brazilian tax purposes, out of our current or accumulated
earnings and profits (as determined for U.S. federal income tax purposes) will be taxable to you as foreign source
dividend income and will not be eligible for the dividends-received deduction allowed to corporate shareholders under
U.S. federal income tax law. The amount of any such distribution will include the amount of Brazilian withholding
taxes, if any, withheld on the amount distributed. To the extent that a distribution exceeds our current and
accumulated earnings and profits, such distribution will be treated as a nontaxable return of capital to the extent of
your basis in the ADSs, preferred shares or common shares, as the case may be, with respect to which such distribution
is made, and thereafter as a capital gain.
145
You will be required to include dividends paid in reais in income in an amount equal to their U.S. dollar value
calculated by reference to an exchange rate in effect on the date such distribution is received by the depositary, in the
case of ADSs, or by you, in the case of common shares or preferred shares. If the depositary or you do not convert
such reais into U.S. dollars on the date they are received, it is possible that you will recognize foreign currency loss or
gain, which would be ordinary loss or gain, when the reais are converted into U.S. dollars. If you hold ADSs, you will
be considered to receive a dividend when the dividend is received by the depositary.
Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends
received by certain noncorporate taxpayers, including individuals, will be subject to taxation at the preferential rates
applicable to long-term capital gains if the dividends are “qualified dividends.” Dividends paid on the ADSs will be
treated as qualified dividends if (i) the ADSs are readily tradable on an established securities market in the United
States and (ii) the Company was not, in the year prior to the year in which the dividend was paid, and is not, in the year
in which the dividend is paid, a passive foreign investment company (“PFIC”). The ADSs are listed on the New York
Stock Exchange and will qualify as readily tradable on an established securities market in the United States so long as
they are so listed. Based on Vale’s audited financial statements and relevant market and shareholder data, Vale
believes that it was not treated as a PFIC for U.S. federal income tax purposes with respect to its 2012 taxable year. In
addition, based on Vale’s audited financial statements and its current expectations regarding the value and nature of its
assets, the sources and nature of its income, and relevant market and shareholder data, Vale does not anticipate
becoming a PFIC for its 2013 taxable year.
Based on existing guidance, it is not entirely clear whether dividends received with respect to the preferred
shares and common shares will be treated as qualified dividends (and therefore whether such dividends will qualify for
the preferential rates of taxation applicable to long-term capital gains ), because the preferred shares and common
shares are not themselves listed on a U.S. exchange. In addition, the U.S. Treasury has announced its intention to
promulgate rules pursuant to which holders of ADSs, preferred shares or common stock and intermediaries through
whom such securities are held will be permitted to rely on certifications from issuers to establish that dividends are
treated as qualified dividends. Because such procedures have not yet been issued, it is unclear whether we will be able
to comply with them. You should consult your own tax advisors regarding the availability of the reduced dividend tax
rate in light of your own particular circumstances.
Subject to generally applicable limitations and restrictions, you will be entitled to a credit against your U.S.
federal income tax liability, or a deduction in computing your U.S. federal taxable income, for Brazilian income taxes
withheld by us. You must satisfy minimum holding period requirements to be eligible to claim a foreign tax credit for
Brazilian taxes withheld on dividends. The limitation on foreign taxes eligible for credit is calculated separately for
specific classes of income. For this purpose dividends paid by us on our shares will generally constitute “passive
income”. Foreign tax credits may not be allowed for withholding taxes imposed in respect of certain short-term or
hedged positions in securities or in respect of arrangements in which a U.S. holder’s expected economic profit is
insubstantial. You should consult your own tax advisors concerning the implications of these rules in light of your
particular circumstances.
Taxation of capital gains
Upon a sale or exchange of preferred shares, common shares or ADSs, you will recognize a capital gain or
loss for U.S. federal income tax purposes equal to the difference, if any, between the amount realized on the sale or
exchange and your adjusted tax basis in the preferred shares, common shares or ADSs. This gain or loss will be
long-term capital gain or loss if your holding period in the preferred shares, common shares or ADSs exceeds one year.
The net amount of long-term capital gain recognized by individual U.S. holders generally is subject to taxation at
preferential rates. Your ability to use capital losses to offset income is subject to limitations.
146
Taxation
Any gain or loss will be U.S. source gain or loss for U.S. foreign tax credit purposes. Consequently, if a
Brazilian withholding tax is imposed on the sale or disposition of ADSs, preferred shares or common shares, and you
do not receive significant foreign source income from other sources you may not be able to derive effective U.S.
foreign tax credit benefits in respect of such Brazilian withholding tax. You should consult your own tax advisor
regarding the application of the foreign tax credit rules to your investment in, and disposition of, ADSs, preferred
shares or common shares.
If a Brazilian tax is withheld on the sale or disposition of shares, the amount realized by a U.S. holder will
include the gross amount of the proceeds of such sale or disposition before deduction of the Brazilian tax. See
Brazilian tax considerations above.
Information reporting and backup withholding
Information returns may be filed with the IRS in connection with distributions on the preferred shares,
common shares or ADSs and the proceeds from their sale or other disposition. You may be subject to United States
backup withholding tax on these payments if you fail to provide your taxpayer identification number or comply with
certain certification procedures or otherwise establish an exemption from backup withholding. If you are required to
make such a certification or to establish such an exemption, you generally must do so on IRS Form W-9.
The amount of any backup withholding from a payment to you will be allowed as a credit against your U.S.
federal income tax liability and may entitle you to a refund, provided that the required information is timely furnished
to the IRS.
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EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management, with the participation of our chief executive officer and chief financial officer, has
evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2013. There are inherent
limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human
error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure
controls and procedures can only provide reasonable assurance of achieving their control objectives.
Our chief executive officer and chief financial officer have concluded that our disclosure controls and
procedures were effective to provide reasonable assurance that information required to be disclosed by us in the
reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management,
including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding
required disclosure.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our internal control over financial reporting includes those
policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that
transactions are recorded to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material
effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject
to the risk that controls may become inadequate and that the degree of compliance with the policies or procedures may
deteriorate.
Our management has assessed the effectiveness of Vale’s internal control over financial reporting as of
December 31, 2013 based on the criteria established in “Internal Control – Integrated Framework (1992)” issued by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on such assessment and
criteria, our management has concluded that our internal control over financial reporting was effective as of December
31, 2013. The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited
by PricewaterhouseCoopers Auditores Independentes, an independent registered public accounting firm, as stated in
their report which appears herein.
Our management identified no change in our internal control over financial reporting during our fiscal year
ended December 31, 2013 that has materially affected or is reasonably likely to materially affect our internal control
over financial reporting.
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CORPORATE GOVERNANCE
Under NYSE rules, foreign private issuers are subject to more limited corporate governance requirements
than U.S. domestic issuers. As a foreign private issuer, we must comply with four principal NYSE corporate
governance rules: (1) we must satisfy the requirements of Exchange Act Rule 10A-3 relating to audit committees; (2)
our chief executive officer must promptly notify the NYSE in writing after any executive officer becomes aware of
any non-compliance with the applicable NYSE corporate governance rules; (3) we must provide the NYSE with
annual and interim written affirmations as required under the NYSE corporate governance rules; and (4) we must
provide a brief description of any significant differences between our corporate governance practices and those
followed by U.S. companies under NYSE listing standards. The table below briefly describes the significant
differences between our practices and the practices of U.S. domestic issuers under NYSE corporate governance rules.
Section
303A.01
303A.03
303A.04
NYSE corporate governance rule for
U.S. domestic issuers
Our approach
A listed company must have a majority of independent
directors. “Controlled companies” are not required to
comply with this requirement.
The non-management directors of a listed company must
meet at regularly scheduled executive sessions without
management.
A listed company must have a nominating/corporate
governance committee composed entirely of independent
directors, with a written charter that covers certain minimum
specified duties.
“Controlled companies” are not required to comply with this
requirement.
We are a controlled company because more than a majority of our
voting power for the appointment of directors is controlled by
Valepar. As a controlled company, we would not be required to
comply with the majority of independent director requirements if we
were a U.S. domestic issuer. There is no legal provision or policy
that requires us to have independent directors.
We do not have any management directors.
We do not have a nominating committee. As a controlled company,
we would not be required to comply with the nominating/corporate
governance committee requirements if we were a U.S. domestic
issuer. However, we do have a Governance and Sustainability
Committee, which is an advisory committee to the Board of
Directors and may include members who are not directors.
According to its charter, this committee is responsible for:
•
•
•
•
evaluating and recommending improvements to the
effectiveness of our corporate governance practices and
the functioning of the Board of Directors;
recommending improvements to our code of ethical
conduct and management system in order to avoid
conflicts of interest between us and our shareholders or
management;
issuing reports on potential conflicts of interest between
us and our shareholders or management; and
reporting on policies relating to corporate responsibility,
such as environmental and social responsibility.
The committee’s charter requires at least one of its members to be
independent. For this purpose, an independent member is a person
who:
•
•
•
•
•
does not have any current relationship with us other than
being part of a committee, or being a shareholder of the
Company;
does not participate, directly or indirectly, in the sales
efforts or provision of services by Vale;
is not a representative of the controlling shareholders;
has not been an employee of the controlling shareholder
or of entities affiliated with a controlling shareholder; and
has not been an executive officer of the controlling
shareholder.
149
303A.05
A listed company must have a compensation committee
composed entirely of independent directors, with a written
charter that covers certain minimum specified duties.
As a controlled company, we would not be required to comply with
the compensation committee requirements if we were a U.S.
domestic issuer.
“Controlled companies” are not required to comply with this
requirement.
However, we have an Executive Development Committee, which is
an advisory committee to the Board of Directors and may include
members who are not directors. This committee is responsible for:
•
•
•
•
reporting on general human resources policies;
analyzing and reporting on the adequacy of compensation
levels for our executive officers;
proposing and updating guidelines for evaluating the
performance of our executive officers; and
reporting on policies relating to health and safety.
In lieu of appointing an audit committee composed of independent
members of the Board of Directors, we have established a permanent
conselho fiscal, or fiscal council, in accordance with the applicable
provisions of Brazilian corporate law, and provided the fiscal council
with additional powers to permit it to meet the requirements of
Exchange Act Rule 10A-3(c)(3).
Under our bylaws, the Fiscal Council shall have between three and
five members. Under Brazilian corporate law, which provides
standards for the independence of the Fiscal Council from us and our
management, none of the members of the Fiscal Council may be a
member of the Board of Directors or an executive officer.
Management does not elect any Fiscal Council member. Our Board
of Directors has determined that one of the members of our Fiscal
Council meets the New York Stock Exchange independence
requirements that would apply to audit committee members in the
absence of our reliance on Exchange Act Rule 10A-3(c)(3).
The responsibilities of the Fiscal Council are set forth in its charter.
Under our bylaws, the charter must give the Fiscal Council
responsibility for the matters required under Brazilian corporate law,
as well as responsibility for:
•
•
•
•
establishing procedures for the receipt, retention and treatment
of complaints related to accounting, controls and audit issues,
as well as procedures for the confidential, anonymous
submission of concerns regarding such matters;
recommending and assisting the Board of Directors in the
appointment, establishment of compensation and dismissal of
independent auditors;
pre-approving services to be rendered by the independent
auditors;
overseeing the work performed by the independent auditors,
with powers to recommend withholding the payment of
compensation to the independent auditors; and
• mediating disagreements between management and the
independent auditors regarding financial reporting.
Under Brazilian corporate law, shareholder pre-approval is required
for the adoption of any equity compensation plans.
303A.06
303A.07
A listed company must have an audit committee with a
minimum of three independent directors who satisfy the
independence requirements of Rule 10A-3 under the
Exchange Act, with a written charter that covers certain
minimum specified duties.
303A.08
Shareholders must be given the opportunity to vote on all
equity-compensation plans and material revisions thereto,
with limited exemptions set forth in the NYSE rules.
150
Corporate Governance
We have not published formal corporate governance guidelines.
We have adopted a formal code of ethical conduct, which applies to
our directors, officers and employees. We report each year in our
annual report on Form 20-F any waivers of the code of ethical
conduct granted for directors or executive officers. Our code of
ethical conduct has a scope that is similar, but not identical, to that
required for a U.S. domestic company under the NYSE rules.
We are subject to (b) and (c) of these requirements, but not (a).
303A.09
303A.10
A listed company must adopt and disclose corporate
governance guidelines that cover certain minimum specified
subjects.
A listed company must adopt and disclose a code of business
conduct and ethics for directors, officers and employees, and
promptly disclose any waivers of the code for directors or
executive officers.
303A.12
a) Each listed company CEO must certify to the NYSE each
year that he or she is not aware of any violation by the
company of NYSE corporate governance listing standards.
b) Each listed company CEO must promptly notify the
NYSE in writing after any executive officer of the listed
company becomes aware of any non-compliance with any
applicable provisions of this Section 303A.
c) Each listed company must submit an executed Written
Affirmation annually to the NYSE. In addition, each listed
company must submit an interim Written Affirmation as and
when required by the interim Written Affirmation form
specified by the NYSE.
CODE OF ETHICS AND CONDUCT
In January 2013 we adopted a new code of ethics and conduct that applies to our employees and to the
members of our Board of Directors and our Board of Executive Officers, including the chief executive officer, the
chief financial officer and the principal accounting officer. We have posted this code of ethics and conduct on our
website, at: http://www.vale.com (under English Version/Investors/Corporate Governance/Code of Ethics). Copies of
our code of ethics and conduct may be obtained without charge by writing to us at the address set forth on the front
cover of this Form 20-F. We have not granted any implicit or explicit waivers from any provision of our new code of
ethics and conduct since its adoption, and we did not grant any implicit or explicit waivers from any provision of the
previous version of our code of ethics.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PricewaterhouseCoopers Auditores Independentes billed us for the following fees for professional services in
2012 and 2013.
Audit fees ................................................................................................................................................................
Audit-related fees ...................................................................................................................................................
Other fees ................................................................................................................................................................
Total fees ............................................................................................................................................................
Year ended December 31,
2012
2013
(US$ thousand)
9,114
936
(cid:31)
10,050
10,438
295
137
10,870
“Audit fees” are the aggregate fees billed by PricewaterhouseCoopers for the audit of our annual financial
statements, the audit of the statutory financial statements of our subsidiaries, and reviews of interim financial
statements and attestation services that are provided in connection with statutory and regulatory filings or
engagements. They also include fees for services that only the independent auditor reasonably can provide, including
the provision of comfort letters and consents in connection with statutory and regulatory filings and the review of
documents filed with the SEC and other capital markets or local financial reporting regulatory bodies. “Audit-related
fees” are fees charged by PricewaterhouseCoopers for assurance and related services that are reasonably related to the
performance of the audit or review of our financial statements and are not reported under “Audit fees.”
151
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
We expect that KPMG Auditores Independentes (“KPMG”) will replace PricewaterhouseCoopers Auditores
Independentes as our independent public accountants and will audit our financial statements for the fiscal years
starting January 1, 2014. The change in auditors is being made pursuant to a regulation of the CVM that limits the
consecutive terms that certain service providers may serve. Because of the limitations set forth in this law, we did not
seek to renew PricewaterhouseCoopers’ contract when it expired and PricewaterhouseCoopers did not attempt to
stand for reelection. The replacement of PricewaterhouseCoopers by KPMG was approved by our Board of Directors
and Fiscal Council on November 8, 2013. PricewaterhouseCoopers is engaged as our auditor for the fiscal years ended
December 31, 2013 and 2012 until the filing of this Form 20-F with the Securities and Exchange Commission and will
perform a limited review of our interim financial statements for the three-month period ended March 31, 2014.
PricewaterhouseCoopers audited our financial statements for the fiscal years ended December 31, 2013 and
December 31, 2012. None of the reports of PricewaterhouseCoopers on our financial statements for either of such
fiscal years contained an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit
scope or accounting principles. During the two most recent fiscal years and through the date hereof, there have been no
disagreements with PricewaterhouseCoopers, whether or not resolved, on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which,
to
PricewaterhouseCoopers’ satisfaction, would have caused it to make reference to the subject matter of the
disagreement in connection with any reports it would have issued, and there were no “reportable events” as that term is
defined in Item 16F(a)(1)(v) of Form 20-F. PricewaterhouseCoopers did not audit any of our financial statements for
any period subsequent to December 31, 2013.
if not resolved
We have provided PricewaterhouseCoopers with a copy of the foregoing disclosure, and have requested that
it furnish us with a letter addressed to the Securities and Exchange Commission stating whether or not it agrees with
such disclosure. We are including as Exhibit 15.2 to this Form 20-F a copy of the letter from PricewaterhouseCoopers
as required by Item 16F(a)(3) of Form 20-F.
During the fiscal years ended December 31, 2013 and December 31, 2012, we did not consult with KPMG
regarding the application of accounting principles to a specific completed or contemplated transaction or regarding the
type of audit opinion that might be rendered by KPMG on our financial statements. Further, KPMG did not provide
any written or oral advice that was an important factor considered by us in reaching a decision as to any such
accounting, auditing or financial reporting or any matter being the subject of disagreement or “reportable event” or
any other matter as defined in Item 16F(a)(v) of Form 20-F.
152
INFORMATION FILED WITH SECURITIES REGULATORS
We are subject to various information and disclosure requirements in those countries in which our securities
are traded, and we file financial statements and other periodic reports with the CVM, BM&FBOVESPA, the SEC, the
French securities regulator Autorité des Marchés Financiers, and the HKEx.
• Brazil. Vale’s Common Shares and Class A Preferred Shares are listed on BM&FBOVESPA in São
Paulo, Brazil. As a result, we are subject to the information and disclosure requirements of
Brazilian Corporate Law, as amended. We are also subject to the periodic disclosure requirements
of CVM rules applicable to listed companies and to BM&FBOVESPA’s “Level 1” Corporate
Governance Requirements.
the CVM at
http://www.cvm.gov.br or from BM&FBOVESPA at http://www.bmfbovespa.com.br. In addition,
as with all of our security filings, they may be accessed at our website, http://www.vale.com.
filings are available
Our CVM
from
• United States. As a result of our ADSs being listed on the New York Stock Exchange, we are
subject to the information requirements of the Securities Exchange Act of 1934, as amended, and
accordingly file reports and other information with the SEC. Reports and other information filed by
us with the SEC may be inspected and copied at the public reference facilities maintained by the
SEC at 100 F Street, N.E., Washington, D.C., 20549. You can obtain further information about the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also
inspect Vale’s reports and other information at the offices of the New York Stock Exchange, 11
Wall Street, New York, New York 10005, on which Vale’s ADSs are listed. Our SEC filings are
also available to the public from the SEC at http://www.sec.gov. For further information on
obtaining copies of Vale’s public filings at the New York Stock Exchange, you should call (212)
656-5060.
• France. As a result of the admission of the ADSs to listing and trading on NYSE Euronext Paris, we
must comply with certain French periodic and ongoing disclosure rules (for example, annual report
with audited financial statements and interim financial statements). In general, the Company is
deemed to comply with the French periodic and ongoing disclosure rules through its compliance
with U.S. disclosure rules.
• Hong Kong. As a result of the listing and trading of our HDSs on the HKEx, we must comply with
the HKEx Listing Rules, subject to certain waivers granted by the HKEx, including certain periodic
and ongoing disclosure rules, such as annual reports with audited financial statements and interim
financial statements. In accordance with the HKEx Listing Rules, we upload reports and other
information to the website of the HKEx, which are available to the public from the HKEx at
http://www.hkexnews.hk.
153
Exhibit Number
EXHIBITS
1
8
12.1
12.2
13.1
15.1
15.2
Bylaws of Vale S.A., as amended on May 7, 2013, incorporated by reference to the current report on
Form 6-K furnished to the Securities and Exchange Commission on May 8, 2013 (File No.
001-15030)
List of subsidiaries
Certification of Chief Executive Officer of Vale pursuant to Rules 13a-14 and 15d-14 under the
Securities Exchange Act of 1934
Certification of Chief Financial Officer of Vale pursuant to Rules 13a-14 and 15d-14 under the
Securities Exchange Act of 1934
Certification of Chief Executive Officer and Chief Financial Officer of Vale, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Consent of PricewaterhouseCoopers
Letter from PricewaterhouseCoopers required by Item 16F(a)(3)
The amount of long-term debt securities of Vale or its subsidiaries authorized under any individual
outstanding agreement does not exceed 10% of Vale’s total assets on a consolidated basis. Vale hereby agrees to
furnish the SEC, upon its request, a copy of any instruments defining the rights of holders of its long-term debt or of its
subsidiaries for which consolidated or unconsolidated financial statements are required to be filed.
154
GLOSSARY
Alumina ................................... Aluminum oxide. It is the main component of bauxite, and extracted from bauxite
ore in a chemical refining process. It is the principal raw material in the
electro-chemical process from which aluminum is produced.
Aluminum ................................ A white metal that is obtained in the electro-chemical process of reducing aluminum
oxide.
Anthracite ................................ The hardest coal type, which contains a high percentage of fixed carbon and a low
percentage of volatile matter. Anthracite is the highest ranked coal and it contains
90% fixed carbon, more than any other form of coal. Anthracite has a semi-metallic
luster and is capable of burning with little smoke. Mainly used for metallurgical
purposes.
Austenitic stainless steel .......... Steel that contains a significant amount of chromium and sufficient nickel to
stabilize the austenite microstructure, giving to the steel good formability and
ductility and improving its high temperature resistance. They are used in a wide
variety of applications, ranging from consumer products to industrial process
equipment, as well as for power generation and transportation equipment, kitchen
appliances and many other applications where strength, corrosion and high
temperature resistance are required.
A$ ............................................ The Australian dollar.
Bauxite ..................................... A rock composed primarily of hydrated aluminum oxides. It is the principal ore of
alumina, the raw material from which aluminum is made.
Beneficiation ............................ A variety of processes whereby extracted ore from mining is reduced to particles that
can be separated into ore-mineral and waste, the former suitable for further
processing or direct use.
CAD ......................................... The Canadian dollar.
CFR ......................................... Cost and freight. Indicates that all costs related to the transportation of goods up to a
Coal ......................................... Coal is a black or brownish-black solid combustible substance formed by the
named port of destination will be paid by the seller of the goods.
decomposition of vegetable matter without access to air. The rank of coal, which
includes anthracite, bituminous coal (both are called hard coal), sub-bituminous
coal, and lignite, is based on fixed carbon, volatile matter, and heating value.
Cobalt ...................................... Cobalt is a hard, lustrous, silver-gray metal found in ores, and used in the preparation
of magnetic, wear-resistant, and high-strength alloys (particularly for jet engines and
turbines). Its compounds are also used in the production of inks, paints, catalysts
and battery materials.
Coke ......................................... Coal that has been processed in a coke oven, for use as a reduction agent in blast
furnaces and in foundries for the purposes of transforming iron ore into pig iron.
Coking Coal
See metallurgical coal.
Concentration .......................... Physical, chemical or biological process to increase the grade of the metal or mineral
of interest.
155
Copper ..................................... A reddish brown metallic element. Copper is highly conductive, both thermally and
electrically. It is highly malleable and ductile and is easily rolled into sheet and
drawn into wire.
Copper anode ........................... Copper anode is a metallic product of the converting stage of smelting process that is
cast into blocks and generally contains 99% copper grade, which requires further
processing to produce refined copper cathodes.
Copper cathode ........................ Copper plate with purity higher than or equal to 99.9% that is produced by an
electrolytic process.
Copper concentrate .................. Material produced by concentration of copper minerals contained in the copper ore.
It is the raw material used in smelters to produce copper metal.
CVM ........................................ The Comissão de Valores Mobiliários (Brazilian Securities and Exchange
Commission).
DRI .......................................... Direct reduced iron. Iron ore lumps or pellets converted by the direct reduction
process, used mainly as a scrap substitute in electric arc furnace steelmaking.
DWT ........................................ Deadweight ton. The measurement unit of a vessel’s capacity for cargo, fuel oil,
stores and crew, measured in metric tons of 1,000 kg. A vessel’s total deadweight is
the total weight the vessel can carry when loaded to a particular load line.
Electrowon copper cathode ...... Refined copper cathode is a metallic product produced by an electrochemical
process in which copper is recovered from an electrolyte and plated onto an
electrode. Electrowon copper cathodes generally contain 99.99% copper grade.
Embedded derivatives .............. A financial instrument within a contractual arrangement such as leases, purchase
agreements and guarantees. Its function is to modify some or all of the cash flow
that would otherwise be required by the contract, such as caps, floors or collars.
Emissions trading ..................... Emissions trading is a market-based scheme for environmental improvement that
allows parties to buy and sell permits for emissions or credits for reductions in
emissions of certain pollutants.
Fe unit ...................................... A measure of the iron grade in the iron ore that is equivalent to 1% iron grade in one
metric ton of iron ore.
Ferroalloys ............................... Ferroalloys are alloys of iron that contain one or more other chemical elements.
These alloys are used to add these other elements into molten metal, usually in
steelmaking. The principal ferroalloys are those of manganese, silicon and
chromium.
FOB ......................................... Free on board. It indicates that the purchaser pays for shipping, insurance and all the
other costs associated with transportation of the goods to their destination.
Gold ......................................... A precious metal sometimes found free in nature, but usually found in conjunction
with silver, quartz, calcite, lead, tellurium, zinc or copper. It is the most malleable
and ductile metal, a good conductor of heat and electricity and unaffected by air and
most reagents.
Grade ....................................... The proportion of metal or mineral present in ore or any other host material.
156
Glossary
Hard metallurgical coal ........... Metallurgical coking coal with the required properties to produce a stronger/harder
metallurgical coke.
Hematite Ore ........................... Hematite is an iron oxide mineral, but also denotes the high-grade iron ore type
within the iron deposits.
Iridium ..................................... A dense, hard, brittle, silvery-white transition metal of the platinum family that
occurs in natural alloys with platinum or osmium. Iridium is used in high-strength
alloys that can withstand high temperatures, primarily in high-temperature
apparatus, electrical contacts, and as a hardening agent for platinum.
Iron ore pellets ......................... Agglomerated ultra-fine iron ore particles of a size and quality suitable for particular
iron making processes. Our iron ore pellets range in size from 8 mm to 18 mm.
Itabirite ore .............................. Itabirite is a banded iron formation and denotes the low-grade iron ore type within
the iron deposits.
Lump ore ................................. Iron ore or manganese ore with the coarsest particle size in the range of 6.35 mm to
50 mm in diameter, but varying slightly between different mines and ores.
Manganese ............................... A hard brittle metallic element found primarily in the minerals pyrolusite,
hausmannite and manganite. Manganese is essential to the production of virtually
all steels and is important in the production of cast iron.
Metallurgical coal .................... A bituminous hard coal with a quality that allows the production of coke. Normally
used in coke ovens for metallurgical purposes.
Methanol .................................. An alcohol fuel largely used in the production of chemical and plastic compounds.
Mineral deposit(s)
A mineralized body that has been intersected by a sufficient number of closely
spaced drill holes and/or underground/surface samples to support sufficient tonnage
and grade of metal(s) or mineral(s) of interest to warrant further
exploration-development work.
Mineral resource ...................... A concentration or occurrence of minerals of economic interest in such form and
quantity that could justify an eventual economic extraction. The location, quantity,
grade, geological characteristics and continuity of a mineral resource are known,
estimated or interpreted from specific geological evidence through drill holes,
trenches and/or outcrops. Mineral resources are sub-divided, in order of increasing
geological confidence, into Inferred, Indicated and Measured Resources.
Mtpy ........................................ Million metric tons per year.
Nickel ...................................... A silvery white metal that takes on a high polish. It is hard, malleable, ductile,
somewhat ferromagnetic, and a fair conductor of heat and electricity. It belongs to
the iron-cobalt group of metals and is chiefly valuable for the alloys it forms, such as
stainless steel and other corrosion-resistant alloys.
Nickel laterite .......................... Deposits are formed by intensive weathering of olivine-rich ultramafic rocks such as
dunite, peridotite and komatite.
Nickel limonitic laterite ........... Type of nickel laterite located at the top of the laterite profile. It consists largely of
goethite and contains 1-2% nickel. Also contains concentrations on cobalt.
157
Nickel matte ............................. An intermediate smelter product that must be further refined to obtain pure metal.
Nickel pig iron ......................... A low-grade nickel product, made from lateritic ores, suitable primarily for use in
stainless steel production. Nickel pig iron typically has a nickel grade of 1.5-6%
produced from blast furnaces. Nickel pig iron can also contain chrome, manganese,
and impurities such as phosphorus, sulfur and carbon. Low grade ferro-nickel
(FeNi) produced in China through electric furnaces is often also referred to as nickel
pig iron.
Nickel saprolitic laterite ........... Type of nickel laterite located at the bottom of the laterite profile and contains on
average 1.5-2.5% nickel.
Nickel sulfide ........................... Formed through magmatic processes where nickel combines with sulfur to form a
sulfide phase. Pentlandite is the most common nickel sulfide ore mineral mined and
often occurs with chalcopyrite, a common copper sulfide mineral.
Ntk ........................................... Net ton (the weight of the goods being transported excluding the weight of the
wagon) kilometer.
Open-pit mining ....................... Method of extracting rock or minerals from the earth by their removal from an open
pit. Open-pit mines for extraction of ore are used when deposits of commercially
useful minerals or rock are found near the surface; that is, where the overburden
(surface material covering the valuable deposit) is relatively thin or the material of
interest is structurally unsuitable for underground mining.
Oxides ...................................... Compounds of oxygen with another element. For example, magnetite is an oxide
mineral formed by the chemical union of iron with oxygen.
Ozpy ........................................ Troy ounces per year.
Palladium ................................. A silver-white metal that is ductile and malleable, used primarily in
automobile-emissions control devices, and electrical applications.
PCI ........................................... Pulverized coal injection. Type of coal with specific properties ideal for direct
injection via the tuyeres of blast furnaces. This type of coal does not require any
processing or coke making, and can be directly injected into the blast furnaces,
replacing lump cokes to be charged from the top of the blast furnaces.
Pellet feed fines ....................... Ultra-fine iron ore (less than 0.15 mm) generated by mining and grinding. This
material is aggregated into iron ore pellets through an agglomeration process.
Pelletizing ................................ Iron ore pelletizing is a process of agglomeration of ultra-fines produced in iron ore
exploitation and concentration steps. The three basic stages of the process are: (i)
ore preparation (to get the correct fineness); (ii) mixing and balling (additive mixing
and ball formation); and (iii) firing (to get ceramic bonding and strength).
PGMs ....................................... Platinum group metals. Consist of platinum, palladium, rhodium, ruthenium,
osmium and iridium.
Phosphate ................................. A phosphorous compound, which occurs in natural ores and is used as a raw material
Pig iron .................................... Product of smelting iron ore usually with coke and limestone in a blast furnace.
for primary production of fertilizer nutrients, animal feeds and detergents.
158
Glossary
Platinum ................................... A dense, precious, grey-white transition metal that is ductile and malleable and
occurs in some nickel and copper ores. Platinum is resistant to corrosion and is used
primarily in jewelry, and automobile-emissions control devices.
Potash ...................................... A potassium chloride compound, chiefly KCl, used as simple fertilizer and in the
production of mixture fertilizer.
Precious metals ........................ Metals valued for their color, malleability, and rarity, with a high economic value
driven not only by their practical industrial use, but also by their role as investments.
The widely-traded precious metals are gold, silver, platinum and palladium.
Primary nickel ......................... Nickel produced directly from mineral ores.
Probable (indicated) reserves ... Reserves for which quantity and grade and/or quality are computed from
information similar to that used for proven (measured) reserves, but the sites for
inspection, sampling and measurement are farther apart or are otherwise less
adequately spaced. The degree of assurance, although lower than that for proven
(measured) reserves, is high enough to assume continuity between points of
observation.
Proven (measured) reserves ..... Reserves for which (a) quantity is computed from dimensions revealed in outcrops,
trenches, working or drill holes; grade and/or quality are computed from the results
of detailed sampling and (b) the sites for inspection, sampling and measurement are
spaced so closely and the geologic character is so well defined that size, shape, depth
and mineral content of reserves are well-established.
Real, reais or R$ ...................... The official currency of Brazil is the real (singular) (plural: reais).
Reserves ................................... The part of a mineral deposit that could be economically and legally extracted or
produced at the time of the reserve determination.
Rhodium .................................. A hard, silvery-white, durable metal that has a high reflectance and is primarily used
in combination with platinum for automobile-emission control devices and as an
alloying agent for hardening platinum.
ROM ........................................ Run-of-mine. Ore in its natural (unprocessed) state, as mined, without having been
crushed.
Ruthenium ............................... A hard, white metal that can harden platinum and palladium used to make severe
wear-resistant electrical contacts and in other applications in the electronics
industry.
Secondary or scrap nickel ........ Stainless steel or other nickel-containing scrap.
Seaborne market ...................... Comprises the total ore trade between countries using ocean bulk vessels.
Silver ....................................... A ductile and malleable metal used in photography, coins and medal fabrication, and
in industrial applications.
Sinter feed (also known as
fines) ........................................
Iron ore fines with particles in the range of 0.15 mm to 6.35 mm in diameter.
Suitable for sintering.
Sintering .................................. The agglomeration of sinter feed, binder and other materials, into a coherent mass by
heating without melting, to be used as metallic charge into a blast furnace.
159
Slabs ........................................ The most common type of semi-finished steel. Traditional slabs measure 10 inches
thick and 30-85 inches wide (and average 20 feet long), while the output of the
recently developed “thin slab” casters is two inches thick. Subsequent to casting,
slabs are sent to the hot-strip mill to be rolled into coiled sheet and plate products.
Stainless steel ........................... Alloy steel containing at least 10% chromium and with superior corrosion
resistance. It may also contain other elements such as nickel, manganese, niobium,
titanium, molybdenum, copper, in order to improve mechanical, thermal properties
and service life. It is primarily classified as austenitic (200 and 300 series), ferritic
(400 series), martensitic, duplex or precipitation hardening grades.
Stainless steel scrap ratio ......... The ratio of secondary nickel units (either in the form of nickel-bearing, stainless
steel scrap, or in alloy steel, foundry and nickel-based alloy scrap) relative to all
nickel units consumed in the manufacture of new stainless steel.
Thermal coal ............................ A type of coal that is suitable for energy generation in thermal power stations.
Tpy ........................................... Metric tons per year.
Troy ounce ............................... One troy ounce equals 31.103 grams.
Underground mining ................ Mineral exploitation in which extraction is carried out beneath the earth’s surface.
U.S. dollars or US$ .................. The United States dollar.
160
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly
caused and authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
VALE S.A.
By:
By:
Name: Murilo Pinto de Oliveira Ferreira
Title: Chief Executive Officer
Name: Luciano Siani Pires
Title: Chief Financial Officer
Date: March 27, 2014
161
Vale S.A.
