As filed with the Securities and Exchange Commission on April 18, 2019
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, 2018
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 3485 5000
Praia de Botafogo 186 – offices 701 – 1901 – Botafogo
22250-145 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
Common shares of Vale, no par value per share
American Depositary Shares (evidenced by American Depositary Receipts), each representing one common
share of Vale
5.875% Guaranteed Notes due 2021, issued by Vale Overseas
4.375% Guaranteed Notes due 2022, issued by Vale Overseas
6.250% Guaranteed Notes due 2026, issued by Vale Overseas
8.250% 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
*
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, 2018 was:
5,126,258,410 common 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 No
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 No
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 No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer Non-accelerated filer Emerging growth company
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to
use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP International Financial Reporting Standards as issued by the International Accounting Standards Board Other
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).
Item 17 Item 18
Yes No
Form 20-F cross-reference guide
Management’s report on internal control
over financial reporting ...............................................
Corporate governance......................................................
Code of ethical conduct ....................................................
Principal accountant fees and services.............................
Change in registrant’s certifying accountant .....................
Information filed with securities regulators ........................
Exhibits ............................................................................
Glossary ...........................................................................
Signatures ........................................................................
Page
181
182
186
187
188
189
190
191
195
TABLE OF CONTENTS
Form 20-F cross-reference guide ......................................
I. Overview .....................................................................
Business overview ............................................................
Selected financial data......................................................
Forward-looking statements..............................................
Risk factors
II. Information on the company .....................................
Lines of business ..............................................................
1. Ferrous minerals ...................................................
2. Base metals ..........................................................
3. Coal ......................................................................
4. Infrastructure .........................................................
5. Other investments .................................................
Reserves ..........................................................................
Capital expenditures .........................................................
Regulatory matters ...........................................................
III. Operating and financial review and
prospects ..................................................................
Overview ..........................................................................
Results of operations ........................................................
Liquidity and capital resources ..........................................
Contractual obligations .....................................................
Off-balance sheet arrangements.......................................
Critical accounting policies and estimates .........................
Risk management .............................................................
IV. Share ownership and trading ..................................
Major shareholders ...........................................................
Related party transactions ................................................
Distributions......................................................................
Trading markets ...............................................................
Depositary shares .............................................................
Purchases of equity securities by the issuer
ii
1
2
16
18
19
37
37
39
49
61
63
70
72
81
83
88
88
96
110
113
114
115
119
123
123
126
128
129
130
and affiliated purchasers ............................................
132
V. Management and employees ....................................
Management ....................................................................
Management compensation..............................................
Employees .......................................................................
133
133
146
149
VI. Additional information .............................................
Legal Proceedings ............................................................
Memorandum and articles of association ..........................
Shareholder debentures ...................................................
Exchange controls and other limitations
affecting security holders ............................................
Taxation ...........................................................................
151
151
163
170
171
173
Evaluation of disclosure controls and
procedures .................................................................
181
i
FORM 20-F CROSS-REFERENCE GUIDE
Form 20-F cross-reference guide
Item
1
Form 20-F caption
Identity of directors, senior management
and advisers
Offer statistics and expected timetable
Key information
3A Selected financial data
3B Capitalization and indebtedness
3C Reasons for the offer and use of
proceeds
3D Risk factors
Information on the Company
4A History and development of the
company
4B Business overview
4C Organizational structure
4D Property, plant and equipment
2
3
4
4A
5
Unresolved staff comments
None
Operating and financial review and
prospects
5A Operating results
5B Liquidity and capital resources
5C Research and development, patents and
licenses, etc.
5D Trend information
5E Off-balance sheet arrangements
5F Tabular disclosure of contractual
obligations
5G Safe harbor
6
Directors, senior management and
employees
6A Directors and senior management
6B Compensation
6C Board practices
6D Employees
6E Share ownership
7
8
9
Major shareholders and related party
transactions
7A Major shareholders
7B Related party transactions
7C Interests of experts and counsel
Financial information
8A Consolidated statements and other
financial information
8B Significant changes
The offer and listing
9A Offer and listing details
9B Plan of distribution
9C Markets
9D Selling shareholders
9E Dilution
9F Expenses of the issue
Location in this report
Not applicable
Not applicable
Selected financial data
Not applicable
Not applicable
Risk factors
Business overview, Capital expenditures;
Information filed with securities
regulators,
Business overview, Lines of business,
Reserves, Regulatory matters
Exhibit 8
Lines of business, Capital expenditures,
Regulatory matters
Results of operations
Liquidity and capital resources
Capital expenditures
Results of operations
Off-balance sheet arrangements
Critical accounting policies and estimates
Contractual obligations
Forward-looking statements
Management
Management compensation
Management—Board of directors
Employees
Major shareholders,
Employees—Performance-based
compensation
Major shareholders
Related party transactions
Not applicable
Financial statements
Distributions
Legal proceedings
Not applicable
Not applicable
Not applicable
Trading markets
Not applicable
Not applicable
Not applicable
ii
Page
–
–
16
–
–
19
1, 81, 189
1, 37, 72,
83
–
37, 81, 83
–
96
110
81
96
114
115
113
18
–
133
146
133
149
123, 150
123
126
–
F-1
130
151
–
–
–
129
–
–
–
Page
163
163
37, 96, 126
171
173
–
72
189
–
119
–
–
–
130
–
–
181
181
142
186
187
142, 182
132
188
182
–
–
F-1
190
Item
10
Form 20-F caption
Additional information
10A Share capital
10B Memorandum and articles of
association
10C Material contracts
10D Exchange controls
10E Taxation
10F Dividends and paying agents
10G Statement by experts
10H Documents on display
10I Subsidiary information
Quantitative and qualitative disclosures
Location in this report
Memorandum and articles
of association—Common shares and
golden shares
Memorandum and articles of association
Lines of business, Results of operations,
Related party transactions
Exchange controls and other limitations
affecting security holders
Taxation
Not applicable
Reserves
Information filed with securities
regulators
Not applicable
11
12
13
14
15
16A
16B
16C
16D
16E
16F
16G
16H
17
18
19
about market risk
Risk management
Description of securities other than equity
securities
12A Debt securities
12B Warrants and rights
12C Other securities
12D American Depositary Shares
Defaults, dividend arrearages and
delinquencies
Material modifications to the rights of
Not applicable
Not applicable
Not applicable
Depositary shares
Not applicable
security holders and use of proceeds
Not applicable
Controls and procedures
Evaluation of disclosure controls and
procedures
Management’s report on internal control
over financial reporting
Audit Committee financial expert
Management—Fiscal Council
Code of ethics
Code of ethical conduct
Principal accountant fees and services
Principal accountant fees and services
Exemptions from the listing standards for
Management—Fiscal Council; Corporate
audit committees
governance
Purchase of equity securities by the issuer
Purchases of equity securities by the issuer and affiliated
and affiliated purchasers
purchasers
Change in registrant’s certifying accountant
Change in registrant’s certifying accountant
Corporate governance
Mine safety disclosure
Financial statements
Financial statements
Exhibits
Corporate governance
Not applicable
Not applicable
Financial statements
Exhibits
ii
I. OVERVIEW
We are one of the largest metals and mining companies in the world, based on market capitalization. We are the
world’s largest producer of iron ore and iron ore pellets and the world’s largest producer of nickel. We also
produce manganese ore, ferroalloys, metallurgical and thermal coal, copper, platinum group metals (PGMs), gold,
silver and cobalt. We are presently engaged in greenfield mineral exploration in five countries. 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 distribution center to support the delivery of iron
ore worldwide. Directly and through affiliates and joint ventures, we also have investments in energy and steel
businesses.
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 “ADSs” or
“American Depositary Shares” are to our common American Depositary Shares (our “common ADSs”), each of
which represents one common share of Vale. American Depositary Shares are represented by American
Depositary Receipts (“ADRs”) issued by the depositary.
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 Praia de Botafogo
186 – offices 701-1901 – Botafogo, 22250-145 Rio de Janeiro, RJ, Brazil, and its telephone number is
55-21-3485-5000.
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 “€” are to Euros.
1
BUSINESS OVERVIEW
FAILURE OF THE TAILINGS DAM AT THE CÓRREGO DO FEIJÃO MINE
On January 25, 2019, a tailings dam (“Dam I”) failed at our Córrego do Feijão mine, in the city of Brumadinho,
state of Minas Gerais. The failure released a flow of tailings debris, which affected our administrative area at the
Córrego do Feijão mine and parts of the communities of Córrego do Feijão and Parque da Cachoeira outside of
Brumadinho, reaching the nearby Paraopeba River. The dam failure resulted in nearly 300 fatalities or presumed
fatalities, and also caused extensive property and environmental damage in the region. Our priority now is to
provide support to those affected by the dam failure.
The causes of the accident are still uncertain and are being investigated by us and by several governmental
authorities. We are providing our full cooperation to the authorities and to the investigations into the dam failure.
Dam I
The Córrego do Feijão mine is part of the Paraopeba complex, in the Southern System. Dam I was first built in
1976 by Ferteco Mineração, a company we acquired in 2001. Dam I received disposed tailings from the Córrego
do Feijão and Jangada mines from 1976 until it became inactive in 2016. Dam I contained approximately
11.7 million cubic meters of iron ore tailings.
The dam was raised by building successive layers (lifts) above the tailings accumulated in the reservoir, a
technique known as the “upstream” method. There are two other raising methods, the “downstream” method and
the “centerline” method, in which the dam is raised by placing new layers away from the initial dam or on top of it,
as opposed to over the accumulated tailings. Each of these methods presents a different risk profile.
Dam VI, another dam located at the Córrego do Feijão mine, was impacted by the tailings debris flow from the
failure of Dam I. Due to the ongoing investigation into potential damages from the impact of the tailings debris, it
has not received the certification of stability (Stability Condition Statement, or “DCE”) required by the rules of the
national mining agency, the ANM (Agência Nacional de Mineração). Dam VI is being continuously monitored.
The Jangada mine, also located in the Paraopeba complex, was not affected by the tailings debris flow, but its
operations were suspended because of the closure of Feijão processing plant, which processed the run-of-mine
of the Jangada mine.
Vale’s response
Our senior management has been focused on emergency and long-term initiatives, with three main purposes:
(i) providing assistance to victims and remediation of the affected area, (ii) determining the causes of the failure of
Dam I, and (iii) preventing further accidents through improved standards and accelerated decommissioning of
upstream dams.
(i) Assistance and remediation efforts
Immediately following the failure of Dam I, we contacted the local authorities and activated our Emergency Mining
Dam Response Plan (Plano de Ação de Emergência de Barragens de Mineração (PAEBM)) to rescue and
provide immediate humanitarian assistance to affected parties, including employees and members of the
community. We also mobilized our teams to monitor the Paraopeba River basin, rescue wildlife and domestic
animals and support sanitation measures. We mobilized over 400
2
Business Overview
doctors, nurses, psychologists, social workers and volunteers to set up assistance centers for those affected.
These assistance centers provided humanitarian aid, including medical, psychological and social assistance,
distributed basic emergency items, including pharmaceuticals, food, potable water and clothing, and provided
duplicate records (such as identification cards, marriage certificates, and birth certificates) to those who lost their
homes. We also provided 40 ambulances, a support helicopter, shopping vouchers for clothing, accommodation
and transportation for over 800 people.
On January 31, 2019, we presented an emergency plan to the Minas Gerais Public Prosecutor’s Office, and to the
state and federal environmental agencies, including containment, retention, remediation and recovery actions.
The plan contemplates removing debris, installing hydraulic barriers and small dams to assist in the tailings
control process, establishing water treatment stations, restoring roads and installing membrane barriers
downstream to contain ultrafine sediments and protect the water system on the Paraopeba River basin.