Index to the Financial Statements
Report of Independent Auditor’s Report
Consolidated Balance Sheets as at December 31, 2013, 2012 and January 1, 2012
Consolidated Statements Income the years ended December 31, 2013, 2012 and, 2011
Consolidated Statements of Other Comprehensive Income for the years ended December 31, 2013, 2012 and, 2011
Consolidated Statements of Cash Flow for the years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Changes in Stockholder’s Equity for the years ended December 31, 2013, 2012 and, 2011
Notes to the Consolidated Financial Statements
Page
3
5
7
8
9
10
11
2
Report of independent registered public accounting firm
To the Board of Directors and Stockholders
Vale S.A.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income,
comprehensive income, stockholders' equity and cash flows present fairly, in all material respects, the financial position of
Vale S.A. and its subsidiaries (the "Company") at December 31, 2013, December 31, 2012 and January 1, 2012, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in
conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2013, based on criteria established in Internal Control - Integrated Framework, 1992 issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is
responsible for these financial statements, for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's
Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial
statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted
our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
PricewaterhouseCoopers, Av. José Silva de Azevedo Neto 200, 1º e 2º, Torre Evolution IV, Barra da Tijuca, Rio de Janeiro, RJ, Brasil 22775-056
T: (21) 3232-6112, F: (21) 3232-6113, www.pwc.com/br
PricewaterhouseCoopers, Rua da Candelária 65, 20º, Rio de Janeiro, RJ, Brasil 20091-020, Caixa Postal 949,
T: (21) 3232-6112, F: (21) 2516-6319, www.pwc.com/br
3
As discussed in Note 6 to the consolidated financial statements, the Company changed the manner in which it accounts
for employee benefits in 2013.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Rio de Janeiro, February 26, 2014
/S/PricewaterhouseCoopers
Auditores Independentes
CRC 2SP000160/O-5 "F" RJ
/S/Ivan Michael Clark
Contador CRC 1MG061100/O-3 "S" RJ
PricewaterhouseCoopers, Av. José Silva de Azevedo Neto 200, 1º e 2º, Torre Evolution IV, Barra da Tijuca, Rio de Janeiro, RJ, Brasil 22775-056
T: (21) 3232-6112, F: (21) 3232-6113, www.pwc.com/br
PricewaterhouseCoopers, Rua da Candelária 65, 20º, Rio de Janeiro, RJ, Brasil 20091-020, Caixa Postal 949,
T: (21) 3232-6112, F: (21) 2516-6319, www.pwc.com/br
4
Management’s Report on Internal Control over Financial Reporting
The management of Vale S.A (Vale) is responsible for establishing and maintaining adequate internal control over
financial reporting.
The company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. The company’s internal control over financial reporting
includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, and that the degree of compliance with the policies or
procedures may deteriorate.
Vale’s management has assessed the effectiveness of the company’s internal control over financial reporting as of
December 31, 2013 based on the criteria established in Internal Control - Integrated Framework 1992 issued by the
Committee of Sponsoring Organizations of the Treadway Commission - COSO. Based on such assessment and criteria,
Vale’s management has concluded that the company’s internal control over financial reporting was effective as of
December 31, 2013.
The effectiveness of the company’s internal control over financial reporting as of December 31, 2013 has been
audited by PricewaterhouseCoopers Auditores Independentes, an independent registered public accounting firm, as
stated in their report which appears herein.
February 26th, 2014
/S/Murilo Ferreira
Chief Executive Officer
/S/Luciano Siani
Chief Financial Officer and Investors Relations
5
Consolidated Balance Sheet
Assets
Current assets
Cash and cash equivalents
Short-term investments
Derivative financial instruments
Accounts receivable
Related parties
Inventories
Prepaid income taxes
Recoverable taxes
Advances to suppliers
Others
Non-current assets held for sale and discontinued operation
Non-current assets
Related parties
Loans and financing agreements receivable
Judicial deposits
Recoverable income taxes
Deferred income taxes
Recoverable taxes
Derivative financial instruments
Deposit on incentive and reinvestment
Others
Investments
Intangible assets, net
Property, plant and equipment, net
Total
(i) Recast according to Note 6.
In millions of United States Dollars
Notes
December 31, 2013
December 31, 2012
(i)
January 1, 2012
(i)
9
25
10
32
11
12
7
32
19
21
12
25
13
14
15
5,321
3
201
5,703
261
4,125
2,375
1,579
125
918
20,611
3,766
24,377
108
241
1,490
384
4,523
285
140
191
738
8,100
3,584
6,871
81,665
100,220
124,597
5,832
246
281
6,795
384
5,052
720
1,540
256
963
22,069
457
22,526
408
246
1,515
440
4,053
218
45
160
489
7,574
6,384
9,211
84,882
108,051
130,577
3,531
-
595
8,505
82
5,251
464
1,771
393
946
21,538
-
21,538
509
210
1,464
336
1,909
258
60
229
527
5,502
8,013
9,521
82,342
105,378
126,916
6
In millions of United States Dollars
(continued)
Notes
December 31, 2013
December 31, 2012
(i)
January 1, 2012
(i)
25
17
32
19 and 20
22
18
3,772
1,386
238
1,775
205
470
327
378
97
96
-
420
9,164
448
9,612
1,492
27,670
5
2,198
1,276
6,507
3,228
2,548
1,775
276
1,497
1,577
50,049
59,661
22,907
37,671
-
-
(4,477)
(400)
(152)
(1,202)
(20,588)
29,566
63,325
1,611
64,936
124,597
4,529
1,481
347
3,471
207
-
324
641
205
70
-
1,127
12,402
169
12,571
783
26,799
72
3,310
2,065
-
3,427
2,678
1,653
487
-
1,905
43,179
55,750
4,814
1,307
73
1,517
24
-
524
507
169
73
1,181
904
11,093
-
11,093
663
21,538
91
2,477
1,686
-
5,465
1,849
1,336
505
-
2,398
38,008
49,101
22,907
22,907
37,671
-
-
(4,477)
(400)
(152)
(2,044)
(18,663)
38,397
73,239
1,588
74,827
130,577
37,671
191
422
(5,662)
7
-
(753)
(20,411)
41,728
76,100
1,715
77,815
126,916
Consolidated Balance Sheet
Liabilities
Current liabilities
Suppliers and contractors
Payroll and related charges
Derivative financial instruments
Loans and financing
Related parties
Income Taxes Settlement Program
Taxes and royalties payable
Provision for income taxes
Employee postretirement obligations
Asset retirement obligations
Dividends and interest on capital
Others
Liabilities directly associated with non-current assets held for sale and discontinued operation
7
25
17
32
22
19
19 and 20
21
18
31(d)
30
26
Non-current liabilities
Derivative financial instruments
Loans and financing
Related parties
Employee postretirement obligations
Provisions for litigation
Income Taxes Settlement Program
Deferred income taxes
Asset retirement obligations
Stockholders' Debentures
Redeemable noncontrolling interest
Goldstream transaction
Others
Total liabilities
Stockholders' equity
Preferred class A stock - 7,200,000,000 no-par-value shares authorized and 2,108,579,618
(2,108,579,618 in 2012 and 2,108,579,618 in 2011) issued
Common stock - 3,600,000,000 no-par-value shares authorized and 3,256,724,482
(3,256,724,482 in 2012 and 3,256,724,482 in 2011) issued
Mandatorily convertible notes - common shares
Mandatorily convertible notes - preferred shares
Treasury stock - 140,857,692 (140,857,692 in 2012 and 181,099,814 in 2011) preferred and
71,071,482 (71,071,482 in 2012 and 86,911,207 in 2011) common shares
Results from operations with noncontrolling stockholders
Results on conversion of shares
Unrealized fair value gain (losses)
Cumulative translation adjustments
Retained earnings and revenue reserves
Total company stockholders' equity
Noncontrolling interests
Total stockholders' equity
Total liabilities and stockholders' equity
(i) Recast according to Note 6.
The accompanying notes are an integral part of these financial statements.
7
Consolidated Statement of Income
In millions of United States Dollars, except as otherwise stated
Notes
2013
Continued operations
Net operating revenue
Cost of goods sold and services rendered
Gross profit
Operating (expenses) income
Selling and administrative expenses
Research and evaluation expenses
Pre operating and stoppage operation
Other operating expenses, net
Impairment of non-current assets
Gain (loss) on measurement or sales of non-current assets
Operating income
Financial income
Financial expenses
Equity results from associates and joint controlled entities
Results on sale investments from associates and joint controlled entities
Impairment of investment
Net income before income taxes
Income taxes
Current tax
Deferred tax
Income from continuing operations
Loss attributable to noncontrolling interests
Net income attributable to the Company's stockholders
Discontinued Operations
Loss from discontinued operations
Loss attributable to the Company's stockholders
Net income
Loss attributable to noncontrolling interests
Net income attributable to the Company's stockholders
Earnings per share attributable to the Company's stockholders:
Basic and diluted earnings per share:
Common share
Preferred share
(i) Recast according to Note 6.
27
28
28
28
16
8
29
29
13
8
16
21
7
26e)
The accompanying notes are an integral part of these financial statements.
46,767
(24,245)
22,522
(1,302)
(801)
(1,859)
(984)
(4,946)
(2,298)
(215)
15,063
2,699
(11,031)
469
41
-
7,241
(7,786)
953
(6,833)
408
(178)
586
(2)
(2)
406
(178)
584
0.11
0.11
Year ended as at December 31,
2011
(i)
60,075
(24,528)
35,547
2012
(i)
46,553
(25,390)
21,163
(2,172)
(1,465)
(1,592)
(1,996)
(7,225)
(4,023)
(506)
9,409
1,595
(5,617)
645
-
(1,941)
4,091
(2,503)
3,677
1,174
5,265
(257)
5,522
(68)
(68)
5,197
(257)
5,454
1.06
1.06
(2,271)
(1,671)
(1,293)
(1,482)
(6,717)
-
1,494
30,324
1,890
(5,439)
1,138
-
-
27,913
(5,539)
274
(5,265)
22,648
(233)
22,881
(86)
(86)
22,562
(233)
22,795
4.34
4.34
8
Consolidated Statement of Other Comprehensive Income
Net income
Other comprehensive income
Item that will not be reclassified subsequently to income
Cumulative translation adjustments
Retirement benefit obligations
Gross balance as of the year
Effect of tax
Total items that will not be reclassified subsequently to income
Item that will be reclassified subsequently to income
Cumulative translation adjustments
Gross balance as of the year
Transfer results realized to the net income
Unrealized results on available-for-sale investments
Gross balance as of the year
Transfer results realized to the net income
Cash flow hedge
Gross balance as of the year
Effect of tax
Transfer results realized to the net income, net of taxes
Total of items that will be reclassified subsequently to income
Total other comprehensive income
Other comprehensive income attributable to noncontrolling interests
Other comprehensive income attributable to the Company's stockholders
(i) Recast according to Note 6.
The accompanying notes are an integral part of these financial statements.
In millions of United States Dollars
2013
406
Year ended as at December 31,
2011
2012
(i)
(i)
22,562
5,197
(9,830)
(7,695)
(9,849)
914
(284)
630
(9,200)
2,822
435
3,257
193
(194)
(1)
(103)
12
40
(51)
3,205
(5,589)
(175)
(5,414)
(5,589)
(929)
274
(655)
(8,350)
5,290
117
5,407
(1)
-
(1)
34
(8)
(147)
(121)
5,285
2,132
(223)
2,355
2,132
(472)
139
(333)
(10,182)
5,322
-
5,322
3
-
3
216
11
(98)
129
5,454
17,834
(308)
18,142
17,834
9
Consolidated Statement of Changes in Stockholder’s Equity
Results on
conversion of
Mandatorily
convertible
Results from
operation with
noncontrolling
December 31, 2010
Changes in accounting policies (Note 6)
January 1, 2011 (i)
Net income
Other comprehensive income:
Retirement benefit obligations
Cash flow hedge
Unrealized fair value results
Translation adjustments
Contribution and distribution - stockholders:
Acquisitions and disposal of noncontrolling stockholders
Additional remuneration for mandatorily convertible notes
Capitalization of noncontrolling stockholders advances
Capitalization of reserves
Repurchases of stock
Redeemable noncontrolling stockholders' interest
Dividends to noncontrolling stockholders
Dividends and interest on capital to Company's stockholders
Appropriation to undistributed retained earnings
December 31, 2011 (i)
Net income
Other comprehensive income:
Retirement benefit obligations
Cash flow hedge
Unrealized fair value results
Translation adjustments
Contribution and distribution - stockholders:
Acquisitions and disposal of noncontrolling stockholders
Additional remuneration for mandatorily convertible notes
Capitalization of noncontrolling stockholders advances
Realization of reserves
Results on conversion of shares
Redeemable noncontrolling stockholders' interest
Dividends to noncontrolling stockholders
Dividends and interest on capital to Company's stockholders
Appropriation to undistributed retained earnings
December 31, 2012 (i)
Net income
Other comprehensive income:
Retirement benefit obligations
Cash flow hedge
Unrealized fair value results
Translation adjustments
Contribution and distribution - stockholders:
Capitalization of noncontrolling stockholders advances
Realization of reserves
Redeemable noncontrolling stockholders' interest
Dividends to noncontrolling stockholders
Dividends and interest on capital to Company's stockholders
Appropriation to undistributed retained earnings
December 31, 2013
(i) Recast according to Note 6.
Capital
45,266
-
45,266
-
-
-
-
-
-
-
-
15,312
-
-
-
-
-
60,578
-
-
-
-
-
-
-
-
-
-
-
-
-
-
60,578
-
-
-
-
-
-
-
-
-
-
-
60,578
shares
1,002
-
1,002
-
-
-
-
-
-
-
-
(1,002)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(152)
-
-
-
-
(152)
-
-
-
-
-
-
-
-
-
-
-
(152)
The accompanying notes are an integral part of these financial statements.
notes
764
-
764
-
stockholders
411
-
411
-
Revenue
reserves Treasury stock
(2,660)
43,504
-
-
(2,660)
43,504
-
-
Unrealized fair
value gain (losses)
(15)
(642)
(657)
-
Cumulative
translation
adjustments
(20,963)
263
(20,700)
-
(333)
128
3
106
-
-
-
-
-
-
-
-
-
(753)
-
(655)
(121)
(1)
(26)
-
-
-
-
(488)
-
-
-
-
(2,044)
-
630
(51)
(1)
264
-
-
-
-
-
-
(1,202)
-
-
-
289
-
-
-
-
-
-
-
-
-
(20,411)
-
-
-
-
1,748
-
-
-
-
-
-
-
-
-
(18,663)
-
-
-
-
(1,925)
-
-
-
-
-
-
(20,588)
-
-
-
-
-
(151)
-
-
-
-
-
-
-
613
-
-
-
-
-
-
(68)
-
-
(545)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(3,002)
-
-
-
-
(5,662)
-
-
-
-
-
-
-
-
-
1,185
-
-
-
-
(4,477)
-
-
-
-
-
-
-
-
-
-
-
(4,477)
-
-
-
-
(404)
-
-
-
-
-
-
-
-
7
-
-
-
-
-
(407)
-
-
-
-
-
-
-
-
(400)
-
-
-
-
-
-
-
-
-
-
-
(400)
-
-
-
(2,778)
-
-
-
(14,310)
-
-
-
-
15,389
41,805
-
-
-
-
(3,585)
-
-
-
(362)
-
-
-
-
531
38,389
-
-
-
-
(4,901)
-
(3,936)
-
-
-
14
29,566
10
In millions of United States Dollars
Retained
earnings
-
(93)
(93)
22,795
-
-
-
(2,068)
-
-
-
-
-
-
-
(5,322)
(15,389)
(77)
5,454
-
-
-
(459)
-
-
-
362
-
-
-
(4,741)
(531)
8
584
-
-
-
(14)
-
3,936
-
-
(4,500)
(14)
-
Total Company
stockholder's
Noncontrolling
stockholders’
equity
67,309
(472)
66,837
22,795
(333)
128
3
(4,451)
(404)
(151)
-
-
(3,002)
-
-
(5,322)
-
76,100
5,454
(655)
(121)
(1)
(2,322)
(407)
(68)
-
-
-
-
-
(4,741)
-
73,239
584
630
(51)
(1)
(6,576)
-
-
-
-
(4,500)
-
63,325
interests
2,515
-
2,515
(233)
-
1
-
(76)
(625)
-
31
-
-
207
(105)
-
-
1,715
(257)
-
-
-
34
(54)
-
43
-
-
181
(74)
-
-
1,588
(178)
-
-
-
3
78
-
211
(91)
-
-
1,611
Total stockholder's
equity
69,824
(472)
69,352
22,562
(333)
129
3
(4,527)
(1,029)
(151)
31
-
(3,002)
207
(105)
(5,322)
-
77,815
5,197
(655)
(121)
(1)
(2,288)
(461)
(68)
43
-
-
181
(74)
(4,741)
-
74,827
406
630
(51)
(1)
(6,573)
78
-
211
(91)
(4,500)
-
64,936
Consolidated Statement of Cash Flows
Cash flow from operating activities:
Net income from continuing operations
Adjustments to reconcile net income with cash from continuing operations
Equity results from associates and joint venture
Loss (gain) on measurement or sales of non-current assets
Results on sale investments from associates and joint controlled entities
Loss on disposal of property, plant and equipment
Impairment on non-current assets
Depreciation, amortization and depletion
Deferred income taxes
Foreign exchange and indexation, net
Unrealized derivative losses, net
Stockholders' Debentures
Other
Decrease (increase) in assets:
Accounts receivable
Inventories
Recoverable taxes
Other
Increase (decrease) in liabilities:
Suppliers and contractors
Payroll and related charges
Taxes and contributions
Gold stream transaction
Income taxes - settlement program
Other
Net cash provided by operating activities from continuing operations
Net cash provided by operating activities from discontinued operations
Net cash provided by operating activities
Cash flow from continuing investing activities:
Short-term investments
Loans and advances
Guarantees and deposits
Additions to investments
Additions to property, plant and equipment and intangible
Dividends and interest on capital received from associates and joint venture
Proceeds from disposal of assets\ Investments
Proceeds from Gold stream transaction
Net cash used in investing activities from continuing operations
Net cash used in investing activities from discontinued operations
Net cash used in investing activities
Cash flow from continuing financing activities:
Financial institutions - Loans and financing
Additions
Repayments
Repayments to stockholders:
Dividends and interest on capital paid to stockholders
Dividends and interest on capital attributed to noncontrolling interest
Transactions with noncontrolling stockholders
Treasury stock
Net cash provided by (used in) financing activities from continuing operations
Net cash used in financing activities from discontinued operations
Net cash provided by (used in) used in financing activities
Increase in cash and cash equivalents
Cash and cash equivalents of cash, beginning of the year
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents, end of the year
Cash paid during the year for (ii):
Interest on Loans and financing
Income taxes
Income taxes - settlement program
Non-cash transactions:
Additions to property, plant and equipment - interest capitalization
Additions to property, plant and equipment - Costs of assets retirement obligations
Additions to investments
(i) Recast according to Note 6.
(ii) Amounts paid are classified as cash flows from operating activities.
The accompanying notes are an integral part of these financial statements.
11
In millions of United States Dollars
Year ended as at December 31,
2011
(i)
22,648
2012
(i)
5,265
(645)
506
-
197
5,964
4,155
(3,677)
1,314
613
109
(452)
1,951
(675)
229
537
(229)
170
(163)
-
-
552
15,721
414
16,135
(246)
293
(135)
(474)
(15,322)
460
974
-
(14,450)
(437)
(14,887)
9,333
(1,712)
(6,000)
(45)
(411)
-
1,165
-
1,165
2,413
3,531
(112)
5,832
(1,316)
(1,238)
-
335
299
-
(1,138)
(1,494)
-
189
-
3,836
(274)
3,178
490
210
(122)
(768)
(1,562)
(560)
(288)
1,068
263
(2,490)
-
-
20
23,206
252
23,458
1,793
(178)
(169)
(504)
(15,862)
1,038
1,081
-
(12,801)
(230)
(13,031)
2,442
(3,577)
(9,000)
(100)
(1,134)
(3,002)
(14,371)
-
(14,371)
(3,944)
7,584
(109)
3,531
(1,146)
(7,293)
-
234
197
3,817
2013
408
(469)
215
(41)
508
2,298
4,150
(953)
724
791
368
74
608
346
(2,405)
(132)
(124)
59
843
1,319
7,030
(1,075)
14,542
250
14,792
357
(14)
(147)
(378)
(13,105)
834
2,030
581
(9,842)
(766)
(10,608)
3,310
(3,347)
(4,500)
(20)
-
-
(4,557)
87
(4,470)
(286)
5,832
(225)
5,321
(1,535)
(2,405)
(2,594)
235
190
-
Notes to Consolidated Financial Statements
Expressed in millions of United States Dollars, unless otherwise stated
1.
Operational Context
Vale S.A. (the “Parent Company”) is a public limited liability company headquartered at 26, Av. Graça Aranha, Rio de Janeiro, Brazil
with securities traded on the Brazilian (“BM&F BOVESPA”), New York (“NYSE”), Paris (“NYSE Euronext”) and Hong Kong (“HKEx”)
stock exchanges.
Vale S.A. and its direct and indirect subsidiaries (“Vale”, “Group”, “Company” or “we”) are principally engaged in the research,
production and sale of iron ore and pellets, nickel, fertilizer, copper, coal, manganese, ferroalloys, cobalt, platinum group metals and
precious metals. The Company also operates in the segments of energy and steel. The information by segment is presented in Note
27.
Our principal consolidated operating subsidiaries at December 31, 2013 were as follow:
Entities
Compañia Minera Miski Mayo S.A.C
Mineração Corumbaense Reunida S.A.
PT Vale Indonesia Tbk
Salobo Metais S.A.
Vale Australia Pty Ltd.
Vale Canada Limited
Vale Fertilizantes S.A
Vale International Holdings GmbH
Vale International S.A
Vale Manganês S.A.
Vale Mina do Azul S.A.
Vale Moçambique S.A.
Vale Nouvelle-Calédonie SAS
Vale Oman Pelletizing Company LLC
Vale Shipping Holding PTE Ltd.
% ownership
% voting capital
40.00
100.00
59.20
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
95.00
80.50
70.00
100.00
51.00
100.00
59.20
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
95.00
80.50
70.00
100.00
Location
Peru
Brazil
Indonesia
Brazil
Australia
Canada
Brazil
Austria
Switzerland
Brazil
Brazil
Mozambique
New Caledonia
Oman
Singapore
Principal activity
Fertilizers
Iron ore and Manganese
Nickel
Copper
Coal
Nickel
Fertilizers
Holding and Research
Trading
Manganese and Ferroalloys
Manganese
Coal
Nickel
Pellet
Logistics of iron ore
As explained in Note 7, the Company is discontinuing its General Cargo Logistic segment, which includes the following entities:
Entities
Ferrovia Centro-Atlântica S. A.
Ferrovia Norte Sul S.A.
VLI Multimodal S.A.
VLI Operações de Terminais S.A.
VLI Operações Portuárias S.A.
VLI Participações S.A.
VLI S.A.
Ultrafértil S.A
TUF Empreendimentos e Participações S.A.
SL Serviços Logísticos S.A.
% ownership
% voting capital
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
Location
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
12
2.
a)
Summary of the Main Accounting Practices and Accounting Estimates
Basis of preparation
Consolidated financial statements of the Company (“Financial Statements”) have been prepared in accordance with the
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Financial statements have been prepared under the historical cost convention as adjusted to reflect: (i) the fair value of held for
trade financial instruments measured at fair value through Statement of Income and available for sale financial instruments
measured at fair value through Statement of Comprehensive Income; and (ii) the impairment loss.
We evaluated subsequent events through February 26, 2014, which was the date of the Financial statement were approved by the
Board of Directors.
b)
Functional currency and presentation currency
Financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which
the entity operates (“functional currency”), which in the case of the Parent Company is the Brazilian Real (“BRL” or “R$”). For
presentation purposes, these financial statements are presented in United States Dollars (“USD” or “US$”) as we understand this is
how our international investors are used to analyze our financial statements in order to take their decisions.
Operations in other currencies are translated into the functional currency of each entity using the actual exchange rates in force on
the respective transactions dates. The foreign exchange gains and losses resulting from the translation at the exchange rates in
force at the end of the year are recognized in the Statement of Income as financial expense or income. The exceptions are
transactions for which gains and losses are recognized in the Statement of Comprehensive Income.
Statement of Income and Balance Sheet of all Group entities whose functional currency is different from the presentation currency
are translated into the presentation currency as follows: (i) Assets, liabilities and Stockholders’ equity (except components described
in item (iii)) for each Balance Sheet presented are translated at the closing rate at the Balance Sheet date; (ii) income and expenses
for each Statement of Income are translated at the average exchange rates, except for specific transactions that, considering their
significance, are translated at the rate at the dates of the transactions and; (iii) capital, capital reserves and treasury stock are
translated at the rate at the dates of each transaction. All resulting exchange differences are recognized in a separate component of
the Statement of Comprehensive Income, the “Cumulative Translation Adjustment” account, and subsequently transferred to the
Statement of Income when the assets are realized.
The exchange rates of the major currencies that impact our operations against the functional currency were:
US Dollar - US$
Canadian Dollar - CAD
Australian Dollar - AUD
Euro - EUR or €
c)
Consolidation and investments
Exchange rates used for conversions in Brazilian Reais
Year ended as at December 31,
2011
1.8683
1.8313
1.9092
2.4165
2012
2.0435
2.0546
2.1197
2.6954
2013
2.3426
2.2031
2.0941
3.2265
Financial statements reflect balances of assets and liabilities and the transactions of the Parent Company and its direct and indirect
controlled entities (“Subsidiaries”), eliminating intercompany transactions. Subsidiaries over which control is achieved through other
means, such as stockholders agreement, are also consolidated even if the Company does not own a majority of the voting capital.
For entities over which the Company has joint control (“Joint Ventures”) or significant influence, but not control (“Associates”), the
investments are measured using the equity method.
The accounting practices of subsidiaries, joint ventures and associated companies are set to ensure consistency with the policies
adopted by the Parent Company. Transactions between consolidated companies, as well as balances, unrealized profits and losses
on these transactions are eliminated. Unrealized gains on downstream or upstream transactions between the Company and its
associates and joint ventures are eliminated fully or proportionately to the extent of the Company.
13
We evaluate the carrying values of our equity investments with reference to the publicly quoted market prices when available. If the
quoted market price is lower than book value and this decline is considered other than temporary, we will write-down our equity
investments to the level of the quoted market value.
For interests in joint arrangements operations (“joint operations”), Vale recognizes its share of assets, liabilities and transactions.
d)
Business combinations
When Vale acquires control over an entity, the identifiable assets acquired the liabilities and contingent liabilities assumed and the
noncontrolling stockholders’ interests recognized are measured initially at their fair values as at the acquisition date.
The excess of the consideration transferred plus the fair value of assets acquired the liabilities and contingent liabilities assumed
and the noncontrolling stockholders’ interests recognized is recorded as goodwill, which is allocated to each cash-generating unit
acquired.
e)
Noncontrolling stockholders’ interests
Investments held by investors in entities controlled by Vale are classified as noncontrolling stockholders' interests. The Company
treats transactions with noncontrolling stockholders' interests as transactions with equity owners of the Group.
For purchases of noncontrolling stockholders’ interests, the difference between any consideration paid and the portion acquired of
the carrying value of net assets of the subsidiary is recorded in stockholders’ equity. Gains or losses, on disposals of noncontrolling
stockholders’ interest, are also recorded in stockholders’ equity.
When the Company ceases to hold control or significant influence, any retained interest in the entity is remeasured to its fair value,
with the change in the carrying amount recognized in the Statement of Income. Any amounts previously recognized in Gain/ (loss)
from operations with noncontrolling stockholders’ interests relating to that entity are accounted for as if the Group had directly sold
the related assets or liabilities. This means that the amounts previously recognized in Gain/ (loss) from operations with
noncontrolling stockholders’ interests are reclassified to the Statement of Income.
f)
Segment information and revenues by geographic area
The Company discloses information by business segment and revenue by geographic unit, in accordance with the principles and
concepts used by the chief operating decision makers in evaluating performance and allocating resources. The information is
analyzed by operating segment as follows:
Bulk Material – Includes the extraction of iron ore and pellet production and logistic (including railroads, ports and terminals) linked
to bulk material mining operations. The manganese ore, ferroalloys and coal are also included in this segment.
Base metals – Includes the production of non-ferrous minerals, including nickel operations (co-products and by-products) and
copper.
Fertilizers – Includes three major groups of nutrients: potash, phosphate and nitrogen.
General Cargo Logistics – comprises the logistics services provided to third parties (including rail, port and shipping service) not
linked to the other Vale Operating Segments. Assets and liabilities related to this segment are classified as assets and liabilities held
for sale and discontinued operations (Note 7).
Other – comprises sales and expenses of other products and investments in joint ventures and associate in other businesses.
g)
Current and non-current assets or liabilities
We classify assets and liabilities as current when it expects to realize the assets or to settle the liabilities, within twelve months from
the end of the reporting period. Others assets and liabilities are classified as non-current.
14
h)
Cash equivalents and short-term investments
The amounts recorded as cash and cash equivalents correspond to the amount available in cash, bank deposits and short-term
investments that have immediate liquidity and original maturities within three months. Other investments with maturities after
three months are recognized at fair value through income and presented in short-term investments.
i)
Accounts receivables
Account receivables are financial instruments classified in the category Loan and Receivables and represent the total amount due
from sale of products and services rendered by the Company. The receivables are initially recognized at fair value and subsequently
measured at amortized cost, net of impairment losses, when applicable.
j)
Inventories
Inventory of products is stated at the lower of the average cost of acquisition or production and the net realizable value. The
inventory production cost is determined on the basis of variable and fixed costs, direct and indirect costs of production, using the
average cost method. An allowance for losses on obsolete or slow-moving inventory is recognized.
Ore Piles are counted as processed when the ore is extracted from the mine. The cost of the finished product is composed of
depreciation and any direct cost required converting ore heaps finished products.
Inventory of maintenance supplies are measured at the lower of cost and net realizable value and, where applicable, an estimate of
losses on obsolete or slow-moving inventory is recognized.
k)
Non-current assets and liabilities held for sale
When the Company is committed to a sale plan of a set of assets and liabilities available for immediate disposal, these assets and
liabilities are classified as Non-current Assets and Liabilities held for sale. If this group of assets and liabilities represent a major line
of business are classified as discontinued operations.
The non-current assets and liabilities held for sale and discontinued operations are recognized in current, separate from the other
assets and liabilities being measured at the lower of carrying amount and fair value less costs to sell.
Discontinued operations transactions are presented separately from the balances of Company’s continuing operations in Statement
of Income, Statement of Comprehensive Income and Statement of Cash Flows.
l)
Stripping Costs
The cost associated with the removal of overburden and other waste materials (“stripping costs”) incurred during the development
of mines, before production takes place, are capitalized as part of the depreciable cost of developing the mining property. These
costs are subsequently amortized over the useful life of the mine.
Post-production stripping costs are included in the cost of inventory, except when a new project is developed to permit access to a
significant body of ore. In such cases, the cost is capitalized as a non-current asset and is amortized during the extraction of the body
of ore, and amortized during the useful life of the body of ore.
Stripping costs are measured at fixed and variable costs directly and indirectly attributable to its removal and, when applicable, net
of any impairment losses measured in same basis adopted for the cash generating unit which he is part.
m)
Intangible assets
Intangible assets are evaluated at the acquisition cost, less accumulated amortization and impairment losses, when applicable.
Intangible assets with finite useful lives are amortized over their effective use and are tested for impairment whenever there is an
indication that the asset may be devalued. Assets with indefinite useful lives are not amortized and are tested for impairment at
least annually.
Company holds concessions to exploit railway assets over a certain period of time. Railways are classified as intangible assets and
amortized over the shorter of their useful lives and the concession term at the end of which they will be returned to the
government.
Intangible assets acquired in a business combination are recognized separately from goodwill.
15
n)
Property, plant and equipment
Property, plant and equipment are evaluated at cost of acquisition or construction, less accumulated amortization and impairment
losses, when applicable.
The cost of mining assets developed internally are determined by direct and indirect costs attributed to building the mining plant,
financial charges incurred during the construction period, depreciation of other fixed assets used into building, estimated
decommissioning and site restoration expenses and other capitalized expenditures occurred during the development phase (phase
when the project proves generator of economic benefit and the Company have ability and intention to complete the project).
The depletion of mineral assets is determined based on the ratio between production and total proven and probable mineral
reserves. Property, plant and equipment are depreciated using the straight-line method based on the estimated useful lives, from
the date on which the assets become available for their intended use, except for land which is not depreciated. Following estimated
useful lives:
Property, plant and equipment
Buildings
Installations
Equipment
Computer Equipment
Mineral rights
Locomotives
Wagon
Railway equipment
Ships
Other
Useful lives
between 15 and 50 years
between 8 and 50 years
between 3 and 33 years
5 years
production
between 12.5 and 25 years
between 33 and 44 years
between 5 and 50 years
between 5 and 20 years
between 2 and 50 years
The residual values and useful lives of assets are reviewed and adjusted, if necessary, at the end of each fiscal year.
Significant industrial maintenance costs, including spare parts, assembly services, and others, are recorded in property, plant and
equipment and depreciated through the next programmed maintenance overhaul.
o)
Research and evaluation
i.
Expenditures on mining research
Expenditure on mining research is considered operating expenses until the effective proof of the economic feasibility of commercial
exploration of a given field. From then on, the expenditures incurred are capitalized as mine development costs.
ii. Expenditures on feasibility studies and new technologies and others research
Vale also conducts feasibility study for many whose business which we operates and researching new technologies to optimize the
mining process. After proven to generate future benefits to the Company, the expenditures incurred are capitalized.
p)
Impairment of assets
The Company assesses, at each reporting date whether there is evidence that the carrying amount of financial assets measured
through amortized cost and long-live non-financial asset, should be impaired.
For financial assets measured through amortized cost, Vale compares the carrying amount with the expected cash flows of the
asset, and when appropriate, the carrying value is adjusted to reflect the present value of future cash flows.
For long-live non-financial assets (such as intangible or property plant and equipment), when impairment indication are identified,
the test is conducted by comparing the recoverable value of these assets grouped at the lowest levels for which there are separately
identifiable cash flows of the cash-generating unit to which the asset belongs to their carrying amount. If we identify the need for
adjustment, it is consistently appropriate to each asset's cash-generating unit. The recoverable amount is the higher of value in use
and fair value less costs to sell.
16
The Company determines its cash flows based on approved budgets, considering mineral reserves and mineral resources calculated
by internal experts, costs and investments based on the best estimate of past performance, sale prices consistent with the
projections used in reports published by industry considering the market price when available and appropriate. Cash flows used are
designed based on the life of each cash-generating unit (consumption of reserve units in the case of minerals) and considering
discount rates that reflect specific risks relating to the relevant assets in each cash-generating unit, depending on their composition
and location.
For investments in affiliated companies with publicly traded stock, Vale assesses recoverability of assets when there is prolonged or
significant decline in market value. The balance of their investments is compared in relation to the market value of the shares, when
available. If the market value is less than the carrying value of investments, and the decrease is considered prolonged and
significant, the Company performs the adjustment of the investment to the realizable value quoted in the market.
Regardless the indication of impairment of its carrying value, goodwill balances arising from business combinations, intangible
assets with indefinite useful lives and lands are tested for impairment at least once a year.
q)
Accounts payable to suppliers and contractors
Accounts payable to suppliers and contractors are obligations to pay for goods and services that were acquired in the ordinary
course of business. They are initially recognized at fair value and subsequently measured at amortized cost using the effective
interest rate method.
r)
Loans and financing
Loans and Financing are initially measured at fair value, net of transaction costs incurred and are subsequently carried at amortized
cost and updated using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the
redemption value is recognized in the Statement of Income over the period of the loan, using the effective interest rate method.
The fees paid in obtaining the loan are recognized as transaction costs.
Note mandatory convertible into preferred of common stock are compound financial instruments issued by the Company which
include financial liability (debt) components and Stockholders’ equity. The liability component of a compound financial instrument is
initially recognized at fair value that is determined using discounted cash flow, considering the interest rate market for a non-
convertible debt instrument with similar characteristics (period, value, credit risk). After initial recognition, the liability component
of a compound financial instrument is measured at amortized cost using the effective interest rate method. The Stockholders’
equity component is recognized as the difference between the total values received by the Company from the issue of the
securities, and the initially recognized amount of the liability component. Following initial recognition, the equity component of a
compound financial instrument is not remeasured until its conversion.
s)
Leases
The Company classifies its contracts as finance leases or operating leases based on the substance of the contract as to whether it is
linked to the transfer of substantially all risks and benefits of the assets ownership to the Company during their useful life.
For finance leases, the lower of the fair value of the leased asset and the present value of minimum lease payments is recorded in
tangible fixed assets and the corresponding obligation recorded in liabilities. For operating leases, payments are recognized on a
straight line basis during the term of the contract as a cost or expense in the Statement of Income.
t)
Provisions
Provisions are recognized only when there is a present obligation (legal or constructive) resulting from a past event, and it is
probable that the settlement of this obligation will result in an outflow of resources, and the amount of the obligation cam be
reasonably estimated. Provisions are reviewed and adjusted to reflect the current best estimate at the end of each reporting period.
Provisions are measured at the present value of the expenditure expected to be required to settle an obligation using a pre-tax rate,
which reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the
obligation due to the passage of time is recognized as interest expense.
17
i.
Provision for asset retirement obligations
The provision made by the Company refers basically to costs in order to mine closure, with the completion of mining activities and
decommissioning of assets related to mine. The provision is set initially recording a liability for long-term return on fixed asset item.
The long-term liability is subsequently measured using a long-term discount rate recorded at Statement of income, as financial
expenses until start payment or contraction of obligation related to mine closure and decommissioning of assets mining. Assets
retirement obligation are depreciated in same basis over assets mining and recorded at Statement of income.
ii.
Provision for litigation
The provision refers to litigation and fines incurred by the Company. The obligation is recognized when it is considered probable and
can be measured with reasonable certainty. The accounting counterpart for the obligation is an expense in Statement of Income.
This obligation is updated according to the evolution of the judicial process or interest incurred and can be reversed if the estimate
of loss is not probable or settled when the obligation is paid.
u)
Employee benefits
i.
Current benefits – wages, vacations and related taxes
Payments of benefits such as wages, vacation past due or accrued vacation, as well the related social security taxes over those
benefits, are recognized monthly in income, on an accruals basis.
ii.
Current benefits – profit sharing
The Company has an overall corporate performance-based profit sharing policy, based on the achievement of the Company is
whole, specific areas as well as employees individual performance goals. The Company recognizes provision based on the recurring
measurement of the compliance with goals, using the accrual basis and recognition of present obligation arising from past events in
the estimated outflow of resources in the future. The counter entry of the provision is recorded as cost of sales or service rendered
or operating expenses in accordance with the activity of each employee.
iii.
Non-current benefits – non-current incentive
The Company has established a procedure for awarding certain eligible executives (Matching Plan and Long-Term Incentive Plan -
ILP) with the goal of encouraging employee retention and optimum performance. The Matching Plan establishes that these
executives eligible for the plan are entitled to a specific number of preferred class A stocks of the Company, and shall be entitled at
the end of three years to a cash sum corresponding to the market value of the shares lot initially linked by the executives, provided
that they are under the ownership of executives throughout the entirety of the period. As well as matching, the ILP provides at the
end of three years the payment in the amount equivalent to a certain number of shares based on the assessment of the executives’
performance and the Company’s results in relation to a group of companies of similar size (per group). Plan liabilities are measured
at each reporting date, at their fair values, based on market prices. Obligations are measured at each reporting date, at fair values
based on market prices. The compensation costs incurred are recognized in income during the three-year vesting period as defined.
iv.
Non-current benefits – pension costs and other post-retirement benefits
The Company operates several retirement plans for its employees.
For defined contribution plans, the Company's obligations are limited to a monthly contribution linked to a pre-defined percentage
of the remuneration of employees enrolled in to these plans.
18
For defined benefit plans, actuarial calculations are periodically obtained for liabilities determined in accordance with the Projected
Unit Credit Method in order to estimate the Company’s obligation. The liability recognized in the Balance Sheet represents the
present value of the defined benefit obligation as at that date, less the fair value of plan assets. The remeasurement gains and
losses, and return on plan assets (excluding the amount of interest on return of assets recognized in income) and changes in the
effect of the ceiling of the active and onerous liabilities are recognized in comprehensive income and consequently in equity.
For plans presenting a surplus, the Company does not recognize any assets or benefits in the Balance Sheet or Statement of Income
until such time as the use of this surplus is clearly defined. For plans presenting a deficit, the Company recognizes actuarial liabilities
and results arising from the actuarial valuation.
v)
Derivative financial instruments and hedge operations
The Company uses derivative instruments to manage its financial risks as a way of hedging against these risks. The Company does
not use derivative instruments for speculative purposes. Derivative financial instruments are recognized as assets or liabilities in the
Balance Sheet and are measured at their fair values. Changes in the fair values of derivatives are recorded in each year as gains or
losses in the statements of income or in unrealized fair value gain or losses in stockholders’ equity when the transaction is eligible to
be characterized as an effective cash flow hedge.
The Company documents the relationship between hedging instruments and hedged items with the objective of risk management
and strategy for carrying out hedging operations. The Company also documents, both initially and on a continuously basis, that its
assessment of whether the derivatives used in hedging transactions are highly effective.
The effective components of changes in the fair values of derivative financial instruments designated as cash flow hedges are
recorded as unrealized fair value gain/(losses) and recognized in stockholders’ equity; and their non-effective components recorded
in income. The amounts recorded in Statement of Comprehensive Income, will only be transferred to Statement of Income (costs,
operating expenses or financial expenses) when the hedged item is actually realized.
w)
Financial Assets
The Company classifies its financial assets in accordance with the purpose for which they were purchased, and determines the
classification and initial recognition according to the following categories:
Financial assets measured at fair value through the Statement of Income – Financial assets held for trading acquired for the
purpose of selling in the short-term. These instruments are measured at fair value, except for derivative financial instruments not
classified as hedge accounting; the fair value is measured considering the inclusion of the credit risk of counterparties the
calculation of the instruments.
Loans and receivables – Non-derivative financial instruments, with fixed or determinable payments, that are not quoted in an active
market. They are initially measured at fair value and subsequently at amortized cost using the effective interest method.
Held to maturity – Are non-derivative financial assets with fixed or determinable payments and fixed maturities for which the
Company has the intent and ability to hold them to maturity. They are initially measured at fair value and subsequently at amortized
cost.
Available for sale – Non-derivative financial assets not classified in other category of financial instrument. Financial instruments in
this category are measured at fair value, with changes in fair value until the moment of realization then recorded in Statement of
Comprehensive Income. On disposal of financial asset, fair value is reclassified to Statement of Income.
x)
Capital
The Company periodically repurchases shares to hold in treasury for future sale or cancellation. These shares are recorded in a
specific account as a reduction of stockholders´ equity at their acquisition value and carried at cost. These programs are approved
by the Board of Directors with a determined terms and numbers of type of shares.
Incremental costs directly attributable to the issue of new shares or options are recognized in Stockholders’ equity as a deduction
from the amount raised, net of taxes.
y)
Government grants and support
Government grants and support are accounted for when Company has reasonably complied with conditions set by the government
in relation to the grants. Company recognizes the grants in Statement of Income, as reductions in taxes expenses, according to the
nature of the item, and classified through retained earnings in stockholders’ equity during allocation of net income.
19
z)
Revenue recognition
Revenue is recognized when Vale transfers to its customers all of the significant risks and rewards of ownership of the product sold
or when services are rendered. Net revenue excludes any applicable sales taxes and is recognized at the fair value of the
consideration received or receivable to the extent that it is probable that economic benefits will flow to Vale and the revenues and
costs can be reliably measured.
In most instances sales revenue is recognized when the product is delivered to the destination specified by the customer, which is
typically the vessel on which it is shipped, the destination port or the customer’s premises. Revenue from services is recognized in
the amount by which the services are rendered and accepted by the customer’s.
In some cases, the sale price is determined on a provisional basis at the date of sale as the final selling price is subject to escalation
clauses through date of final pricing. Revenue from the sale of provisionally priced products is recognized when the risks and
rewards of ownership are transferred to the customer and the revenue can be measured reliably. At this date, the amount of
revenue to be recognized are estimated based on the forward price of the product sold.
Amounts billed to customers for shipping corresponds to products sold by the Company are recognized as revenue when that is
responsible for shipping. Shipping costs are recognized as operating costs.
aa)
Current and deferred income taxes
The amount of income taxes are recognized in the Statement of Income, except for items recognized directly in stockholders’ equity,
in which cases the tax is also recognized in stockholder’s equity.
The provision for income taxes are calculated individually for each entity in the Group based on tax rates and tax rules in force in the
location of the entity. The recognition of deferred taxes are based on temporary differences between carrying value and the tax
basis of assets and liabilities as well as taxes losses carry forwards. Deferred tax liabilities are fully recognized. The deferred income
taxes assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against fiscal current
liabilities and when the deferred income taxes assets and liabilities are related to income taxes recorded by the same taxation
authority on the same taxable entity.
bb)
Basic and diluted earnings per share
Basic earnings per share are calculated by dividing the income attributable to the stockholders of the Company, after accounting for
the remuneration to the holders of equity securities, by the weighted average number of shares outstanding (total shares less
treasury shares).
Diluted earnings per share are calculated by adjusting the weighted average number of shares outstanding for the conversion of all
dilutive potential shares. Vale does not have mandatory convertible securities that could result in the dilution of the earning per
share.
cc)
Stockholder´s remuneration
The stockholder’s remuneration is paid on dividends and interest on capital. This remuneration is recognized as a liability in the
financial statements of the Company, based on bylaws. Any amount above the minimum compulsory remuneration approved the
bylaws shall only be recognized in current liabilities on the date it is approved by stockholder.
Vale is permitted to distribute interest attributable to stockholders’ equity. The calculation is based on the stockholders’ equity
amounts as stated in the statutory accounting records and the interest rate applied may not exceed the Brazilian Government Long-
term Interest Rate (“TJLP”) determined by the Central Bank of Brazil. Also, such interest may not exceed 50% of net income for the
year or 50% of retained earnings plus revenue reserves as determined by Brazilian corporate law.
The benefit to Vale, as opposed to making a dividend payment, is a reduction in our income tax burden because this interest charge
is tax deductible in Brazil. Income tax of 15% is withheld on behalf of the stockholders relative to the interest distribution. Under
Brazilian law, interest attributed to stockholders’ equity is considered as part of the annual minimum mandatory dividend (Note 26-
f). This notional interest distribution is treated for accounting purposes as a deduction from stockholders' equity in a manner similar
to a dividend and the tax credit recorded in income.
20
3.
Critical Accounting Estimates and Assumptions
The preparation of financial statements requires the use of certain critical accounting estimates and also the exercise of judgment
by the management of the Company.
These estimates are based on the best knowledge and information existing in the Balance Sheet date. Changes in facts and
circumstances may lead to the revision of these estimates. Actual future results may differ from the estimates.
The significant estimates and assumptions used by Company in these financial statements are as follow:
a)
Mineral reserves and mine useful life
The estimates of proven reserves and probable reserves are regularly evaluated and updated. The proven and probable reserves are
determined using generally accepted geological estimates. The calculation of reserves requires the Company to take positions on
expected future conditions that are highly uncertain, including future ore prices, exchange rates, inflation rates, mining technology,
availability of permits and production costs. Changes in some of these assumptions could have a significant impact on the proven
and probable reserves recorded.
The estimated volume of mineral reserves is used as basis for the calculation of depletion of the mines, and also for the estimated
useful life which is a major factor to quantify the provision for asset retirement obligation and environmental recovery of mines. Any
changes to the estimates of the volume of mine reserves and the useful lives of assets may have a significant impact on the
depreciation, depletion and amortization charges included in cost of goods sold. Changes in the estimated useful life of the mine
have a significant impact on the estimates of environmental provision and impairment analysis.
b)
Asset Retirement
The Company recognizes an obligation under the fair value for asset retirement obligations in the period in which they occur, as
Note 2t-i. The Company considers the accounting estimates related to closure costs of a mine as a critical accounting policy because
they involve significant values for the provision and are estimated using several assumptions, such as interest rate, inflation, useful
life of the asset considering the current state of closure and the projected date of depletion of each mine. The estimates are
reviewed annually.
c)
Impairment
The Company annually tests impairment of tangible and intangible assets segregated by cash-generating units, usually using
discounted cash flow that depends on several estimates, which are influenced by market conditions prevailing at the time the
impairment test, is performed.
d)
Litigation losses
Provisions are recorded when the possibility of loss relating to legal proceedings or contingent liabilities is considered probable by
the Company’s legal department and legal advisors.
The provisions are recorded when the amount of loss can be reasonably estimated. By their nature, litigations will be resolved when
one or more future event occurs or fails to occur. Typically, the occurrence or not of such events is outside the Company’s control.
Because of the legal uncertainties inherent in the environments, involves the exercise of significant estimates and judgments of
management regarding the results of future events.
e)
Post-retirement benefits for employees
The amount recognized and disclosed depend on a number of factors that are determined based on actuarial calculations using
various assumptions in order to determine costs and, liabilities. One of these assumptions is selection and use of the discount rate.
Any changes to these assumptions will affect the amount recognized.
At the end of each year the Company and external actuaries reviews the assumptions that should be used for the following year.
These assumptions are used in determining the fair values of assets and liabilities, costs and expenses and to the future values of
estimated cash outflows, which are recorded in the plan obligations.
21
f)
Fair values of derivatives and others financial instruments
The fair values of financial instruments not traded in active markets are determined using valuation techniques. Vale uses its own
judgment to choose between the various methods and assumptions are based on the market conditions, at the end of the year.
A sensitivity analysis present potential impact on results from different from management's estimates. (Note 25)
g)
Deferred income taxes
The Company recognizes the effects of deferred taxes arising from tax losses and temporary differences. It recognizes impairment
where it believes that tax credits recoverable are not probable.
The determination of the provision for income tax or deferred income tax, assets and liabilities, and any impairment of tax credits
amount require the use of estimates. For each tax asset, the Company assesses the probability that some or all of the tax assets may
not be recoverable. The impairment recorded in relation to the accumulated tax losses depends on the assessment of the
probability of the generation of future taxable profits based on production and sales planning, commodity prices, operational costs,
restructuring plans, reclamation costs and planned capital costs.
4.
Accounting Standards
Company prepared its financial statements under IFRS. Pronouncements issued by the IASB, with adoption required for years ending
after December 31, 2013.
Standards, interpretations or amendments issued by the IASB and effective in 2013
There are new standards, interpretations and amendments to the IFRS effective in 2013. The impacts retrospective of the new
standards are limited to the effects of the revised IAS 19 employee benefits - IAS 19, described in Note 6.
Standards, interpretations or amendments issued by the IASB for adoption after December 31, 2013
Annual Improvements to IFRSs: 2010-2012 Cycle – In December 2013 the IASB issued a series of non-urgent updates to some
statements, with application prospective or for periods after July 1, 2014. Vale is reviewing possible impacts related to this update
on its financial statements.
Defined Benefit Plans: Employee Contributions – In November 2013 the IASB issued an update statement to IAS 19 - Employee
Benefit which aims to simplify the accounting treatment of contributions made by employees and third parties, in defined benefit
plans. The adoption of the updates will be applied from July 1, 2014 and we are analyzing potential impacts regarding this update on
our financial statements.
Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39 – In June 2013 o IASB issued an amendment to IAS 39 – Financial
Instruments: Recognition and Measurement, IFRS 7 – Financial Instruments: Disclosures and IFRS 9 – Financial Instruments that
brings a comprehensive review of hedge accounting, aligning the accounting aspects to the management of risk, to bring more
useful information to the financial statements. These updates cancel IFRIC 9 - Reassessment of Embedded Derivative. The adoption
of the updates will be applied immediately to those who have already adopted IFRS 9. Whose adoption is mandatory from January
1, 2015. We are analyzing potential impacts regarding IFRS 9 and this update on our financial statements.
Novation of Derivatives and Continuation of Hedge Accounting – In June 2013 IASB issued an amendment to IAS 39 – Financial
Instruments: Recognition and Measurement, that document conclude that hedge accounting do not terminate or expire when as
consequence of law or regulation, a derivative financial instrument replace their original counterparty to become the new
counterparty to each of the parties. The adoption of the amendment will be required from January 1, 2014 and we are analyzing
potential impacts regarding this update on our financial statements.
IFRIC 21 Levies – In May 2013 IASB issued an interpretation about the recognition of a government imposition (levies). The adoption
of the interpretation will be required from January 1, 2014 and we are analyzing potential impacts regarding this update on our
financial statements.
Recoverable Amount Disclosures for Non-Financial Assets – In May 2013 IASB issued an amendment to IAS 36 – Impairment of
Asset that clarifies the IASB intention about the disclosure of non- financial assets impairment. The adoption of the amendment will
be required from January 1, 2014 and we are analyzing potential impacts regarding this update on our financial statements.
22
5.
Risk Management
Vale considers that effective risk management is key to its growth, strategic planning and financial flexibility. Therefore, Vale has
developed its risk management strategy in order to provide an integrated approach of the risks to which the Company is exposed. In
order to do this, Vale evaluates not only the impact in the results of the business caused by variables traded in financial markets
(market risk) and those arising from liquidity risk, but also the risk from counterparties obligations (credit risk), those relating to
inadequate or failed internal processes, people, systems or external events (operational risk), among others.
a)
Risk management policy
The Board of Directors has established a risk management policy in order to support the company’s growth plan, strategic planning
and Company’s business continuity, besides to improve its capital structure and management of Vale Group, ensure adequate
degree of flexibility in financial management while maintaining the level of robustness required for investment grade and to
strengthen its corporate governance practices.
The corporate risk management policy requires that Vale should regularly measure and monitor its corporate risk on a consolidated
basis in order to ensure that the overall risk level of the Company remains aligned with the guidelines defined by the Board of
Directors and the Executive Board.
The Executive Risk Management Committee, created by the Board of Directors, is responsible for supporting the Executive Board in
the risk assessments and for issuing an opinion regarding the Company’s risk management profile. It’s also responsible for the
supervision and revision of the principles and instruments of corporate risks management.
The Executive Board is responsible for the approval of the adoption of norms, rules and responsibilities and for reporting to the
Board of Directors.
The risk management norms and instructions complement the corporate risk management policy and define the Company practices,
processes, controls, roles and responsibilities in relation to risk management.
The Company may, where necessary, allocate specific risks limits to management activities, including but not limited to, market risk
limit, corporate and sovereign credit limits, in accordance with the acceptable corporate risk limit.
b)
Liquidity risk management
Liquidity risk arises from the possibility that Vale might not perform its obligations by the due dates, as well as face difficulties to
meet its cash requirements due to market liquidity constraints.
To mitigate this risk, Vale has a revolving credit facility in order to assist the short term liquidity management and to enable more
efficient cash management, this is consistent with the strategic focus on cost of capital. The revolving current credit facilities were
obtained from a syndicate of several global commercial banks.
c)
Credit risk management
Vale’s credit risk arises from potential negative impacts on its cash flow due to uncertainty regarding the ability of counterparties to
meet their contractual obligations. Vale has various procedures and processes to manage this risk, such as the control of credit
limits, the obligation to diversity exposure diversification across several counterparties and the monitoring of the portfolio’s credit
risk.
Vale’s counterparties can be divided into three main categories: customers (responsible by obligations regarding receivables from
payment term sales); financial institutions (with whom Vale keeps its cash investments or negotiates derivatives transactions); and
suppliers of equipment, products and services (in the case of payments in advance).
Commercial Credit Risk Management
For commercial credit exposure, which arises from sales to final customers, the risk management department approves or requests
the approval of credit risk limits for each counterpart. Further, the Executive Board sets annually global commercial credit risk limits
for the customer’s portfolio.
Vale attributes an internal credit risk rating for each counterparty using its own quantitative methodology for credit risk analysis,
based on three main sources of information: (i) Expected Default Frequency (“EDF”) provided by KMV (Moody’s); (ii) credit ratings
from the main international rating agencies; and (iii) customer financial statements from which financial ratios are determined.
23
As at 31 December 2013, 65% of accounts receivable due to Vale commercial sales had low or insignificant risk, 31% had moderate
risk and only 4% high risk.
Whenever considered necessary, the quantitative credit risk analysis is complemented by a qualitative analysis which takes into
consideration the payment history of that counterparty, its commercial relationship with Vale and the customer’s strategic position
in its economic sector, among others variables.
Based on the counterparty’s credit risk or based on Vale´s consolidated credit risk profile, risk mitigation strategies are used to
minimize the Company`s credit risk in order to meet the acceptable level of risk approved by the Executive Board. The main credit
risk mitigation strategies used by the Company are credit insurance, mortgage, letter of credit and corporate guarantees, among
others.
Vale has abroad and diversified accounts receivable portfolio from a geographical standpoint, with China, Europe, Brazil and Japan
being the regions of most significant exposures. According to the region, different types of guarantees can be used to enhance the
credit quality of the receivables.
Vale controls its account receivables portfolio through the Credit and Cash Collection committees, though which representatives
from the risk management, cash collection and commercial departments monitor each counterparty`s position. Finally, Vale has an
automatic control that blocks additional sales to customers who are in default.
Treasury Credit Risk Management
The management of exposure arising from cash investments and derivatives instruments is realized through the following
procedures: annual approval by the Executive Board of the credit limits per counterparty, controls of portfolio diversification,
counterparties` credit spread variations and the treasury portfolio overall credit risk. There’s also a monitoring of all positions,
exposure versus limit control and periodic report to the Executive Risk Management Committee.
The calculation of the exposure to a counterparty that has several derivative transactions with Vale, the sum of exposure of each
derivative contracted with this counterparty is considered. The exposure for each derivative is defined as the future value calculated
within the life of the derivative, considering the variation of the market risk factors that affect the value of the derivative
instrument.
Vale also assess the creditworthiness of its counterparties in treasury operations following an internal methodology similar to
commercial credit risk management that aims to define a default probability for each counterparty.
Depending on the counterparty’s nature (banks, insurance companies, countries or corporations), different inputs will be
considered: (i) expected default probability given by KMV; (ii) Credit Default Swaps (“CDS”) and bond market spreads; (iii) credit
ratings defined by the main international rating agencies; and (iv) financial statements data and indicators analysis.
d)
Market risk management
Vale is exposed to various market risk factors that could impact its cash flows. The assessment of this potential impact arising from
the volatility of risk factors and their correlations is performed periodically to support the decision making process and the growth
strategy of the Company, ensure its financial flexibility and monitor the volatility of future cash flows.
When necessary, market risk mitigation strategies are evaluated and implemented in line with these objectives. Some strategies
may incorporate financial instruments, including derivatives. The portfolios of the financial instruments are monitored on a monthly
basis, enabling the monitoring of financial results and their impact on cash flow.
Considering the nature of Vale’s business and operations, the main market risk factors which the Company is exposed to are:
• Foreign exchange and Interest rates;
• Product prices and input costs.
24
e)
Foreign exchange and interest rate risk
The company’s cash flow is subjected to volatility of several currencies, once its product prices are predominantly indexed to US
Dollar, while most of the costs, disbursements and investments are indexed to other currencies, mainly Brazilian Real and Canadian
Dollar.
In order to reduce the potential impact that arises from this currency mismatch, derivatives instruments can be used as a risk
mitigation strategy.
In the case of cash flow foreign exchange protection regarding revenues, costs, disbursements and investments, the main risk
mitigation strategies used are forwards and swaps.
Vale implemented hedge transactions to protect its cash flow against the market risks arising from its debt obligations – mainly
currency volatility. We use swap transactions to convert debt linked to Brazilian Real and Euros into US Dollar that have similar - or
sometimes shorter - settlement periods than the final maturities of the debt instruments. Their notional amounts are similar to the
principal and interest payments, subjected to liquidity market conditions.
Swaps with shorter settlement dates are renegotiated over time so that their final maturity matches - or becomes closer - to the
debts` final maturity. At each settlement date, the results of the swap transactions partially offset the impact of the foreign
exchange rate in Vale’s obligations, to mitigate the effects of the cash disbursements in US Dollar.
In the case of debt instruments denominated in Brazilian Real, in the event of an appreciation (or depreciation) of the Brazilian Real
against the US Dollar, the negative (or positive) impact on Vale`s debt service (interest and/or principal payment) measured in US
Dollars will be partially offset by the positive (or negative) effect from the swaps, regardless of the US$/R$ exchange rate on the
payment date. The same rationale is applicable to debts denominated in other currencies and their respective swaps.
Vale has also exposure to interest rates risks over loans and financings. The US Dollar floating rate debt in the portfolio consists
mainly of loans including export pre-payments, commercial banks and multilateral organizations loans. In general, such debt
instruments are indexed to the London Interbank Offer Rate in US dollar (“LIBOR”). Considering the impact of interest rate volatility
on the cash flow, Vale observes the potential natural hedges effects between US Dollar floating rates and commodities prices in the
decision process of acquiring financial instruments. Sensitivity analysis is disclosed in Note 25.
f)
Risk of product and Input prices
Vale is also exposed to market risks regarding commodity price and input volatilities. In accordance with risk management policy,
risk mitigation strategies involving commodities can be used to adjust the cash flow risk profile and reduce Vale’s cash flow
volatility. For this kind of risk mitigation strategy, Vale uses predominantly forwards, futures or zero-cost collars.
g)
Operational risk management
Operational risk management is the structured approach that Vale uses to manage uncertainty related to possibly inadequate or
failure in internal processes, people and systems and to external events, in accordance with the principles and guidelines of
ISO31000.
Operational risks are periodically monitored, ensuring the effectiveness of prevention / mitigation key controls in operation and
execution of the risk treatment strategy (creation of new controls, changes in the risk environment, transfer part of the risk by
contracting insurance, provisioning of resources, etc.).
Therefore, the Company seeks to have a clear view of its major risks, of the best cost-benefit mitigation plans and of the controls in
place, monitoring the potential impact of operational risk and allocating capital efficiently.
h)
Capital Management
The Company's aim, its capital, to seek a structure that will ensure the continuity of your business in the long term, as well
as, delivering value to stockholders through dividend payments and capital gain, and at the same time maintain a debt
profile suitable to its activities, with amortization well distributed over years, on average 10 years, thus avoiding a concentration in
one specific period.
25
i)
Insurance
Vale has taken out several types of insurance, such as operating risk insurance, civil responsibility, engineering risks insurance
(projects) and life insurance policies for employees, among others. The coverage of these policies is similar those commonly used
by the mining industry and was contract in line with the objectives defined by the Company, with the corporate risk management
policy and the limitation imposed by the insurance and reinsurance global market.
Insurance management is carried out with the support of the existing insurance committees in the various operational areas of the
Company. Among its management instruments, Vale uses captive reinsurance companies that allow it to contract insurances on a
competitive basis as well as giving it direct access to key international insurance and reinsurance markets.
6.
Changes in accounting policies
From 2013 Vale adopted the revised IAS 19 Employee benefits – IAS 19 to account employment benefits. The Company has applied
the standard retrospectively in accordance with the transition provisions of the standard which eliminated the method of the
"corridor"; simplified the changes between the assets and liabilities of plans, recognizing in the statement of income, service cost,
interest expense on benefit obligation and interest income on plan assets; and recognizing in comprehensive income, the
remeasurements of actuarial gains and losses, return on plan assets (net of interest income on assets) and changes in the effect of
the asset ceiling and onerous liabilities.
The impact on the Company has been as follow:
Balance Sheet
Assets
Current assets
Cash and cash equivalents
Others
Non-current
Deferred income tax and social contribution
Others
Total assets
Liabilities and stockholders' equity
Current
Employee post-retirement benefits obligations
Liabilities directly associated with non-current assets held for sale
Others
Non-current
Employee post-retirement benefits obligations
Deferred income tax and social contribution
Others
Stockholders' equity
Capital
Unrealized fair value gain (losses)
Cumulative translation adjustments
Retained earnings
Others
Total Company stockholders' equity
Noncontrolling interests
Total of stockholders' equity
Total liabilities and stockholders' equity
(i) Recast according to note 7.
December 31, 2012
Original
balance (i)
Effect of
changes
Adjusted
balance
Original
balance (i)
Effect of
changes
January 1, 2012
Adjusted
balance
-
-
-
72
(115)
(43)
(43)
-
9
-
9
1,650
(368)
-
1,282
-
(1,348)
20
(6)
-
(1,334)
-
(1,334)
(43)
5,832
16,694
22,526
3,531
18,007
21,538
4,053
103,998
108,051
130,577
1,893
103,469
105,362
126,900
205
169
12,197
12,571
3,310
3,427
36,442
43,179
60,578
(2,044)
(18,663)
38,397
(5,029)
73,239
1,588
74,827
130,577
169
-
10,924
11,093
1,550
5,681
30,066
37,297
60,578
(40)
(20,520)
41,819
(5,042)
76,795
1,715
78,510
126,900
-
-
-
16
-
16
16
-
-
-
-
927
(216)
-
711
-
(713)
109
(91)
-
(695)
-
(695)
16
3,531
18,007
21,538
1,909
103,469
105,378
126,916
169
-
10,924
11,093
2,477
5,465
30,066
38,008
60,578
(753)
(20,411)
41,728
(5,042)
76,100
1,715
77,815
126,916
5,832
16,694
22,526
3,981
104,113
108,094
130,620
205
160
12,197
12,562
1,660
3,795
36,442
41,897
60,578
(696)
(18,683)
38,403
(5,029)
74,573
1,588
76,161
130,620
26
Statement of income
Net operating revenue
Cost of goods sold and services rendered
Gross operating profit
Operational expenses
Financial expenses, net
Equity results
Earnings before income taxes
Current and deferred Income taxes, net
Net income from continued operations
Loss attributable to noncontrolling interests
Net income attributable to stockholders
Discontinued Operations (note 7)
Net income
Net loss attributable to noncontrolling interests
Net income attributable to stockholders
(i) Recast according to Note 7.
Statement of income
Net operating revenue
Cost of goods sold and services rendered
Gross operating profit
Operational expenses
Financial expenses, net
Equity results
Earnings before income taxes
Current and deferred income taxes, net
Net income from continued operations
Loss attributable to noncontrolling interests
Net income attributable to stockholders
Discontinued Operations (note 7)
Net income
Net loss attributable to noncontrolling interests
Net income attributable to stockholders
(i) Recast according to Note 7.
Other comprehensive income
Net income
Translation adjustment
Unrealized results on valuation at market
Retirement benefit obligations, net
Cash flow hedge, net
Total other comprehensive income
Attributable to noncontrolling interests
Attributable to the Company's stockholders
(i) Recast according to note 7.
Other comprehensive income
Net income
Translation adjustment
Unrealized results on valuation at market
Retirement benefit obligations, net
Cash flow hedge, net
Total other comprehensive income
Attributable to noncontrolling interests
Attributable to the Company's stockholders
(i) Recast according to note 7.
Original balance (i)
46,553
(25,424)
21,129
Year ended as at December 31, 2012
Adjusted balance
46,553
(25,390)
21,163
Effect of changes
-
34
34
(13,695)
(4,106)
645
3,973
1,211
5,184
(257)
5,441
(68)
5,116
(257)
5,373
-
84
-
118
(37)
81
-
81
-
81
81
(13,695)
(4,022)
645
4,091
1,174
5,265
(257)
5,522
(68)
5,197
(257)
5,454
Original balance (i)
60,075
(24,509)
35,566
Year ended as at December 31, 2011
Adjusted balance
60,075
(24,528)
35,547
Effect of changes
-
(19)
(19)
(5,223)
(3,581)
1,138
27,900
(5,259)
22,641
(233)
22,874
(86)
22,555
(233)
22,788
-
32
-
13
(6)
7
-
7
-
7
7
(5,223)
(3,549)
1,138
27,913
(5,265)
22,648
(233)
22,881
(86)
22,562
(233)
22,795
Original balance (i)
5,116
(2,226)
(1)
-
(121)
2,768
Year ended as at December 31, 2012
Adjusted balance
5,197
(2,288)
(1)
(655)
(121)
2,132
Effect of changes
81
(62)
-
(655)
-
(636)
(223)
2,991
-
(636)
(223)
2,355
Original balance (i)
22,555
(4,626)
3
-
129
18,061
(308)
18,369
Year ended as at December 31, 2011
Adjusted balance
22,562
(4,527)
3
(333)
129
17,834
Effect of changes
7
99
-
(333)
-
(227)
-
(227)
(308)
18,142
27
7.
Discontinued operations and assets and liabilities held for sale
Below shows the amounts of assets and liabilities held for sale and discontinued operations reclassified during the year:
General Cargo - Logistic (a)
Energy (b)
December 31, 2013
Total
Araucária (b)
December 31, 2012
Total
Assets held for sale and discontinued operations
Accounts receivable
Other current assets
Investment
Intangible, net
Property, plant and equipment, net
Total assets
Liabilities associated with assets held for sale and
discontinued operations
Suppliers and contractors
Payroll and related charges
Other current liabilities
Other non-current Liabilities
Total Liabilities
Assets and liabilities with discontinued operation
a)
Discontinued operations
141
271
-
1,687
1,027
3,126
85
61
112
190
448
2,678
-
-
79
-
561
640
-
-
-
-
-
640
141
271
79
1,687
1,588
3,766
85
61
112
190
448
3,318
14
54
-
-
389
457
12
-
51
106
169
288
14
54
-
-
389
457
12
-
51
106
169
288
In September 2013, Vale announced its intention to dispose the control over its subsidiary VLI S.A. (“VLI”), which aggregates all
operations of General cargo logistic segment. As consequence, the General Cargo logistic segment has been treated as discontinued
operations and assets and liabilities were reclassified to non-current asset / liabilities held for sale.
As part of the disposal process, we entered into agreements to transfer its 20% stock on VLI capital to Mitsui & Co. in the amount of
US$677; 15.9% for Fundo de Garantia de Tempo de Serviço (“FGTS”) by amount US$538; and 26.5% to investment fund managed by
Brookfield Asset Management by an amount of US$853. The operation is subject to revision by the Brazilian Administrative Council
for Economic Defense agency (“Conselho Administrativo de Defesa Econômica” or “CADE”).
The net income and cash flows for the year of discontinued operations represent the General Cargo Logistic segments results, which
differ from the results generated by VLI in such year, and are presented as follow:
Net income of Discontinued operations
Net revenue of services
Cost of services rendered
Operating expense
Operating profit
Financial Results
Income (loss) before income taxes
Income taxes
Income (loss) after income taxes
Gross income from fair value measurement
Income taxes of fair value measurement
Net income (loss) from discontinued operations
2013
1,283
(1,232)
(90)
(39)
(2)
(41)
182
141
(209)
66
(2)
Year ended as at December 31,
2011
2012
1,141
(1,059)
(132)
(50)
(1)
(51)
(17)
(68)
-
-
(68)
871
(862)
(91)
(82)
8
(74)
(12)
(86)
-
-
(86)
28
Cash flow from discontinued operations
Operating activities
Net (loss) income from discontinued operation
Adjustments for Conciliation
Depreciation and amortization
Deferred income taxes
Fair value adjustments
Others
Decrease (increase) in assets
Increase (decrease) in liabilities
Net cash provided by operating activities
Investing activities
Additions to property, plant and equipment
Others
Net cash used in investing activities
Financing activities
Additions
Net cash provided by financing activities
Net cash provided (used) by discontinued operations
b)
Assets and liabilities held for sale
Energy Generation Assets
2013
(2)
157
(286)
209
123
(45)
94
250
(763)
(3)
(766)
87
87
(429)
Year ended as at December 31,
2011
2012
(68)
133
(9)
-
14
270
74
414
(455)
18
(437)
-
-
(23)
(86)
108
4
-
(5)
156
75
252
(213)
(17)
(230)
-
-
22
In December 2013, the company signed agreements with CEMIG Geração e Transmissão S.A. (CEMIG GT), as follow : (i) to sell 49%
of it stakes of 9% over Norte Energia S.A.(“Norte Energia”), company responsible for construction, operation and exploration of
Hydroelectric facility of Belo Monte (“Belo Monte”), and (ii) Creation of a Joint venture (Aliança Geração de Energia S/A) to be
constituted by Vale and CEMIG through contribution of their holdings within following power generation assets: Porto Estrela,
Igarapava, Funil, Capim Branco I e II, Aimorés and Candonga. No cash will be disbursed as part of the transaction. Vale and CEMIG
GT will hold respectively 55% and 45% of this new company and the supply of electricity to Vale operations, previously guaranteed
by their own generation, will be secured by long-term contract.