On February 6, 2019, we entered into an agreement with various governmental authorities undertaking to
gradually replace our professionals who had been providing assistance to the populations affected since the dam
failure, with a team to join the health and social service teams of the city of Brumadinho. We will bear for at least
six months the costs of employing 142 professionals, including doctors, nurses, psychologists, physical therapists,
occupational therapists, social workers and endemic disease control agents, in addition to administrative and
operational professionals, as well as logistics costs incurred by these teams.
We have donated resources to the Municipality of Brumadinho, the fire department of Minas Gerais and other
entities that provided assistance to the affected parties. For those affected by the dam failure, we established a
three-tiered financial assistance program, under which, we have made donations to more than 440 people. We
are also providing funeral assistance and contributing to funeral expenses for each affected family. These
donations are without prejudice to any right that any person affected by the dam failure may have to claim
damages against us.
(ii) Determination of the causes for the failure of the dam
We are investigating the causes of the failure of Dam I. We engaged a legal advisor and technical experts to
conduct an investigation into the causes of the failure of the dam. In addition, our Board of Directors established
the Independent Ad Hoc Consulting Committee for Investigation (CIAEA), an independent committee to
investigate and advise the Board of Directors in connection with the determination of the causes of the dam
failure.
(iii) Prevention of further accidents and accelerated decommissioning of upstream dams
On January 29, 2019, we decided to accelerate our existing plan to decommission our tailings dams built using
the upstream method. “Decommissioning” or “decharacterization” means reintegrating the dam and its contents
into the local environment, so that the structure is effectively no longer a dam. We will determine the appropriate
actions to decommission each dam safely, in accordance with the geotechnical and geographic conditions of
each dam. For certain of our upstream dams, we will first convert the dam into a downstream or centerline dam
and conclude the decommissioning subsequently. Some of our existing downstream or centerline dams contain
smaller dikes or structures that were built using the upstream technique, and we are also planning to remove
these upstream dikes or structures. At this point, we cannot predict the costs and timing for decommissioning our
upstream tailings dams.
We have been taking steps to decommission upstream dams since late 2015, in response to the failure of
Samarco’s Fundão dam. In February 2019, we announced our plan to accelerate this process and our
3
decision to temporarily suspend our operations at mines and concentration plants located in areas where
upstream dams are located. Also, based on our initial assessments, we determined that certain dams would not
meet the requirements of new safety requirements imposed by ANM, and evacuated certain areas and relocated
the population located within the Self-Rescue Zone of these dams. We expect to resume production at these
mines and concentration plants in the future.
Business Overview
Independent Committees
Our Board of Directors has created three independent ad hoc advisory committees to support the Board in
matters relating to the dam failure. All of these committees are composed of external and independent members
appointed by our Board of Directors. These committees are described below.
•
•
•
Independent Ad Hoc Consulting Committee for Investigation (CIAEA): established to conduct an
independent investigation into the causes of the dam failure and to advise our Board of Directors in
connection with these matters. The committee is chaired by Dr. Ellen Gracie, former Justice of the
Brazilian Supreme Court, and also includes Manuel Martins and Jose Francisco Compagno.
Independent Ad Hoc Consulting Committee for Support and Recovery (CIAEAR): established to
monitor our measures to support the affected community and to remediate the impacted area, and
our provision of resources for this purpose, and to recommend measures to our Board of Directors in
connection with these matters. The committee is chaired by Leonardo Pereira, former chair of the
Brazilian Securities Commission, and also includes Ana Cristina Barros and Márcio Gagliato.
Independent Ad Hoc Consulting Committee for Dam Safety (CIAESB): established to monitor safety
initiatives, risk management and risk mitigation efforts related to our tailings dams and recommending
measures to strengthen safety at these dams. This committee is chaired by Flávio Miguez de Mello,
and also includes Willy Lacerda and Pedro Repetto.
Impacts of the failure of Dam I on Vale
The impacts of the dam failure on our operations and results of operations will be very significant, but their full
scale and scope remains uncertain. Some of major impacts are described below.
(i) Freeze orders
Various Brazilian courts have ordered freezes, attachments, deposits and similar measures affecting an
aggregate of R$17.6 billion (US$4.5 billion) of our financial assets, including balances in our bank accounts and
judicial deposits to secure the payment of damages resulting from the dam failure. This total amount also includes
common shares that we hold in treasury and that have been attached. We are also subject to a number of other
proceedings and investigations related to the dam failure, which may result in additional attachment of assets and
seizure of balances in our bank accounts.
(ii) Liabilities and legal proceedings
Our potential legal liabilities resulting from the dam failure are significant, and we cannot estimate the total
amount at this time. We are already the subject of several investigations and legal proceedings relating to the
failure of Dam I, and we expect to face other investigations and proceedings. For additional information regarding
the legal proceedings relating to the failure of Dam I, see Additional Information—Legal proceedings. We will
continue to cooperate fully with the authorities and to support the investigations into the dam failure. We will also
contest any actions that we believe are unjustified.
4
The proceedings are all in very early stages, and we cannot reasonably estimate the size of potential losses or
settlements or the timing for decisions. We estimate that we will recognize provisions in our financial statements
for the first quarter of 2019 in the amount of R$850 million (US$220 million) in connection with an ongoing public
civil action brought by labor prosecutors and provisions ranging from R$1.0 billion to R$2.0 billion (US$260 million
to US$520 million) in connection with our preliminary agreement with the State of Minas Gerais and other
authorities. Our potential liabilities resulting from the dam failure are significant, and additional provisions are
expected.
Business Overview
(iii) Suspension of operations
Following the dam failure, we have suspended various operations, either voluntarily or as a result of revocation of
licenses or court orders. As of April 15, 2019, the estimated impact of the suspension of operations following the
dam failure on our production is 92.8 million metric tons per year (including the estimated annual impact of the
suspension of the Brucutu mine). Additional operations may be suspended as a result of new laws and
regulations relating to the use of dams, or our inability to obtain the required licenses or the stability reports
required by applicable regulations, as discussed below.
Below is a summary of operations suspended since the date of the dam failure.
• Southern System: Immediately after the dam failure, we suspended our operations at the Córrego do
Feijão site, including the Jangada mine, pursuant to an order of the environmental authority of the
State of Minas Gerais (SEMAD). Also, to permit the acceleration of our decommissioning plan for
upstream dams, and following a determination of the ANM, we temporarily suspended operations at
the entire Vargem Grande and Fábrica complexes and at the Vargem Grande and Fábrica pelletizing
plants on February 20, 2019. The estimated impact of the suspension of these operations is a
reduction of approximately 40 million metric tons of iron ore production per year, including the pellet
feed needed for the production of 11 million metric tons of pellets per year.
• Southeastern System: Our operations at the Timbopeba mine and Alegria mine are currently
suspended. Our operations at the Brucutu mine have been suspended since February 4, 2019, but
on April 15, 2019, the court of appeals of the State of Minas Gerais partially reversed the last
injunction that prevented us from operating the Brucutu mine. We expect to resume operations at
Brucutu soon, but the proceedings challenging our right to use the dams supporting our operations at
Brucutu are still ongoing. The estimated impact of the suspension of these operations is a reduction
of approximately 30 million metric tons of iron ore production per year for the Brucutu mine, 12.8
million metric tons of iron ore production per year for the Timbopeba mine and 10 million metric tons
of iron ore production per year for the Alegria mine.
(iv) New regulations
Various governmental authorities have approved or proposed new regulations relating to licensing, use and
operations of dams in response to the Dam I failure. Additional rules imposing restrictions on mining operations
and ancillary activities are expected. Also, new taxes, contributions or other obligations may be imposed on us as
a result of the failure of Dam I or its direct or indirect impacts. These rules may affect not only our iron ore
operations, but also our base metals operations in Brazil and other operations that rely on dams.
• Minas Gerais state law on licensing of dams. A new statute approved by the state of Minas Gerais in
February 2019 prohibits the increase, modification or construction of any upstream dam, and provides
for the full decommissioning of any upstream tailings dam by February
5
2022. The statute also prohibits the increase, modification or construction of any dam if communities
are established within its Self-Rescue Zone (Zona de Autossalvamento or “ZAS”), an area which
encompasses the portion of the valley downstream of the dam where timely evacuation and
intervention by the competent authorities in emergency situations is not possible. Although this statute
permits the construction of new dams and the use of existing dams built using other techniques, it
imposes significant restrictions on them as well. As a result, we may not be able to rely on tailings
dams for new projects and expansion of existing operations.
Business Overview
• ANM rules. In February 2019, the ANM, Brazil’s national mining agency, issued a resolution on dam
safety requiring companies that own upstream tailings dams to submit a technical decommissioning
project by August 2019 and to fully decommission any inactive upstream tailings dam by August
2021, and any active upstream tailings dam by August 2023. In addition, the resolution requires the
decommissioning of our facilities located within the Self-Rescue Zone of a tailings dam. This new
resolution, which imposes more stringent safety requirements, is already in effect, but is under public
consultation for potential adjustments until May 1, 2019. We are reviewing the impact of this
resolution on our operations.
As a result of new regulations, the licensing process for our operations may become longer and more uncertain,
and our costs of monitoring and compliance are expected to increase. These additional laws and regulations may
impose restrictions on our operations, require additional investments or eventually require us to suspend
additional operations.
We will need to rely on alternative methods to continue operating certain of our mines and plants, particularly
those that rely on tailings dams. We have studies in progress, and we have developed a pilot project, to apply a
waste disposal technology that consists of filtering and stacking of partially or totally dewatered tailings, which will
reduce our reliance on tailings dams in the medium and long term. These alternative technologies will cause an
increase in our production costs and require additional investments in our mines and plants.
(v) Impact on reserves
As a result of the dam failure and our decision to accelerate the decommissioning of our upstream tailings dams,
we are not in a position to report reserves for the Feijão, Jangada and Capim Branco mines (in the Paraopeba
complex).
We are reviewing the impact on our reported reserves of the ongoing investigations and legal proceedings
involving the use of dams in our mining operations and of the new rules relating to licensing, use and operations
of dams, which were adopted in response to the Dam I failure. These proceedings and regulations may impact
our iron ore reserves and reserves for other products for which the production process involves dams. Because
alternative methods are available, particularly the dry stockpiling and dry processing technologies, we currently
believe that our iron ore reserves will not be materially impacted by these new rules, but we have not concluded
our analysis.
(vi) Uncertainties arising from increased safety requirements and external expert certification
Brazilian state and federal authorities are strengthening regulations on dam safety. Many regulations applicable to
our mines require us to obtain independent reports and certificates from external experts on the safety and
stability of our dams. External experts may be unwilling to provide these reports and certificates as a result of the
uncertainties regarding the causes of the Dam I failure, the increasing risk of liability and uncertainties about
interpretation of new regulations. If any of our dams is unable to comply
6
with safety requirements, we may need to evacuate the area surrounding this dam, relocate communities and
take other emergency actions.
Business Overview
• On February 8, 2019, we started emergency actions after an external consultant revoked a stability
report relating to the Sul Superior dam at our Gongo Soco mine (in the Minas Centrais complex in the
Southeastern System), in Barão de Cocais, Minas Gerais. As a result, we relocated about 500
residents of the Socorro, Tabuleiro and Piteiras neighborhoods of Barão de Cocais in the
downstream area of the Sul Superior tailings dam. The Sul Superior dam has been inactive since
April 2016, when we suspended iron ore production at the Gongo Soco mine. As an additional safety
measure, we intensified inspections of the Sul Superior dam, installed new monitoring equipment and
engaged additional consultants to perform a new safety assessment.
• On February 16, 2019, the Emergency Action Plan for Mining Dams (PAEBM) for the B3/B4 dam at
the Mar Azul mine, in the city of Nova Lima, Minas Gerais, triggered a preventive measure after data
from analysis reports from specialized advisory firms indicated increased risk. As a result, we
relocated about 200 people from the Macacos neighborhood in the downstream area of the B3/B4
tailings dam, which has been inactive.
• On March 20, 2019, we temporarily suspended our operations at the Alegria mine, in the Mariana
complex, because the results from a preliminary analysis of the stability of its structures under stress
conditions were inconclusive.
• On March 31, 2019, following an auditing process, external auditors renewed the certification of
stability (Stability Condition Statements, or DCE) for 80 of our operational structures. We were not
able to renew the DCE for 18 other operational structures, and, as a result, we suspended our
activities in these structures.
(vii) Impacts on our financial performance and results of operations
We expect the failure of Dam I, and the consequences summarized above, to have extensive impact on our
financial performance and results of operations. We have not yet determined the nature and amount of all the
consequences. See Operating and financial review and prospects—Impact of the failure of Dam I at the Córrego
do Feijão Mine. These will include:
• Reduced revenues, and increased costs and expenses, due to the suspension of operations.
•
•
Increased expenditures for assistance and remediation.
Impairments of fixed assets, which may result in the write-down and write-off of assets.
• Provisions for costs of decommissioning and further remediation.
• Provisions for legal proceedings.
7
Business Overview
We may also need to incur additional debt to pay for assistance and remediation actions.
Temporary leave of executive officers
On March 1, 2019, our Board of Directors received a formal recommendation from the federal and state (Minas
Gerais) public prosecution offices, the federal police and the civil police of Minas Gerais that we suspend certain
of our employees and executive officers. In response to this recommendation, our CEO, Fabio Schvartsman, and
our executive officer for Ferrous Minerals and Coal, Gerd Peter Poppinga, requested temporary leave from their
positions. Our Board of Directors approved these requests on March 2, 2019, and appointed Eduardo de Salles
Bartolomeo as interim chief executive officer and Claudio de Oliveira Alves as interim executive officer for Ferrous
Minerals and Coal. Mark James Travers has been appointed executive officer for Base Metals, subject to
obtaining the requisite visa and relocating to Brazil, as required under Brazilian law.
OPERATIONAL SUMMARY
The following table presents the breakdown of total net operating revenues attributable to each of our lines of
business with continuing operations.
Ferrous minerals:
Iron ore
Pellets
Ferroalloys and manganese
Other ferrous products and
services
Subtotal
Coal
Base metals:
Nickel and other products(1)
Copper(2)
Subtotal
Other(3)
Total net operating revenues
from continuing operations
2016
(US$ million)
Year ended December 31,
2017
2018
(% of total)
(US$ million)
(% of total)
(US$ million)
(% of total)
15,784
3,827
302
438
20,351
839
4,472
1,667
6,139
159
57.4%
13.9
1.1
1.6
74.0
3.1
16.3
6.1
22.3
0.6
18,524
5,653
469
483
25,129
1,567
4,667
2,204
6,871
400
54.5%
16.7
1.4
1.4
74.0
4.6
13.7
6.5
20.2
1.2
20,354
6,651
454
474
27,933
1,643
4,610
2,093
6,703
296
55.7%
18.2
1.2
1.3
76.4
4.5
12.6
5.7
18.3
0.8
27,488
100%
33,967
100%
36,575
100%
(1)
(2)
(3)
Includes nickel coproducts (copper) and byproducts (precious metals, cobalt and others).
Does not include copper produced in our nickel operations.
Includes energy.
Ferrous minerals:
•
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, maritime
terminals and a port. The Southern System consists of three mining complexes and two maritime
terminals. We also have iron ore pellet operations in several locations, some of which are conducted
through joint ventures. We currently operate eleven pellet plants in Brazil (the operations of two of
these plants are currently
8
suspended), and two in Oman. We also have a 50% stake in Samarco Mineração S.A. (“Samarco”)
and 25% stakes in two pellet companies in China.
• Ferroalloys and manganese. We conduct our manganese mining operations through Vale S.A. and
subsidiaries in Brazil, and we produce several types of manganese ferroalloys through a wholly
owned subsidiary in Brazil.
Business Overview
Base metals:
• Nickel. Our principal nickel mines and processing operations are conducted by our wholly owned
subsidiary Vale Canada Limited (“Vale Canada”), which has operations in Canada, Indonesia and
New Caledonia. We also have nickel operations in Onça Puma, in the Brazilian state of Pará. We
also control and operate nickel refining facilities in the United Kingdom, Japan and China, and have
interests in a nickel refinery in South Korea.
• Copper. In Brazil, we produce copper concentrates at Sossego and Salobo, in Carajás, in the
Brazilian state of Pará. In Canada, we produce copper concentrates, copper matte and copper
cathodes in conjunction with our nickel mining operations at Sudbury and Voisey’s Bay.
• Cobalt, PGMs and other precious metals. We produce cobalt as a byproduct of our nickel mining and
processing operations and refine it at our Port Colborne facilities, in the Province of Ontario, Canada.
We began producing refined cobalt in our Long Harbour facilities in Newfoundland and Labrador in
2017. We also produce cobalt as a byproduct of our nickel operations in New Caledonia. We produce
PGMs as byproducts of our nickel mining and processing operations in Canada. The PGMs are
concentrated at our Port Colborne facilities. We produce gold and silver as byproducts of our nickel
mining and processing operations in Canada, and gold as a byproduct of our copper mining at
Sossego and Salobo in Brazil.
Coal:
• We conduct our coal operations primarily in Mozambique, through Vale Moçambique S.A. (“Vale
Moçambique”), where we are ramping up our metallurgical and thermal coal operations. We also
have a minority interest in a Chinese coal producer.
Logistics infrastructure:
• 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, and VLI S.A. (“VLI”), which provides integrated logistics solutions to general
cargo through railroads, inland and maritime terminals in Brazil. We operate the logistics
infrastructure to support our coal operations in Southeastern Africa. We own and charter dry bulk
vessels to transport the products that we sell on a cost and freight (“CFR”) basis to customers.
9
BUSINESS STRATEGY
The year of 2019 has been a very challenging year for us. We know that there is much to be done to address the
effects of the failure of the tailings dam at the Córrego do Feijão mine. We are committed to remediating the
damages caused to the city of Brumadinho and the surrounding communities. We will manage the liabilities
arising from this deeply regretted event, and we are committed to learning and sharing the lessons from the dam
failure. With this purpose, we are dedicated to:
• Keeping our people and communities safe and restoring trust from our stakeholders;
Business Overview
• Capital discipline;
• Maintaining our value over volume approach for the iron ore business;
• Transforming our base metals business into a significant cash generator;
• Concluding the ramp-up of our coal business; and
• Enhancing corporate governance.
Below are the highlights of our major business strategies.
Keeping our people and communities safe and restoring trust from our stakeholders
We are fully committed in addressing the effects of the failure of Dam I at the Feijão mine, with three key
initiatives: (i) assistance to victims and recovery of the area affected by the rupture of the dam, (ii) determination
of the causes of the dam failure, and (iii) prevention of further accidents through adoption of the highest standards
and accelerated decommissioning of all upstream dams. See Business overview—Failure of the tailings dam at
the Córrego do Feijão mine. We continue making every effort to provide relief and support to those affected by the
dam failure and to restore the trust of our stakeholders on us. We are committed to rebuilding our reputation in
Brazil and in the global mining industry.
Capital discipline
We reiterate our strong commitment to a sound balance sheet. In 2018, we completed our deleveraging process
and achieved our net debt target of US$10 billion. We will allocate capital in a disciplined way, which will be key to
enable us to address the effects of Dam I failure. In January 2019, our Board of Directors approved the
suspension of our shareholder remuneration policy, so that no payment of dividends or interest on shareholders’
equity will be made pursuant to this policy in excess of mandatory payments required by law, and we will not
approve any share buyback for the time being.
Maintaining our value over volume approach for the iron ore business
In the iron ore business, we are committed to delivering the highest possible margins under the current
circumstances, by managing our extensive supply chain and flexible product portfolio to cope with production
constraints in the short-term. We will constantly seek better price realization, based on adjustments to our product
portfolio according to market demand and supply chain optimization. We are focusing our product line to capture
industry trends, improving quality and productivity, controlling costs, strengthening our logistics infrastructure of
railroads, ports, shipping and distribution centers, and
10
Business Overview
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 overcome
the immediate challenges and achieve this goal.
With the continuous increase of the share of dry processing production, from 45% in 2014 to 60% in 2018, and
aimed at 70% by 2023, our reliance on new dams and dam raisings tend to reduce. To treat the tailings from wet
processing, we are investing in studies and new technologies with a view to allowing us to operate certain of our
mines and plants without having to rely on the use of tailings dams. In particular, we have studies in progress, and
we have developed a pilot project, to apply a waste disposal technology that consists of filtering and stacking of
partially or totally dewatered tailings, which will reduce our reliance on tailings dams in the medium and long term.
These alternative technologies will cause an increase in our production costs and require additional investments
in our mines and plants. In line with this goal, we acquired New Steel in January 2019, bringing innovative
technologies for the dry beneficiation of iron ore.
We will continue to promote the Brazilian blend fines (BRBF), a product standard with silica (SiO2) content limited
to 5% and lower alumina (1.5%), offering strong performance in any kind of sintering operation. We produce
BRBF by blending fines from Carajás, which contain a higher concentration of iron and a lower concentration of
silica in the ore, with fines from the Southern and Southeastern Systems, which contain a lower concentration of
iron in the ore, but also low concentration of alumina. It is produced in our Teluk Rubiah Maritime Terminal in
Malaysia and in sixteen ports in China. This process reduces the time needed to reach Asian markets and
increases our distribution capillarity by allowing the use of smaller vessels. The blending strategy also permits the
use of iron ore with lower concentration from the Southern and Southeastern Systems, allowing more efficient
mining plans and increasing the use of dry processing methods, which in turn reduce capital expenditures, extend
the life of our mines and reduce the use of water in our operations: a key flexibility to cope with the short-term
challenges.
Transforming our base metals business into a significant cash generator
Our strategy for our nickel business is to complete its turnaround, continuing to review our asset utilization and
optimize our operations and aiming to increase productivity and improve returns, while preserving capacity for
growth based on the prospects for an electric vehicle revolution. We are the world’s largest nickel producer, with
large-scale, long-life and low-cost operations, a substantial resource base and diversified mining operations that
produce nickel from nickel sulfide and laterite sources using advanced technology.
We have transitioned to a smaller footprint in our nickel business by calibrating investments and production to
reflect current market conditions, and our nickel turnaround plan is now based on three pillars: supply chain
integration, operational excellence and digital transformation. In Canada, we are optimizing the flowsheet, running
a cost reduction program and improving underground mine performance at Sudbury and finalizing the ramp-up of
operations at Long Harbour. In Indonesia, we are renewing truck and mine equipment, increasing efficiency of the
furnaces and increasing fuel efficiency through coal conversion. In New Caledonia, we are developing a mine
plan revision and a study to increase efficiency of the VNC plant. In the long term, the battery segment shows
important upside potential as electric vehicle production continues to attract significant investments, which could
positively affect nickel price and our nickel premiums.
A key aspect of our strategy for our copper assets in the Carajás region is to improve efficiency and asset
utilization while we evaluate opportunities to increase copper production. We have plans to develop a multi-year
copper expansion plan, with Salobo III being the first approved project in the pipeline.
11
Concluding the ramp-up of our coal business
We have been working to increase our coal production, mainly through the ramp-up of the Moatize operations and
the ramp-up of the Nacala Logistics Corridor (NLC) in Mozambique and Malawi, where we have entered into a
strategic partnership with Mitsui. As we complete the ramp-up in Moatize and the NLC, we expect our costs to
diminish, enhancing the competitiveness of our coal operations. Key initiatives, such as knowledge transfer from
our iron ore operations, opening of new mine sections and preparation of selected mining pits for future disposals
are expected to lead to higher capacity utilization, mine productivity and yields.