The operation above is still pending approval from regulatory agencies (ANEEL). The assets were transferred to assets held for sale
with no impact in the Statement Income.
Araucária Assets
In December 2012, we executed an agreement with Petróleo Brasileiro S.A. (“Petrobras”) to sell Araucária, operation for production
of nitrogens based fertilizes, located in Araucária, in the Brazilian state of Paraná, for US$234 and recognized a loss of US$129
recorded within “Gain (loss) on measurement or sales of non-current assets” in Statement of Income. The purchase price will be
paid by Petrobras through installments accrued quarterly, adjusted by 100% of the Brazilian Interbank Interest rate (“CDI”), in
amounts equivalent to the royalties due by Vale related to the operation of potash assets and mining of Taquari-Vassouras and of
the Carnalita project.
The sale was concluded in June 2013 and no additional effects occurred in the Statement of Income for the year.
29
8.
Acquisitions and Divestitures
The results on divestitures are presented as follow:
Gain (loss) on measurement or sales of non-current assets
Tres Valles
Manganese and Ferroalloys
Coal
Araucária
Aluminum Assets
Financial income
Hydro
Results on sale investments from associates and joint controlled entities
Log-In
Fosbrasil
a)
2013
Divestitures of Hydro
2013
(215)
-
-
-
-
(215)
214
214
14
27
41
Year ended as at December 31,
2011
2012
-
(22)
(355)
(129)
-
(506)
-
-
-
-
-
-
-
-
-
(1,494)
(1,494)
-
-
-
-
-
As part of Vale’s strategy of reducing its exposure to non-core assets, in November 2013, we sold Norsk Hydro common shares for
US$1,811. Since February 2013 when the lock-up period for trading Hydro shares ended, the investment could be traded in the
market and therefore we had started classifying this investment as a financial asset available for sale. As result of this operation we
recognized a gain calculated as bellow of US$214 that is presented in our Statement of Income as “Financial Income”:
Hydro
Balance in the date of sale
Cumulative translation adjustment recycling
Results on available for sale investments recycling
Amount received
Gain on sale
b)
Divestitures of Tres Valles
1,845
(442)
194
1,597
1,811
214
In December 2013, we sold our total participation in Sociedade Contractual Minera Tres Valles (“Tres Vales”) for US$25. This
transaction is consistent with Vale´s strategy of focusing on world-class assets, with scale compatible with its existing operations. In
this transaction, Vale recognized a loss of US$215 presented in our Statement of Income as “Gain (loss) on measurement or sale of
non-current assets”. The total loss includes an amount of US$7 transferred from “Cumulative translation adjustments”.
c)
Divestitures of Fosbrasil
In December 2013, we entered into an agreement to sale of Vale’s minority participation in the associate Fosbrasil, producer of
purified phosphoric acid, for US$45. In this transaction Vale recognized a gain of US$27 presented in our Statement of Income as
“Result on sale investments from associates and joint controlled entities”.
d)
Divestitures of Log-In
In December 2013, Vale promoted an auction to sell its common shares of Log-in Logística Intermodal S.A. (“Log-in”). All the shares
were sold US$94 and the gain of US$14 on this transaction was recorded in our Statement of Income as “Result on sale investments
from associates and joint controlled entities”.
a)
2012
Acquisition of additional participation in the Belvedere
During 2012, we concluded the purchase option on additional 24.5% participation in the Belvedere Coal Project owned by Aquila
Resources Limited ("Aquila") in the amount of AUD150 million (US$156). In 2013, after the approval of the local government, Vale
has 100% of Belvedere and paid the total amount of US$ 338 for wholly participation.
30
b)
Sales of Coal
In June 2012, we have concluded the sale of our thermal coal operations in Colombia to CPC S.A.S., an affiliate of Colombian Natural
Resources S.A.S. (“CNR”). The loss on this transaction, of US$355 was recorded in the income statement in the line “Gain (loss) on
measurement or sales of non-current assets”.
c)
Acquisition of EBM stocks
At 2012, we acquired additional 10.46% of Empreendimentos Brasileiros de Mineração (“EBM”). As result of the acquisition, we
increased our share in EBM to 96.7% and we recorded US$62 as result from operation with non-controlling interest in Stockholders
Equity.
d)
Divestitures of manganese and ferroalloys
In October 2012, we concluded the sale of manganese and ferroalloys operations in Europe for US$160. In this transactions Vale
recognized a loss of US$22 presented in our Statement of Income as ““Gain (loss) on measurement or sales of non-current assets”.
e)
Divestitures of participation on Vale Oman Pelletizing
In October 2012, we sold 30% of participation in Vale Oman Pelletizing LLC for US$71. In this transactions Vale recognized a gain of
US$63 in Stockholders Equity.
a)
2011
Divestitures of aluminum assets
In February 2011, we concluded the sale of Albras-Alumínio Brasileiro (“Albras”), Alunorte-Alumina do Norte do Brasil (“Alunorte”),
Companhia de Alumina do Pará (“CAP”), 60% of Mineração Paragominas S.A. (“Paragominas”) and other Brazilian bauxite mineral
rights. For these transactions we received US$1,081 in cash and 22% of Hydro’s outstanding common shares. The gain of US$1,494
was recorded in Statement of Income as “Gain (loss) on measurement or sales of non-current assets”.
b)
Acquisition of NESA
In 2011, we acquired 9% of participation in Norte Energia S.A. (“NESA”) for US$70.
9.
Cash and Cash Equivalents
Cash and bank deposits
Short-term investments
December 31, 2013 December 31, 2012
1,194
4,638
5,832
1,558
3,763
5,321
January 1, 2012
945
2,586
3,531
Cash and cash equivalents includes cash, demand deposits, and financial investments with an insignificant risk of changes in value,
being in part Brazilian Reais indexed to the Brazilian Interbank Interest rate (“DI Rate”or”CDI”) and those denominated in US Dollars
are mainly in time deposits, with the original maturities of less than three months.
10.
Accounts Receivables
Denominated in BRL
Denominated in other currencies, mainly US$
December 31, 2013 December 31, 2012
January 1, 2012
509
5,283
5,792
849
6,060
6,909
1,228
7,382
8,610
Allowance for doubtful accounts
(105)
8,505
Accounts receivables related to the steel sector represented 79.70%, 71.26% and 67.90% of total receivable as at December 31,
2013, December 31, 2012 and January 1, 2012, respectively.
(114)
6,795
(89)
5,703
No individual customer represents over 10% of receivables or revenues.
The estimated losses for accounts receivable recorded in the Statement of Income as at December 31, 2013, 2012 and 2011 totaled
US$4, US$22 and US$2, respectively. Write offs as at December 31, 2013, 2012 and 2011, totaled US$15, US$16 and US$1,
respectively.
31
11.
Inventory
Inventories are comprised as follows:
Inventories of products
Bulk Material
Iron ore
Pellets
Manganese and ferroalloys
Coal
Base Metals
Nickel and other products
Copper
Fertilizers
Potash
Phosphates
Nitrogen
Others products
Materials supplies
Total of inventories
December 31, 2013
December 31, 2012
January 1, 2012
646
88
75
318
1,127
1,398
23
1,421
8
313
19
340
8
2,896
1,229
4,125
854
95
92
248
1,289
1,894
29
1,923
20
332
22
374
11
3,597
1,455
5,052
819
164
236
268
1,487
1,973
38
2,011
-
322
63
385
92
3,975
1,276
5,251
As at December 31, 2013, December 31, 2012 and January 1, 2012 inventory balances included a provision to adjust at market value
of nickel, amounting to US$14 , US$0 and US$14, respectively, manganese in the amount of US$1 , US$3 and US$9, respectively,
copper in the amounts of US$0 , US$3 and US$0 , respectively, and coal in the amount of US$117 , US$0 and US$0 , respectively.
Inventories of product
Balance at beginning of the year
Production/acquisition
Transfer from materials supplies inventory
Sales
Provision/ reversal of the write-off by inventory adjustment (a)
Translation adjustments
Balance at end of year
(a) Include provision for adjustments to market value
Materials supplies
Balance at beginning of year
Acquisition
Transfer to use
Translation adjustments
Balance at end of year
2013
3,597
18,936
4,112
(22,991)
(221)
(537)
2,896
2013
1,455
4,083
(4,112)
(197)
1,229
Year ended as at December 31,
2011
2,754
21,749
3,758
(23,383)
(604)
(299)
3,975
2012
3,975
19,935
4,262
(24,197)
(38)
(340)
3,597
Year ended as at December 31,
2011
1,544
3,635
(3,758)
(145)
1,276
2012
1,276
4,550
(4,262)
(109)
1,455
32
12.
Recoverable Taxes
Value-added tax
Brazilian Federal Contributions
Others
Total
Current
Non-current
Total
13.
Investments
The movement of investments in associate and joint ventures are as follow:
Balance at beginning of year
Additions
Disposals (a)
Translation adjustment for the period
Equity results
Equity other comprehensive income
Dividends declared
Impairment
Transfers to held for sale (b)
Balance at end of period
(i) Recast according to Note 6.
December 31, 2013 December 31, 2012
1,023
670
65
1,758
1,129
680
55
1,864
January 1, 2012
1,024
946
59
2,029
1,579
285
1,864
1,540
218
1,758
1,771
258
2,029
2013
6,384
378
(98)
(582)
469
(204)
(747)
-
(2,016)
3,584
Year ended as at December 31,
2011
(i)
4,394
4,321
(17)
(686)
1,138
(1)
(1,136)
-
-
8,013
2012
(i)
8,013
474
(32)
(223)
645
35
(587)
(1,941)
-
6,384
(a) The 2013 disposals refers to investments in Log-in US$80 and Fosbrasil US$18. (Note 8)
(b )The transfers to available for sale refers to investments in Hydro US$1,937 (Note 7-a) and transfer to held for sale refers to Norte Energia US$79 (Note 8-b).
33
Coal
Henan Longyu Energy Resources CO., LTD.
China
Associate
25.00
25.00
Investments (Continued)
Bulk Material
Iron Ore and pellets
Baovale Mineração S.A. - BAOVALE
Companhia Nipo-Brasileira de Pelotização - NIBRASCO (c)
Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS (c)
Companhia Coreano-Brasileira de Pelotização - KOBRASCO (c)
Companhia Ítalo-Brasileira de Pelotização - ITABRASCO (c)
MRS Logística S.A. (f)
Minas da Serra Geral S.A. - MSG
Samarco Mineração S.A. (d)
Tecnored Desenvolvimento Tecnológico S.A. (b)
Zhuhai YPM Pellet Co
Base Metals
Copper
Teal Minerals Incorporated
Nickel
Korea Nickel Corp
Others
Aluminium
Norsk Hydro ASA(e)
Bauxite
Mineração Rio Grande do Norte S.A. - MRN
Steel
California Steel Industries, INC
CSP- Companhia Siderúrgica do PECEM (g)
Thyssenkrupp CSA Companhia Siderúrgica do Atlântico
Other affiliates and joint ventures
Norte Energia S.A.
LOG-IN - Logística Intermodal S/A (a)
Others
(i) Recast according to Note 6.
Location
Relationship % ownership
capital December 31, 2013 December 31, 2012
(i)
January 1, 2012
(i)
2013
% voting
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
China
Joint venture
Joint Venture
Joint Venture
Joint Venture
Joint Venture
Joint Venture
Joint Venture
Joint Venture
Associate
Associate
50.00
51.00
50.89
50.00
50.90
47.59
50.00
50.00
49.21
25.00
50.00
51.11
51.00
50.00
51.00
46.75
50.00
50.00
49.21
25.00
24
159
83
91
62
564
22
437
38
25
1,505
357
357
28
178
104
107
64
586
26
630
38
23
1,784
341
341
35
199
115
112
80
551
29
399
48
23
1,591
282
282
(7)
19
1
18
7
101
-
499
(11)
-
627
42
42
Investments
As of
Equity results
Year ended as at December 31,
Received dividends
Year ended as at December 31,
2012
(i)
6
22
38
26
8
122
2
645
(20)
1
850
59
59
2011
(i)
8
45
19
32
47
132
3
881
(7)
-
1,160
85
85
2013
2012
2011
1
24
10
22
-
63
-
595
-
-
715
40
40
-
-
1
26
36
20
18
57
-
179
-
-
337
60
60
-
-
-
22
20
32
38
55
-
812
-
-
979
-
-
-
-
Zambia
Associate
50.00
50.00
228
252
234
(24)
(5)
(6)
Korea
Associate
25.00
25.00
22
24
4
(2)
-
-
Norway
Associate
-
-
-
2,237
3,227
-
(35)
99
56
47
52
Brazil
Associate
40.00
40.00
111
136
133
10
20
8
17
USA
Brazil
Brazil
Joint Venture
Joint Venture
Associate
50.00
50.00
26.87
50.00
50.00
26.87
Brazil
Brazil
Joint Venture
Associate
4.59
-
4.59
-
181
686
321
1,188
83
-
90
173
3,584
167
499
534
1,200
120
94
196
410
6,384
161
267
1,607
2,035
75
114
318
507
8,013
20
(10)
(158)
(148)
(2)
(1)
(33)
(36)
469
16
(7)
(169)
(160)
(2)
(10)
(72)
(84)
645
14
(3)
(177)
(166)
-
(7)
(35)
(42)
1,138
6
-
-
6
-
-
-
-
834
7
9
-
-
9
-
-
-
-
460
-
7
-
-
7
-
-
-
-
1,038
(a) Company sold in December 2013;
(b) Investment balance includes the values of advances for future capital increase;
(c) Although Vale held a majority of the voting interest of investees accounted for under the equity method, existing veto rights held by noncontrolling shareholders;
(d) Main data of Samarco in 2013: total Assets US$5,581, Liabilities US$4,707, Operational Result US$1.724, Financial Result US$(513), Income tax US$(221);
(e) Investment classified as financial assets available for sale during 2013 and sold in November 2013 (Note 8).
(f) Main data of MRS in 2013: Total Assets US$2,871, Liabilities US$1,685, Operational Result US$386, Financial Result US$(52), Income tax US$(114); and
(g)Pre-operational stage.
34
14.
Intangible Assets
Indefinite useful life
Goodwill
Finite useful life
Concession and
subconcession
Right of use
Others
Total
Cost Amortization
-
4,140
December 31, 2013
Net
4,140
Cost Amortization
-
4,603
December 31, 2012
Net
4,603
Cost Amortization
-
4,812
January 1, 2012
Net
4,812
3,099
328
1,295
4,722
8,862
(1,192)
(75)
(724)
(1,991)
(1,991)
1,907
253
571
2,731
6,871
5,375
358
1,225
6,958
11,561
(1,618)
(56)
(676)
(2,350)
(2,350)
3,757
302
549
4,608
9,211
5,351
606
900
6,857
11,669
(1,506)
(43)
(599)
(2,148)
(2,148)
3,845
563
301
4,709
9,521
The rights of use refers basically to the usufruct contract entered into with noncontrolling stockholders to use the
Empreendimentos Brasileiros de Mineração S.A. shares (owner of the shares of MBR) and intangible identified in business
combination of Vale Canada. The amortization of the right of use will expires in 2037 and Vale Canada's intangible will end in
September 2046. The concessions and subconcessions are the agreements with the Brazilian government for the exploration and
the development the ports and rails. (Note 31-f)
The table below shows the movement of intangible assets during the year:
Balance as at January 1, 2011
Addition
Disposals
Amortization
Translation adjustments
Others
Effect of discontinued operations
Net movements of the year
Transfer to held for sale
Balance as at December 31, 2011
Addition
Disposals
Amortization
Translation adjustments
Effect of discontinued operations
Net movements of the year
Transfer to held for sale
Balance as at December 31, 2012
Addition
Disposals
Amortization
Transfer to non-current assets held for sale
Translation adjustments
Others
Effect of discontinued operations
Net movements of the year
Transfer to held for sale
Balance as at December 31, 2013
Goodwill
5,194
-
-
-
(382)
-
-
-
4,812
-
-
-
(209)
-
-
4,603
-
-
-
-
(463)
-
-
-
4,140
Concessions and
Subconcessions
3,909
178
(19)
(193)
(472)
146
Right to use
632
-
-
(15)
(54)
-
296
-
3,845
275
(8)
(175)
(348)
168
-
3,757
412
(13)
(181)
-
(508)
-
126
(1,686)
1,907
-
-
563
-
(232)
(10)
(19)
-
-
302
-
-
(27)
-
(22)
-
-
-
253
Others
365
179
(1)
(111)
15
(146)
-
-
301
420
-
(134)
(38)
-
-
549
229
(2)
(133)
-
(72)
-
-
-
571
Total
10,100
357
(20)
(319)
(893)
-
-
296
-
9,521
695
(240)
(319)
(614)
-
168
-
9,211
641
(15)
(341)
-
(1,065)
-
-
126
(1,686)
6,871
35
15.
Property, plant and equipment
Land
Buildings
Facilities
Computer equipment
Mineral properties
Others
Construction in progress
December 31, 2013
December 31, 2012
January 1, 2012
Cost
945
9,916
15,659
679
21,603
27,149
26,799
102,750
Accumulated
Depreciation
-
(2,131)
(4,722)
(496)
(5,327)
(8,409)
-
(21,085)
Net
945
7,785
10,937
183
16,276
18,740
26,799
81,665
Cost
676
7,710
16,320
985
23,705
26,754
28,936
105,086
Accumulated
Depreciation
-
(1,617)
(4,564)
(609)
(4,838)
(8,576)
-
(20,204)
Net
676
6,093
11,756
376
18,867
18,178
28,936
84,882
Cost
695
8,058
14,835
1,208
22,949
27,471
25,837
101,053
Accumulated
Depreciation
-
(1,925)
(3,695)
(842)
(4,410)
(7,839)
-
(18,711)
Net
695
6,133
11,140
366
18,539
19,632
25,837
82,342
Balance as at January 1, 2011
Addition (i)
Disposals
Depreciation and amortization
Translation adjustments
Transfers
Effect of discontinued operations
Net movements of the year
Balance as at December 31, 2011
Addition (i)
Disposals
Depreciation and amortization
Transfer to non-current assets held for sale
Impairment
Translation adjustments
Transfers
Effect of discontinued operations
Net movements of the year
Balance as at December 31, 2012
Addition (i)
Disposals
Depreciation and amortization
Impairment
Translation adjustments
Transfers
Effect of discontinued operations
Net movements of the year
Transfer to held for sale
Balance as at December 31, 2013
Land
356
-
-
-
(83)
416
6
695
-
(1)
-
-
-
(161)
143
-
676
-
(1)
-
-
(143)
413
-
-
945
Building
4,872
-
(38)
(118)
(733)
2,131
19
6,133
-
(63)
(319)
(25)
(1,083)
(237)
1,677
10
6,093
-
(3)
(289)
(13)
(768)
2,802
9
(46)
7,785
Facilities
15,062
-
(13)
(492)
(2,777)
(640)
-
11,140
-
(49)
(921)
(33)
(269)
(1,090)
2,977
1
11,756
-
(74)
(756)
(172)
(1,305)
2,068
7
(587)
10,937
Computer
equipment
263
-
(1)
(70)
(39)
217
Mineral
properties
24,403
-
(22)
(150)
(1,697)
(3,995)
(4)
366
-
(9)
(90)
-
(1)
136
(28)
2
376
-
(2)
(74)
-
(182)
72
(1)
(6)
183
-
18,539
-
(57)
(808)
(2)
(522)
(177)
1,894
-
18,867
-
(33)
(799)
-
(1,163)
(592)
(4)
-
16,276
Others
9,300
-
(38)
(1,752)
1,953
10,176
(7)
19,632
-
(348)
(1,898)
(940)
(1,330)
(950)
3,953
59
18,178
-
(68)
(1,757)
(3)
(623)
3,592
252
(831)
18,740
Constructions in
progress
21,759
15,936
(114)
-
(3,447)
(8,305)
8
25,837
15,261
(549)
-
(12)
(818)
(289)
(10,616)
122
28,936
12,889
(312)
-
(2,110)
(4,518)
(8,355)
431
(162)
26,799
Total
76,015
15,936
(226)
(2,582)
(6,823)
-
22
82,342
15,261
(1,076)
(4,036)
(1,012)
(4,023)
(2,768)
-
194
84,882
12,889
(493)
(3,675)
(2,298)
(8,702)
-
694
(1,632)
81,665
(i) The total amount of Capital Expenditures recognized as additions of construction in progress in December 31, 2013, 2012 and 2011 correspond to US$9,645,
US$11,580 and US$11,684, respectively.
The property, plant and equipment (net book value) given as guarantees for judicial claims at December 31, 2013, 2012 and 2011
correspond to US$77, US$96 and US$97, respectively.
In December 2013, US$1.4 billion refers to iron ore Project – Guinea (Note 31 d).
36
16.
Impairment
We identified evidence of impairment in relation to certain investments and property, plant and equipment. The following
impairment charges were recorded:
Assets
Property, plant and equipment
Fertilizers
Nickel
Coal
Pellets
Other
Investment
Aluminum
Steel
Energy
Cash-generating unit
amount
amount
Net carrying
Recoverable
Impairment
adjustment
Net carrying
amount
December 31, 2013
Recoverable
amount
December 31, 2012
Impairment
adjustment
PRC
Onça Puma
Australia assets
Pelletizing asset
Norsk Hydro ASA
Thyssenkrupp
VSE
2,767
-
-
225
-
2,992
-
-
-
-
651
-
-
43
-
694
-
-
-
-
2,116
-
-
182
-
2,298
-
-
-
-
-
3,779
1,619
-
185
5,583
3,212
1,418
100
4,730
-
930
590
-
40
1,560
2,237
535
17
2,789
-
2,849
1,029
-
145
4,023
975
883
83
1,941
a)
o
Property plant and equipment
2013
Fertillizer of PRC
In 2013, the Company suspended the implementation of the Rio Colorado project in Argentina (“PRC”). The underlying project
parameters were not sufficiently favorable to the project meets the Company’s capital allocation and the value creations targets.
The company will continue honoring its commitments related to the concessions and reviewing alternatives to enhance the project
outcome in order to determine prospects for future project development.
In the fourth quarter of 2013, the Company concluded its analyses in relation to the PRC investment and used its best estimate,
which approximated the original cost of the investment, in determining the “fair value less cost to sell” for purposes of the
impairment charge.
o
Pellets
The Company analyzed the temporary stoppage of pelletizing plants in Brazil and the uncertainty resumption of operations resulted
in the revaluations of these assets with the respectively impairment.
o
2012
Onça Puma nickel assets
Problems with the two furnaces in the Onça Puma project have led to the total stoppage of its iron-nickel operations since June
2012. After reviewing the case, Vale decided to rebuild one of the furnaces. Given this event, the carrying value of Onça Puma’s
assets required an adjustment for impairment to reflect its fair value.
The recoverable amount of Onça Puma’s assets, once we determined these would not be recovered through undiscounted cash
flows, was ascertained by determining their value from discounted cash flow projections based on financial budgets approved by
management for the life of the mine. The projected cash flow was adjusted to reflect the effects of the quantities sold at the
commodity futures prices and on the expected demand for the product.
The key assumptions used by management to calculate the impairment are the sales values of the commodities and the discount
rate, reflecting the volatile nature of the business.
The discount rates applied to the future cash flow forecasts represent an estimate of the rate the market would apply to comply
with the risk of the assets under valuation, Vale weighted average cost of capital is used as a basic point for determining the
discount rates, with appropriate adjustments for the risk profile of the countries in which the individual reporting unit operate.
37
o
Coal assets in Australia
Increasing costs, falling market prices, reduced production levels and financially unfavorable regulatory changes were identified in
the coal sector, leading us to carry out impairment tests.
The recoverable amount for the Australian assets was ascertained by determining through the calculation of value from discounted
cash flow projections based on financial budgets approved by management for the life of the mine. The projected cash flow was
adjusted to reflect the effects of the quantities sold at the commodity futures prices and on the expected demand for the product.
The key assumptions used by management to calculate the impairment of coal assets in Australia are the commodities prices and
the discount rate, reflecting the volatile nature of the business.
o
Other
In 2012 changes in the Company’s strategy have altered the expected cash flows from some of our other operations, such as of oil
and gas and other projects.
The recoverable amount of these assets was ascertained from the new cash flow projections from financial budgets recently revised
and approved by management.
b)
o
Investment
2012
Investment in Norsk Hydro ASA
The Company held 22% stake in the affiliated Norsk Hydro ASA (“Norsk Hydro”), which is accounted for the equity method.
The volatility of aluminum prices and uncertainties about the European economy contributed to a reduction in the traded market
value of Norsk Hydro.
The Company assessed that the reduction of the market value of Norsk Hydro as “other than temporary” and thus recognized an
impairment charge in this affiliated, adjusting the book value for its fair value.
At December 31, 2012 Norsk Hydro's shares at the close of trading were quoted at US$ 4.99 per share resulting in a value of US$
2,237.
o
Investment in Thyssenkrupp CSA
We recorded an impairment charge against the carrying value of our 26.87% interest in Thyssenkrupp CSA to reflect a reduction in
the investment recoverable amount. The fair value based on future cash flow and does not take into account the inherent value of
our rights as the exclusive suppliers of ore to the mill which comprise an integral component of our investment strategy.
o
Investment in Vale Soluções de Energia
Changes in the investment strategy of the Company have altered the expected cash flows from operations of our joint venture Vale
Soluções de Energia.
The carrying value for VSE was ascertained from the new cash flow projections from financial budgets recently approved by
management for the joint venture.
c)
Goodwill and intangible assets of indefinite life
The goodwill arose from the process of acquisition of part of our business mainly represented by of iron ore and pellets (US$1,829),
nickel (US$1,744) and fertilizer (US$567).
The annual impairment review resulted in no impairment charge both for 2013 and 2012. For impairment testing purpose, we used
a specific discount rate by asset, which consider a premium for country and business segment risk.
The key assumption to which the discounted cash flow is more sensitive is the sales prices and production cost.
38
17.
Loans and Financing
a)
Total debt
Debt contracts abroad
Working capital
Loans and financing in:
United States Dollars
Others currencies
Fixed rates:
Notes indexed in United Stated Dollars
Euro
Accrued charges
Debt contracts in Brazil
Loans and financing in:
Indexed to TJLP, TR, IGP-M and CDI
Basket of currencies, Libor
Non-convertible debentures
Fixed rates:
Loans in United States Dollars
Loans in Reais
Accrued charges
December 31, 2013 December 31, 2012
January 1, 2012 December 31, 2013 December 31, 2012
Current liabilities
Noncurrent liabilities
January 1, 2012
-
334
2
12
-
350
698
750
175
-
6
47
99
1,077
1,775
-
604
14
124
-
324
1,066
140
165
1,958
6
35
101
2,405
3,471
22
897
18
-
-
221
1,158
138
-
-
-
109
112
359
1,517
-
-
4,662
3
13,808
2,066
-
20,539
5,000
1,365
372
80
314
-
7,131
27,670
3,379
261
13,458
1,979
-
19,077
5,679
1,192
379
86
386
-
7,722
26,799
-
2,345
242
10,231
970
-
13,788
4,136
-
2,505
1,109
-
-
7,750
21,538
All the securities issued through our 100% finance subsidiary Vale Overseas Limited, are fully and unconditionally guaranteed by
Vale.
The long-term portion as at December 31, 2013 has maturities as follows:
2015
2016
2017
2018
2019 onwards
As at December 31, 2013, the annual interest rates on the long-term debts were as follows:
Up to 3%
3,1% to 5% (a)
5,1% to 7% (b)
7,1% to 9% (b)
9,1% to 11% (b)
Over 11% (b)
Variable
1,245
1,981
2,407
4,029
18,008
27,670
6,616
5,873
12,463
1,166
572
2,636
119
29,445
(a) Includes Eurobonds. For this operation we have entered into derivative transactions at a coupon of 4.51% per year in US dollars.
(b) Includes Brazilian Real denominated debt that bears interest at the CDI and TJLP, plus spread. For these operations, we have entered into derivative transactions
to mitigate our exposure to the floating rate debt denominated in Brazilian Real, totaling US$6,102 of which US$5,785 has an original interest rate above 5.1% per
year. The average cost of debts not denominated in U.S. Dollars after entering derivatives transactions is 2.29% per year.
Non-convertible Debentures
Quantity as at December 31, 2013
Outstanding
Issued
Maturity
Interest December 31, 2013 December 31, 2012
2nd Series
Tranche "B" - Salobo
400,000
5
400,000 November 20, 2013
No date
5
100% CDI + 0.25%
6.5% p.a + IGP-DI
Short-term portion
Long-term portion
Accrued charges
-
372
372
-
372
-
372
1,973
379
2,352
1,958
379
15
2,352
Balance sheet
January 1, 2012
2,167
364
2,531
-
2,505
26
2,531
39
b)
Funding
In November and December 2013, Vale issued five and seven years pre-export financing facilities linked to future receivables from
export sales totaling US$1,380 billion. The amounts related to these contracts were fully disbursed.
In December 2013, Vale issued US$277 in export credit notes to Brazilians commercial banks that will mature in 2023.
On January 15, 2014 (subsequent event), Vale issued infrastructure debentures in the total amount of US$427. In last quarter of
2013 Vale paid approximately US$1,708 of its total debt.
c)
Revolving credit lines
In June 2013 Vale entered into a new facility with Banco Nacional de Desenvolvimento Econômico Social (“BNDES”) for a total
amount of US$47, to finance the acquisition of domestic equipment in Brazil.
In July 2013, Vale entered into a five-year revolving credit facility with a syndicate of 16 commercial banks that added US$2 billion to
the total amount available under our revolving credit facilities. Considering the existing US$3 billion facility that will mature in 2016,
the total amount Vale has available under revolving credit lines is currently US$5 billion.
Type
Revolving Credit Lines
Revolving Credit Facility - Vale/ Vale International/ Vale Canada
Revolving Credit Facility - Vale/ Vale International/ Vale Canada
Credit Lines
Export-Import Bank of China and Bank of China Limited
BNDES
BNDES - CLN 150
BNDES - Investment Sustenance Program ("PSI") 3.0%
BNDES - Tecnored 3.5%
Contractual
Currency
Date of
agreement
Available
Total amount
available to be
December 31,
December 31,
until
drawn
2013
2012
January 1,
2012
Amounts drawn on
US$
US$
April 2011
July 2013
US$ September 2010 (a)
April 2008 (b)
R$
R$ September 2012 (c)
R$
June 2013 (d)
R$ December 2013 (e)
5 years
5 years
13 years
10 years
10 years
10 years
8 years
3,000
2,000
1,229
3,116
1,658
47
58
-
-
985
1,975
1,314
37
-
-
-
837
1,529
900
-
-
-
-
467
1,193
-
-
-
(a) Acquisition of twelve large ore carriers from Chinese shipyards.
(b) Memorandum of understanding signature date, however projects financing term is considered from the signature date of each projects contract amendment.
(c) CLN 150 project.
(d) Acquisition of domestic equipment.
(e) Support to Tecnored's investment plan from 2013 to 2015.
The currency of total amount available and disbursed different from reporting currency is affected by exchange rate variation
among periods.
These credit lines from Nexi, JBIC, K-Sure, EDC, BNDES: Vale Fertilizantes, PSI 4.50% and 5.50% were taken off this note, because
they have been used in its entirety.
On January 30, 2014 (subsequent event) Vale entered into a new facility with the Canadian agency EDC for a total amount of
US$775. No withdrawn occurred.
d)
Guarantee
On December 31, 2013, US$1,456 of the total aggregate outstanding debt was secured by property, plant and equipment and
receivables.
e)
Covenants
Our principal covenants require us to maintain certain ratios, such as debt to EBITDA (Earnings before Interest Taxes, Depreciation
and Amortization) and interest coverage. We have not identified any instances of noncompliance as at December 31, 2013.
40
18.
Asset retirement obligation
The Company uses various judgments and assumptions when measuring its obligations related to the retirement of assets. The
accrued amounts of these obligations are not deducted from the potential costs covered by insurance or indemnities, because their
recovery is considered uncertain.
Long term interest rates used to discount these obligations to their present values and to update the provisions as at December 31,
2013, 2012 and 2011 were 6.39%, 5.03% p.a. and 5.82% p.a. respectively. The liability is periodically updated based on these
discount rates plus the inflation index (IGPM) for the period.
The changes in the provision for asset retirement obligation are as follows:
Balance at beginning of year
Increase expense
Settlement in the current period
Revisions in estimated cash flows
Translation adjustments for the year
Effect of discontinued operations
Transfer to held for sale
Balance at end of year
Current
Non-current
19.
Provision for litigation
December 31, 2013 December 31, 2012
1,922
170
(14)
782
(112)
2,748
201
(40)
15
(276)
January 1, 2012
1,518
127
(57)
420
(86)
(4)
2,644
96
2,548
2,644
-
2,748
70
2,678
2,748
-
1,922
73
1,849
1,922
Vale is a party to labor, civil, tax and other ongoing lawsuits and is discussing these issues both administratively and in court. When
applicable, these lawsuits are supported by judicial deposits. Provisions for losses resulting from these processes are estimated and
updated by the Company, supported by the legal advice of the legal board of the Company and by its legal consultants.
Balance as of January 1, 2011
Additions
Reversals
Payments
Monetary adjustment
Translation adjustment
Effect of discontinued operations
Net movements of the year
Balance as of December 31, 2011
Additions
Reversals
Payments
Monetary adjustment
Translation adjustment
Effect of discontinued operations
Net movements of the year
Transfer to held for sale
Balance as of December 31, 2012
Additions
Reversals
Payments
Indexation and interest
Translation adjustment
Transfer to income taxes - settlement program
Effect of discontinued operations
Net movements of the year
Transfer to held for sale
Balance as of December 31, 2013
Total of litigation
provision
2,043
630
(351)
(392)
48
(297)
5
1,686
1,022
(318)
(182)
45
(171)
(15)
(2)
2,065
19,797
(10,327)
(3,160)
169
(253)
(6,977)
(6)
(32)
1,276
Tax litigation
Civil litigation
Labor litigation
Environmental
litigation
510
72
(202)
(79)
(10)
(43)
-
248
78
(28)
(3)
16
(18)
(6)
-
287
79
(72)
(154)
121
(43)
-
(3)
(6)
209
748
397
(57)
(242)
(10)
(89)
4
751
307
(208)
(22)
(7)
(62)
(9)
(2)
748
252
(160)
(82)
75
(95)
-
(2)
(27)
709
39
7
(10)
(4)
4
(3)
-
33
11
(6)
(2)
2
(4)
-
-
34
7
(12)
-
3
(5)
-
-
1
28
746
154
(82)
(67)
64
(162)
1
654
626
(76)
(155)
34
(87)
-
-
996
19,459
(10,083)
(2,924)
(30)
(110)
(6,977)
(1)
-
330
41
Provisions for tax litigation - The nature of tax contingencies balances refer to discussions on the basis of calculation of the Financial
Compensation for Exploiting Mineral Resources (“CFEM”) and denials of compensation claims of credits in the settlement of federal
taxes in Brazil, and mining taxes in our foreign subsidiaries. The other causes refer to the charges of Additional Port Workers
Compensation (“AITP”) and questions about the location for the purpose of incidence of Service Tax (“ISS”).