Business Overview
Enhancing corporate governance
We are committed to continuing to improve our corporate governance. Following the conversion of our class A
preferred shares into common shares, in December 2017, we completed our listing on the Novo Mercado
segment of the B3 exchange (formerly BM&FBovespa), the special listing segment of B3 for companies
committed to the highest standards of corporate governance. In 2018, our Board of Directors revised some of our
policies, including our Corporate Integrity Policy, Code of Ethical Conduct, Socio-Environmental Investment
Policy, Risk Management Policy, Remuneration to Shareholders Policy and Securities Trading Policy.
In 2018, as required under Brazilian rules, we started reporting our compliance with the Code of Best Practices for
Corporate Governance of the Brazilian Corporate Governance Institute (IBGC). The code is based on the “comply
or explain” principle, and we currently fully comply with 80% of the practices recommended by the IBGC and
partially comply with 17% of practices recommended by the code.
SIGNIFICANT CHANGES IN OUR BUSINESS
We summarize below major events related to our acquisitions, divestitures and other significant developments in
our business since the beginning of 2018.
Acquisitions
• Ferrous Resources. On December 6, 2018, we entered into an agreement with IEP Ferrous
Brazil LLC to buy Ferrous Resources Limited, a company that owns and operates iron ore mines near
our operations in Minas Gerais, for US$550 million. The transaction is expected to be concluded in
2019, subject to certain conditions precedent, including approval by antitrust authorities in Brazil.
• New Steel. On December 10, 2018 we entered into an agreement with Hankoe FIP to buy New Steel
Global NV (New Steel), a company that develops innovative iron ore beneficiation technologies, for
US$500 million. All conditions have been fulfilled, including approval by antitrust authorities in Brazil,
and we concluded the transaction on January 24, 2019. New Steel currently owns patents in 56
countries for Fines Dry Magnetic Separation (FDMS), a dry processing concentration technique.
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. We summarize below our most significant dispositions since the beginning of 2018.
12
Business Overview
• Sale of Fertilizer Business—In January 2018, we completed the sale to The Mosaic Company
(“Mosaic”) of a substantial part of our fertilizer business, which includes (i) our phosphate assets in
Brazil; (ii) our stake in the joint venture that operates the phosphate rock mine in Bayóvar, Peru;
(iii) our potash assets located in Brazil; and (iv) our potash project based in Canada (Kronau). We
received US$1.080 billion in cash and approximately 34.2 million shares of Mosaic’s common stock,
which corresponds to approximately 8.9% (on a post-issuance basis) of Mosaic’s outstanding
common stock. Subject to limited exceptions, the Mosaic shares issued to us cannot be transferred
for two years following closing. We have the right to appoint two members of Mosaic’s board of
directors, one of whom must be independent, for so long as we hold at least 90% of the Mosaic
shares received at closing, or one member of Mosaic’s board for so long as we hold at least 50% of
the Mosaic shares received at closing. We appointed Mr. Luciano Siani and Mr. Oscar P. Bernardes
to Mosaic’s board of directors.
• Sale of Cubatão assets—In May 2018, we completed the sale to Yara International ASA of our wholly
owned subsidiary, Vale Cubatão Fertilizantes Ltda., which owned and operated nitrogen and
phosphate assets in Cubatão, Brazil. We received the purchase price of US$255 million in cash upon
the closing of the transaction.
• Sale of interest in coking coal project in Australia. In September 2018, we concluded the sale of our
50% interest in the Eagle Downs hard coking coal project (including all associated rights and
obligations) in Central Queensland, Australia, to BS Coal Pty Ltd for a total consideration of:
(i) US$90 million in cash upon completion, (ii) US$27 million in cash upon the third anniversary of
closing and (iii) royalties to be paid over 50% of all coal produced and sold from the Eagle Downs
Project tenements.
Project Financing for the Nacala Logistics Corridor
We have a partnership with Mitsui in coal assets in Mozambique. In February 2018, we concluded the
agreements for a project financing for the Nacala Logistics Corridor, which connects the Moatize coal mine to the
Nacala-à-Velha maritime terminal, located in Nacala, Mozambique, in the total amount of US$2.730 billion, as
follows:
• US$1.030 billion provided by Japan Bank for International Cooperation (JBIC);
• US$1.000 billion loan insured by Nippon Export and Investment Insurance (NEXI), provided by
Sumitomo Mitsui Banking Corporation, The Bank of Tokyo Mitsubishi UFJ Ltd; Mizuho Bank Limited,
Sumitomo Mitsui Trust Bank Limited, Nippon Life Insurance Company and Standard Chartered Bank;
• US$400 million loan insured by Export Credit Insurance of South Africa Limited (ECIC), provided by
ABSA Bank Limited, Investec Bank Limited; Rand Merchant Bank and The Standard Bank of South
Africa Limited;
• US$300 million provided by the African Development Bank (AfDB).
Vale received US$2.6 billion in proceeds, in repayment of certain shareholders loans provided for construction of
NLC, net of certain commissions paid by NLC. The project financing will be repaid in 14 years with the proceeds
obtained from the tariff charged by NLC in connection with its provision of coal transportation services.
13
Business Overview
Optimizing our base metals operations in Canada
We have optimized our nickel operations across Canada, as part of an overall strategy to prioritize value over
volume, reduce our atmospheric emissions and comply with local regulations. In 2018, we phased out our
smelting and refining activities in Thompson, focusing our operations on nickel concentrate production. The
concentrate is then shipped to our Sudbury operation to be further processed. In Sudbury, we produce copper
concentrate, copper matte, copper cathodes and refined nickel. In Long Harbour, we produce nickel rounds,
copper cathodes and cobalt rounds. We successfully blended nickel intermediates from Sudbury and Asia in our
refinery in Wales to make higher premium products.
We will now turn our focus to the optimization of the mining assets to ensure a sustainable and value-accretive
ore supply to our three concentrators in Canada:
• Sudbury, Ontario—In the second half of 2017, we converted our two-furnace operation in Sudbury
into a single furnace operation. As a result of this change, we increased the proportion of production
of copper concentrate to total copper production from a rate of 66% in 2017 to 72% in 2018,
maximizing the smelter capacity for nickel. In addition, we ceased production of copper anode and
increased production of copper matte. At the end of 2018, 11% of our copper production was sold in
the form of copper matte.
• Thompson, Manitoba—We changed our operations in Thompson, Manitoba, from an integrated
operation to a mine-mill operation. We permanently shut down one of the two smelter furnaces at the
site in 2017, and decommissioned the other furnace in 2018, therefore closing the remaining smelting
and refining activities to focus the operation solely on nickel concentrate production. We currently
send all nickel concentrate from Thompson to be refined in Sudbury.
• Voisey’s Bay and Long Harbour, Newfoundland and Labrador—Starting in 2018, all Voisey’s Bay
nickel concentrate is being shipped to our Long Harbour refinery. Our Long Harbour processing
facilities produce nickel rounds, copper cathode and cobalt rounds from the Voisey’s Bay
concentrate.
Cobalt streaming transaction
In June 2018, we sold to Wheaton Precious Metals Corp. (Wheaton) and Cobalt 27 Capital Corp. (Cobalt 27) a
combined 75% of the cobalt produced as a byproduct at our Voisey’s Bay mine from January 1, 2021, which
includes the ramp-down of production from the existing mine and the life-of-mine production from our
underground mine expansion project. In consideration, we received US$690 million in cash from Wheaton and
Cobalt 27 upon closing of the transaction on June 28, 2018, and will receive additional payments of 20%, on
average, of cobalt prices upon delivery. We remain exposed to approximately 40% of future cobalt production
from Voisey’s Bay, through our retained interest in 25% of cobalt production and the additional payments upon
delivery. These transactions enabled the development of the Voisey’s Bay underground mine extension project,
which will extend the mine life of Voisey’s Bay.
Resumption of operations of São Luis and Tubarão I and II pellet plants
In 2018, we resumed the operations of our Tubarão I, Tubarão II and São Luis pellet plants. The operations of
these plants had been suspended since 2012 due to market conditions.
14
Business Overview
FAILURE OF SAMARCO’S TAILINGS DAM IN MINAS GERAIS
In November 2015, the Fundão tailings dams owned by Samarco S.A. failed, releasing tailings downstream,
flooding certain communities and causing impacts on communities and the environment along the Doce river. The
failure resulted in 19 fatalities and caused property and environmental damage to the affected areas. Samarco is
a joint venture equally owned by Vale S.A. and BHP Billiton Brasil Ltda. (“BHPB”).
In June 2016, Samarco and its shareholders (Vale and BHPB) created the Fundação Renova, a not-for-profit
private foundation, to develop and implement (i) social and economic remediation and compensation programs
and (ii) environmental remediation and compensation programs in the region affected by the dam failure.
The creation of Fundação Renova was provided for under the agreement for settlement and conduct adjustment
(the “Framework Agreement”) signed in March 2016 by Vale, BHPB, Samarco, the Brazilian federal government,
the two Brazilian states affected by the failure (Minas Gerais and Espírito Santo) and other governmental
authorities. The Framework Agreement has a 15-year term, renewable for successive one-year periods until all
the obligations under the Framework Agreement have been performed. The Framework Agreement does not
provide for admission of civil, criminal or administrative liability for the Fundão dam failure. The Framework
Agreement provides that, within three years of the date of the agreement, the parties would review its terms to
assessing the effectiveness of the ongoing remediation and compensation activities.
On June 25, 2018, Samarco, Vale and BHPB entered into a comprehensive agreement with the offices of the
federal and state (Minas Gerais and Espírito Santo) prosecutors, public defenders and attorney general, among
other parties, improving the governance mechanism of Fundação Renova and establishing, among other things, a
process for potential revisions to the remediation programs provided under the Framework Agreement based on
the findings of experts hired by Samarco to advise the MPF (Federal Prosecutor’s Office) over a two-year period
(the “June 2018 Agreement”). See Additional information—Legal proceedings.
Under the Framework Agreement and the June 2018 Agreement, Fundação Renova must be funded by Samarco,
but to the extent that Samarco is unable to fund, Vale and BHPB must ratably bear the funding requirements
under the Framework Agreement. As Samarco is currently unable to resume its activities, we and BHPB have
been funding the Fundação Renova and also providing funds directly to Samarco, to preserve its operations and
to support Samarco’s funding obligations. At this point, we cannot predict when Samarco will resume its
operations.
Pursuant to the Framework Agreement, Fundação Renova and Samarco allocated R$2.1 billion to social and
economic remediation and compensation programs in 2018 and have allocated R$5.3 billion to these programs
since the dam failure. From 2019 to 2021, Samarco, or Vale and BHP, will provide to Fundação Renova funding
based on the amounts needed to implement the projects approved for each year, subject to an annual minimum
of R$800 million and an annual maximum of R$1.6 billion. Starting in 2022, Samarco will provide the necessary
funding in order to complete remaining programs approved for each year.
Additionally, Fundação Renova must allocate a minimum annual amount of R$240 million over 15 years (from
2016) to the implementation of compensation programs. Under the terms of the Framework Agreement,
Fundação Renova must spend an additional amount of at least R$500 million on sewage collection and treatment
and solid waste disposal.
For a discussion of the legal proceedings resulting from the failure of Samarco’s tailings dam, see Additional
information—Legal proceedings.
15
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 goods sold and services rendered ................
Selling, general, administrative and other operating
expenses, net .......................................................
Research and evaluation expenses ..........................
Pre-operating and operational stoppage ...................
Impairment and other results on non-current assets .
Operating income (loss) .............................................
Non-operating income (expenses):
Financial income (expenses), net ..............................
Equity results and other results in associates and
joint ventures ........................................................
Net income (loss) before income taxes .....................
Income taxes ..............................................................
Net income (loss) from continuing operations ...........
Net income (loss) attributable to non-controlling
interests ................................................................
Net income (loss) from continuing operations
attributable to Vale’s stockholders ........................
Net income (loss) from discontinued operations
attributable to Vale’s stockholders ........................
Net income (loss) attributable to Vale’s
stockholders ..........................................................
Net income (loss)attributable to non-controlling
interests ................................................................
Net income (loss) .......................................................
Total cash paid to stockholders(1) .............................
2014
35,124
(22,790)
(2,059)
(662)
(975)
(266)
8,372
(6,018)
440
2,794
(1,603)
1,191
(308)
1,499
(842)
657
(304)
353
4,200
For the year ended December 31,
2016
2015
2017
2018
23,384
(18,751)
(819)
(395)
(942)
(8,708)
(6,231)
(10,654)
(794)
(17,679)
5,249
(12,430)
(501)
(11,929)
(200)
(12,129)
(491)
(12,620)
1,500
(US$ million)
27,488
(17,650)
33,967
(21,039)
(774)
(319)
(453)
(1,240)
7,052
1,843
(911)
7,984
(2,781)
5,203
(8)
5,211
(1,229)
3,982
(6)
3,976
250
(951)
(340)
(413)
(294)
10,930
(3,019)
(82)
7,829
(1,495)
6,334
21
6,313
(806)
5,507
14
5,521
1,456
36,575
(22,109)
(968)
(373)
(271)
(899)
11,955
(4,957)
(182)
6,816
172
6,988
36
6,952
(92)
6,860
36
6,896
3,313
(1)
Consists of total cash paid to stockholders during the period, whether classified as dividends or interest on stockholders’ equity.
Earnings (loss) per share
The table below shows our earnings (loss) per share. The earnings (loss) per share for 2014 to 2016 have been
retrospectively adjusted to reflect the conversion of our Class A preferred shares into common shares, which was
concluded in November 2017, as if the conversion had occurred at the beginning of the earliest year presented.
Earnings (loss) per common share from continuing
operations .............................................................
Earnings (loss) per common share from
discontinued operations........................................
Earnings (loss) per common share............................
Weighted average number of shares outstanding (in
thousands)(1)(2) ...................................................
Distributions to stockholders per share(2)(3)
Expressed in US$ .................................................
Expressed in R$ ...................................................
2014
2015
2016
2017
2018
For the year ended December 31,
0.29
(0.16)
0.13
(US$, except as noted)
(2.30)
(0.03)
(2.33)
1.00
(0.23)
0.77
1.21
(0.16)
1.05
1.34
(0.02)
1.32
5,197,432
5,197,432
5,197,432
5,197,432
5,182,445
0.81
1.89
0.29
0.98
0.05
0.17
0.28
0.90
0.64
2.39
(1)
(2)
(3)
Each common ADS represents one common share.
Restated as if the conversion had occurred at the beginning of the earliest year presented.
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.
16
Balance sheet data
Current assets ............................................................
Non-current assets held for sale ................................
Property, plant and equipment, net and intangible
assets ....................................................................
Investments in associated companies and joint
ventures ................................................................
Non-current assets .....................................................
Total assets ................................................................
Current liabilities ........................................................
Liabilities associated with non-current assets held
for sale ..................................................................
Long-term liabilities(1)................................................
Long-term debt(2) ......................................................
Total liabilities.............................................................
Stockholders’ equity:
Capital stock .........................................................
Additional paid-in capital ............................................
Retained earnings and revenue reserves..................
Total Vale shareholders’ equity ............................
Non-controlling interests ............................................
Total stockholders’ equity ..........................................
Total liabilities and stockholders’ equity ....................
(1)
(2)
Excludes long-term debt.
Excludes current portion of long-term debt.
Selected Financial Data
2014
2015
As of December 31,
2017
2016
(US$ million)
2018
16,594
3,640
84,942
4,133
7,180
116,489
10,626
111
22,043
27,388
60,168
61,614
(601)
(5,891)
55,122
1,199
56,321
116,489
11,429
4,044
59,426
2,940
10,653
88,492
10,438
107
15,896
26,347
52,788
61,614
(854)
(27,171)
33,589
2,115
35,704
88,492
13,978
8,589
62,290
3,696
10,461
99,014
10,142
1,090
19,096
27,662
57,990
61,614
(851)
(21,721)
39,042
1,982
41,024
99,014
15,367
3,587
63,371
3,568
13,291
99,184
11,935
1,179
20,512
20,786
54,412
61,614
(1,106)
(17,050)
43,458
1,314
44,772
99,184
15,292
–
56,347
3,225
13,326
88,190
9,111
–
19,784
14,463
43,358
61,614
(1,122)
(16,507)
43,985
847
44,832
88,190
17
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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the impact of the tailings dam failure at the Córrego do Feijão mine and related remediation measures
on our operations, cash flows and financial position;
the outcome of the various regulatory, governmental and legal proceedings in which we are involved;
our direction and future operation;
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, supply and demand for commodities;
the future impact of competition and regulation;
the payment of dividends or interest on shareholders’ equity;
compliance with financial covenants;
industry trends, including the direction of prices and expected levels of supply and demand;
the implementation of our principal operating strategies, including our potential participation in
acquisition, divestiture or joint venture transactions or other investment opportunities;
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 (i) economic, political and social issues in the
countries in which we operate, (ii) the global economy, (iii) commodity prices, (iv) financial and capital markets,
(v) the mining and metals businesses, which are cyclical in nature, and their dependence upon global industrial
production, which is also cyclical, (vi) regulation and taxation, (vii) operational incidents or accidents, and (viii) 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.
18
RISK FACTORS
RISKS RELATING TO DAM FAILURE
The failure of Dam I in Minas Gerais has adversely affected our business, financial condition and
reputation, and the overall impact of the dam failure on us is still uncertain.
On January 25, 2019, Dam I failed, resulting in nearly 300 fatalities or presumed fatalities, in addition to personal,
property and environmental damages. See Business Overview—Failure of the tailings dam at the Córrego do
Feijão mine. The causes of the dam failure are uncertain and are being investigated by us and by several
governmental authorities. This event has adversely affected our operations, but the overall impact of the dam
failure is still uncertain.
•
•
Liabilities and legal proceedings. Our potential liabilities resulting from the dam failure are significant,
and the total amount cannot be estimated at this time. The dam failure resulted in fatalities and
property and environmental damages. We are a defendant in a number of legal proceedings, in which
plaintiffs claim significant amounts in damages resulting from the event. See Additional Information—
Legal proceedings and Operating and financial review and prospects—Impact of the failure of Dam I
at the Córrego do Feijão Mine. These liabilities may have a material adverse effect on our business
and financial condition.
Liquidity. Brazilian courts have ordered the freezing of more than R$17.6 billion (US$4.5 billion) of
our assets, including cash in our bank accounts, judicial deposits and common shares we held in
treasury. Additional assets may be attached in the future. These pre-judgment attachments and asset
freezes may adversely impact our business and liquidity.
• Suspension of operations. Following the dam failure, we have suspended various operations, which
will adversely impact our production and cash flows. We suspended our operations at the Córrego do
Feijão and Jangada mines immediately following the event. We temporarily suspended various
mining and pellet plant operations to be able to expedite the decommissioning of our upstream dams.
We also suspended operations in response to judicial injunctions and new determinations by ANM,
Brazil’s national mining agency. Other developments resulting from the failure of Dam I or questioning
the safety of our existing dams may result in the suspension of other operations. As of April 15, 2019,
the estimated impact of the suspension of operations following the dam failure on our production is
92.8 million metric tons per year, (including the estimated annual impact of the suspension of the
Brucutu mine), including the pellet feed needed for the production of 11 million metric tons of pellets
per year. As a result of the suspended operations, we may need to purchase iron ore and iron ore
pellets in the market to honor our obligations under existing commercial contracts, which may
increase our overall costs and adversely impact our business and financial condition. It is possible
that certain of these operations may not be resumed.
•
Increase in production costs. We may need to make investments or adjustments in the operations
not impacted by the dam failure to increase production, mitigate the impact of suspended operations
or comply with additional safety requirements. We may also have to use alternative disposal methods
to continue operating certain of our mines and plants, particularly those that rely on tailings dams.
These alternative methods may be more expensive or require significant capital investments in our
mines and plants. As a result, we expect our costs to increase, which may have a material adverse
effect on our business and financial condition.
19
Risk Factors
•
Increased taxation. We may be subject to new or increased taxes or other obligations to fund
remediation measures and compensate direct and indirect impacts of the failure of Dam I. Also, we
have entered into settlement agreements with the state of Minas Gerais and certain municipalities to
minimize the impact of the shutdown of some of our operations in state and municipal tax revenues.
Also, the state of Minas Gerais has proposed the adoption of a new fiscal framework, under which the
state would be entitled to collect from us an additional R$107 million per year on ICMS (a state tax on
the circulation of goods) starting in 2020. Retroactive amounts could also be applied over the last five
years, with an estimated impact of R$550 million on us.
• Additional regulation and restrictions on mining operations. Various governmental authorities have
proposed and approved new rules relating to licensing, use and operations of dams in response to
the Dam I failure. For instance, a new statute approved by the state of Minas Gerais in February 2019
precludes the use of upstream dams and imposes new obligations for design, construction and
operation of any other type of tailings dams. This new statute also provides for the full
decommissioning of any upstream tailings dam by February 2022, and a rule approved by ANM in
February 2019 requires us to fully decommission any inactive upstream tailings dam by August 2021
and any active upstream tailings dam by August 2023. New rules imposing restrictions on mining
operations and ancillary activities may be approved. The licensing process for our operations may
become longer and subject to more uncertainties. These additional laws and regulations may impose
restrictions on our operations, require additional investments or even require us to suspend additional
operations, which may adversely affect our business.
• Reserves. Developments resulting from the failure of Dam I, particularly new regulations applicable
to dam licensing and use and the ongoing proceedings and investigations involving the use of dams
in our mining operations, may result in decreases in our reported reserves or reclassification of
proven reserves as probable reserves. We continuously review the impact of new regulations,
proceedings and investigations on our reported reserves. These new regulations, proceedings and
investigations may impact our iron ore reserves and the reserves for other products the production of
which involve dams.
•
•
•
Inability to comply with additional safety requirements or to obtain required certifications. Rules on
dam safety are getting stricter following the dam failure. Also, external experts may be reluctant to
attest to the stability and safety of our dams, as a result of the uncertainties regarding the causes of
the Dam I failure and the increasing risks of liability. If any of our dams is unable to comply with the
safety requirements or if we are unable to obtain the required certification for any of our dams, we
may need to suspend operations, evacuate the area surrounding this dam, relocate communities and
take other emergency actions. These measures are costly, may adversely impact our business and
financial condition and cause further damage to our reputation.
Inability to pay dividends. Reduced cash flows and increased liabilities may adversely affect our
ability to pay dividends or make other distributions to our shareholders. Immediately after the dam
failure, our Board of Directors determined the suspension of our shareholder remuneration policy.
Increased funding requirements. We may need to raise funds in the financial markets to meet our
existing commitments and the potential liabilities and capital expenditures associated with the
remediation of environmental damages. We may not be able to obtain funds at acceptable costs.
20
Risk Factors
•
Increased cost of insurance. Our cost of insurance is expected to rise, and we may not be able to
obtain insurance for certain risks.