In November 2013 we elected to participate in the REFIS, a federal tax settlement program with respect to most of the claims
related to the collection of income tax and social contribution on equity gain of foreign subsidiaries and affiliates which the
expectation of loss was classified as possible (Note 20). See below the REFIS changes initially recognized as provisions for tax
litigation.
Balance as at December 31, 2012
Additions
Reversals – REFIS benefit acquired
Payments:
Indexation and interest
Translation adjustment
Transfer to income taxes - settlement program:
Current liabilities
Non-current liabilities
Balance as at December 31, 2013
REFIS changes
in tax litigation
-
19,356
(9,798)
(2,594)
66
(53)
(470)
(6,507)
-
As a consequence the amount of possible tax contingent liabilities has been reduced in 2013.
On September 2012, we have considered as probable the loss related to the deductibility of transportation expenditures in arriving
at the amount upon which the CFEM is calculated, increasing the provision of US$542. Since then we paid US$410 of CFEM. As at
December 31, 2013, December 31, 2012 and January 1, 2012 the total liability to CFEM recognized was US$60, US$519 and US$151,
respectively.
Provisions for civil litigation - They are related to the demands that involve contracts between Vale and unrelated companies with
their service providers, requiring differences in values due to alleged losses that have occurred due to various economic plans, other
demands are related to accidents, actions damages and still others related to monetary compensation in action vindicatory.
Provisions for labor and social security litigation - Consist of lawsuits filed by employees and service providers, from employment
relationship. The most recurring claims are payment of overtime, hours in intinere, and health and safety. The social security
contingencies are from legal and administrative disputes between the INSS and the Vale companies, relating to compulsory social
security or not.
In addition to those provisions, there are judicial deposits. These court-ordered deposits are accruing interest and are reported in
noncurrent assets. Judicial deposits are as follows:
Tax litigations
Civil litigations
Labor litigations
Environmental litigations
Total
December 31, 2013 December 31, 2012
January 1, 2012
433
176
870
11
1,490
435
172
903
5
1,515
413
151
895
5
1,464
The Company is challenging at administrative and judicial levels, claims where the expectation of loss is classified as possible and
considers that there is no need to recognize a provision.
These possible contingent liabilities are split between tax, civil, labor and social security, and are as follows:
Tax litigation
Civil litigation
Labor litigation
Environmental litigation
Total
December 31, 2013 December 31, 2012
January 1, 2012
3,789
768
2,900
1,165
8,622
16,492
1,124
1,728
1,672
21,016
17,967
1,483
1,923
1,076
22,449
The most significant possible loss tax risk relates to the deductibility of social contribution payments on the Income Tax Bases.
42
20.
Income Tax Settlement Program (“REFIS”)
In October 2013 the Brazilian tax authority established a corporate Income Tax Settlement Program (“REFIS”), related to the
collection of Income tax and Social Contribution on equity earning of foreign subsidiaries of Brazilian companies. Under the terms of
this REFIS, the amounts due through December 31, 2012 may be paid as follows: (i) upfront payment with 100% reduction of
penalty, interest and other legal charges or (ii) in 180 monthly installments, with 20% down payment at the time of joining the
program, with 80% reduction of penalty, 50% reduction of interest and 100% reduction of legal charges.
As mentioned in Note 19, Vale is subject to claim by the Brazilian tax authorities related to the collection of Income taxes on equity
gain on foreign subsidiaries and affiliates. The classification of those claims as possible loss remains unchanged, and as a
consequence, no provision had been recorded.
In November 2013, The Company elected to participate in the REFIS for payment of amounts relating to income tax and social
contribution on the net income of its non-Brazilian subsidiaries and affiliates from 2003 to 2012. Our participation in the REFIS
resulted in a substantial reduction in the amounts in dispute and is consistent with our goal of eliminating uncertainties and focusing
on our core businesses while preserving potential benefits from legal challenges to the tax regime for foreign subsidiaries.
Among the options offered by the REFIS legislation, we elected to settle the 2003, 2004 and 2006 obligation, and pay in monthly
installments with penalties and interest the remaining years 2005 and 2007 to 2012.
As detailed in Note 19, following the REFIS, Vale´s total obligation is US$9.6 billion. Including the upfront payments and the first
installment, Vale paid US$2.6 billion in 2013 and the remaining US$7 billion will be paid in 178 monthly installments, bearing
interest at the SELIC rate.
The effects of the Statement of Income as at December 31, 2013 are summarized as follows:
Finance expense
Initial recognition of interest/fines
Reversal of interest /fines - benefit from electing to join the program
Net increase on financial expenses
Income tax expense
Recognition of obligation
Tax effect of deductibility of interest/fines
Other effects
Amount related to discontinued operation
Net effect on income tax expense - continued operations
Total effect on Statement of Income
(12,162)
9,525
(2,637)
(7,460)
2,841
786
(3,832)
(216)
(4,048)
(6,685)
43
21.
Deferred Income Taxes
We analyze the potential tax impact associated with undistributed earnings of each our subsidiaries and affiliates. For those
subsidiaries in which undistributed earnings are intended to be reinvested indefinitely, no deferred tax is recognized. Undistributed
earnings of foreign consolidated subsidiaries and affiliates totaled approximately US$25,086 on December 31, 2013 based on
international accounting Standards (IFRS). As described in Note 20, in 2013 we entered in the Brazilian REFIS program to pay the
amounts relating to the collection of income taxes on equity gain on foreign subsidiaries and affiliates from 2003 to 2012 and
therefore, the repatriation of these earnings would have no Brazilian tax consequences.
The income of the Company is subject to the common system of taxation applicable to companies in general. The net deferred
balances were as follows:
Taxes losses carryfoward
Temporary differences:
Pension plan
Provision for litigation
Impairment of Assets
Fair value of financial instruments
Allocated goodwill
Impairment
Others
Total
Assets
Liabilities
(i) Recast according to Note 6.
Balance as at January 1, 2011 (i)
Net income effect
Subsidiary acquisition (sale)
Translation adjustment for the year
Deferred social contribution
Other comprehensive income
Effect of discontinued operations
Net movements of the year
Balance as at December 31, 2011 (i)
Net income effect
Subsidiary acquisition (sale)
Translation adjustment for the year
Other comprehensive income
Effect of discontinued operations
Net movements of the year
Transfer to held for sale
Balance as at December 31, 2012 (i)
Net income effect
Translation adjustment for the year
Constitution/Reversal of Tax Carryforward
Other comprehensive income
Effect of discontinued operations
Net movements of the year
Transfer to held for sale
Balance as at December 31, 2013
(i)
Recast according to Note 6.
December 31, 2013
2,053
643
341
962
1,075
(4,774)
1,222
(227)
(758)
1,295
4,523
(3,228)
1,295
Assets
1,358
648
-
(146)
-
49
-
1,909
2,216
(18)
(146)
92
-
-
4,053
791
(463)
187
(45)
283
(283)
4,523
December 31, 2012
(i)
1,274
January 1, 2012
(i)
915
867
574
845
806
(5,030)
1,569
(279)
(648)
626
4,053
(3,427)
626
Liabilities
7,587
374
76
(333)
(2,134)
(101)
(4)
5,465
(1,461)
(105)
(198)
(174)
(9)
(91)
3,427
(162)
(182)
-
227
(3)
(79)
3,228
708
467
791
530
(6,578)
-
(389)
(4,471)
(3,556)
1,909
(5,465)
(3,556)
Total
(6,229)
274
(76)
187
2,134
150
4
(3,556)
3,677
87
52
266
9
91
626
953
(281)
187
(272)
286
(204)
1,295
The deferred assets liabilities of income taxes arising from tax losses, negative social contribution and temporary differences are
recognized in the accounts, taking into consideration the analysis of future performance, based on economic and financial
projections, prepared based on assumptions internal and macroeconomic, trade and tax scenarios that may suffer changes in the
future.
44
These temporary differences that will be performed upon the occurrence of the corresponding relevant facts generators have the
following expectations:
Deferred income taxes
To be recovered after than 12 months
To be recovered within 12 months
Total
(i)
Recast according to Note 6.
December 31, 2013 December 31, 2012 (i)
270
356
626
535
760
1,295
January 1, 2012 (i)
(3,823)
267
(3,556)
The income tax in Brazil comprises the taxation on income and social contribution on profit. The composite statutory rate applicable
in the period presented is 34%. In other countries where we have operations, we are subject to various rates depending on
jurisdiction.
The total amount presented as income taxes results in the financial statements is reconciled with the rates established by law, as
follows:
Net income before income taxes
Income taxes at statutory rates ‐ 34%
Adjustments that affects the basis of taxes:
Income tax benefit from interest on stockholders' equity
Tax incentive
Results of overseas companies taxed by different rates which differs from the parent company rate
Results of equity investments
Undeductible impairment
Reversal of deferred tax liabilities
Constitution/reversal for tax loss carryfoward
Income taxes statement program - REFIS (Note 20)
Other (ii)
Income taxes on the profit for the year
(i) Recast according to Note 6.
(ii) Include mainly provisional tax on export sale.
Tax Incentives
2013
7,241
(2,462)
1,167
-
146
173
(719)
-
180
(4,954)
(364)
(6,833)
Year ended as at December 31,
2011
(i)
27,913
(9,490)
2012
(i)
4,091
(1,391)
1,337
204
208
219
(359)
1,236
(228)
-
(52)
1,174
1,655
704
1,356
386
-
-
(297)
421
(5,265)
In Brazil, Vale has a tax incentive for the partial reduction of income tax due to the amount equivalent to the portion allocated by
tax law to transactions in the North and Northeast regions with iron, pellets, railroad, manganese, copper and potash. The incentive
is calculated based on the tax profit of the activity (called operating income), takes into consideration the allocation of operating
profit by incentive production levels during the periods specified for each product as grantees, and generally, for 10 years and are in
the case of Company expire until 2020. An amount equal to that obtained with the tax saving must be appropriated in a retained
earnings reserve account in Stockholders’ equity, and may not be distributed as dividends to Stockholders.
Vale benefits from the allocation of part of income tax due to be reinvested in the purchase of equipment in incentive operation,
subject to subsequent approval by the regulatory agency in the incentive area of Superintendence for the Development of Amazonia
(SUDAM) and the Superintendence for the Development of Northeast (SUDENE). When the reinvestment approved, the tax benefit
is also appropriate in retained earnings reserve, which impaired is the distribution as dividends to Stockholders
Vale also has tax incentives related to the production of nickel from Vale New Caledonia (VNC). These incentives include temporary
exemptions of the total income tax during the construction phase of the project, and also for a period of 15 years beginning in the
first year of commercial production as defined by applicable law, followed by 5 years with refund of 50% of temporary. In addition,
VNC is eligible for certain exemptions from indirect taxes such as import tax during the construction phase and throughout the
commercial life of the project. Some of these tax benefits, including temporary tax incentives, are subject to an earlier interruption
if the project achieves a specified cumulative rate of return. VNC is taxable for a portion of profits starting in the first year that
commercial production is reached, as defined by applicable law. So far, there has been no taxable income realized in New Caledonia.
Vale also received tax incentives for projects in Mozambique, Oman and Malaysia.
Vale is subject to the revision of income tax by local tax authorities for up to five years in companies operating in Brazil, ten years for
operations in Indonesia and up to seven years for companies with operations in Canada.
45
22.
Employee Benefits Obligations
a)
Retirement Benefits Obligations
In Brazil, the management of the pension plans of the Company is the responsibility of the Fundação Vale do Rio Doce de
Seguridade Social (“Valia”) a nonprofit private entity with administrative and financial autonomy.
Certain of the Company’s employees are, participants in variable contribution defined benefit plans (“Plano de Benefício Vale Mais e
Plano de Benefício VALIAPREV” or the “New Plan”), specific coverage for death, pensions and disability allowances and other
defined contributions for programmable benefits. The defined benefits plan is subject to actuarial evaluations. The defined
contribution plan represents a fixed amount held on behalf of the participants.
The Company also maintains sponsor a pension plan with defined benefit characteristics, covering almost exclusively retirees and
their beneficiaries, the plan is in surplus and contributions by the Company are not expressive.
Due to the migration of assets to Vale Mais Plan in May 2000 the Company employees maintained a defined benefit plan
(proportional benefit) for these employees and beneficiaries. This plan is funded by monthly contributions made by the Company,
calculated based on periodic actuarial valuations.
Additionally, the Company sponsors a specific group of former employees entitled to receive additional benefits from Valia normal
payments, through the so called Complementation Bonus plus post-retirement benefit that covers medical, dental and
pharmaceutical assistance.
The Company also has defined benefit plans and other post-employment benefits administered by other foundations and social
security entities benefit all employees.
Employers’ disclosure about pensions and other post-retirement benefits on the status of the defined benefit elements of all plans is
provided.
We use a measurement date December 31, 2013 for our pension and post-retirement benefit plans.
i. Change in benefit obligation:
Benefit obligation as at January 1, 2011 (i)
Service Costs
Interest Costs
Benefits paid
Participant contributions
Plan amendments
Transfers
Effects of change in financial assumptions
Effects of setting the experiment
Effect of business combinations
Effect of exchange rate changes
Benefit obligation as at December 31, 2011 (i)
Service Costs
Interest Costs
Benefits paid
Participant contributions
Plan amendments
Plan settlements
Transfers
Effects of change in financial assumptions
Effects of setting the experiment
Effect of business combinations
Effect of exchange rate changes
Benefit obligation as at December 31, 2012 (i)
Service Costs
Interest Costs
Benefits paid
Participant contributions
Plan amendments
Transfers
Effects of change in demographic assumptions
Effects of change in financial assumptions
Effects of setting the experiment
Effect of business combinations
Effect of exchange rate changes
Benefit obligation as at December 31, 2013
(i)
Recast according to Note 6.
46
Overfunded pension
Underfunded pension
plans
3,623
18
513
(344)
3
-
1,126
157
67
-
(552)
4,611
-
309
(237)
-
-
-
(1,434)
452
232
-
(366)
3,567
49
461
(312)
1
-
1,910
(6)
(659)
(394)
-
(537)
4,080
plans
5,662
78
272
(363)
-
5
(1,126)
26
307
8
(277)
4,592
114
403
(439)
2
(35)
(30)
1,495
501
618
2
(67)
7,156
97
220
(334)
-
-
(1,907)
145
(446)
32
2
(559)
4,406
Others underfunded
pension plans
1,595
18
98
(83)
-
-
-
11
131
2
(54)
1,718
35
99
(76)
-
23
-
16
75
253
(27)
(71)
2,045
42
131
(76)
-
(16)
-
21
(227)
(43)
-
(184)
1,693
ii.
Evolution of the fair value of assets
Overfunded pension
Underfunded pension
Fair value of plan assets as at January 1, 2011 (i)
Interest income
Employer contributions
Participant contributions
Benefits paid
Transfers
Plan settlements
Return on plan assets (excluding interest income)
Effect of exchange rate changes
Fair value of plan assets as at December 31, 2011 (i)
Transfers
Interest income
Employer contributions
Participant contributions
Benefits paid
Plan settlements
Return on plan assets (excluding interest income)
Effect of exchange rate changes
Fair value of plan assets as at December 31, 2012 (i)
Transfers
Interest income
Employer contributions
Participant contributions
Benefits paid
Plan settlements
Return on plan assets (excluding interest income)
Effect of exchange rate changes
Fair value of plan assets as at December 31, 2013
(i) Recast according to Note 6.
plans
5,586
731
65
3
(344)
1,099
-
(109)
(754)
6,277
(1,541)
469
1
-
(237)
-
(79)
(478)
4,412
1,765
523
141
1
(312)
-
(576)
(683)
5,271
plans
4,637
107
512
-
(363)
(1,099)
(14)
22
(139)
3,663
1,541
384
223
2
(439)
(44)
412
(57)
5,685
(1,763)
168
190
-
(334)
(91)
315
(366)
3,804
Others underfunded
pension plans
13
-
83
-
(83)
-
(11)
-
(1)
1
-
-
76
-
(76)
-
-
-
1
-
-
76
-
(76)
-
-
(1)
-
Plan assets managed by Valia on December 31, 2013, December 31, 2012 and January 1, 2012 include investments in a portfolio of
our own stock amounting to US$206, US$300 and US$340, investments in debentures amounting to US$66, US$57 and US$63 and
equity investments from related parties amounting to US$6, US$2 and US$84, respectively. They also include at December 31, 2013,
December 31, 2012 and January 1, 2012, US$3,110, US$3,882 and US$3,552 of Brazilian Federal Government Securities. The Vale
Canada Limited pension plan assets as at December 31, 2013, December 31, 2012 and January 1, 2012 included Canadian
Government securities amounted to US$789, US$483 and US$653, respectively. The Vale Fertilizantes and Ultrafértil at December
31, 2013, December 31, 2012 and January 1, 2012 include Brazilian Federal Government in securities of US$183, US$191 and
US$149, respectively.
47
iii.
Reconciliation of assets and liabilities recognized in the Balance Sheet
December 31, 2013
Others
underfunded
pension
plans
Underfunded
pension
plans
Overfunded
pension
plans
December 31, 2012
Others
underfunded
pension
plans
Underfunded
pension
plans
Overfunded
pension
plans
Overfunded
pension
plans
Plans in Brazil
January 1, 2012
Others
underfunded
pension
plans
Underfunded
pension
plans
Ceiling recognition of an asset/ onerous liability
Beginning of the year
Transfers
Interest income
Changes in asset ceiling/ onerous liability
Effect of exchange rate changes
Ended of the year
Amount recognized in the balance sheet
Present value of actuarial liabilities
Fair value of assets
Effect of the asset ceiling
Assets (liabilities) to be provisioned
Current liabilities
Non-current liabilities
Assets (liabilities) to be provisioned
844
-
71
422
(146)
1,191
(4,080)
5,271
(1,191)
-
-
-
-
-
-
-
-
-
-
(442)
423
-
(19)
-
(19)
(19)
-
-
-
-
-
-
(276)
-
-
(276)
(23)
(253)
(276)
1,596
(40)
160
(762)
(109)
845
(3,567)
4,412
(845)
-
-
-
-
-
40
5
(45)
-
-
(2,622)
2,381
-
(241)
(86)
(155)
(241)
-
-
-
-
-
-
(461)
-
-
(461)
(20)
(441)
(461)
1,931
-
217
(357)
(194)
1,597
(4,611)
6,277
(1,666)
-
-
-
-
-
-
-
-
-
-
(547)
427
-
(120)
(11)
(109)
(120)
-
-
-
-
-
-
(346)
-
-
(346)
(64)
(282)
(346)
December 31, 2013
Others
underfunded
pension
plans
Underfunded
pension
plans
Overfunded
pension
plans
December 31, 2012
Others
underfunded
pension
plans
Underfunded
pension
plans
Overfunded
pension
plans
Overfunded
pension
plans
Foreign plan
January 1, 2012
Others
underfunded
pension
plans
Underfunded
pension
plans
-
-
-
-
-
-
(3,964)
3,381
(583)
(9)
(574)
(583)
(1,417)
-
(1,417)
(65)
(1,352)
(1,417)
-
-
-
-
-
-
(4,534)
3,304
(1,230)
(29)
(1,201)
(1,230)
(1,584)
1
(1,583)
(70)
(1,513)
(1,583)
-
-
-
-
-
-
(4,045)
3,236
(809)
(28)
(781)
(809)
(1,372)
1
(1,371)
(66)
(1,305)
(1,371)
December 31, 2013
Others
underfunded
pension
plans
Underfunded
pension
plans
Overfunded
pension
plans
December 31, 2012
Others
underfunded
pension
plans
Underfunded
pension
plans
Overfunded
pension
plans
Overfunded
pension
plans
Total
January 1, 2012
Others
underfunded
pension
plans
Underfunded
pension
plans
844
-
71
422
(146)
1,191
(4,080)
5,271
(1,191)
-
-
-
-
-
-
-
-
-
-
(4,406)
3,804
-
(602)
(9)
(593)
(602)
-
-
-
-
-
-
(1,693)
-
-
(1,693)
(88)
(1,605)
(1,693)
1,596
(40)
160
(762)
(109)
845
(3,567)
4,412
(845)
-
-
-
-
-
40
5
(45)
-
-
(7,156)
5,685
-
(1,471)
(115)
(1,356)
(1,471)
-
-
-
-
-
-
(2,045)
1
-
(2,044)
(90)
(1,954)
(2,044)
1,931
-
217
(357)
(194)
1,597
(4,611)
6,277
(1,666)
-
-
-
-
-
-
-
-
-
-
(4,592)
3,663
-
(929)
(39)
(890)
(929)
-
-
-
-
-
-
(1,718)
1
-
(1,717)
(130)
(1,587)
(1,717)
Amount recognized in the balance sheet
Present value of actuarial liabilities
Fair value of assets
Assets (liabilities) to be provisioned
Current liabilities
Non-current liabilities
Assets (liabilities) to be provisioned
Ceiling recognition of an asset (ceiling) /
onerous liability
Beginning of the year
Transfers
Interest income
Changes in asset ceiling/ onerous liability
Effect of exchange rate changes
Ended of the year
Amount recognized in the balance sheet
Present value of actuarial liabilities
Fair value of assets
Effect of the asset ceiling
Assets (liabilities) to be provisioned
Current liabilities
Non-current liabilities
Assets (liabilities) to be provisioned
(i)
iv.
Recast according to Note 6.
Recorded costs in the Statement of Income
Overfunded
pension plans
49
461
(523)
Underfunded
pension plans
97
220
(169)
2013
Others
underfunded
pension plans
42
131
-
Overfunded
pension plans
-
309
(469)
Underfunded
pension plans
114
403
(384)
2012 (i)
Others
underfunded
pension plans
35
99
-
Overfunded
pension plans
18
513
(731)
Year ended as at December 31,
2011 (i)
Others
underfunded
pension plans
18
98
-
Underfunded
pension plans
78
272
(107)
13
-
-
148
-
173
160
-
12
145
-
134
200
-
-
243
-
116
Current service cost
Interest on expense on liabilities
Interest income on plan assets
Interest expense on effect of (asset
ceiling)/ onerous liability
Total of cost, net
(i) Recast according to Note 6.
48
v.
Costs recognized in the statement of other comprehensive income for the year
Overfunded
pension plans
Underfunded
pension plans
2013
Others
underfunded
pension plans
Overfunded
pension plans
Underfunded
pension plans
2012 (i)
Others
underfunded
pension plans
Overfunded
pension plans
Underfunded
pension plans
2011 (i)
Others
underfunded
pension plans
Year ended as at December 31,
(3)
666
394
(576)
(424)
60
(19)
41
10
(142)
(94)
(964)
(381)
301
(34)
315
-
582
(167)
415
11
143
(395)
206
43
-
-
249
(75)
174
12
(1)
(196)
(4)
(452)
(232)
(79)
763
-
-
1
-
(3)
(529)
(501)
(620)
412
83
(626)
182
(444)
(21)
-
(994)
(180)
(75)
(226)
-
-
(301)
90
(211)
10
-
(381)
7
(157)
(67)
(109)
327
(6)
6
-
(11)
-
(4)
(309)
(26)
(315)
22
-
(319)
92
(227)
7
-
(529)
(91)
(18)
(133)
-
-
(151)
45
(106)
17
-
(180)
beginning of the year
Effect of changes in financial assumptions
Effect of experience adjustments
Return on plan assets (excluding interest income)
Change of asset ceiling / costly liabilities (excluding interest income)
Income tax
Others comprehensive income
Effect of conversion
Transfers/ low
Accumulated other comprehensive income
(i) Recast according to Note 6.
v.
Actuarial and economic assumptions
All calculations involve future actuarial projections about some parameters, such as: salaries, interest, inflation, the behavior of INSS
benefits, mortality, disability, etc.
The economic actuarial assumptions adopted were formulated considering the long-term period for maturity and should therefore
be examined in that light. So, in the short term, they may not necessarily be realized.
In the evaluations were adopted the following economic assumptions:
December 31, 2013
December 31, 2012
Overfunded
pension plans
Underfunded
pension plans
Others
underfunded
pension plans
Overfunded
pension plans
Underfunded
pension plans
Others
underfunded
pension plans
Overfunded
pension plans
Discount rate to determine benefit obligation
Discount rate to determine net cost
Rate of compensation increase - up to 47 years
Rate of compensation increase - over 47 years
Inflation
Health care cost trend rate
12.13%
9.98%
6.00%
6.00%
6.00%
N/A
12.46%
8.12%
6.00%
6.00%
6.00%
N/A
12.57%
8.12%
N/A
N/A
6.00%
9.18%
8.90%
8.90%
8.15%
5.00%
5.00%
N/A
9.04%
9.45%
8.15%
5.00%
5.00%
N/A
9.05%
9.40%
N/A
N/A
5.00%
8.15%
10.91%
10.78%
8.15%
5.00%
5.00%
N/A
Underfunded
pension plans
Brazil
December 31, 2011
Others
underfunded
pension plans
10.90%
10.30%
N/A
N/A
5.00%
8.15%
10.78%
11.30%
N/A
5.00%
5.00%
8.15%
Underfunded
pension plans
December 31, 2013
Others underfunded
pension plans
Underfunded
pension plans
December 31, 2012
Others underfunded
pension plans
Underfunded
pension plans
4.80%
4.80%
4.00%
4.00%
2.00%
N/A
N/A
5.40%
5.40%
3.00%
3.00%
2.00%
7.00%
4.45%
4.16%
5.08%
4.10%
4.10%
2.00%
N/A
N/A
4.20%
4.20%
3.00%
3.00%
2.00%
7.22%
4.49%
5.08%
5.43%
4.10%
4.10%
2.00%
N/A
N/A
Foreign
December 31, 2011
Others underfunded
pension plans
5.10%
5.43%
3.00%
3.00%
2.00%
7.22%
4.49%
Discount rate to determine benefit obligation
Discount rate to determine net cost
Rate of compensation increase - up to 47 years
Rate of compensation increase - over 47 years
Inflation
Health care cost trend rate
Ultimate health care cost trend rate
vi.
Data from participants:
Overfunded
pension plans
Underfunded
pension plans
2013
Others
underfunded
pension plans
Overfunded
pension plans
Underfunded
pension plans
2012
Others
underfunded
pension plans
Overfunded
pension plans
Year ended as at December 31,
2011
Others
underfunded
pension plans
Underfunded
pension plans
61,216
35.2
6.9
6,829
36.9
20,236
37.4
7.4
1,573
49.5
9,852
41.7
7.8
-
-
14
52.0
27.7
-
-
81,324
35.5
7.00
6,519
47.1
11,727
40.2
6.6
-
-
54,367
34.70
6.50
4,141
35.1
17,616
39.00
12.10
1,674
49.1
9,682
41.00
7.90
-
-
21,714
66.9
16,556
71.4
32,426
66.4
16,740
67.4
19,253
70.3
31,737
67.7
19,538
65.5
17,019
72.1
32,633
63.7
Active participants
Number
Average age - years
Average service - years
Terminated vested participants (i)
Number
Average age - years
Retirees and beneficiaries
Number
Average age - years
(i) Off employees of the Company retaining the right to the plane.
49
vii.
Assets of pension plans
Brazilian Plans
The Investment Policy Statements of pension plans sponsored for Brazilian employees are based on a long term macroeconomic
scenario and expected returns. An Investment Policy Statement was established for each obligation by following results of a
strategic asset allocation (ALM – Asset Liability Management) study.
Plan asset allocations comply with pension funds local regulation (CMN Resolution 3,792/09). The plans are allowed to invest in six
different asset classes, defined as “Segments” by the law, as follows: Fixed Income, Equity, Structured Investments (Alternative
Investments and Infra-Structure Projects), International Investments, Real Estate and Loans to Participants in compliance with pre-
approved policies.
The investment policy aims to achieve the adequate diversification, income and long-term appreciation, by combining all classes of
assets to meet the obligations of the various plans with appropriate level of risk.
The pension fund has a risk management process with established policies aimed to identify measure and control all kinds of risk
they are exposed benefit plans, such as market risk, liquidity, credit, operational, systemic and legal.
Foreign plans
The strategy for each of the pension plans sponsored by Vale Canada is based upon a combination of local practices and the specific
characteristics of the pension plans in each country, including the structure of the liabilities, the risk versus reward trade-off
between different asset classes and the liquidity required to meet benefit payments obligations.
viii.
Overfunded pension plans
Brazilian Plans
The Defined Benefit Plan (the “Old Plan”) has most of its assets allocated to fixed income, mainly in Brazilian government bonds
(such as TIPS) and long term inflation linked corporate bonds with the objective of reducing the asset-liability volatility. This Liability
Driven Investments strategy, together with the Loans to Participants segment, aims to hedge the plan’s liabilities against inflation
risk and volatility, with allocation limited to 70% of the plans´ assets. This plan had an average nominal income of 19% per annum,
over the past 12 years. The target allocations for each investment segment or asset class are as follow:
Fixed income investments
Variable income investments
Structures investments
Foreign investments
Real Estate
Operations with participants (loans)
2013
63.18%
18.24%
4.21%
0.19%
9.71%
4.68%
Year ended as at December 31,
2011
59.84%
27.42%
2.85%
0.20%
6.97%
3.26%
2012
59.86%
24.25%
3.66%
0.25%
8.34%
3.56%
The Vale Mais plan has obligations with the characteristics of defined benefit plans and defined contribution plans. Most
investments are in fixed income. To reduce the volatility of assets and liabilities from the components with defined benefit's
characteristics, we used Brazilian government bonds indexed to inflation. The following table shows the target allocations for each
investment segment or asset class:
Fixed income investments
Variable income investments
Structures investments
Foreign investments
Real Estate
Operations with participants (loans)
2013
64.96%
16.52%
2.21%
0.07%
5.20%
11.09%
Year ended as at December 31,
2011
65.52%
22.73%
1.00%
0.10%
4.60%
9.07%
2012
61.71%
20.73%
2.08%
0.10%
5.40%
9.88%
The Defined Contribution Vale Mais component offers four asset class’’ mix options that can be chosen by participants. The options
are: 100% Fixed Income; 80% Fixed Income and 20% Equities, 65% Fixed Income and 35% Equities or 60% Fixed Income and 40%
Equities. Equities management is done through investment funds with Ibovespa (IBrX-50) index.
50
Assets by category are as follows:
Assets by category
Cash and cash equivalents
Accounts Receivable
Equity securities
Debt securities - Corporate bonds
Debt securities - Government bonds
Investments funds - Fixed Income
Investments funds - Equity
International investments
Structured investments - Private Equity funds
Structured investments - Real estate funds
Real estate
Loans to participants
Total
Funds not related to risk plans
Fair value of plan assets at end of year
Level 1
Level 2
December 31, 2013
Total
Level 3
Level 1
Level 2
December 31, 2012
Total
Level 3
Level 1
Level 2
January 1, 2012
Total
Level 3
-
3
870
-
1,730
2,702
340
10
-
-
-
-
5,655
-
-
-
197
-
-
-
-
-
-
-
-
197
-
-
-
-
-
-
-
-
227
8
547
431
1,213
-
5
1,128
-
1,976
1,678
252
15
-
-
-
-
5,054
-
-
-
273
-
-
-
-
-
-
-
-
273
-
3
870
197
1,730
2,702
340
10
227
8
547
431
7,065
(1,794)
5,271
-
-
-
-
-
-
-
-
192
8
458
195
853
-
5
1,128
273
1,976
1,678
252
15
192
8
458
195
6,180
(1,768)
4,412
2
16
1,425
-
2,133
2,292
539
13
-
-
-
-
6,420
-
-
83
559
-
-
-
-
-
-
-
-
642
-
-
-
-
-
-
-
-
194
21
482
345
1,042
2
16
1,508
559
2,133
2,292
539
13
194
21
482
345
8,104
(1,827)
6,277
Measurement of overfunded plan assets at fair value with no observable market variables - level 3
Balance as of January 1, 2011
Actual return on plan assets
Assets purchases, sales and settlements
Assets sold during the period
Cumulative translation adjustment
Transfers in and/ out of Level 3
Balance as of December 31, 2011
Actual return on plan assets
Assets purchases, sales and settlements
Assets sold during the period
Cumulative translation adjustment
Transfers in and/ out of Level 3
Balance as of December 31, 2012
Actual return on plan assets
Assets purchases, sales and settlements
Assets sold during the period
Cumulative translation adjustment
Transfers in and/ out of Level 3
Balance as of December 31, 2013
Private Equity
Real State
Funds
128
(9)
41
(1)
(23)
58
194
13
75
(19)
(18)
(53)
192
13
29
(18)
(30)
41
227
Funds
19
-
-
-
(1)
3
21
(8)
-
-
(1)
(4)
8
-
-
-
-
-
8
Real State
288
88
149
(23)
(57)
37
482
120
27
(31)
(41)
(99)
458
95
-
(42)
(71)
107
547
Loans to
Participants
182
55
130
(130)
(42)
150
345
26
92
(84)
(25)
(159)
195
48
236
(196)
(47)
195
431
Total
617
134
320
(154)
(123)
248
1,042
151
194
(134)
(85)
(315)
853
156
265
(256)
(148)
343
1,213
The targeted return on private equity assets in 2014 is 10.83% p.a. for the Old Plan and 11.06% p.a. for the New Plan. The targeted
allocation is 5% for the Old Plan and 2.2% for the New Plan, ranging between 3% and 5% for the Old Plan and ranging between 1%
and 2.5% for the New Plan. These investments have a longer investment horizon and lower liquidity that aim to profit from
economic growth, especially in the infrastructure sector of the Brazilian economy. Usually the fair value of non-liquid assets’ is
similar to their acquisition cost or book value. Some private equity funds, alternatively, apply the following methodologies:
discounted cash flow analysis or analysis based on multiples.
The targeted return on loans to participants in 2014 is 10.83% p.a. for the Old Plan and 11.06% p.a. for the New Plan. The fair values
pricing of these assets include provisions for non-paid loans, according to the local pension fund regulation.
The targeted return on real estate assets in 2014 is 10.83% p.a. for the Old Plan and 11.06% p.a. for the New Plan. The fair values of
these assets are near to their carrying values. The pension fund hires companies specialized in real estate valuation that do not act
in the market as brokers. All valuation techniques follow the local regulations.
51
ix.
Underfunded pension plans
Foreign plans
For all pension plans except that of PT Vale Indonesia tbk, a target asset allocation was 60% in equity investments and 40% in fixed
income investments, with all securities being traded in the public markets. Fixed income investments are in domestic bonds for
each plan's market and represent a mixture of government and corporate bonds. Equity investments are primarily global in nature
and involve a mixture of large, mid and small capitalization companies with a modest explicit investment in domestic equities for
each plan. The Canadian plans also use a currency hedging strategy (each currency exposure is 50% hedged) due to the large
exposure to foreign securities. For PT Vale Indonesia tbk, the target allocation is 20% equity investment and the remainder fixed
income.
Assets by category are shown below:
Assets by category
Cash and cash equivalents
Accounts Receivable
Equity securities
Debt securities - Corporate bonds
Debt securities - Government bonds
Investments funds - Fixed Income
Investments funds - Equity
International investments
Structured investments - Private Equity funds
Structured investments - Real estate funds
Real estate
Loans to participants
Total
Funds not related to risk plans
Fair value of plan assets at the end of the year
Level 1
Level 2
December 31, 2013
Total
Level 3
Level 1
Level 2
December 31, 2012
Total
Level 3
Level 1
Level 2
January 1, 2012
Total
Level 3
105
-
1,527
-
182
112
249
-
-
24
-
-
2,199
(32)
-
8
370
790
-
469
-
-
-
-
-
1,605
131
4
1,565
-
545
1,594
543
4
-
-
-
-
4,386
(34)
-
19
510
484
426
413
-
-
-
-
-
1,818
-
-
-
-
-
-
-
-
-
-
-
-
-
73
-
1,535
370
972
112
718
-
-
24
-
-
3,804
-
3,804
-
-
-
-
-
-
-
-
43
-
142
207
392
97
4
1,584
510
1,029
2,020
956
4
43
-
142
207
6,596
(911)
5,685
65
11
1,231
-
33
440
73
-
-
-
-
-
1,853
(24)
-
2
259
627
568
375
3
-
-
-
-
1,810
-
-
-
-
-
-
-
-
-
-
-
-
-
41
11
1,233
259
660
1,008
448
3
-
-
-
-
3,663
-
3,663
Measurement of overfunded plan assets at fair value with no observable market variables - Level 3
Balance as at January 1, 2011
Transfers in and/ out of Level 3
Balance as at December 31, 2011
Actual return on plan assets
Assets purchases, sales and settlements
Assets sold during the year
Cumulative translation adjustments
Transfers in and/ out of Level 3
Balance as at December 31, 2012
Cumulative translation adjustments
Transfers in and/ out of Level 3
Balance as at December 31, 2013
Private Equity Funds
14
(14)
-
1
34
(6)
(2)
16
43
(2)
(41)
-
Real State Funds
1
(1)
-
(1)
-
-
-
1
-
-
-
-
Real State
37
(37)
-
35
13
(3)
(1)
98
142
(35)
(107)
-
Loans to Participants
151
(151)
-
28
105
(71)
(9)
154
207
(12)
(195)
-
Total
203
(203)
-
63
152
(80)
(12)
269
392
(49)
(343)
-
Assets of underfunded benefits plans
Underfunded other benefits by asset category:
Level 1
Level 2
December 31, 2013
Total
Level 3
Level 1
Level 2
December 31, 2012
Total
Level 3
Level 1
Level 2
January 1, 2012
Total
Level 3
Assets by category
Cash and cash equivalents
-
-
-
-
1
-
-
1
1
-
-
1
xi.
Disbursement of future cash flow
Vale expects to disburse US$354 in 2014 in relation to pension plans and other benefits.
xii.
Sensitivity analysis
Nominal discount rate
1% increase
Assumptions made
Average duration of the obligation - (Years)
1 % Reduction
Assumptions made
Average duration of the obligation - (Years)
Overfunded pension plans
Underfunded pension plans
December 31, 2013
Others underfunded pension
plans
8,611
13.10%
10.43
10,700
11.12%
11.29
52
8,242
5.84%
16.98
10,529
3.84%
15.99
3,543
7.48%
15.78
4,533
5.44%
15.18
xiii.
Estimated future benefit payments
The following table presents the expected benefit payments, which reflect future services:
2014
2015
2016
2017
2018
2019 and thereafter
b)
Incentive Plan in Results
Overfunded pension
plans
287
305
323
341
360
2,097
Underfunded pension
plans
247
244
240
237
551
2,722
December 31, 2013
Others underfunded
pension plans
79
81
84
86
88
176
The Company, Participation in Results Program ("PPR") measured on the evaluation of individual and collective performance of its
employees.
The Participation in the Results of the Company for each employee is calculated individually according to the achievement of goals
previously established using of indicators for the, performance of the Company, Business Unit, Team and individual. The
contribution of each performance unit to the performance scores of employees is discussed and agreed each year, between the
Company and the unions representing the employees.
The Company accrued expenses/costs related to participation in the results as follow:
Operational expenses
Cost of goods sold and services rendered
Total
c)
Long-term stock option compensation plan
2013
215
423
638
Year ended as at December 31,
2011
384
494
878
2012
414
488
902
In order to promote stockholder cultures, in addition to increasing the ability to retain executives and to strengthen the culture of
sustainability performance, Vale has a Long-term Compensation Plan, for some executives of the Company, covering 3-year cycles.
Under the terms of the plan, the participants may allocate a portion of their annual bonus to the plan. Part of the bonus allocated to
the plan is used by the executive to purchase preferred stock of Vale, through a prescribed financial institution under market
conditions and without any benefit being provided by Vale.
The shares purchased by executive have no restrictions and can be sold at any time. However, the shares need to be held for a
period of three years, and the executives need to maintained their employment relationship with the Vale during this period the
participant shall be entitled, as long as the shares are not sold and employment relationship is maintained, to receive from the Vale,
a payment in cash equivalent to the value of their stock holdings based under this scheme on market quotations. The total number
of stocks linked to the plan as at December 31, 2013, December 31, 2012 and January 1, 2012 was 6,214,288, 4,426,046 and
3,012,538, respectively.
Additionally, certain executives eligible for long-term incentives have the opportunity to receive at the end of a three years cycle a
monetary value equivalent to market value of a determined number of stocks based on an assessment of their careers and
performance factors measured as an indicator of total return to the Stockholders.
Liabilities are measured at fair value on the date of each issuance of the report, based on market rates. Compensation costs incurred
are recognized by the defined vesting period of three years. On December 31, 2013, 2012, 2011we recorded a liability of US$84,
US$87 and US$109 respectively, in the Statement of Income.
53
23.
Classification of financial instruments
The classification of financial assets and liabilities is shown in the following tables:
Financial assets
Current
Cash and cash equivalents
Short-term investments
Derivative financial instruments
Accounts receivable
Related parties
Non-current
Related parties
Loans and financing agreements
Derivative financial instruments
Others
Total of Assets
Financial liabilities
Current
Suppliers and contractors
Derivative financial instruments
Loans and financing
Related parties
Non-current
Derivative financial instruments
Loans and financing
Related parties
Stockholders' Debentures
Total of Liabilities
Loans and receivables (a)
profit or loss (b)
hedge (c)
Available for sale
At fair value through
Derivatives designated as
5,321
3
-
5,703
261
11,288
108
241
-
-
349
11,637
3,772
-
1,775
205
5,752
-
27,670
5
-
27,675
33,427
-
-
196
-
-
196
-
-
140
-
140
336
-
199
-
-
199
1,480
-
-
1,775
3,255
3,454
-
-
5
-
-
5
-
-
-
-
-
5
-
39
-
-
39
12
-
-
-
12
51
-
-
-
-
-
-
-
-
-
5
5
5
-
-
-
-
-
-
-
-
-
-
-
(a) Non‐derivative financial instruments with identifiable cash flow.
(b) Financial instruments for trading in short-term.
(c) See Note 25-a.
Loans and receivables (a)
profit or loss (b)
hedge (c)
Available for sale
At fair value through
Derivatives designated as
Financial assets
Current
Cash and cash equivalents
Short-term investments
Derivative financial instruments
Accounts receivable
Related parties
Non-current
Related parties
Loans and financing agreements
Derivative financial instruments
Others
Total of Assets
Financial liabilities
Current
Suppliers and contractors
Derivative financial instruments
Loans and financing
Related parties
Non-current
Derivative financial instruments
Loans and financing
Related parties
Stockholders' Debentures
Total of Liabilities
(a) Non‐derivative financial instruments with identifiable cash flow.
(b) Financial instruments for trading in short-term.
(c) See Note 25-a.
5,832
-
-
6,795
384
13,011
408
246
-
-
654
13,665
4,529
-
3,471
207
8,207
-
26,799
72
-
26,871
35,078
-
-
16
-
-
16
-
-
5
-
5
21
-
1
-
-
1
-
-
-
-
-
1
-
-
-
-
-
-
-
-
-
7
7
7
-
-
-
-
-
-
-
-
-
-
-
-
246
265
-
-
511
-
-
40
-
40
551
-
346
-
-
346
783
-
-
1,653
2,436
2,782
54
December 31, 2013
Total
5,321
3
201
5,703
261
11,489
108
241
140
5
494
11,983
3,772
238
1,775
205
5,990
1,492
27,670
5
1,775
30,942
36,932
December 31, 2012
Total
5,832
246
281
6,795
384
13,538
408
246
45
7
706
14,244
4,529
347
3,471
207
8,554
783
26,799
72
1,653
29,307
37,861
Financial assets
Current
Cash and cash equivalents
Derivative financial instruments
Accounts receivable
Related parties
Non-current
Related parties
Loans and financing agreements
Derivative financial instruments
Others
Total of Assets
Financial liabilities
Current
Suppliers and contractors
Derivative financial instruments
Loans and financing
Related parties
Non-current
Derivative financial instruments
Loans and financing
Related parties
Stockholders' Debentures
Total of Liabilities
Loans and receivables
At fair value through
Derivatives
designated as hedge
(a)
profit or loss (b)
(c)
Available for sale
3,531
-
8,505
82
12,118
509
210
-
719
12,837
4,814
-
1,517
24
6,355
-
21,538
91
-
21,629
27,984
-
434
-
-
434
-
-
60
-
60
494
-
59
-
-
59
663
-
-
1,336
1,999
2,058
-
161
-
-
161
-
-
-
-
-
161
-
14
-
-
14
-
-
-
-
-
14
-
-
-
-
-
-
-
-
7
7
7
-
-
-
-
-
-
-
-
-
-
-
(a) Non‐derivative financial instruments with identifiable cash flow.
(b) Financial instruments for trading in short-term.
(c) See Note 25-a.
The classification of financial assets and liabilities of currencies following tables:
January 1, 2012
Total
3,531
595
8,505
82
12,713
509
210
60
7
786
13,499
4,814
73
1,517
24
6,428
663
21,538
91
1,336
23,628
30,056
December 31, 2013
Financial assets
Current
Cash and cash equivalents
Short-term investments
Derivative financial instruments
Accounts receivable
Related parties
Non-current
Related parties
Loans and financing agreements
Derivative financial instruments
Others
Total of Assets
Financial liabilities
Current
Suppliers and contractors
Derivative financial instruments
Loan and financing
Related parties
Non-current
Derivative financial instruments
Loan and financing
Related parties
Stockholders' Debentures
Total of Liabilities
Total
5,321
3
201
5,703
261
11,489
108
241
140
5
494
11,983
3,772
238
1,775
205
5,990
1,492
27,670
5
1,775
30,942
36,932
R$
US$
CAD
AUD
EUR
Others
currencies
47
-
-
11
-
58
-
-
-
-
-
58
607
-
-
-
607
-
-
-
-
-
607
92
-
-
56
-
148
-
-
-
-
-
148
118
-
2
-
120
-
3
-
-
3
123
34
-
-
1
-
35
-
-
-
-
-
35
99
-
83
-
182
-
2,066
-
-
2,066
2,248
49
-
-
63
-
112
-
-
-
-
-
112
38
-
-
-
38
-
-
-
-
-
38
1,856
3
161
465
182
2,667
9
82
-
-
91
2,758
1,880
186
890
204
3,160
1,361
5,686
-
1,775
8,822
11,982
3,243
-
40
5,107
79
8,469
99
159
140
5
403
8,872
1,030
52
800
1
1,883
131
19,915
5
-
20,051
21,934
55
Financial assets
Current
Cash and cash equivalents
Short-term investments
Derivative financial instruments
Accounts receivable
Related parties
Non-current
Related parties
Loans and financing agreements
Derivative financial instruments
Others
Total of Assets
Financial liabilities
Current
Suppliers and contractors
Derivative financial instruments
Loans and financing
Related parties
Non-current
Derivative financial instruments
Loans and financing
Related parties
Stockholders' Debentures
Total of Liabilities
Financial assets
Current
Cash and cash equivalents
Derivative financial instruments
Accounts receivable
Related parties
Non-current
Related parties
Loans and financing agreements
Derivative financial instruments
Others
Total of Assets
Financial liabilities
Current
Suppliers and contractors
Derivative financial instruments
Loans and financing
Related parties
Non-current
Derivative financial instruments
Loans and financing
Related parties
Stockholders' Debentures
Total of Liabilities
December 31, 2012
R$
US$
CAD
AUD
EUR
Others
currencies
963
-
245
785
209
2,202
6
92
2
-
100
2,302
2,185
273
2,231
207
4,896
690
6,444
-
1,653
8,787
13,683
4,680
246
36
5,772
166
10,900
141
154
43
7
345
11,245
711
74
1,160
-
1,945
93
18,115
72
-
18,280
20,225
-
-
-
8
-
8
-
-
-
-
-
8
1,109
-
11
-
1,120
-
256
-
-
256
1,376
139
-
-
112
-
251
-
-
-
-
-
251
361
-
4
-
365
-
5
-
-
5
370
2
-
-
55
9
66
261
-
-
-
261
327
115
-
65
-
180
-
1,979
-
-
1,979
2,159
48
-
-
63
-
111
-
-
-
-
-
111
48
-
-
-
48
-
-
-
-
-
48
R$
US$
CAD
AUD
EUR
Others
currencies
1,026
307
1,159
57
2,549
20
87
52
-
159
2,708
2,384
63
255
7
2,709
510
6,641
-
1,336
8,487
11,196
2,322
288
7,095
25
9,730
135
123
8
7
273
10,003
1,097
10
1,244
17
2,368
153
13,685
91
-
13,929
16,297
3
-
33
-
36
-
-
-
-
-
36
702
-
14
-
716
-
234
-
-
234
950
48
-
145
-
193
-
-
-
-
-
193
393
-
4
-
397
-
8
-
-
8
405
-
-
-
-
-
354
-
-
-
354
354
116
-
-
-
116
-
970
-
-
970
1,086
132
-
73
-
205
-
-
-
-
-
205
122
-
-
-
122
-
-
-
-
-
122
Total
5,832
246
281
6,795
384
13,538
408
246
45
7
706
14,244
4,529
347
3,471
207
8,554
783
26,799
72
1,653
29,307
37,861
January 1, 2012
Total
3,531
595
8,505
82
12,713
509
210
60
7
786
13,499
4,814
73
1,517
24
6,428
663
21,538
91
1,336
23,628
30,056
56
24.
Fair Value Estimative
Due to the short-term cycle, it is assumed that the fair value of cash and cash equivalents balances, short-term investments,
accounts receivable and accounts payable are close to their book values. For the measurement and determination of fair value, the
Company uses various methods including market, income or cost approaches, in order to estimate the value that market
participants would use when pricing the asset or liability. The financial assets and liabilities recorded at fair value classified and
disclosed in accordance with the following levels:
Level 1 – Unadjusted quoted prices on an active, liquid and visible market for identical assets or liabilities that are accessible at the
measurement date;
Level 2 - Quoted prices (adjusted or unadjusted) for identical or similar assets or liabilities on active markets; and
Level 3 - Assets and liabilities, for which quoted prices, do not exist, or where prices or valuation techniques are supported by little
or no market activity, unobservable or illiquid.
The tables below present the assets and liabilities of measured at fair value as follow:
December 31, 2013
Level 2 (i)
Level 1
Level 2
December 31, 2012
Total (ii)
January 1, 2012
Level 2 (i)
Financial Assets
Current
Derivatives:
Derivatives at fair value through profit or loss
Derivatives designated as hedges
Non-Current
Derivatives:
Derivatives at fair value through profit or loss
Derivatives designated as hedges
Total of Assets
Financial Liabilities
Current
Derivatives:
Derivatives at fair value through profit or loss
Derivatives designated as hedges
Non-Current
Derivatives:
Derivatives at fair value through profit or loss
Derivatives designated as hedges
Stockholders' debentures
Total of Liabilities
196
5
201
140
-
140
341
199
39
238
1,480
12
1,775
3,267
3,505
-
-
-
-
-
-
-
2
-
2
-
-
-
-
2
265
16
281
40
5
45
326
344
1
345
783
-
1,653
2,436
2,781
265
16
281
40
5
45
326
346
1
347
783
-
1,653
2,436
2,783
434
161
595
60
-
60
655
59
14
73
663
-
1,336
1,999
2,072
(i)
(ii)
a)
i.
No classification according to levels 1 and 3 at December 31, 2013 and January 1, 2012.
No classification according to level 3.
Methods and Techniques of Evaluation
Assets and liabilities at fair value through profits or loss
Comprise derivatives not designated as hedges and stockholders’ debentures.
Derivatives designated or not as hedge
The financial instruments were evaluated by calculating their present value through the use of instrument yield curves at the
verification dates. The curves and prices used in the calculation for each group of instruments are detailed in the "market curves”.
The pricing method used for European options is the Black & Scholes model. In this model, the fair value of the derivative is a
function of the volatility in the price of the underlying asset, the exercise price of the option, the interest rate and period to
maturity. In the case of options when the income is a function of the average price of the underlying asset over the period of the
option, we use Turnbull & Wakeman model. In this model, besides the factors that influence the option price in the Black-Scholes
model, the formation period of the average price is also considered.
57
In the case of swaps, both the present value of the assets and liability tip are estimated by discounting the cash flow by the interest
rate of the currency in which the swap is denominated. The difference between the present value of assets and liability of the swap
generates its fair value.
In the case of swaps tied to the TJLP, the calculation of the fair value considers the TJLP are constant, that is the projections of
future cash flow in Brazilian Reais are made on the basis of the last TJLP disclosed.
Contracts for the purchase or sale of products, inputs and costs of selling with future settlement are priced using the forward yield
curves for each product. Typically, these curves are obtained on the stock exchanges where the products are traded, such as the
London Metals Exchange (“LME”), the Commodity Exchange (“COMEX”) or other providers of market prices. When there is no price
for the desired maturity, Vale uses an interpolation between the available maturities.
Stockholders’ Debentures
Comprise the debentures issued during the privatization process (Note 31d), whose fair values are measured based on the market
approach. Reference prices are available on the secondary market.
b)
Fair value measurement compared to book value
For the loans allocated to Level 1, the evaluation method used to estimate the fair value of debt is the market approach to the
contracts listed on the secondary market. For the loans allocated Level 2, the fair value for both fixed-indexed rate debt and floating
rate is determined from the discounted cash flow using the future values of the LIBOR rate and the curve of Vale’s Bonds (income
approach).
The fair values and carrying amounts of non-current loans (net of interest) are shown in the table below:
Financial liabilities
Loans and financing (i)
(i) Net interest of US$449
(ii) No classification according to level 3.
Financial liabilities
Loans and financing (i)
Perpetual notes (iii)
(i) Net interest of US$425
(ii) No classification according to level 3.
(iii) classified as "Related parties" (Non-current liabilities)
Financial liabilities
Loans and financing (i)
Perpetual notes (iii)
(i) Net interest of US$333
(ii) No classification according to level 3.
(iii) classified as "Related parties" (Non-current liabilities)
Balance
28,996
Fair value (ii)
30,005
Level 1
15,964
December 31, 2013
Level 2
14,041
Balance
29,845
72
Fair value (ii)
32,724
72
Level 1
25,817
-
December 31, 2012
Level 2
6,907
72
Balance
22,722
80
Fair value (ii)
24,312
80
Level 1
18,181
-
January 1, 2012
Level 2
6,131
80
58
25.
Derivatives financials instruments
a) Derivatives effects on balance sheet
Derivatives not designated as hedge
Foreign exchange and interest rate risk
CDI & TJLP vs. US$ fixed and floating rate swap
Eurobonds Swap
Treasury future
Pre dollar swap
Commodities price risk
Nickel:
Nickel fixed price program
Bunker oil
Warrants
SLW options (Note 30)
Derivatives designated as hedge
Bunker Oil Hedge
Strategic nickel
Foreign exchange cash flow hedge
Total
Derivatives not designated as hedge
Foreign exchange and interest rate risk
CDI & TJLP vs. US$ fixed and floating rate swap
Eurobonds Swap
Treasury future
Pre dollar swap
Commodities price risk
Nickel:
Nickel fixed price program
Bunker oil
Embedded derivatives
Gas
Derivatives designated as hedge
Bunker oil hedge
Foreign exchange cash flow hedge
Total
December 31, 2013
Non-current
Current
December 31, 2012
Non-current
Current
Assets
January 1, 2012
Non-current
Current
174
13
-
5
192
4
-
4
-
-
5
-
-
5
201
-
101
-
-
101
-
-
-
39
39
-
-
-
-
140
249
-
-
16
265
-
-
-
-
-
-
13
3
16
281
1
39
-
-
40
-
-
-
-
-
-
-
5
5
45
410
-
19
-
429
1
4
5
-
-
-
161
-
161
595
60
-
-
-
60
-
-
-
-
-
-
-
-
-
60
December 31, 2013
Non-current
Current
December 31, 2012
Non-current
Current
Liabilities
January 1, 2012
Non-current
Current
185
1
-
1
187
3
9
12
-
-
12
27
39
238
1,369
-
-
110
1,479
-
-
-
1
1
-
12
12
1,492
340
4
-
-
344
2
-
2
-
-
1
-
1
347
700
18
-
63
781
-
-
-
2
2
-
-
-
783
49
4
5
-
58
1
-
1
-
-
-
14
14
73
590
32
-
41
663
-
-
-
-
-
-
-
-
663
59
b)
Effects of derivatives in the statement of income, cash flow and other comprehensive income
Amount of gain or(loss) recognized as
Financial settlement (inflows)/
Year ended as at December 31,
financial income (expense)
2011
2012
2013
2013
2012
Outflows Amount of gain or (loss) recognized in OCI
2011
2013
2012
2011
Derivatives not designated as hedge
Foreign exchange and interest rate risk
CDI & TJLP vs. US$ fixed and floating rate swap
US$ floating rate vs. US$ fixed rate swap
AUD Forward
Eurobonds Swap
US$ fixed rate vs. CDI swap
Treasury future
Pre dollar swap
South African Randes Forward
Commodities price risk
Nickel:
Nickel fixed price program
Purchase program
Strategic program
Copper:
Purchased scrap protection program
Maritime Freight Hiring Protection Program
Bunker oil
Aluminum
Coal
Warrants
SLW options (Note 30)
Embedded derivatives
Gas Oman
Energy - Aluminum options
Derivatives designated as hedge
Bunker Oil Hedge
Strategic nickel
Foreign exchange cash flow hedge
Aluminum
Total
(897)
-
-
91
-
-
(55)
-
(861)
(2)
-
-
-
(72)
-
-
(74)
(60)
(60)
2
-
2
(315)
-
-
50
-
9
(7)
-
(263)
(1)
-
-
-
1
-
-
-
-
-
(2)
-
(2)
(42)
13
(11)
-
(40)
(1,033)
-
172
(27)
-
145
(120)
(92)
-
-
(30)
69
(12)
(23)
(8)
(96)
39
15
1
-
37
-
-
92
-
-
-
(7)
(7)
-
49
37
-
86
75
146
-
-
5
-
-
(16)
-
135
5
-
-
-
62
-
-
67
-
-
-
-
-
42
(13)
11
-
40
242
(325)
-
-
4
-
(3)
(19)
-
(343)
2
-
-
-
(5)
-
-
(3)
-
-
-
-
-
(1)
(172)
26
-
(147)
(493)
(337)
4
(2)
1
(68)
6
(1)
8
(389)
(41)
-
-
2
(48)
7
2
(78)
-
-
-
-
-
-
(48)
(50)
-
(98)
(565)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(10)
(13)
(28)
-
(51)
(51)
(1)
(149)
29
-
(121)
(121)
-
184
(60)
5
129
129
The maturities dates of the consolidated financial instruments are as follows:
Currencies/ Interest Rates (LIBOR)
Gas
Nickel
Copper
Warrants
Bunker Oil
Maturities dates
July 2023
April 2016
November 2015
March 2014
February 2023
December 2014
60
Additional information about derivatives financial instruments
Value at Risk computation methodology
The Value at Risk of the positions was measured using a delta-Normal parametric approach, which considers that the future
distribution of the risk factors - and its correlations - tends to present the same statistic properties verified in the historical data. The
value at risk of Vale’s derivatives current positions was estimated considering one business day time horizon and a 95% confidence
level.
Contracts subjected to margin calls
Vale has contracts subject to margin calls only for part of nickel trades executed by its wholly-owned subsidiary Vale Canada Ltd.
There was not cash amount subject to margin calls on December 31, 2013.
Initial Cost of Contracts
The financial derivatives negotiated by Vale and its controlled companies described in this document didn’t have initial costs (initial
cash flow) associated.
The following tables show as of December 31, 2013, the derivatives positions for Vale and controlled companies with the following
information: notional amount, fair value (considering counterparty (credit) risk)1, value at risk, gains or losses in the period and the
fair value for the remaining years of the operations per each group of instruments.
Foreign Exchange and Interest Rates Derivative Positions
Protection program for the Real denominated debt indexed to CDI
CDI vs. USD fixed rate swap – In order to reduce the cash flow volatility, Vale entered into swap transactions to convert the
cash flows from debt instruments denominated in Brazilian Reais linked to CDI to U.S. Dollars. In those swaps, Vale pays fixed rates
in U.S. Dollars and receives payments linked to CDI.
CDI vs. USD floating rate swap – In order to reduce the cash flow volatility, Vale entered into swap transactions to convert
the cash flows from debt instruments denominated in Brazilian Reais linked to CDI to U.S. Dollars. In those swaps, Vale pays floating
rates in U.S. Dollars (Libor – London Interbank Offered Rate) and receives payments linked to CDI.
Type of contracts: OTC Contracts
Protected Item: Debts linked to BRL
The protected items are the Debts linked to BRL because the objective of this protection is to transform the obligations linked to BRL
into obligations linked to USD so as to achieve a currency offset by matching Vale’s receivables (mainly linked to USD) with Vale’s
payables.
1 The “Adjusted net/total for credit risk” as of 12/31/2013 considers the adjustments for credit (counterparty) risk calculated for the instruments, in accordance with
International Financial Reporting Standard 13 (CPC 46). The inclusion of counterparty credit risk in the instruments fair value are prospective from 2013, while values of
December 2012 were hold without credit risk adjustments.
61
US$ MillionDecember 31, 2013December 31, 2012December 31, 2013December 31, 2012December 31, 2013December 31, 20132014201520162017CDI vs. fixed rate swapReceivableR$ 5,096R$ 8,184CDI109.45%2,391 4,110 1,658 PayableUS$ 2,603US$ 4,425US$ +3.82%(2,799) (4,633) (1,974) Net(408) (523) (316) 32 39 (131) (259) (57) Adjusted Net for credit risk(411) 39 (132) (260) (58) CDI vs. floating rate swapReceivableR$ 428R$ 428CDI103.50%190 217 13 PayableUS$ 250US$ 250Libor +0.99%(254) (257) (3) Net(64) (40) 10 3 14 (78) - - Adjusted Net for credit risk(64) 14 (78) - - Realized Gain/LossValue at RiskFair value by yearFair valueFlowNotional ($ million)Average rateIndex
Protection program for the real denominated debt indexed to TJLP
TJLP vs. USD fixed rate swap – In order to reduce the cash flow volatility, Vale entered into swap transactions to convert
the cash flows of the loans with Banco Nacional de Desenvolvimento Econômico e Social (BNDES) from TJLP2 to U.S. Dollars. In those
swaps, Vale pays fixed rates in U.S. Dollars and receives payments linked to TJLP.
TJLP vs. USD floating rate swap – In order to reduce the cash flow volatility, Vale entered into swap transactions to convert
the cash flows of the loans with BNDES from TJLP to U.S. Dollars. In those swaps, Vale pays floating rates in U.S. Dollars and receives
payments linked to TJLP.
Type of contracts: OTC Contracts
Protected Item: Debts linked to BRL
The protected items are the Debts linked to BRL because the objective of this protection is to transform the obligations linked to BRL
into obligations linked to USD so as to achieve a currency offset by matching Vale’s receivables (mainly linked to USD) with Vale’s
payables.
Protection program for the Real denominated fixed rate debt
BRL fixed rate vs. USD fixed rate swap: In order to hedge the cash flow volatility, Vale entered into a swap transaction to
convert the cash flows from loans rate with Banco Nacional de Desenvolvimento Econômico e Social (BNDES) in Brazilian Reais
linked to fixed rate to U.S. Dollars linked to fixed. In those swaps, Vale pays fixed rates in U.S. Dollars and receives fixed rates in
Reais.
Type of contracts: OTC Contracts
Protected Item: Debts linked to BRL
The protected items are the Debts linked to BRL because the objective of this protection is to transform the obligations linked to BRL
into obligations linked to USD so as to achieve a currency offset by matching Vale’s receivables (mainly linked to USD) with Vale’s
payables.
Protection program for Euro denominated debt
EUR fixed rate vs. USD fixed rate swap: In order to hedge the cash flow volatility, Vale entered into a swap transaction to
convert the cash flows from debts in Euros linked to fixed rate to U.S. Dollars linked to fixed rate. This trade was used to convert the
cash flows of part of debts in Euros, each one with a notional amount of € 750 million, issued in 2010 and 2012 by Vale. Vale
receives fixed rates in Euros and pays fixed rates in U.S. Dollars.
2 Due to TJLP derivatives market liquidity constraints, some swap trades were done through CDI equivalency.
62
US$ MillionDecember 31, 2013December 31, 2012December 31, 2013December 31, 2012December 31, 2013December 31, 20132014201520162017-2023Swap TJLP vs. fixed rate swapReceivableR$ 6,456R$ 3,268TJLP +1.41%2,401 2,244 741 PayableUS$ 3,310US$ 1,694USD +1.93%(3,172) (2,427) (611) Net(771) (184) 130 42 (24) (72) (127) (548) Adjusted Net for credit risk(803) (24) (73) (128) (578) Swap TJLP vs. floating rate swapReceivableR$ 615R$ 626TJLP +0.95%224 282 19 PayableUS$ 350US$ 356Libor +-1.20%(324) (324) (2) Net(100) (42) 17 4 (39) 1 (2) (60) Adjusted Net for credit risk(102) (39) 1 (2) (62) Fair valueAverage rateFlowNotional ($ million)IndexRealized Gain/LossValue at RiskFair value by yearUS$ MillionDecember 31, 2013December 31, 2012December 31, 2013December 31, 2012December 31, 2013December 31, 20132014201520162017 - 2023R$ fixed rate vs. US$ fixed rate swapReceivableR$ 824R$ 795Fix4.47%309 359 47 PayableUS$ 446US$ 442US$ --1.16%(411) (406) (33) Net(102) (47) 14 5 5 (23) (62) (22) Adjusted Net for credit risk(106) 5 (24) (63) (24) FlowNotional ($ million)IndexAverage rateFair valueRealized Gain/LossValue at RiskFair value by year
Type of contracts: OTC Contracts
Protected Item: Vale’s Debt linked to EUR
The P&L shown in the table above is offset by the hedged items’ P&L due to EUR/USD exchange rate.
Foreign exchange hedging program for disbursements in Canadian dollars
Canadian Dollar Forward – In order to reduce the cash flow volatility, Vale entered into forward transactions to mitigate
the foreign exchange exposure that arises from the currency mismatch between the revenues denominated in U.S. Dollars and the
disbursements denominated in Canadian Dollars.
Type of contracts: OTC Contracts
Hedged Item: part of disbursements in Canadian Dollars
The P&L shown in the table above is offset by the hedged items’ P&L due to CAD/USD exchange rate.
Commodity Derivative Positions
The Company’s cash flow is also exposed to several market risks associated to global commodities price volatilities. To offset these
volatilities, Vale contracted the following derivatives transactions:
Nickel Purchase Protection Program
In order to reduce the cash flow volatility and eliminate the mismatch between the pricing of the purchased nickel (concentrate,
cathode, sinter and others) and the pricing of the final product sold to our clients, hedging transactions were implemented. The
items purchased are raw materials utilized to produce refined Nickel. The trades are usually implemented by the sale of nickel
forward or future contracts at LME or over-the-counter operations.
Type of contracts: LME Contracts and OTC contracts
Protected Item: part of Vale’s revenues linked to Nickel price.
The P&L shown in the table above is offset by the protected items’ P&L due to Nickel price.
63
US$ millionDecember 31, 2013December 31, 2012December 31, 2013December 31, 2012December 31, 2013December 31, 2013201420152016 - 2023Receivable€ 1,000€ 1,000EUR4.063%1,530 1,521 35 PayableUS$ 1,288US$ 1,288US$4.511%(1,411) (1,504) (39) Net119 17 (4) 11 12 (1) 108 Adjusted Net for credit risk113 12 (1) 102 Realized Gain/Loss Fair value by yearIndexFair valueAverage rateValue at RiskFlowNotional ($ million)US$ millionDecember 31, 2013December 31, 2012December 31, 2013December 31, 2012December 31, 2013December 31, 2013201420152016ForwardCAD 786CAD 1,362B1.006(38) 8 - 5 (27) (11) (0) Adjusted total for credit risk(39) (27) (11) (1) Fair value by yearRealized Gain/Loss Value at RiskFlowNotional ($ million)Buy/ SellAverage rate(CAD/USD)Fair valueUS$ millionDecember 31, 2013December 31, 2012December 31, 2013December 31, 2012December 31, 2013December 31, 20132014 Nickel Futures168210S14,0790.03 0.02 0.5 0.05 0.03 Adjusted total for credit risk0.03 0.03 Fair value by yearValue at RiskRealized Gain/Loss Notional (ton)FlowBuy/ SellFair valueAverage Strike (US$/ton)
Nickel Fixed Price Program
In order to maintain the exposure to Nickel price fluctuations, we entered into derivatives to convert to floating prices all contracts
with clients that required a fixed price. These trades aim to guarantee that the prices of these operations would be the same of the
average prices negotiated in LME in the date the product is delivered to the client. It normally involves buying Nickel forwards
(Over-the-Counter) or futures (exchange negotiated). Those operations are usually reverted before the maturity in order to match
the settlement dates of the commercial contracts in which the prices are fixed.
Type of contracts: LME Contracts and OTC contracts
Protected Item: part of Vale’s revenues linked to fixed price sales of Nickel.
The P&L shown in the table above is offset by the protected items’ P&L due to Nickel price.
Copper Scrap Purchase Protection Program
This program was implemented in order to reduce the cash flow volatility due to the quotation period mismatch between the
pricing period of copper scrap purchase and the pricing period of final products sale to the clients, as the copper scrap combined
with other raw materials or inputs to produce copper for the final clients. This program usually is implemented by the sale of
forwards or futures at LME or Over-the-Counter operations.
Type of contracts: OTC Contracts
Protected Item: of Vale’s revenues linked to Copper price.
The P&L shown in the table above is offset by the protected items’ P&L due to copper price.
Bunker Oil Purchase Hedging Program
In order to reduce the impact of bunker oil price fluctuation on Vale’s freight hiring/supply and consequently reducing the
company’s cash flow volatility, bunker oil derivatives were implemented. These transactions are usually executed through forward
purchases.
Type of contracts: OTC Contracts
Protected Item: part of Vale’s costs linked to bunker oil price
The P&L shown in the table above is offset by the protected items’ P&L due to bunker oil price.
64
US$ millionDecember 31, 2013December 31, 2012December 31, 2013December 31, 2012December 31, 2013December 31, 20132014 2015 Nickel Futures6,317-B14,274(2) - (3) 2 (2) 0 Adjusted total for credit risk(2) (2) 0 Value at RiskFair value by yearRealized Gain/Loss Average Strike (US$/ton)Fair valueFlowBuy/ SellNotional (ton)US$ millionDecember 31, 2013December 31, 2012December 31, 2013December 31, 2012December 31, 2013December 31, 20132014 Forward1,101,029937,517S3.27(0.14) 0.005 0.38 0.07 (0.14) Adjusted total for credit risk(0.14) (0.14) Realized Gain/Loss Fair value by yearValue at RiskBuy/ SellFlowAverage Strike (US$/lbs)Fair valueNotional (lbs)US$ millionDecember 31, 2013December 31, 2012December 31, 2013December 31, 2012December 31, 2013December 31, 20132014 Forward1,590,000-B606(3) - (42) 14 (3) Adjusted total for credit risk(3) (3) Average Strike (US$/mt)Fair valueRealized Gain/Loss Value at RiskFair value by yearBuy/ SellFlowNotional (ton)
Sell of part of future gold production (subproduct) from Vale
The company has definitive contracts with Silver Wheaton Corp. (SLW), a Canadian company with stocks negotiated in Toronto
Stock Exchange and New York Stock Exchange, to sell 25% of gold payable flows produced as a sub product from Salobo copper
mine during its life and 70% of gold payable flows produced as a sub product from some nickel mines in Sudbury during 20 years.