• Management attention. Since the date of the dam failure, attention of our senior management and
our Board of Directors is focused on the emergency actions and other measures in response to the
crisis and diverted from our core business.
• Management continuity. Following the dam failure, our CEO and our executive officer for Ferrous
Minerals and Coal requested temporary leave from their positions, following the recommendation of
Brazilian prosecutors. Other changes in our senior management may occur, which may have an
adverse effect on our business. A shareholders’ meeting is scheduled for April 30, 2019, and
shareholders may approve changes in the composition of our Board of Directors, which may result in
further changes to the composition of our senior management.
•
Impact on our financial performance. We expect the failure of Dam I to have a significant impact on
our financial performance. We have not yet determined the nature and amount of the consequences,
but they will include reduced revenues due to the suspension of operations, increased expenditures
for assistance and remediation, impairments of fixed assets, provisions for costs of decommissioning
and remediation, and provisions for legal proceedings. See Operating and financial review and
prospects—Impact of the failure of Dam I at the Córrego do Feijão Mine.
• Additional impacts. The overall consequences of the dam failure remain uncertain. The
contamination of the Paraopeba river and other water systems may affect the water supply of
surrounding cities. If our preventive measures fail to contain the tailings and debris flow, other rivers
may be contaminated, causing additional environmental damages. If the tailings and debris flow from
the failure of Dam I reach interstate rivers, we may be subject to additional proceedings and
investigations by federal authorities.
The failure of a tailings dam or similar structure may cause severe damages, and the decommissioning of
our upstream tailings dams may be long and costly.
We own a number of tailings dams and similar structures. In addition, we own stakes in companies that own a
number of dams or similar structures, including Samarco and Mineração Rio do Norte S.A. (MRN). The failure of
any of these structures could cause losses of lives and severe personal, property and environmental damages,
and could have adverse effects on our business and reputation, as evidenced by the consequences of the failure
of Dam I at Córrego do Feijão. See Business Overview—Failure of the tailings dam at the Córrego do Feijão
mine. Some of our dams, and some of the dams owned by our investees, such as Samarco and MRN, were built
using the “upstream” method, which presents specific stability risks.
Recently approved laws and regulations require us to decommission all of our upstream dams on a specified
timetable. We are still determining the appropriate measures for decommissioning each upstream dam. This
process will require significant expenditures, and the decommissioning process may take a long time. At this
point, we cannot estimate the costs and timing for conclusion of the decommissioning process. We may not be
able to conclude the decommissioning process for all of our upstream dams within the time-frame imposed by the
new laws and regulations.
21
Risk Factors
We are involved in legal proceedings that could have a material adverse effect on our business in the
event of unfavorable outcomes.
We are involved in legal proceedings in which adverse parties have sought injunctions to suspend certain of our
operations or claimed substantial amounts, including several legal proceedings and investigations relating to the
failure of our Dam I and the failure of Samarco’s Fundão tailings dam. The outcomes of these proceedings are
uncertain and may materially and adversely affect our business, our liquidity and the value of the securities issued
by us or our subsidiaries. See Additional information—Legal proceedings.
Our obligations and potential liabilities arising from the failure of a tailings dam owned by Samarco in
Minas Gerais could negatively impact our business, our financial conditions and our reputation.
In November 2015, the Fundão tailings dam owned by Samarco failed, causing fatalities and environmental
damage in the surrounding area. The failure of Samarco’s tailings dam has adversely affected and will continue to
affect our business, and the full impact is still uncertain and cannot be estimated. Below is a discussion of the
main effects of the dam failure on our business.
•
Legal proceedings. We are involved in multiple legal proceedings and investigations relating to the
failure of the Fundão tailings dam, and other proceedings and investigations may arise in the future.
These proceedings include securities class actions in the United States against us and some of our
officers, a criminal proceeding in Brazil, public civil actions brought by Brazilian authorities and
multiple proceedings involving claims for significant amounts of damages and remediation measures.
Adverse results in these proceedings may impact our liquidity and our financial condition. Brazilian
federal tax authorities have tried to assert that we may be liable for certain tax obligations of
Samarco, and other tax authorities or other creditors of Samarco may try to recover from us amounts
due by Samarco. See Additional information—Legal proceedings.
• Reparation obligations and other undertakings. In March 2016, Samarco and its shareholders (Vale
and BHPB) entered into the Framework Agreement with certain governmental authorities, pursuant to
which Samarco, Vale and BHPB agreed to create a foundation (Fundação Renova) to develop and
implement long-term remediation and compensation programs. Under the Framework Agreement,
these programs shall be reviewed within 3 years. In June 2018, Samarco, Vale and BHPB entered
into a comprehensive agreement with the offices of the federal and state (Minas Gerais and Espírito
Santo) prosecutors, public defenders and attorneys general, among other parties, in line with these
preliminary agreements and in order to improve the governance mechanism of Fundação Renova.
The comprehensive agreement established, among other things, a process for potential revisions to
the remediation programs provided under the Framework Agreement based on the findings of experts
hired by Samarco to advise the MPF over a two-year period. As Samarco is currently unable to
resume its activities, we and BHPB have been funding Fundação Renova to support certain
remediation measures undertaken by Samarco and also providing funds directly to Samarco, to
preserve its operations. At this point, we cannot predict when Samarco will resume its operations. If
Samarco is unable to resume operations or to generate sufficient cash flows to fund the remediation
measures required under these agreements, we will be required to continue funding these
remediation measures, which in turn may adversely affect our liquidity and financial conditions. See
Business overview—Failure of Samarco’s tailings dam in Minas Gerais.
22
Risk Factors
• Risk of additional environmental damages. Failure to contain the remaining tailings in Samarco’s
dams could cause additional environmental damages, additional impacts on our operations, and
additional claims, fines and proceedings against Samarco and against us. Failure to contain the
remaining tailings could also impact the feasibility and timing for the restart of Samarco’s operations.
• Other impacts. We may encounter delays in the receipt of environmental and other licenses for our
tailings dams and other facilities, and Brazilian authorities may impose more stringent conditions in
connection with the licensing process of our projects and operations. Also, as one of Samarco’s
shareholders, our reputation has been adversely affected by the failure of Samarco’s tailings dam.
EXTERNAL RISKS
Our business is exposed to the cyclicality of global economic activity and requires significant
investments of capital.
As a mining company, we are 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, preserve the environment, prevent fatalities and
occupational hazards and minimize social impacts. Sensitivity to industrial production, together with the need for
significant long-term capital investments, are important sources of risk for our financial performance and growth
prospects.
Also, we may not be able to adjust production volume in a timely or cost-efficient manner in response to changes
in demand. Lower utilization of 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 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. Conversely, 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 fines, iron ore pellets or nickel from joint ventures or unrelated
parties processing 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.
The prices for our products are subject to volatility, which may adversely affect our business.
Global prices for metals are subject to significant fluctuations and are affected by many factors, including actual
and expected global macroeconomic and political conditions, regional and sectorial factors, levels of supply and
demand, the availability and cost of substitutes, inventory levels, technological developments, regulatory and
international trade matters, investments by commodity funds and others and actions of participants in the
commodity markets. Sustained low market prices for the products we sell may result in the suspension of certain
of our projects and operations, decrease in our mineral reserves, impairment of assets, and may adversely affect
our cash flows, financial position and results of operations.
23
Risk Factors
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 73.8% of our 2018 net operating revenues, are used to produce carbon
steel. Nickel, which accounted for 8.8% of our 2018 net operating revenues, is used mainly to produce stainless
and alloy steels. 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.
We are mostly affected by movements in iron ore prices. For example, a price reduction of US$1 per dry metric
ton unit (“dmt”) in the average iron ore price would have reduced our operating income for the year ended
December 31, 2018 by approximately US$340 million. Average iron ore prices significantly changed in the last
five years, from US$97.0 per dmt in 2014, US$55.5 per dmt in 2015, US$58.5 per dmt in 2016, US$71.3 per dmt
in 2017 and US$69.5 per dmt in 2018, according to the average Platts IODEX (62% Fe CFR China). On
March 29, 2019, the year-to-date average Platts IODEX iron ore price was US$87.05 per dmt. See Operating and
financial review and prospects—Overview—Major factors affecting prices.
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 2018,
Chinese demand represented 72% of global demand for seaborne iron ore, 51% of global demand for nickel and
49% of global demand for copper. The percentage of our net operating revenues attributable to sales to
customers in China was 41.7% in 2018. 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.
Changes in exchange rates for the currencies in which we conduct operations could adversely affect our
financial condition and results of operations.
A substantial portion of our revenues, trade receivables and our debt is denominated in U.S. dollars, and given
that our functional currency is the Brazilian real, 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 2018, we had net foreign exchange
losses of US$2.247 million, while we had net foreign exchange losses of US$463 million in 2017 and net foreign
exchange gains of US$3.252 billion in 2016. In addition, changing values of the Brazilian real, the Canadian
dollar, the Euro, the Indonesian rupiah, the Chinese yuan and other currencies against the U.S. dollar affects our
results since most of our costs of goods sold is denominated in currencies other than the U.S. dollar, principally
the real (50.9% in 2018) and the Canadian dollar (5.4% in 2018), 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.
24
Risk Factors
FINANCIAL RISKS
Lower cash flows, resulting from suspension of operations or decreased prices of our products, may
adversely affect our credit ratings and the cost and availability of financing.
The suspension of operations or a decline in the prices of our products may adversely affect our future cash
flows, credit ratings and our ability to secure financing at attractive rates. It may also negatively affect our ability to
fund our capital investments, including disbursements required to remediate and compensate damages resulting
from the failure of Dam I, provide the financial assurances required to obtain licenses in certain jurisdictions, pay
dividends and comply with the financial covenants in some of our long-term debt instruments. See Operating and
financial review and prospects—Liquidity and capital resources.
POLITICAL, ECONOMIC, SOCIAL AND REGULATORY RISKS
Political, economic and social conditions in the countries in which we have operations or projects could
adversely impact our business.
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 political instability, bribery, cyber-attacks, extortion, corruption, robbery, sabotage,
kidnapping, civil strife, acts of war, guerilla activities, piracy in international shipping routes and terrorism. These
issues may adversely affect the economic and other conditions under which we operate in ways that could have a
materially negative effect on our business.
Political, social and economic instability in Brazil could adversely impact our business and the market
price of our securities.
The Brazilian federal government’s economic policies may have important effects on Brazilian companies,
including us, and on market conditions and prices of securities of Brazilian companies. Our financial condition and
results of operations may be adversely affected by the following factors and the Brazilian federal government’s
response to these factors:
•
•
•
•
•
•
•
exchange rate movements and volatility;
inflation and high interest rates;
financing of the current account deficit;
liquidity of domestic capital and lending markets;
tax policy;
pension, tax and other reforms;
political instability resulting from allegations of corruption involving political parties, elected officials or
other public officials; and
•
other political, diplomatic, social and economic developments in or affecting Brazil.
25
Risk Factors
Historically, the country’s political situation has influenced the performance of the Brazilian economy, and political
crises have affected the confidence of investors and the general public, which resulted in economic deceleration,
downgrading of credit ratings of the Brazilian government and Brazilian issuers, and heightened volatility in the
securities issued abroad by Brazilian companies. Political instability may aggravate economic uncertainties in
Brazil and increase volatility of securities of Brazilian issuers.
Brazil held presidential and federal and state legislative elections in October 2018. We cannot predict whether the
new administration will result in changes in Brazilian governmental and economic policies or in the Brazilian
mining industry.
In the last years, Brazil faced an economic recession, adverse fiscal developments and political instability.