For this transaction the payment was realized part in cash (US$ 1.9 billion) and part as 10 million of SLW warrants with strike price of
US$ 65 and 10 years term, where this last part configures an American call option.
Embedded Derivative Positions
The Company’s cash flow is also exposed to several market risks associated to contracts that contain embedded derivatives or
derivative-like features. From Vale’s perspective, it may include, but is not limited to, commercial contracts, procurement contracts,
rental contracts, bonds, insurance policies and loans. The following embedded derivatives were observed in December 31, 2013:
Raw material and intermediate products purchase
Nickel concentrate and raw materials purchase agreements, in which there are provisions based on nickel and copper future prices
behavior. These provisions are considered as embedded derivatives.
Gas purchase for Pelletizing Company in Oman
Our subsidiary Vale Oman Pelletizing Company LLC has a natural gas purchase agreement in which there´s a clause that defines that
a premium can be charged if pellet prices trades above a pre-defined level. This clause is considered as an embedded derivative.
a)
Market Curves
To build the curves used on the pricing of the derivatives, public data from BM&F, Central Bank of Brazil, London Metals Exchange
(LME) and proprietary data from Thomson Reuters and Bloomberg were used.
65
US$ millionDecember 31, 2013December 31, 2012December 31, 2013December 31, 2012December 31, 2013December 31, 20132023Call Option10-B6540 - - 3 40 Adjusted total for credit risk40 40 Fair value by yearFair valueRealized Gain/Loss Value at RiskFlowNotional ($ million)Buy/ SellAverage Strike (US$/stock)US$ millionDecember 31, 2013December 31, 2012December 31, 2013December 31, 2012December 31, 2013December 31, 20132014 Nickel Forwards2,1112,47513,8950.04 1.0 (2.3) 0.04 Copper Forwards6,2777,2727,1410.35 0.4 (2.9) 0.35 Total0.39 1.4 (5.2) 1 0.39 Realized Gain/Loss Value at RiskFair value by yearFair valueAverage Strike (US$/ton)SBuy/ SellFlowNotional (ton)US$ millionDecember 31, 2013December 31, 2012December 31, 2013December 31, 2012December 31, 2013December 31, 2013201420152016Call Options746,667746,667S179.36(1.54) (2) - 2 (0.21) (0.94) (0.39) Fair value by yearRealized Gain/Loss Average Strike (US$/ton)Value at RiskFlowBuy/ SellNotional (volume/month)Fair value
66
MaturityPrice (US$/ton)MaturityPrice (US$/ton)MaturityPrice (US$/ton)SPOT13,970.00JUN1413,967.49DEC1414,083.45JAN1413,855.01JUL1413,987.19DEC1514,317.77FEB1413,875.91AUG1414,006.82DEC1614,552.63MAR1413,901.43SEP1414,027.17DEC1714,788.75APR1413,923.96OCT1414,046.79MAY1413,945.99NOV1414,065.35MaturityPrice (US$/lb)MaturityPrice (US$/lb)MaturityPrice (US$/lb)SPOT3.40JUN143.33DEC143.31JAN143.34JUL143.32DEC153.28FEB143.34AUG143.32DEC163.27MAR143.34SEP143.32DEC173.25APR143.34OCT143.31MAY143.33NOV143.31MaturityPrice (US$/ton)MaturityPrice (US$/ton)MaturityPrice (US$/ton)SPOT613.79JUN14602.52DEC14595.25JAN14610.71JUL14601.91DEC15581.56FEB14607.99AUG14601.26DEC16587.66MAR14604.94SEP14600.77DEC17590.61APR14603.60OCT14600.25MAY14603.11NOV14599.461. CommoditiesNickelCopperBunker Oil
67
MaturityRate (% p.a.)MaturityRate (% p.a.)MaturityRate (% p.a.)02/03/146.4504/01/162.5010/01/183.5303/05/143.9807/01/162.5601/02/193.7204/01/143.3010/03/162.6104/01/193.8707/01/142.6401/02/172.7207/01/194.0010/01/142.5204/03/172.8210/01/194.1701/02/152.5107/03/172.9401/02/204.2704/01/152.4610/02/173.0607/01/204.4307/01/152.4401/02/183.1901/04/214.7710/01/152.4104/02/183.3107/01/215.0201/04/162.4607/02/183.4101/03/225.25MaturityRate (% p.a.)MaturityRate (% p.a.)MaturityRate (% p.a.)US$1M0.17US$6M0.29US$11M0.31US$2M0.21US$7M0.30US$12M0.31US$3M0.25US$8M0.30US$2Y0.49US$4M0.27US$9M0.30US$3Y0.89US$5M0.28US$10M0.31US$4Y1.39MaturityRate (% p.a.)MaturityRate (% p.a.)MaturityRate (% p.a.)02/03/145.0004/01/165.0010/01/185.0003/05/145.0007/01/165.0001/02/195.0004/01/145.0010/03/165.0004/01/195.0007/01/145.0001/02/175.0007/01/195.0010/01/145.0004/03/175.0010/01/195.0001/02/155.0007/03/175.0001/02/205.0004/01/155.0010/02/175.0007/01/205.0007/01/155.0001/02/185.0001/04/215.0010/01/155.0004/02/185.0007/01/215.0001/04/165.0007/02/185.0001/03/225.00MaturityRate (% p.a.)MaturityRate (% p.a.)MaturityRate (% p.a.)02/03/149.9804/01/1611.8410/01/1812.7403/05/1410.0807/01/1612.0301/02/1912.8304/01/1410.1410/03/1612.1704/01/1912.8107/01/1410.2801/02/1712.2807/01/1912.7910/01/1410.4504/03/1712.3610/01/1912.8601/02/1510.5807/03/1712.4801/02/2012.9104/01/1510.8310/02/1712.5707/01/2013.0007/01/1511.1501/02/1812.6301/04/2113.0710/01/1511.4404/02/1812.6307/01/2113.0901/04/1611.6207/02/1812.7001/03/2213.11MaturityRate (% p.a.)MaturityRate (% p.a.)MaturityRate (% p.a.)EUR1M0.20EUR6M0.36EUR11M0.40EUR2M0.23EUR7M0.37EUR12M0.40EUR3M0.27EUR8M0.38EUR2Y0.54EUR4M0.31EUR9M0.39EUR3Y0.74EUR5M0.34EUR10M0.39EUR4Y1.02MaturityRate (% p.a.)MaturityRate (% p.a.)MaturityRate (% p.a.)CAD1M1.22CAD6M1.37CAD11M1.28CAD2M1.25CAD7M1.34CAD12M1.27CAD3M1.27CAD8M1.32CAD2Y1.41CAD4M1.32CAD9M1.30CAD3Y1.69CAD5M1.35CAD10M1.29CAD4Y2.08CAD/US$0.9398US$/BRL2.3426EUR/US$1.3789US$-Brazil Interest Rate2. RatesCurrencies - Ending ratesUS$ Interest RateTJLPBRL Interest RateEUR Interest RateCAD Interest Rate
Sensitivity Analysis
We present below the sensitivity analysis for all derivatives outstanding positions as of December 31, 2013 given predefined
scenarios for market risk factors behavior. The scenarios were defined as follows:
Fair Value: the fair value of the instruments as at December 31, 2013;
Scenario I: Potencial change in fair value of Vale’s financial instruments’ positions considering a 25% depreciation of market
Scenario II: Potencial change in fair value of Vale’s financial instruments’ positions considering a 25% appreciation of
Scenario III: Potencial change in fair value of Vale’s financial instruments’ positions considering a 50% depreciation of
curves for underlying market risk factors;
market curves for underlying market risk factors;
market curves for underlying market risk factors;
market curves for underlying market risk factors;
Scenario IV: Potencial change in fair value of Vale’s financial instruments’ positions considering a 50% appreciation of
Sensitivity Analysis – Summary of the USD/BRL fluctuation – Debt, Cash Investments and Derivatives
(*) Detailed information of derivatives block is described below.
Sensitivity Analysis – Consolidated Derivative Position
68
Sensitivity analysis - Summary of the USD/BRL fluctuationAmounts in US$ millionProgramInstrumentRiskCenário ICenário IICenário IIICenário IVFundingDebt denominated in BRLNo fluctuation----FundingDebt denominated in USDUSD/BRL fluctuation5,210 (5,210)10,419 (10,419)Cash InvestmentsCash denominated in BRLUSD/BRL fluctuation1 (1)2 (2)Cash InvestmentsCash denominated in USDUSD/BRL fluctuation0 0 0 0 Derivatives*Consolidated derivatives portfolioUSD/BRL fluctuation(1,740)1,740 (3,481)3,481 Net result3,470 (3,470)6,941 (6,941)Sensitivity analysis - Foreign Exchange and Interest Rate Derivative PositionsAmounts in US$ millionProgramInstrumentRiskFair ValueScenario IScenario IIScenario IIIScenario IVUSD/BRL fluctuation (700) 700 (1,400) 1,400 USD interest rate inside Brazil variation (34) 32 (68) 64 Brazilian interest rate fluctuation (10) 9 (21) 18 USD Libor variation (0.1) 0.1 (0.2) 0.2 USD/BRL fluctuation (64) 64 (127) 127 Brazilian interest rate fluctuation (0.2) 0.2 (0.3) 0.3 USD Libor variation (0.01) 0.01 (0.02) 0.02 Protected Items - Real denominated debtUSD/BRL fluctuationn.a.----USD/BRL fluctuation (793) 793 (1,586) 1,586 USD interest rate inside Brazil variation (71) 66 (147) 128 Brazilian interest rate fluctuation 184 (160) 395 (301)TJLP interest rate fluctuation (85) 82 (169) 161 USD/BRL fluctuation (81) 81 (162) 162 USD interest rate inside Brazil variation (7) 6 (15) 13 Brazilian interest rate fluctuation 15 (13) 32 (24)TJLP interest rate fluctuation (7) 7 (14) 13 USD Libor variation 4 (4) 8 (8)Protected Items - Real denominated debtUSD/BRL fluctuationn.a.----USD/BRL fluctuation (103) 103 (206) 206 USD interest rate inside Brazil variation (7) 6 (14) 12 Brazilian interest rate fluctuation 19 (17) 40 (32)Protected Items - Real denominated debtUSD/BRL fluctuationn.a.----EUR/USD fluctuation 382 (382) 765 (765)EUR Libor variation 30 (27) 62 (53)USD Libor variation (36) 32 (76) 60 Protected Items - Euro denominated debtEUR/USD fluctuationn.a. (382) 382 (765) 765 USD/CAD fluctuation (194) 194 (388) 388 CAD Libor variation 2 (2) 4 (4)USD Libor variation (0.6) 0.6 (1.1) 1.1 Protected Items - Disbursement in Canadian dollarsUSD/CAD fluctuationn.a. 194 (194) 388 (388)Protection program for the Real denominated debt indexed to TJLPTJLP vs. USD fixed rate swap(803) TJLP vs. USD floating rate swap(102) Protection program for the Real denominated debt indexed to CDICDI vs. USD fixed rate swap(411) CDI vs. USD floating rate swap(64) Protection program for the Real denominated fixed rate debtBRL fixed rate vs. USD(106) Protection Program for the Euro denominated debtEUR fixed rate vs. USD fixed rate swap113 Foreign Exchange hedging program for disbursements in Canadian dollars (CAD)CAD Forward(39)
Sensitivity Analysis - Cash Investments – Other currencies
The Company’s cash investments linked to other different currencies are also subjected to volatility of foreign exchange currencies.
Financial counterparties ratings
Derivatives transactions are executed with financial institutions that we consider to have a very good credit quality. The exposure
limits to financial institutions are proposed annually for the Executive Risk Committee and approved by the Executive Board. The
financial institutions credit risk tracking is performed making use of a credit risk valuation methodology which considers, among
other information, published ratings provided by international rating agencies. In the table below, we present the ratings in foreign
currency published by Moody’s and S&P agencies for the financial institutions that we had outstanding trades as of December 31,
2013.
69
Sensitivity analysis - Commodity Derivative PositionsAmounts in US$ millionProgramInstrumentRiskFair ValueScenario IScenario IIScenario IIIScenario IVNickel price fluctuation0.6 (0.6)1.2 (1.2)Libor USD fluctuation0 0 0 0 USD/CAD fluctuation 0.01 (0.01) 0.02 (0.02)Protected Item: Part of Vale’s revenues linked to Nickel priceNickel price fluctuationn.a. (0.6) 0.6 (1.2) 1.2 Nickel price fluctuation (22) 22 (44) 44 Libor USD fluctuation(0.03)0.03 (0.05)0.05 USD/CAD fluctuation (0.6) 0.6 (1.1) 1.1 Protected Item: Part of Vale’s nickel revenues from sales with fixed pricesNickel price fluctuationn.a. 22 (22) 44 (44)Copper price fluctuation1 (1)2 (2)Libor USD fluctuation0 0 0 0 USD/CAD fluctuation(0.03)0.03 (0.1)0.1 Protected Item: Part of Vale’s revenues linked to Copper priceCopper price fluctuationn.a. (1) 1 (2) 2 Bunker Oil price fluctuation (240) 240 (480) 480 Libor USD fluctuation(0.3)0.3 (0.6)0.6 Protected Item: part of Vale’s costs linked to Bunker Oil priceBunker Oil price fluctuationn.a. 240 (240) 480 (480)SLW stock price fluctuation (17) 21 (30) 44 Libor USD fluctuation (2) 2 (5) 4 Sell of part of future gold production (subproduct) from ValeSLW stock price fluctuationn.a. 17 (21) 30 (44)Nickel purchase protection programSale of nickel future/forward contracts0.03Nickel fixed price programPurchase of nickel future/forward contracts(2) Copper Scrap Purchase Protection ProgramSale of copper future/forward contracts(0.14) Bunker Oil Hedge Protection ProgramBunker Oil forward(3) Sell of part of future gold production (subproduct) from 10 million of SLW warrants40 Sensitivity analysis - Embedded Derivative PositionsAmounts in US$ millionProgramInstrumentRiskFair ValueScenario IScenario IIScenario IIIScenario IVNickel price fluctuation7 (7)(15)(15)USD/CAD fluctuation0.01 (0.01)0.02 (0.02)Copper price fluctuation11 (11)23 (23)USD/CAD fluctuation0.1 (0.1)0.2 (0.2)Embedded derivatives - Gas purchase for Pelletizing Embedded derivatives - Gas purchase(1.54)Embedded derivatives - Raw material purchase (Nickel)Embedded derivatives - Raw material purchase0.04 Embedded derivatives - Raw material purchase (Copper)Embedded derivatives - Raw material purchase0.35 Pellet price fluctuation1 (3)2 (8)Sensitivity analysis - Cash Investments (Other currencies)Amounts in US$ millionProgramInstrumentRiskScenario IScenario IIScenario IIIScenario IVCash InvestmentsCash denominated in EUREUR(9)9 (17)17 Cash InvestmentsCash denominated in CADCAD(1)1 (1)1 Cash InvestmentsCash denominated in GBPGBP(1)1 (3)3 Cash InvestmentsCash denominated in AUDAUD(1)1 (1)1 Cash InvestmentsCash denominated in Other CurrenciesOthers(64)64 (129)129
70
Vale's CounterpartyMoody’s*S&P*ANZ Australia and New Zealand BankingAa2AA-Banco Amazônia SA--Banco BradescoBaa2BBBBanco de Credito del PeruBaa2BBB+Banco do BrasilBaa2BBBBanco do NordesteBaa3BBBBanco SafraBaa2BBB-Banco SantanderBaa2BBBBanco VotorantimBaa2BBB-Bank of AmericaBaa2A-Bank of Nova ScotiaAa2A+BanparaBa3BB+Barclays A3A-BNP ParibasA2A+BTG PactualBaa3BBB-Caixa Economica FederalBaa2BBBCanadian Imperial BankAa3A+Citigroup Baa2A-Credit Agricole A2ADeutsche BankA2AGoldman SachsBaa1A-HSBCAa3A+Itau UnibancoBaa2BBBJP Morgan Chase & CoA3AMorgan StanleyBaa2A-National Australia Bank NABAa2AA-RabobankAa2AA-Royal Bank of CanadaAa3AA-Standard BankBaa1-Standard CharteredA2A+* Long Term Rating / LT Foreign Issuer Credit
26.
Stockholders’ Equity
a)
Capital
The Stockholders’ Equity is represented by common shares (“ON”) and preferred non-redeemable shares (“PNA”) without par value.
Preferred shares have the same rights as common shares, with the exception of voting for election of members of the Board of
Directors. The Board of Directors may, regardless of changes to bylaws, issuing new shares (authorized capital), including the
capitalization of profits and reserves to the extent authorized.
In December 31 2013, the capital was US$60,578 corresponding to 5,365,304,100 shares (3,256,724,482 ON and 2,108,579,618
PNA) with no par value.
Stockholders
Valepar S.A.
Brazilian Government (Golden Share)
Foreign investors - ADRs
FMP - FGTS
PIBB - BNDES
BNDESPar
Foreign institutional investors in local market
Institutional investors
Retail investors in Brazil
Treasure stock in Brazil
Total
b)
Revenue reserves
The amount of revenue reserves are distributed as follow:
ON
1,716,435,045
-
683,540,482
86,795,430
1,693,106
206,378,882
271,753,995
167,038,824
52,017,236
71,071,482
3,256,724,482
PNA
20,340,000
12
636,876,650
-
2,510,536
66,185,272
501,332,642
369,297,845
371,178,969
140,857,692
2,108,579,618
December 31, 2013
Total
1,736,775,045
12
1,320,417,132
86,795,430
4,203,642
272,564,154
773,086,637
536,336,669
423,196,205
211,929,174
5,365,304,100
Balance as of January 1, 2011
Capitalization of reserves
Allocation of income
Cumulative translation adjustments
Balance as of December 31, 2011
Realization of reserves
Allocation of income
Cumulative translation adjustments
Balance as of December 31, 2012
Realization of reserves
Allocation of income
Cumulative translation adjustments
Balance as of December 31, 2013
Investments reserve
39,422
(14,168)
13,844
(2,338)
36,760
(362)
-
(3,150)
33,248
(3,936)
-
(4,246)
25,066
Legal reserve Tax incentive reseve
661
(142)
533
(70)
982
-
293
(87)
1,188
-
11
(150)
1,049
3,421
-
1,012
(370)
4,063
-
238
(348)
3,953
-
3
(505)
3,451
Total of undistributed
revenue reserves
43,504
(14,310)
15,389
(2,778)
41,805
(362)
531
(3,585)
38,389
(3,936)
14
(4,901)
29,566
Investment reserve aims to ensure the maintenance and development for activities that comprise the Company’s purpose in an
amount not exceeding 50% of net income.
Legal reserve is a requirement for all Brazilian Public Company and represents ownership of 5% of annual net income based on
Brazilian law, up to 20% of the capital.
Tax incentive reserve resulting from the option to designate a portion of the income tax for investments in projects approved by the
Brazilian Government as well as tax incentives (Note 21).
71
c)
Resources linked to the future mandatory conversion in shares
In June 2012, the convertible notes series VALE and VALE.P-2012 were converted into ADS and represent an aggregate of
15,839,592 common shares and 40,241,968 preferred class A shares. The Conversion was made using 56,081,560 treasury stocks
held by the Company. The difference between the book value of the treasury stocks US$1,185 and the total amount received
US$1,033 was recognized in the stockholder’s equity, with no profit or loss impact.
d)
Treasury stocks
In November 2011, as part of the buy-back program approved in June 2011, we concluded the acquisitions of 39,536,080 common
shares, at an average price of US$ 26.25 per share, and 81,451,900 preferred shares, at an average price of US$ 24.09 per share
(including shares of each class in the form of ADR), for a total aggregate purchase price of US$3,000. The repurchased shares
represent 3.1% of the free float of common shares, and 4.24% of the free float of preferred shares, outstanding before the launch of
the program. These shares acquired will be cancelled in the future.
In December 31, 2013, there are 211,929,174 treasury stocks, in the amount of US$4,477, as follows:
Balance as of January 1, 2011
Addition
Reduction
Balance as of December 31, 2011
Addition
Reduction
Balance as of December 31, 2012
Addition
Reduction
Balance as of December 31, 2013
Common
99,649,571
81,451,900
(1,657)
181,099,814
-
(40,242,122)
140,857,692
-
-
140,857,692
Preferred
47,375,394
39,536,080
(267)
86,911,207
-
(15,839,725)
71,071,482
-
-
71,071,482
Classes of shares
Total
147,024,965
120,987,980
(1,924)
268,011,021
-
(56,081,847)
211,929,174
-
-
211,929,174
Unit Price to acquire shares in 2011
Low
Average
High
e)
Basic and diluted earnings per share
The value of basic earnings per shares and diluted were calculated as follows:
Net income from continuing operations attributable to the Company's stockholders
Basic and diluted earnings per share:
Income available to preferred stockholders
Income available to common stockholders
Total
2013
586
224
362
586
Weighted average number of shares outstanding (thousands of shares) - preferred shares
Weighted average number of shares outstanding (thousands of shares) - common shares
Total
1,967,722
3,185,653
5,153,375
Common
Preferred
10.27
18.40
28.05
7.17
19.18
24.27
Year ended as at December 31,
2011
(i)
22,881
2012
(i)
5,522
2,091
3,431
5,522
1,933,491
3,172,179
5,105,670
8,858
14,023
22,881
2,031,315
3,215,479
5,246,794
Basic and diluted earnings per share from continuing operations
Basic earnings per preferred share
Basic earnings per common share
0.11
0.11
1.08
1.08
4.36
4.36
72
Loss from discontinuing operations attributable to the Company's stockholders
Basic and diluted earnings per share:
Loss available to preferred stockholders
Loss available to common stockholders
Total
2013
(2)
(1)
(1)
(2)
Year ended as at December 31,
2011
(i)
(86)
2012
(i)
(68)
(26)
(42)
(68)
(34)
(52)
(86)
Weighted average number of shares outstanding (thousands of shares) - preferred shares
Weighted average number of shares outstanding (thousands of shares) - common shares
Total
1,967,722
3,185,653
5,153,375
1,933,491
3,172,179
5,105,670
2,031,315
3,215,479
5,246,794
Basic and diluted earnings per share from discontinuing operations
Basic earnings per preferred share
Basic earnings per common share
-
-
(0.02)
(0.02)
(0.02)
(0.02)
Net income attributable to the Company's stockholders
Basic and diluted earnings per share:
Income available to preferred stockholders
Income available to common stockholders
Total
2013
584
223
361
584
Weighted average number of shares outstanding (thousands of shares) - preferred shares
Weighted average number of shares outstanding (thousands of shares) - common shares
Total
1,967,722
3,185,653
5,153,375
Year ended as at December 31,
2011
(i)
22,795
2012
(i)
5,454
2,065
3,389
5,454
1,933,491
3,172,179
5,105,670
8,825
13,970
22,795
2,031,315
3,215,479
5,246,794
Basic and diluted earnings per share
Basic earnings per preferred share
Basic earnings per common share
(i) Recast according to Note 6.
f)
Remuneration of stockholders
0.11
0.11
1.06
1.06
4.34
4.34
Vale's by-laws determine the minimum remuneration to stockholders of 25% of net income, after adjustments from Brazil’s legal
requirements. The minimum remuneration includes the rights of stockholders Class "A" of preferred shares which provides priority
to receive of 3% of the equity or 6% on the portion of capital formed by these classes of shares, whichever higher.
The proposal distribution of net income and stockholders' remuneration were calculated in R$, below is the equivalent amounts in
US$:
Net income
Legal reserve
Tax incentive reserve
Adjusted net income
Realization of reserves
Adjustments of Cumulative pension plan (Note 6)
Cumulative translation adjustments
Remuneration:
Mandatory minimum (includes the rights of the preferred shares)
Additional remuneration
Remuneration nature:
Interest on capital
Dividends
Total remuneration per share
73
2013
584
(3)
(11)
570
3,936
8
(14)
4,500
794
3,706
4,500
3,813
687
4,500
0.87321417
The amounts paid to stockholders, by nature of remuneration, are as follows:
Amount paid in 2011
Extraordinary remuneration - January
First installment - April
Additional remuneration - August
Second installment - October
Additional remuneration - October
Amount paid in 2012
First installment - April
Second installment - October
Amount paid in 2013
First installment - April
Second installment - October
Remuneration attributed to Stockholders
Amount per
outstanding
common or
preferred share
Total
Dividends
Interest on capital
-
-
3,000
138
1,003
4,141
-
1,670
1,670
400
287
687
998
2,017
-
1,844
-
4,859
3,000
1,330
4,330
1,850
1,963
3,813
998
2,017
3,000
1,982
1,003
9,000
3,000
3,000
6,000
2,250
2,250
4,500
0.191279009
0.386605539
0.576780063
0.385815028
0.195473565
0.588547644
0.582142779
0.436607084
0.436607084
27.
Information by Business Segment and Consolidated Revenues by Geographic Area
The information presented to the Executive Board on the performance of each segment is derived from the accounting records
adjusted for reallocations between segments.
a)
Results by segment
Results
Net operating revenue
Cost and expenses
Impairment of assets
Gain (loss) on measurement or sales of non-current assets
Depreciation, depletion and amortization
Operating income (loss)
Financial results, net
Results on sale of investments from joint controlled and
associates
Equity results from associates
Income taxes
Net income (loss)
Net income (loss) attributable to noncontrolling interests
Income attributable to the company's stockholders
Sales classified by geographic area:
America, except United States
United States of America
Europe
Middle East/Africa/Oceania
Japan
China
Asia, except Japan and China
Brazil
Net operating revenue
Bulk Materials Basic Metals
Fertilizers
Others
Year ended as at December 31, 2013
Total of
continued
operations
Discontinued
operations
(General Cargo)
Total
35,802
(15,469)
(182)
-
(1,919)
18,232
(8,515)
-
655
(6,906)
3,466
(77)
3,543
733
30
5,996
1,981
3,417
18,070
2,656
2,919
35,802
7,286
(5,647)
-
(215)
(1,766)
(342)
(50)
-
(26)
62
(356)
(58)
(298)
1,045
1,070
2,647
93
618
851
883
79
7,286
2,814
(2,868)
(2,116)
-
(431)
(2,601)
(18)
27
-
56
(2,536)
13
(2,549)
60
-
120
17
-
-
61
2,556
2,814
865
(1,057)
-
-
(34)
(226)
251
14
(160)
(45)
(166)
(56)
(110)
10
212
-
7
-
-
-
636
865
46,767
(25,041)
(2,298)
(215)
(4,150)
15,063
(8,332)
41
469
(6,833)
408
(178)
586
1,848
1,312
8,763
2,098
4,035
18,921
3,600
6,190
46,767
1,283
(1,164)
-
(209)
(158)
(248)
48,050
(26,205)
(2,298)
(424)
(4,308)
14,815
(2)
(8,334)
-
-
248
(2)
-
(2)
-
-
-
-
-
-
-
1,283
1,283
41
469
(6,585)
406
(178)
584
1,848
1,312
8,763
2,098
4,035
18,921
3,600
7,473
48,050
74
Results
Net operating revenue
Cost and expenses
Impairments of assets
Gain (loss) on measurement or sales of non-current assets
Depreciation, depletion and amortization
Operating income (loss)
Financial results, net
Impairments on investments
Equity results from associates and joint controlled entities
Income taxes
Net income (loss)
Net loss attributable to noncontrolling interests
Income attributable to the company's stockholders
Sales classified by geographic area:
America, except United States
United States of America
Europe
Middle East/Africa/Oceania
Japan
China
Asia, except Japan and China
Brazil
Net operating revenue
(i)
Recast according Note 6.
Results
Net operating revenue
Cost and expenses
Gain (loss) on measurement or sales of non-current assets
Depreciation, depletion and amortization
Operating income (loss)
Financial results, net
Equity results from associates and joint controlled entities
Income taxes
Net income (loss)
Net income (loss) attributable to noncontrolling interests
Income attributable to the company's stockholders
Sales classified by geographic area:
America, except United States
United States of America
Europe
Middle East/Africa/Oceania
Japan
China
Asia, except Japan and China
Brazil
Net operating revenue
(i)
Recast according Note 6.
Bulk Materials Basic Metals
Fertilizers
Others
Year ended as at December 31, 2012 (i)
Total of
continued
operations
Discontinued
operations
(General Cargo)
Total
35,372
(17,980)
(1,029)
(377)
(2,004)
13,982
(4,268)
-
893
(338)
10,269
(65)
10,334
751
108
5,834
1,550
4,202
16,743
2,947
3,237
35,372
7,131
(6,529)
(2,848)
-
(1,647)
(3,893)
278
(975)
(5)
38
(4,557)
3,570
(2,940)
-
(129)
(463)
38
(46)
-
-
1,206
1,198
480
(1,011)
(146)
-
(41)
(718)
14
(966)
(243)
268
(1,645)
(207)
(4,350)
54
1,144
(39)
(1,606)
996
1,137
2,194
96
722
895
1,009
82
7,131
60
53
148
7
-
-
91
3,211
3,570
16
36
23
-
7
-
2
396
480
46,553
(28,460)
(4,023)
(506)
(4,155)
9,409
(4,022)
(1,941)
645
1,174
5,265
(257)
5,522
1,823
1,334
8,199
1,653
4,931
17,638
4,049
6,926
46,553
1,141
(1,058)
-
-
(133)
(50)
(1)
-
-
(17)
(68)
-
(68)
-
-
-
-
-
-
-
1,141
1,141
47,694
(29,518)
(4,023)
(506)
(4,288)
9,359
(4,023)
(1,941)
645
1,157
5,197
(257)
5,454
1,823
1,334
8,199
1,653
4,931
17,638
4,049
8,067
47,694
Bulk Materials Basic Metals
Fertilizers
Others
Year ended as at December 31, 2011 (i)
Total of
continued
operations
Discontinued
operations
(General Cargo
Logistics)
Total
46,673
(16,728)
-
(1,790)
28,155
(3,448)
1,230
(4,202)
21,735
(105)
21,840
1,181
98
8,815
1,767
5,987
20,086
3,640
5,099
46,673
9,221
(6,460)
-
(1,571)
1,190
53
(6)
(954)
283
(88)
371
1,279
1,550
2,316
150
1,156
1,235
1,394
141
9,221
3,322
(2,632)
-
(458)
232
859
(1,589)
1,494
(17)
747
(70)
-
(109)
53
31
22
44
1
153
1
-
-
35
3,088
3,322
(84)
(86)
-
577
(71)
648
122
23
202
1
95
99
1
316
859
60,075
(27,409)
1,494
(3,836)
30,324
(3,549)
1,138
(5,265)
22,648
(233)
22,881
2,626
1,672
11,486
1,919
7,238
21,420
5,070
8,644
60,075
871
(845)
-
(108)
(82)
8
-
(12)
(86)
-
(86)
-
-
-
-
-
-
-
871
871
60,946
(28,254)
1,494
(3,944)
30,242
(3,541)
1,138
(5,277)
22,562
(233)
22,795
2,626
1,672
11,486
1,919
7,238
21,420
5,070
9,515
60,946
75
Year ended as at December 31, 2013
Net operating
revenues
Research and
Pre operating
and stoppage
Cost
Expenses
evaluation
operation
Operating
profit
Depreciation,
depletion and
amortization
Gain (loss) on
measurement
or sales of
non-current
assets
Impairment
Property, plant
and
equipment
and intangible
Additions to
property, plant
and
equipment
and intangible
Operating
income
Bulk Material
Iron ore
Pellets
Ferroalloys and manganese
Coal
Others ferrous products and services
Base Metals
Nickel and other products (a)
Copper (b)
Others
Fertilizers
Potash
Phosphates
Nitrogen
Others fertilizers products
Others
Total of continued operations
Discontinued operations (General Cargo)
Total
28,137
6,000
523
1,010
132
35,802
5,839
1,447
-
7,286
201
2,065
469
79
2,814
865
46,767
1,283
48,050
(9,153)
(2,299)
(317)
(1,147)
(80)
(12,996)
(3,657)
(1,008)
-
(4,665)
(127)
(1,681)
(382)
-
(2,190)
(669)
(20,520)
(1,078)
(21,598)
(1,261)
(110)
(34)
(262)
3
(1,664)
(123)
(122)
244
(1)
(29)
(146)
(22)
-
(197)
(233)
(2,095)
(72)
(2,167)
(314)
(12)
-
(49)
-
(375)
(173)
(45)
-
(218)
(16)
(30)
(5)
(2)
(53)
(155)
(801)
(14)
(815)
(244)
(130)
(13)
(47)
-
(434)
(753)
(10)
-
(763)
(394)
(29)
(5)
-
(428)
-
(1,625)
-
(1,625)
17,165
3,449
159
(495)
55
20,333
1,133
262
244
1,639
(365)
179
55
77
(54)
(192)
21,726
119
21,845
(1,411)
(184)
(29)
(173)
(122)
(1,919)
(1,592)
(174)
-
(1,766)
(44)
(312)
(75)
-
(431)
(34)
(4,150)
(158)
(4,308)
-
-
-
-
-
-
-
(215)
-
(215)
-
-
-
-
-
-
(215)
(209)
(424)
-
(182)
-
-
-
(182)
-
-
-
-
(2,116)
-
-
-
(2,116)
-
(2,298)
-
(2,298)
15,754
3,083
130
(668)
(67)
18,232
(459)
(127)
244
(342)
(2,525)
(133)
(20)
77
(2,601)
(226)
15,063
(248)
14,815
37,124
1,702
272
4,307
537
43,942
29,739
3,712
-
33,451
176
7,342
-
-
7,518
3,625
88,536
1,027
89,563
6,993
262
36
1,411
30
8,732
2,258
608
-
2,866
401
451
-
-
852
655
13,105
763
13,868
(a) Includes nickel by-products and by-products (copper, precious metal, cobalt and others).
(b) Includes copper concentrate and does not include the cooper by-product of nickel.
76
Investments
648
857
-
282
-
1,787
22
228
-
250
-
-
-
-
-
1,547
3,584
-
3,584
Year ended as at December 31, 2012 (i)
Net operating
revenues
Research and
Pre operating
and stoppage
Cost
Expenses
evaluation
operation
Operating
profit
Depreciation,
depletion and
amortization
Gain (loss) on
measurement
or sales of
non-current
assets
Impairment
Property, plant
and
equipment
and intangible
Additions to
property, plant
and
equipment
and intangible
Operating
income
Bulk Material
Iron ore
Pellets
Ferroalloys and manganese
Coal
Others ferrous products and services
Base Metals
Nickel and other products (a)
Copper (b)
Fertilizers
Potash
Phosphates
Nitrogen
Others fertilizers products
Others
Total of continued operations
Discontinued operations (General Cargo)
Total
26,931
6,560
543
1,092
246
35,372
5,975
1,156
7,131
290
2,507
699
74
3,570
480
46,553
1,141
47,694
(9,880)
(2,644)
(352)
(1,046)
(234)
(14,156)
(3,835)
(854)
(4,689)
(158)
(1,790)
(575)
-
(2,523)
(363)
(21,731)
(930)
(22,661)
(2,336)
-
(1)
(352)
(55)
(2,744)
(511)
(40)
(551)
(13)
(157)
(45)
(215)
(418)
(3,928)
(115)
(4,043)
(616)
-
-
(115)
-
(731)
(299)
(96)
(395)
(73)
(36)
-
-
(109)
(230)
(1,465)
(13)
(1,478)
(196)
(125)
-
(28)
-
(349)
(791)
(103)
(894)
-
(93)
-
-
(93)
-
(1,336)
-
(1,336)
13,903
3,791
190
(449)
(43)
17,392
539
63
602
46
431
79
74
630
(531)
18,093
83
18,176
(1,421)
(235)
(45)
(198)
(105)
(2,004)
(1,508)
(139)
(1,647)
(23)
(331)
(109)
-
(463)
(41)
(4,155)
(133)
(4,288)
-
-
(22)
(355)
-
(377)
-
-
-
-
-
(129)
-
(129)
-
(506)
-
(506)
-
-
-
(1,029)
-
(1,029)
(2,848)
-
(2,848)
-
-
-
-
-
(146)
(4,023)
-
(4,023)
12,482
3,556
123
(2,031)
(148)
13,982
(3,817)
(76)
(3,893)
23
100
(159)
74
38
(718)
9,409
(50)
9,359
37,488
2,019
302
3,616
602
44,027
30,474
4,536
35,010
2,209
8,209
-
331
10,749
1,937
91,723
2,370
94,093
7,904
383
177
1,082
94
9,640
2,792
819
3,611
1,333
293
40
12
1,678
393
15,322
455
15,777
(a) Includes nickel by-products and by-products (copper, precious metal, cobalt and others).