Brazilian GDP grew by 1.1% in 2018 and 1.1% in 2017 but declined by 3.6% in 2016. Unemployment rate was
12.3% in 2018, 12.7% in 2017 and 11.5% in 2016. Inflation, as reported by the consumer price index (IPCA), was
3.75% in 2018, 2.95% in 2017 and 6.29% in 2016. The Brazilian Central Bank’s base interest rate (SELIC) was
3.5% on December 31, 2018, 7.00% on December 31, 2017 and 13.75% on December 31, 2016. Future
economic, social and political developments in Brazil may impair our business, financial condition or results of
operations, or cause the market value of our securities to decline.
Disagreements with local communities could adversely impact our business and reputation.
Disputes with communities where we operate may arise from time to time. Accidents or incidents involving mines,
industrial facilities and related infrastructure, such as the failure of Dam I, may significantly impact the
communities where we operate. In some instances, our operations and mineral reserves are located on or near
lands owned or used by indigenous people or other groups of stakeholders. 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, organized social
movements, local communities and the government. In some jurisdictions, we may be required to consult and
negotiate with these groups as part of the process to obtain licenses required to operate, to mitigate impact on our
operations or to obtain access to their lands. Disagreements or disputes with local communities and groups,
including indigenous groups, organized social movements and local communities, could cause delays in obtaining
licenses, increases in planned budget, delays or interruptions to our operations. These issues may adversely
affect our reputation or otherwise hamper our ability to develop our reserves and conduct our operations. See
Information on the Company—Regulatory matters and Additional information—Legal proceedings.
We could be adversely affected by changes in government policies or by trends such as resource
nationalism, including the imposition of new taxes or royalties on mining activities.
Mining is subject to government regulation, including taxes and royalties, which can have a significant financial
impact on our operations. In the countries where we are present, we are subject to potential renegotiation,
nullification or forced modification of existing contracts and licenses, expropriation or nationalization of property,
foreign exchange controls, changes in local laws, regulations and policies and audits and reassessments. We are
also subject to new taxes or raising of existing taxes and royalty rates, reduction of tax exemptions and benefits,
renegotiation of tax stabilization agreements or changes on 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 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. See Information on the Company—Regulatory matters and Additional information—Royalties and other
taxes on mining activities.
26
Risk Factors
We are also required to meet domestic beneficiation requirements in certain countries, such as local processing
rules, export taxes or restrictions or charges on unprocessed ores. The imposition of or increase in such
requirements, 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.
As a supplier of iron ore, nickel and other raw materials to the global integrated steel industry, we are subject to
additional risk from the imposition of duties, tariffs, import and export controls and other trade barriers impacting
our products and the products our customers produce. Global trade is subject to a growing trend of increased
trade barriers, which could exacerbate commodities’ price volatility and in turn result in instability in the prices of
our products.
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.
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, operation and closure of our mines and related logistics infrastructure, which may be
subject to fixed expiration dates or periodic review or renewal. There is no assurance that renewals will be
granted as and when sought, 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 may render our business objectives not viable. 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 are 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
Information on the Company—Regulatory matters.
OPERATIONAL RISKS
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. We regularly
review the economic viability of our projects. As a result of this review, we may decide to
27
Risk Factors
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 not be able to obtain financing at attractive rates.
• 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 or renew the required permits and licenses to build a project, or we may
experience delays or higher than expected costs in obtaining or renewing 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.
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, industrial facilities and related infrastructure, such as
dams, plants, railway and railway bridges, 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 operations
or projects are located, which pose health and safety risks to our employees.
28
Risk Factors
•
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.
• Failure to obtain the renewal of required permits and licenses, or delays or higher than expected
costs in obtaining them.
• 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 or unavailability of certain critical assets or
infrastructure.
We rely on certain critical assets and infrastructure to produce and to transport our products to our customers.
These critical assets include mines, industrial facilities, ports, railways, roads and bridges. The failure or
unavailability of any critical asset, whether resulting from natural events or operational issues, could have a
material adverse effect on our business.
Substantially all of our iron ore production from the Northern system is transported from Carajas, in the Brazilian
state of Pará, to the port of Ponta da Madeira, in the Brazilian state of Maranhão, through the Carajás railroad
(EFC). Any interruption of the Carajás railroad or of the port of Ponta da Madeira could significantly impact our
ability to sell our production from the Northern system. With respect to the Carajás railroad, there is particular risk
of interruption at the bridge over the Tocantins river, in which the trains run on a single line railway. In the port of
Ponta da Madeira, there is particular risk of interruption at the São Marcos access channel, a deep-water channel
that provides access to the port. Also, any failure or interruption of our long distance conveyor belt (TCLD) used to
transport our iron ore production from the S11D mine to the beneficiation plant, could adversely impact our
operations at the S11D mine.
Our business could be adversely affected by the failure of our counterparties, joint venture partners or
joint ventures we do not control to perform their obligations.
Customers, suppliers, contractors, financial institutions, joint venture partners 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.
Important parts of our iron ore, pelletizing, nickel, coal, copper, energy and other businesses are held through
joint ventures. This may reduce our degree of control, as well as our ability to identify and manage risks. 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.
Some of our investments are controlled by partners or have separate and independent management. These
investments may not fully comply with our standards, controls and procedures, including our health, safety,
environment and community standards. Failure by any of our partners or joint ventures to adopt adequate
standards, controls and procedures could lead to higher costs, reduced production or
29
Risk Factors
environmental, health and safety incidents or accidents, which could adversely affect our results and reputation.
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 have impact on people,
assets and the environment. 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 damages,
damages resulting from dams breaches, spills or leakage of hazardous substances and 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 may not be covered by insurance, and
could have a material adverse effect on our operations.
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.
Higher energy costs or energy shortages would adversely affect our business.
Costs of fuel oil, gas and electricity are a significant component of our cost of production, representing 11.1% of
our total cost of goods sold in 2018. To fulfill our energy needs, we rely on the following sources: oil byproducts,
which represented 31% of total energy needs in 2018, electricity (31%), natural gas (17%), coal (17%) and other
energy sources (4%).
Electricity costs represented 4.1% of our total cost of goods sold in 2018. 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, especially Brazil, due to lack of infrastructure
or weather conditions, such as floods or droughts. Future shortages, and government efforts to respond to or
prevent shortages, may adversely impact the cost or supply of electricity for our operations.
Failures in our information technology, operational technology, cybersecurity and telecommunications
systems may adversely affect our business and reputation.
We rely heavily on information technology, operational technology and telecommunications systems for the
operation of many of our business processes. Failures in those systems, whether caused by obsolescence,
technical failures, negligence, accident or malicious acts, may result in the disclosure or theft of sensitive
information, misappropriation of funds and disruptions to or interruption in our business operations. We may be
the target of attempts to gain unauthorized access to information technology and operational technology systems
through the internet, including sophisticated and coordinated attempts often referred to as advanced persistent
threats. Disruption of critical information technology, operational technology, cybersecurity or telecommunications
systems, or breaches of
30
information security, may harm our reputation and have a material adverse effect on our operational performance,
earnings and financial condition.
Risk Factors
HEALTH, SAFETY AND ENVIRONMENTAL RISKS
Our business is subject to environmental, health and safety incidents.
Our operations involve the use, handling, storage, discharge and disposal of hazardous substances into the
environment and the use of natural resources, resulting in significant risks and hazards, including fire, explosion,
toxic gas leaks, spilling of polluting substances or other hazardous materials, rockfalls, incidents involving dams,
failure of other operational structures, as well as activities involving mobile equipment, vehicles or machinery and
other potentially fatal incidents and accidents. Incidents may occur due to deficiencies in identifying and
assessing risks or in implementing sound risk management, and once these risks materialize, they could result in
significant environmental and social impacts, damage to or destruction of mines or production facilities, personal
injury, illness and fatalities, involving employees, contractors or community members near our operations, as well
as delays in production, monetary losses and possible legal liability. Additionally, in remote localities, our
employees may be exposed to tropical and contagious diseases that may affect their health and safety.
Notwithstanding our standards, policies, controls and monitoring procedures, our operations remain subject to
incidents or accidents that could adversely impact our business, stakeholders or reputation.
Our business may be adversely affected by social, environmental and health and safety regulation,
including regulations pertaining to climate change.
Nearly all aspects of our activities, products and services associated with capital projects and operations around
the world are subject to social, environmental and health and safety regulations, which may expose us to
increased liability or increased costs. These regulations require us to have environmental licenses, permits and
authorizations for our operations and projects, and to conduct environmental and social impact assessments in
order to get approval for our projects and permission for initiating construction and continuing operating.
Significant changes to existing operations are also subject to these requirements. Difficulties in obtaining or
renewing permits may lead to construction delays, cost increases, and may adversely impact our production
volumes. Social, environmental and health and safety regulations also impose standards, procedures and
monitoring controls on activities relating to mineral research, mining, beneficiation, pelletizing activities, railway
and marine services, ports, decommissioning, distribution and marketing of our products. Such regulation may
give rise to significant costs and liabilities. Litigation relating to these or other related matters may adversely affect
our financial condition or cause harm to our reputation.
Social, environmental and health and safety regulations in many countries in which we operate have become
stricter in recent years, and it is possible that more regulation or more stringent 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 and labor authorizations, resulting in licensing
and operation delays, raising our costs or requiring us to engage in expensive reclamation efforts.
In response to the failure of Dam I, additional environmental and health and safety laws and regulations have
been approved, and other may be forthcoming, and authorities may impose more stringent conditions in
connection with the licensing process of our projects and operations. We will encounter more stringent
requirements for and delays in the receipt of environmental operating license for other tailings dams.
31
Risk Factors
National policies and international regulations regarding climate change may affect a number of our businesses in
various countries. The ratification of the Paris Agreement in 2016 increased international pressure for the
establishment of a global carbon price, and on companies to adopt carbon pricing strategies. The pricing of
greenhouse gas emissions may impact our operational costs, mainly through higher price for fossil fuels as
mining is an energy intensive industry, and our cost of international freight. In particular, consumption of thermal
coal, one of the products we sell, is facing pressure from international institutions due to its carbon intensity.
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. Regulations, mainly from the European Union and China,
may impose additional requirements for our products related to the safety of downstream users.
Natural disasters may cause severe damage to our operations and projects in the countries where we
operate and may have a negative impact on our sales to countries 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 uncertain, but we are likely to
experience changes in rainfall patterns, increased temperatures, water shortages, rising sea levels, increased
storm frequency and intensity as a result of climate change, which may adversely affect our operations. On some
occasions in recent years, we have determined that force majeure events have occurred due to the effect of
severe weather on our mining and logistics activities.
RISKS RELATING TO OUR MINING RESERVES
Our reserve estimates may materially differ from mineral quantities that we are actually able to recover;
our estimates of mine life may prove inaccurate; more stringent regulations 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
and legally 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, 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, projects,
updated exploration drilling data and other factors. Lower market prices of minerals and metals, more stringent
regulations, 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 reduction of reserves. Also, our inability to obtain licenses for new
operations, supporting structures or activities, or to renew our existing licenses, can cause a reduction of our
reserves. Such a reduction could affect depreciation and amortization rates and have an adverse effect on our
financial performance.
32
Risk Factors
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.
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 and 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 may 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 greater 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 tailings 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.
33
Risk Factors
RISKS RELATING TO OUR CORPORATE STRUCTURE
The shareholders that are party to our shareholders’ agreement have significant power over Vale.
On August 14, 2017, Litel Participações S.A. (“Litel”), Bradespar S.A. (“Bradespar”), Mitsui & Co., Ltd. (“Mitsui”)
and BNDES Participações S.A. (“BNDESPAR”) entered into a shareholders’ agreement pursuant to which they
undertook to vote jointly on certain key matters (the “Shareholders’ Agreement”). The Shareholders’ Agreement is
expected to expire on November 9, 2020. See Share ownership and trading—Major shareholders. On
December 31, 2018, Litel, Bradespar, Mitsui and BNDESPAR together held 39.03% of our total capital stock. As
long as no other shareholder or group of shareholders owns more shares than the parties to the Shareholders’
Agreement, these major shareholders may elect a majority of the members of our Board of Directors and control
the outcome of certain actions requiring shareholder approval.