(b) Includes copper concentrate and does not include the cooper by-product of nickel.
(i) Recast according to Note 6.
77
Investments
678
1,106
-
281
-
2,065
24
252
276
-
-
-
-
-
4,043
6,384
6,384
Bulk Material
Iron ore
Pellets
Ferroalloys and manganese
Coal
Others ferrous products and services
Base Metals
Nickel and other products (a)
Copper (b)
Fertilizers
Potash
Phosphates
Nitrogen
Others fertilizers products
Others
Total of continued operations
Discontinued operations (General Cargo)
Total
Net operating
revenues
Cost
Expenses
evaluation
operation Operating profit
Research and
Pre operating
and stoppage
Depreciation,
depletion and
amortization
Gain (loss) on
measurement or
sales of non-
current assets
Operating
income
Property, plant
and equipment
and intangible
Additions to
property, plant
and equipment
and intangible
Investments
Year ended as at December 31, 2011 (i)
36,416
7,938
676
1,058
585
46,673
8,118
1,103
9,221
273
2,300
679
70
3,322
859
60,075
871
60,946
(8,443)
(3,311)
(494)
(804)
(419)
(13,471)
(4,067)
(664)
(4,731)
(155)
(1,580)
(516)
-
(2,251)
(600)
(21,053)
(759)
(21,812)
(1,926)
-
(100)
(321)
64
(2,283)
(470)
(38)
(508)
(84)
(54)
(41)
-
(179)
(602)
(3,572)
(83)
(3,655)
(615)
-
-
(152)
-
(767)
(254)
(159)
(413)
(50)
(54)
-
-
(104)
(387)
(1,671)
(3)
(1,674)
-
(106)
-
(101)
-
(207)
(796)
(12)
(808)
(26)
(72)
-
-
(98)
-
(1,113)
-
(1,113)
25,432
4,521
82
(320)
230
29,945
2,531
230
2,761
(42)
540
122
70
690
(730)
32,666
26
32,692
(1,240)
(196)
(69)
(164)
(121)
(1,790)
(1,487)
(84)
(1,571)
(45)
(297)
(116)
-
(458)
(17)
(3,836)
(108)
(3,944)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,494
1,494
-
1,494
24,192
4,325
13
(484)
109
28,155
1,044
146
1,190
(87)
243
6
70
232
747
30,324
(82)
30,242
33,512
2,841
337
4,081
946
41,717
31,455
4,178
35,633
1,982
6,363
1,337
364
10,046
2,218
89,614
2,249
91,863
7,717
624
177
1,141
347
10,006
2,637
1,226
3,863
532
316
180
-
1,028
965
15,862
213
16,075
663
928
-
239
-
1,830
4
234
238
-
-
-
-
-
5,945
8,013
-
8,013
(a) Includes nickel by-products and by-products (copper, precious metal, cobalt and others).
(b) Includes copper concentrate and does not include the cooper by-product of nickel.
(i) Recast according to Note 6.
78
Cost of goods sold and services rendered, and Sales and Administrative Expenses and Other Operational
28.
Expenses (Income), net, by Nature
a)
Costs of goods sold and services rendered
Personnel
Material
Fuel oil and gas
Outsourcing services
Energy
Acquisition of products
Depreciation and depletion
Freight
Others
Total
(i) Recast according to Note 6.
b)
Selling and administrative expenses
Personnel
Services (consulting, infrastructure and others)
Advertising and publicity
Depreciation
Travel expenses
Taxes and rents
Selling
Others
Total
c)
Others operational expenses (incomes), net
Provision for litigation
Provision for loss with VAT credits (ICMS)
VAT - settlement program
Provision for profit sharing
Vale do Rio Doce Foundation ("FVRD")
Provision for disposal of materials/inventories
Loss with prepayment to contractors
Other
Total
2013
3,265
4,112
1,804
3,805
663
1,409
3,724
3,189
2,274
24,245
2013
495
331
44
192
19
26
85
110
1,302
2013
(88)
120
166
215
24
171
49
327
984
Year ended as at December 31,
2011
(i)
3,017
3,716
2,066
4,156
966
2,274
2,452
1,956
3,925
24,528
2012
(i)
3,413
4,222
1,947
4,645
863
1,367
3,659
2,801
2,473
25,390
Year ended as at December 31,
2011
688
526
87
206
59
45
329
331
2,271
2012
782
480
101
236
63
27
274
209
2,172
Year ended as at December 31,
2011
279
50
-
384
123
49
-
597
1,482
2012
704
238
-
414
37
128
-
475
1,996
79
29.
Financial result
The financial results, by nature, are as follows:
Financial expenses
Interest
Labor, tax and civil contingencies
Derivatives
Indexation and exchange rate variation (a)
Stockholders' debentures
Net expenses of REFIS
Others
Financial income
Derivatives
Indexation and exchange rate variation (b)
Others
Financial results, net
Summary of indexation and exchange rate
Cash and cash equivalents
Loans and financing
Related parties
Others
Net (a + b)
(i) Recast according to Note 6.
30.
Gold stream transaction
2013
(1,335)
(109)
(1,443)
(4,586)
(381)
(2,637)
(540)
(11,031)
410
1,646
643
2,699
(8,332)
-
(3,335)
13
382
(2,940)
Year ended as at December 31,
2011
(i)
(1,388)
(41)
(172)
(2,552)
(222)
-
(1,064)
(5,439)
2012
(i)
(1,251)
(79)
(634)
(2,562)
(466)
-
(625)
(5,617)
514
670
411
1,595
(4,022)
32
(1,622)
10
(312)
(1,892)
247
942
701
1,890
(3,549)
(7)
(2,577)
-
974
(1,610)
In February 2013, the Company entered into a gold stream transaction with Silver Wheaton Corp. ("SLW") to sell 25% of the gold
extracted during the life of the mine as a by-product of the Salobo copper mine and 70% of the gold extracted during the next 20
years as a by-product of the Sudbury nickel mines.
In March 2013, we received up-front cash proceeds of US$1.9 billion, plus ten million warrants of SLW with exercise price of US$65
exercisable in the next ten years, which fair value is US$100. The amount of US$1,330 was received for the Salobo transaction and
US$570 plus the ten million warrants of SLW were received for the Sudbury transaction.
In addition, as the gold is delivered to SLW, Vale will receive a payment equal to the lesser of: (i) US$400 per ounce of refined gold
delivered, subject to an annual increase of 1% per year commencing on January 1, 2016 and each January 1 thereafter; and (ii) the
reference market price on the date of delivery.
This transaction was bifurcated into two identifiable components of the transaction being: (i) the sale of the mineral rights for
US$337 and, (ii) the services for gold extraction on the portion in which Vale operates as an agent for SLW gold extraction.
The result of the sale of the mineral rights, was estimated in the amount of US$244 and was recognized in the statement of income
under Other operating expenses, net, while the portion related to the provision of future services for gold extraction, was estimated
at US$1,393 and is recorded as deferred revenue (liability) and will be recognized in the statement of income as the service is
rendered and the gold extracted. During 2013, the Company recognized US$31 in Statement of Income related to rendered services.
The deferred revenue will be recognized in the future based on the units of gold extracted compared to the total reserve of proven
and probable gold reserves negotiated with SLW. Defining the gain on sale of mineral interest and the deferred revenue portion of
the transaction requires the use of critical accounting estimates as follow:
- Discount rates used to measure the present value of future inflows and outflows;
- Allocation of costs between the core products (copper and nickel) and gold based on relative prices;
- Expected margin for the independent elements (sale of mineral rights and service for gold extraction) based on our best
estimative.
Changes in the assumptions above could significantly change the initial gain recognition.
80
31.
Commitments
a) Nickel project – New Caledonia
In regards to the construction and installation of our nickel plant in New Caledonia, we have provided guarantees in respect of our
financing arrangements which are outlined below. Pursuant to the Girardin Act tax - advantaged lease financing arrangement
sponsored by the French government, we provided guarantees to BNP Paribas for the benefit of the tax investors regarding certain
payments due from Vale Nouvelle-Calédonie S.A.S. (“VNC”), associated with Girardin Act lease financing. Consistent with our
commitments, the assets were substantially complete as at December 31, 2012. We also committed that assets associated the
Girardin Act lease financing would operate for a five year period from then on and meet specified production criteria which remain
consistent with our current plans. We believe the likelihood of the guarantee being called upon is remote.
In October 2012, we entered into an agreement with Sumic, a stockholder in VNC, whereby Sumic agreed to a dilution in their
interest in VNC from 21% to 14.5%. Sumic originally had a put option to sell to us the shares they own in VNC if the defined cost of
the initial nickel project, as measured by funding provided to VNC, in natural currencies and converted to U.S. dollars at specified
rates of exchange, exceeded US$4.6 billion and an agreement could not be reached on how to proceed with the project. On May 27,
2010 the threshold was reached and the put option discussion and decision period was extended. As a result of the October 2012
agreement, the trigger on the put option has been changed from a cost threshold to a production threshold. The put option has
been deferred to the first quarter of 2015 which is the earliest that it can be exercised.
b)
Nickel Plant – Indonesia
During 2012, our subsidiary PT Vale Indonesia Tbk (“PTVI”), a public company in Indonesia, submitted its strategic growth plan to
the local government as part of the process for the renewing its license for the Contract of Work (“CoW”). During the process, the
government identified the following points for renegotiation: (i) size of the CoW area; (ii) term and form of CoW extension; (iii)
financial obligations (royalties and taxes); (iv) domestic processing and refining; (v) mandatory divestment; and (vi) priority use of
domestic goods and services. As part of the ongoing CoW renegotiation, PTVI submitted an updated growth strategy to high level
government officials in June 2013. The CoW renegotiation progressed throughout 2013 and is on-going. Until the renegotiation
process is complete, PTVI is unable to fully determine to what extent the CoW will be affected. The operations of PTVI and the
implementation of the growth strategy are partially dependent on the result of the renegotiation of the CoW.
c)
Nickel Plant – Canada
On March 28, 2013, Vale Canada, Vale Newfoundland & Labrador Limited (“VNLL”) and the Province of Newfoundland and Labrador
(“Province”) entered into a Fifth Amendment to the Voisey’s Bay Development Agreement, which governs all of our development
and operations in the Province. Under the amendment, the Company has obtained additional time to complete the construction of
the Long Harbour Processing Plant and reaffirmed its commitment to construct an underground mine at Voisey’s Bay, subject to
certain terms and conditions. To maintain operational continuity at the Voisey’s Bay mine pending the completion of the
construction and ramp-up of the Long Harbour Processing Plant, the Province has agreed to exempt an additional 84,000 tonnes of
nickel-in-concentrate from the requirement to complete primary processing in the province, over and above the previous 440,000
limit. These exports may take place between 2013 and 2015. Additionally, during this period, if Vale Canada imports up to 15,000
tonnes of nickel-in-matte for early stage processing at the Long Harbour Processing Plant, then Vale Canada may be permitted a
further exemption from the primary processing requirements, on a tonne-for-tonne basis. Vale has agreed to make certain
payments to the Government in relation to the additional exemption utilized each year. In April 2013, VNLL surpassed the 440,000
tonnes export limit and consequently, as at December 31, 2013 VNLL has accrued US$33 for payments to be paid related to the
additional export exemption. In addition, Vale will build up a litigation liability, secured by letters of credit and other security, based
on the additional exemption utilized in each year, which may become due and payable in the event that certain commitments in
relation to the construction of the underground mine are delayed or not met. In this regard, letters of credit in the amount of US$95
have been issued as at December 31, 2013.
In the course of our operations we have provided other letters of credit and guarantees in the amount of US$889 that are
associated with items such as environment reclamation, asset retirement obligation commitments, insurance, electricity
commitments, post-retirement benefits, community service commitments and import and export duties.
81
d)
Guinea – Iron ore projects
Our 51%-owned subsidiary VBG-Vale BSGR Limited ("VBG") holds iron ore concession rights in Simandou South (Zogota) and iron ore
exploration permits in Simandou North (Blocks 1 & 2) in Guinea. These concessions are under review by a technical committee
established pursuant to Guinean legislation, which is evaluating whether to recommend that the Government of Guinea take action
to revoke VBG’s concessions. At December 31, 2013, the book value of the Company´s investment in VBG, which is in its pre-
operating phase, was US$ 1.1 billion. Revocation of the concession could adversely affect the value of the Company's investment,
subject to any legal challenge or other recourse on the part of VBG or Vale.
e)
Participative stockholders’ debentures
At the time of its privatization in 1997, Vale issued debentures to then-existing stockholders, including the Brazilian Government.
The debentures’ terms were set to ensure that our pre-privatization stockholders would participate in potential future benefits that
might be obtained from exploiting our mineral resources.
A total of 388,559,056 debentures were issued with a par value of R$0.01 (one cent of Brazilian Real), whose value will be inflation-
indexed the General Market Price Index (“IGP-M”), as set out in the Issue Deed. As at December 31, 2013, December 31, 2012 and
January 1, 2012 the total amount of these debentures was US$1,775, US$1,653 and US$1,336, respectively.
The debenture holders have the right to receive premiums, paid semiannually, equivalent to a percentage of net revenues from
specific mine resources as set forth in the indenture. In April and October of 2013 we paid semester remuneration in the amount of
US$7 and US$4, respectively.
f) Operating lease
Pelletize Operations
Vale has operating lease agreements with its joint ventures Nibrasco, Itabrasco, and Kobrasco, in which Vale leases its pelletizing
plants. These renewable operating lease agreements have duration between 3 and 10 years.
In July 2012 the Company entered into an operating lease agreement with its joint venture Hispanobrás. The contract has duration
of 3 years, renewable.
The table below shows the minimum future annual payments, and required non-cancelable operating lease for the four pellet plants
(Hispanobrás, Nibrasco, and Itabrasco Kobrasco), as at December 31, 2013.
2014
2015
2016
2017
2018 thereafter
Total minimum payments required
74
72
70
37
26
279
The total amount of operational leasing expenses on pelletizing operations on 31 December 2013, 2012 and 2011 were US$162,
US$206 and US$399, respectively.
82
g)
i.
Concession and Sub‐concession Agreements
Rail companies
The Company entered into not onerous concession agreements with the Brazilian Federal Government through the Ministry of
Transport, for the exploration and development of the public rail transportation of cargo. The accounting records of grants and sub‐
concessions are presented in Note 14.
Railroad
Vitória a Minas e Carajás
End of the concession period
June 2027
The grant will be terminated with the completion of one of the following events: the termination of the contract term,
expropriation, forfeiture, cancellation, annulment or dissolution and bankruptcy of the concessionaire.
ii.
Port
The Company has the following specialized port terminals:
Terminals
Port of Tubarão and bulk líquids
Port of Vila Velha
Ponta da Madeira Terminal - Píer I e III
Ponta da Madeira Terminal - Píer II
Port of Ore Exportation- Itaguaí Terminal
Guaíba Island Terminal - TIG - Mangaratiba
Location
End of the concession period
Vitória - ES
Vila Velha - ES
S. Luiz - MA
S. Luiz - MA
Itaguaí - RJ
Mangaratiba - RJ
2020
2023
2018
(i) 2028
2021
2018
(i) Concession contract ended in 2010, was extended for 36 months and renewed in March 2013 for another 15 years.
The contractual basis and deadlines for completion of concessions rail and port terminals are unchanged in the period.
iii.
Rail and port concessions of discontinued operations
The discontinued operations detailed in Note 7 include rail and port terminal concessions, as follows:
Railroad
Malha Centro-Leste (FCA)
Ferrovia Norte Sul S.A. (FNS)
Terminals
Praia Mole (i)
Terminal of Several Products (i)
Inácio Barbosa Terminal (i)
Ultrafértil S.A
VLI Operações Portuárias S.A.
End of the concession period
August 2026
December 2037
End of the concession period
2020
2020
2018
2040
2028
(i) Vale has the concession but they exclusively for the operations of general cargo
h) Guarantee issued to affiliates
The Company provided corporate guarantees, within the limits of its participation, a line of credit acquired by associate Norte
Energia S.A. from BNDES, Caixa Econômica Federal and Banco BTG Pactual. On December 31, 2013, 2011 and 2011 the amount
guaranteed by Vale was US$377, US$92 and US$0, respectively.
83
32.
Related parties
Transactions with related parties are made by the Company in a strictly commutative manner, observing the price and usual market
conditions and therefore do not generate any undue benefit to their counterparties or loss to the Company.
In the normal course of operations, Vale contracts rights and obligations with related parties (subsidiaries, associated companies,
jointly controlled entities and Stockholders), derived from operations of sale and purchase of products and services, leasing of
assets, sale of raw material, so as rail transport services, through prices agreed between the parties.
The balances of these related party transactions and their effect on the financial statements may be identified as follows:
Baovale Mineração S.A.
Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS
Companhia Nipo-Brasileira de Pelotização - NIBRASCO
Minas da Serra Geral S.A.
Mitsui Co.
MRS Logistica S.A.
Norsk Hydro ASA
Samarco Mineração S.A.
Others
Total
Current
Non-current
Total
Baovale Mineração S.A.
Companhia Coreano-Brasileira de Pelotização - KOBRASCO
Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS
Companhia Ítalo-Brasileira de Pelotização - ITABRASCO
Companhia Nipo-Brasileira de Pelotização - NIBRASCO
Minas da Serra Geral S.A.
Mitsui Co.
MRS Logistica S.A.
Norsk Hydro ASA
Samarco Mineração S.A.
Others
Total
Current
Non-current
Total
California Steel Indutstries
Companhia Siderurgica do Atlântico
Companhia Coreano-Brasileira de Pelotização - KOBRASCO
Companhia Hispano-Brasileira de Pelotização - HISPANOBRÁS
Companhia Ítalo-Brasileira de Pelotização - ITABRASCO
Companhia Nipo-Brasileira de Pelotização - NIBRASCO
MRS Logistica S.A.
Samarco Mineração S.A.
Others
Total
Customers
4
1
-
-
47
6
-
29
29
116
December 31, 2013
Related parties
-
-
-
1
-
6
-
162
200
369
116
-
116
261
108
369
Customers
5
2
2
-
22
8
-
33
62
134
134
-
134
December 31, 2012
Related parties
9
-
-
-
-
36
405
180
162
792
Customers
6
177
1
-
-
9
-
40
56
289
Consolidated
Assets
January 1, 2012
Related parties
2
-
-
-
-
41
489
7
52
591
384
408
792
289
-
289
82
509
591
December 31, 2013
Suppliers Related parties
-
59
-
16
128
-
-
-
-
-
7
210
15
2
15
2
-
7
2
22
-
1
-
66
December 31, 2012
Suppliers Related parties
-
33
-
-
175
-
-
-
71
-
-
279
28
-
10
-
-
8
46
45
-
-
9
146
Consolidated
Liabilities
January 1, 2012
Suppliers Related parties
-
-
-
-
11
-
-
-
80
-
24
115
20
5
162
-
2
9
37
20
-
-
25
280
66
-
66
205
5
210
146
-
146
207
72
279
280
-
280
24
91
115
2013
211
-
-
-
-
4
419
188
822
2012
16
-
-
266
-
-
14
371
126
793
Income
2011
-
-
-
729
-
-
16
511
103
1,359
Cost/ expense
Year ended as at December 31,
2011
-
-
98
521
150
151
759
-
53
1,732
2012
-
-
70
265
32
80
702
-
101
1,250
2013
-
146
33
7
24
10
478
-
6
704
84
Sales/Cost of iron ore and pellets
Revenues/ expense from logistic services
Sales/ Cost of steel products
Financial income/ expenses
Others
Income
419
-
211
23
169
822
2013
Cost/ expense
80
478
146
-
-
704
Income
624
14
-
14
141
793
2012
Cost/ expense
469
706
-
7
68
1,250
Cash and cash equivalents
Brasdesco
Loan payable
BNDES
BNDESPar
December 31, 2013 December 31, 2012
January 1, 2012
2013
Balance sheet
25
25
4,297
718
5,015
33
33
3,951
825
4,776
16
16
2,954
902
3,856
3
3
180
48
228
Remuneration of key management personnel:
Short‐term benefits:
Wages or pro‐labor
Direct and indirect benefits
Bonus
Long‐term benefits:
Based on stock
Termination of position
2013
27
11
7
9
1
1
1
29
Year ended as at December 31,
2011
Cost/ expense
952
759
-
3
18
1,732
Income
1,337
16
-
6
-
1,359
Statement of income
Year ended as at December 31,
2011
2012
-
-
41
14
55
73
73
138
57
195
Year ended as at December 31,
2011
49
11
21
17
2012
36
11
11
14
11
11
9
56
13
13
54
116
85
32. Presentation of Financial Information – transition from U.S. GAAP to IFRS
Beginning in 2013, we discontinued the preparation and filing with the SEC of financial statements under U.S. GAAP. During 2013,
we have prepared and presented interim financial statements under IFRS only and, beginning with our annual report on Form 20-F
for the year ended December 31, 2013, we will present our audited annual financial statements in accordance with IFRS. We
present below a reconciliation from U.S. GAAP to IFRS of our condensed consolidated balance sheet and statement of income as of
and for the year ended December 31, 2012.
USGAAP as presented
in 2012
2012 reconciliation
adjustments
IFRS as presented in
IAS 19R retrospective
2012
adjustment
IFRS
December 31, 2012
Assets
Current assets
Cash and cash equivalents
Others
Non-current assets held for sale and discontinued
operation
Non-current assets
Investments
Property, plant and equipment, net
Others
Total assets
Liabilities and stockholders' equity
Current
Accounts payable
Loans and finances
Others
Liabilities directly associated with non-current assets
held for sale and discontinued operation
Non-current
Loans and finances
Deferred income tax and social contribution
Others
Stockholders' equity
Capital stock
Noncontrolling interests
Others
Total liabilities and Stockholders' equity
5,832
16,586
22,418
479
22,897
6,492
91,766
10,323
108,581
131,478
4,529
3,468
4,407
12,404
181
12,585
26,799
3,538
12,680
43,017
37,559
1,635
36,682
75,876
131,478
-
(349) (a)
(349)
(22)
(371)
(108) (b)
2,327 (c)
(2,706) (d)
(487)
(858)
-
3 (e)
(5) (f)
(2)
(21) (f)
(23)
-
257 (g)
(1,375) (h)
(1,118)
17,990 (i)
(47) (i)
(17,660) (i)
283
(858)
5,832
16,237
22,069
457
22,526
6,384
94,093
7,617
108,094
130,620
4,529
3,471
4,402
12,402
160
12,562
26,799
3,795
11,305
41,899
55,549
1,588
19,022
76,159
130,620
-
-
-
-
-
-
-
(43)
(43)
(43)
-
-
-
-
9
9
-
(368)
1,650
1,282
-
-
(1,334)
(1,334)
(43)
5,832
16,237
22,069
457
22,526
6,384
94,093
7,574
108,051
130,577
4,529
3,471
4,402
12,402
169
12,571
26,799
3,427
12,953
43,179
55,549
1,588
17,690
74,827
130,577
(a) Difference is mainly due to the reclassification of current deferred income tax in USGAAP to non-current assets in accordance with IFRS (US$356). The
reconciling amount also includes minor difference on assets held for sale (US$22) net of financial assets available for sale, which under U.S. GAAP is recognized as an
investment (US$7).
(b) Difference between noncontrolled entities recognized under the equity method.
(c) Difference relates to the effects of a business combination accounted for under the Brazilian GAAP and not restated for IFRS, as the Company used the
exemption available for IFRS first-time adopters. Under US GAAP, the Company applied the purchase price allocation and therefore recorded the assets acquired at
fair values. Goodwill in USGAAP is included in “Others” and therefore the effect is also in (d).
(d) As mentioned in (c), part of the difference arises from Goodwill in US GAAP (US$2,947) classified in this line item, whereas the goodwill in IFRS (US$4,603) is
classified in intangible assets. The effect is partially offset by the pension plan assets from overfunded plans (US$844) recorded for USGAAP only, and the effects of
deferred income tax between IFRS (US$3,981) and US GAAP (US$2,866).
(e) Minor adjustment related to lease arrangements.
(f) Differences are mainly due to the effects of pension plan liabilities. Under USGAAP the Company applies the full liability method, whereas for IFRS the Company
adopts the corridor approach. There are also differences related to liabilities directly associated with assets held for sale and mandatory convertible notes.
(g) Effects on deferred tax liabilities related to the differences between US GAAP and IFRS.
(h) Differences are mainly due to the effects of pension plan liabilities. Under USGAAP the Company applies the full liability method, whereas for IFRS the Company
adopts the corridor approach. There are also differences related to asset retirement obligations.
(i) Difference between US GAAP and IFRS relating to translation adjustment of current and historical currency.
86
Assets
Current assets
Cash and cash equivalents
Other
Non-current assets
Investments
Property, plant and equipment, net
Other
Total assets
Liabilities and stockholders' equity
Current
Accounts payable
Loans and finances
Other
Non-current
Loans and finances
Deferred income tax and social contribution
Other
Stockholders' equity
Capital stock
Noncontrolling interests
Other
Total liabilities and Stockholders' equity
USGAAP as presented
in 2012
2012 reconciliation
adjustments
IFRS as presented in
IAS 19R retrospective
2012
adjustment
IFRS
January 1, 2012
3,531
18,205
21,736
8,093
90,030
8,869
106,992
128,728
4,814
1,517
4,712
11,043
11,043
21,538
5,654
10,884
38,076
37,776
1,894
39,939
79,609
128,728
-
(198) (a)
(198)
(80) (b)
1,833 (c)
(3,383) (d)
(1,630)
(1,828)
-
-
50 (e)
50
50
-
27 (f)
(806) (g)
(779)
17,753 (h)
(179) (h)
(18,673) (h)
(1,099)
(1,828)
3,531
18,007
21,538
8,013
91,863
5,486
105,362
126,900
4,814
1,517
4,762
11,093
11,093
21,538
5,681
10,078
37,297
55,529
1,715
21,266
78,510
126,900
-
-
-
-
-
16
16
16
-
-
-
-
-
-
(216)
927
711
-
-
(695)
(695)
16
3,531
18,007
21,538
8,013
91,863
5,502
105,378
126,916
4,814
1,517
4,762
11,093
11,093
21,538
5,465
11,005
38,008
55,529
1,715
20,571
77,815
126,916
(a) Difference is mainly due to the reclassification of current deferred income tax in USGAAP to non-current assets in accordance with IFRS (US$205). The
reconciling amount also includes minor difference on financial assets available for sale, which under U.S. GAAP is recognized as an investment (US$7).
(b) Difference between noncontrolled entities recognized under the equity method.
(c) Difference relates to the effects of a business combination accounted for under the Brazilian GAAP and not restated for IFRS, as the Company used the
exemption available for IFRS first-time adopters. Under US GAAP, the Company applied the purchase price allocation and therefore recorded the assets acquired at
fair values. Goodwill in USGAAP is included in “Others” and therefore the effect is also in (d).
(d) As mentioned in (c), part of the difference arises from Goodwill in US GAAP (US$3,026) classified in this line item, whereas the goodwill in IFRS (US$4,812) is
classified in intangible assets. The effect is partially offset by the pension plan assets from overfunded plans (US$844) recorded for USGAAP only, and the effects of
deferred income tax between IFRS (US$3,981) and US GAAP (US$2,.866).
(e) Differences are mainly due to the effects of pension plan liabilities. Under USGAAP the Company applies the full liability method, whereas for IFRS the Company
adopts the corridor approach. There are also differences related to liabilities directly associated with assets held for sale and mandatory convertible notes.
(f)
(g) Differences are mainly due to the effects of pension plan liabilities. Under USGAAP the Company applies the full liability method, whereas for IFRS the Company
adopts the corridor approach. There are also differences related to asset retirement obligations.
(h) Difference between US GAAP and IFRS relating to translation adjustment of current and historical currency.
Effects on deferred tax liabilities related to the differences between US GAAP and IFRS.
87
Net revenue
Cost
Gross operating profit
Operational expenses
Financial expenses
Equity results
Impairment on Investments
Earnings before taxes
Current and deferred income tax and social contribution, net
Net income of the year
Discontinued Operations
Net income
Loss attributable to noncontrolling interests
Net income attributable to shareholders
USGAAP as
presented in
2012
47,694
(26,591)
21,103
(7,351)
(3,801)
640
(6,170)
(16,682)
4,421
833
5,254
-
5,254
(257)
5,511
2012
reconciliation
adjustments
-
108 (a)
108
(6) (b)
(306) (c)
5 (d)
(300) (d)
(607)
(499)
361 (e)
(138)
-
(138)
-
(138)
December 31, 2012
IFRS as
presented in
2012
47,694
(26,483)
21,211
(7,357)
(4,107)
645
(6,470)
(17,289)
3,922
1,194
5,116
-
5,116
(257)
5,373
Retrospective
IAS 19R
adjustment
-
34
34
Retrospective
presentation of
discontinued
operation
(1,141)
1,059
(82)
-
84
-
-
84
118
(37)
81
-
81
-
81
132
1
-
-
133
51
17
68
(68)
-
-
-
IFRS
46,553
(25,390)
21,163
(7,225)
(4,022)
645
(6,470)
(17,072)
4,091
1,174
5,265
(68)
5,197
(257)
5,454
(a) Amortization of the difference between the book value and fair value of the MBR in USGAAP (US$153) and pension plan and asset retirement obligation at Vale
Canada (US$4 and US$41);
(b) Adjustment of pension plan and asset retirement obligation at Vale Canada (US$10) and profit and sale of Araucária assets (US$16);
(c) Recognition of surplus on overfunded pension plans at Vale and Vale Fertilizantes;
(d) Difference between IFRS and US GAAP relates to the impairment on affiliates that for USGAAP was grouped within “Current and deferred income tax and social
contribution, net”. There is no difference on the impairment recorded in both GAAPs; and
(e) The difference is partially due to the effects described in (d) above (US$300) and to the effects on deferred income taxes on the difference between US GAAP
and IFRS.
Net revenue
Cost
Gross operating profit
Operational expenses
Financial expenses
Equity results
Impairment on Investments
Earnings before taxes
Current and deferred income tax and social contribution, net
Net income of the year
Discontinued Operations
Net income
Loss attributable to noncontrolling interests
Net income attributable to shareholders
December 31, 2011
USGAAP as
presented in
2012
60.946
(25.529)
35.417
2012
reconciliation
adjustments
-
158 (a)
158
IFRS as
presented in
2012
60.946
(25.371)
35.575
Retrospective
IAS 19R
adjustment
-
(19)
(19)
Retrospective
presentation of
discontinued
operation
(871)
862
(9)
(5.305)
(3.313)
1.135
-
(7.483)
27.934
(5.282)
22.652
-
22.652
(233)
22.885
(1.503) (b)
(260) (c)
3 (d)
1.494
(266)
(108)
11 (e)
(97)
-
(97)
-
(97)
(6.808)
(3.573)
1.138
1.494
(7.749)
27.826
(5.271)
22.555
-
22.555
(233)
22.788
-
32
-
-
32
13
(6)
7
-
7
-
7
91
(8)
-
-
83
74
12
86
(86)
-
-
-
IFRS
60.075
(24.528)
35.547
(6.717)
(3.549)
1.138
1.494
(7.634)
27.913
(5.265)
22.648
(86)
22.562
(233)
22.795
(a) Amortization of the difference between the book value and fair value of the MBR in USGAAP (US$178) and pension plan and asset retirement obligation at Vale
Canada (US$17 and US$3);
(b) Adjustment of pension plan and asset retirement obligation at Vale Canada (US$10) and profit and sale of Araucária assets (US$19);
(c) Recognition of surplus on overfunded pension plans at Vale and Vale Fertilizantes;
(d) Difference between IFRS and US GAAP relates to the on affiliates; and
(e) The difference is partially due to the effects on deferred income taxes on the difference between US GAAP and IFRS.
88
34.
Board of Directors, Fiscal Council, Advisory committees and Executive Officers
Board of Directors
Dan Antônio Marinho Conrado
Chairman
Mário da Silveira Teixeira Júnior
Vice-President
Fuminobu Kawashima
João Batista Cavaglieri
José Mauro Mettrau Carneiro da Cunha
Luciano Galvão Coutinho
Marcel Juviniano Barros
Oscar Augusto de Camargo Filho
Renato da Cruz Gomes
Robson Rocha
Alternate
Caio Marcelo de Medeiros Melo
Eduardo de Oliveira Rodrigues Filho
Eduardo Fernando Jardim Pinto
Francisco Ferreira Alexandre
Hidehiro Takahashi
Hayton Jurema da Rocha
Luiz Carlos de Freitas
Luiz Maurício Leuzinger
Marco Geovanne Tobias da Silva
Sandro Kohler Marcondes
Advisory Committees of the Board of Directors
Controlling Committee
Luiz Carlos de Freitas
Paulo Ricardo Ultra Soares
Paulo Roberto Ferreira de Medeiros
Executive Development Committee
Laura Bedeschi Rego de Mattos
Luiz Maurício Leuzinger
Marcel Juviniano Barros
Oscar Augusto de Camargo Filho
Strategic Committee
Murilo Pinto de Oliveira Ferreira
Dan Antônio Marinho Conrado
Luciano Galvão Coutinho
Mário da Silveira Teixeira Júnior
Oscar Augusto de Camargo Filho
Finance Committee
Luciano Siani Pires
Eduardo de Oliveira Rodrigues Filho
Luciana Freitas Rodrigues
Luiz Maurício Leuzinger
Governance and Sustainability Committee
Gilmar Dalilo Cezar Wanderley
Renato da Cruz Gomes
Ricardo Simonsen
Tatiana Boavista Barros Heil
Fiscal Council
Marcelo Amaral Moraes
Chairman
Aníbal Moreira dos Santos
Arnaldo José Vollet
Alternate
Oswaldo Mário Pêgo de Amorim Azevedo
Paulo Fontoura Valle
Valeriano Gomes
Executive Officers
Murilo Pinto de Oliveira Ferreira
Chief Executive Officer
Vânia Lucia Chaves Somavilla
Executive Officer (Human Resources, Health & Safety, Sustainability and Energy)
Luciano Siani Pires
Chief Financial Officer and Investors Relations
Roger Allan Downey
Executive Officer (Fertilizers and Coal)
José Carlos Martins
Executive Officer (Ferrous and Strategy)
Galib Abrahão Chaim
Executive Officer (Capital Projects Implementation)
Humberto Ramos de Freitas
Executive Officer (Logistics and Mineral Research)
Gerd Peter Poppinga
Executive Officer (Base Metals and Information Technology)
Marcelo Botelho Rodrigues
Global Controller Director
Marcus Vinicius Dias Severini
Chief Accounting Officer
CRC-RJ - 093982/O-3
89