The Brazilian Government has certain veto rights.
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 golden shares.
Our governance and compliance processes may fail to prevent breaches of legal, accounting or
governance standards.
We operate in a global environment, and our activities extend over multiple jurisdictions and complex regulatory
frameworks, with increasing enforcement activities worldwide. Our governance and compliance processes, which
include the review of internal control over financial reporting, may not timely identify or prevent future breaches of
legal, accounting or governance standards. We may be subject to breaches of our code of ethical conduct,
anti-corruption policies 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 investigations by authorities, litigation, fines, loss of operating licenses,
disgorgement of profits, involuntary dissolution and reputational harm.
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. We are 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 foreign investors. It might
not be possible for investors outside Brazil 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 final conclusive 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 (STJ—Superior Tribunal de Justiça), and confirmation will
only be granted if the foreign judgment: (i) fulfills all formalities required for its enforceability under the laws of the
country where it was issued; (ii) was issued by a competent court after due service of process on the defendant,
as required under
34
Risk Factors
applicable law; (iii) is not subject to appeal; (iv) does not conflict with a final and unappealable decision issued by
a Brazilian court; (v) was authenticated by a Brazilian consulate in the country in which it was issued or is duly
apostilled in accordance with the Convention for Abolishing the Requirement of Legalization for Foreign Public
Documents and is accompanied by a sworn translation into Portuguese, unless this procedure was exempted by
an international treaty entered into by Brazil; (vi) it does not cover matters subject to the exclusive jurisdiction of
the Brazilian courts; and (vii) 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 exchange ADSs for the underlying shares, they risk losing the ability to remit foreign
currency abroad.
The custodian for the shares underlying our ADSs maintains a registration with the Central Bank of Brazil
permitting qualifying institutional foreign investors to buy and sell securities on the B3 and entitling the custodian
to remit U.S. dollars outside Brazil for payments of dividends and other distributions relating to the shares
underlying our ADSs or upon the disposition of the underlying shares. If an ADR holder exchanges its ADSs 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 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
applicable regulation. See Additional information—Exchange controls and other limitations affecting security
holders. If an ADR 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, the disposition of the underlying shares or the repatriation of the
proceeds from disposition could be imposed in the future.
ADR holders may not have all the rights of our shareholders, and may be unable to exercise preemptive
rights relating to the shares underlying their ADSs.
ADR holders may not have the same rights that are attributed to our shareholders by Brazilian law or our bylaws,
and the rights of ADR holders may be subject to certain limitations provided in the deposit agreement or by the
securities intermediaries through which ADR holders hold their securities. Also, the ability of ADR 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) 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. We are not
obligated to extend the offer of preemptive rights to holders of ADRs, 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.
35
Risk Factors
ADR holders may encounter difficulties in the exercise of voting rights.
ADR 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 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 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 our parent company 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.
36
II. INFORMATION ON THE COMPANY
LINES OF BUSINESS
Our principal lines of business consist of mining and related logistics. This section presents information about
operations, production, sales and competition and is organized as follows.
1. Ferrous minerals
3. Coal
3.1 Operations
3.2 Production
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
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 Manganese ore and ferroalloys
1.2.1 Manganese ore operations and production
1.2.2 Ferroalloys operations and production
1.2.3 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
37
38
1.
FERROUS MINERALS
Our ferrous minerals business includes iron ore mining, iron ore pellet 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, and through our subsidiaries Mineração Corumbaense Reunida S.A.
(“MCR”) and Minerações Brasileiras Reunidas S.A.—MBR (“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 and shipping capabilities. We also
conduct mining operations in the Midwestern System and we have a 50% stake in Samarco. Samarco’s operations have been suspended following the
failure of one of its tailings dams located in Minas Gerais in November 2015 (see Business overview—Failure of Samarco’s tailings dam in Minas Gerais).
We conduct each of our iron ore operations in Brazil under concessions from the federal government granted for an indefinite period, subject to the life of
the mines.
Company/Mining System
Location
Description/History
Mineralization
Operations
Power source
Access/Transportation
Vale
Northern System .................. Carajás, state of
Pará
High-grade hematite ore type
(iron grade of more than 65% on
average).
Divided into Serra Norte, Serra
Sul and Serra Leste (Northern,
Southern and Eastern ranges).
Since 1984, we have been
conducting mining activities in the
northern range, which is divided
into three main mining areas
(N4W, N4E and N5) and two
major beneficiation plants. In
2014, we started a mine and
beneficiation plant in Serra Leste.
Our operations in Serra Sul,
where our S11D mine is located,
started in 2016.
Southeastern System...........
Iron Quadrangle,
state of Minas
Gerais
Three mining complexes: Itabira
(two mines, with three major
beneficiation plants), Minas
Centrais (two mines, with two
major beneficiation plants and
one secondary plant) and
Mariana (three mines, with two
major beneficiation plants).
Ore reserves with high ratios of
itabirite ore relative to hematite
ore type. Itabirite ore type has
iron grade of 35-60%. Part of
the ore is concentrated to
achieve shipping grade and part
is shipped and blended in Asia
with the high-grade ore from our
Northern System.
39
Supplied through the
national electricity grid.
Produced directly by Vale or
acquired through power
purchase agreements.
Carajás railroad (EFC)
transports the iron ore to the
Ponta da Madeira maritime
terminal in the Brazilian state of
Maranhão. Serra Leste iron ore
is transported by trucks from the
mine site to EFC railroad. The
Serra Sul ore is shipped via the
new 101-kilometers long
railroad spur to the EFC
railroad.
Supplied through the
national electricity grid.
Produced directly by Vale or
acquired through power
purchase agreements.
EFVM railroad connects these
mines to the Tubarão port.
Open-pit mining operations. In
Serra Norte, one of the major
plants applies the natural
moisture beneficiation process,
consisting of crushing and
screening, and the other applies
both the natural moisture and the
wet beneficiation process in
distinct lines. The wet
beneficiation process consists
simply of sizing operations,
including screening,
hydrocycloning, crushing and
filtration. Output from this site
consists of sinter feed, pellet feed
and lump ore. Serra Leste and
Serra Sul natural moisture
beneficiation process consists of
crushing and screening. Serra
Sul produces only sinter feed and
Serra Leste produces mainly
sinter feed.
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 complexes. For status of
halted operations see Business
overview—Failure of the tailings
dam at the Córrego do Feijão
mine.
Lines of Business
Company/Mining System
Location
Description/History
Mineralization
Operations
Power source
Access/Transportation
Southern System ...................
Iron Quadrangle,
state of Minas
Gerais
Three major mining complexes:
Minas Itabirito (four mines and
three major beneficiation plants);
Vargem Grande (three mines
and two major beneficiation
plants); and Paraopeba (five
mines and two major
beneficiation plants).
Ore reserves with high ratios of
itabirite ore type relative to
hematite ore type. Itabirite ore
has iron grade of 35-60%. Part
of the ore is concentrated to
achieve shipping grade and part
is shipped and blended in Asia
with the high-grade ore from our
Northern System.
Midwestern System ................ State of Mato
Grosso do Sul
Two mines and two plants
located in the city of Corumbá.
Hematite ore type, which
generates lump ore
predominantly. Iron grade of
62% on average.
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 complexes. For status
of halted operations see
Business overview—Failure of
the tailings dam at the Córrego
do Feijão mine.
Open-pit mining operations. The
beneficiation process for the
run-of-mine consists of standard
crushing and classification steps,
producing lump ore and sinter
feed.
Supplied through the
national electricity grid.
Produced directly by Vale
or acquired through power
purchase agreements.
MRS transports our iron ore
products from the mines to our
Guaíba Island and Itaguaí
maritime terminals in the
Brazilian state of Rio de
Janeiro. EFVM railroad
connects certain mines to the
Tubarão port.
Supplied through the
national electricity grid.
Acquired through power
purchase agreements.
Transported by barges traveling
along the Paraguay and Paraná
rivers to transhippers at the
Nueva Palmira port in Uruguay,
or delivered to customers at
Corumbá.
40
1.1.2
Iron ore production
The following table sets forth information about our iron ore production.
Lines of Business
Mine/Plant
Southeastern System
Itabira ......................................................................................................
Minas Centrais ........................................................................................
Mariana ...................................................................................................
Total Southeastern System ...............................................................
Southern System
Minas Itabirito..........................................................................................
Vargem Grande ......................................................................................
Paraopeba ..............................................................................................
Total Southern System ......................................................................
Northern System
Serra Norte .............................................................................................
Serra Leste .............................................................................................
Serra Sul .................................................................................................
Total Northern System ......................................................................
Midwestern System
Corumbà .................................................................................................
Urucum ...................................................................................................
Total Midwestern System ..................................................................
Total .............................................................................................................
Type
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
Production for the year ended December 31,
2017
(million metric tons)
2018(1)
2016
33.4
40.9
28.4
102.7
40.1
29.2
26.4
95.7
143.6
4.2
0.4
148.1
1.9
0.4
2.3
348.8
37.8
37.6
33.1
108.6
36.8
23.3
26.3
86.4
142.7
4.3
22.2
169.2
2.4
0.0
2.4
366.5
41.7
36.0
26.7
104.4
35.5
21.4
27.3
84.1
131.5
4.1
58.0
193.6
2.5
0.0
2.5
384.6
2018
process
recovery(2)
(%)
50
64
81
82
68
98
95
100
100
72
(1) Production figures include third-party ore purchases, run of mine and feed for pelletizing plants.
(2) Percentage of the run-of-mine recovered in the beneficiation process. Process recovery figures do not include third-party ore purchases.
41
1.1.3
Iron ore pellet operations
We produce iron ore pellets in Brazil and Oman, directly and through joint ventures, as set forth in the table
below. We also have a 25% interest in two iron ore pelletizing plants in China, Zhuhai YPM Pellet Co., Ltd.
(“Zhuhai YPM”) and Anyang Yu Vale Yongtong Pellet Co., Ltd. (“Anyang”). Our total estimated nominal capacity is
64.7 Mtpy, including the full capacity of our pelletizing plants in Oman, but not including our joint ventures
Samarco, Zhuhai YPM and Anyang. We supply all of the iron ore requirements of our wholly owned pellet plants
and part of the iron ore requirements for Zhuhai YPM. In 2018, we sold 102 thousand metric tons of pellet feed to
Zhuhai YPM.
Lines of Business
42
Company/Plant
Description/History
Nominal capacity
(Mtpy)
Power source
Other information
Vale’s equity
interest (%)
Partners
Lines of Business
Brazil:
Vale
Tubarão (state of
Espírito Santo) .....
Fábrica (state of
Minas Gerais).......
Vargem Grande
(state of Minas
Gerais) .................
São Luís (state of
Maranhão) ............
Oman:
Vale Oman
Pelletizing
Company LLC ......
Three wholly owned pellet plants
(Tubarão I, II and VIII) and five
leased plants (Itabrasco,
Hispanobras, Kobrasco and two
Nibrasco plants). These plants
receive iron ore primarily from our
Southeastern System mines and use
our logistics infrastructure for
distribution.
Part of the Southern System.
Receives iron ore from the Minas
Itabirito mining complex, more
specifically from João Pereira and
Segredo mines. Production is mostly
transported by MRS and EFVM.
Part of the Southern System.
Receives iron ore from the Minas
Itabirito and Vargem Grande mining
complexes, more specifically from
Sapecado, Galinheiro, Capitão do
Mato and Tamanduá mines.
Production is mostly transported by
MRS.
Part of the Northern System.
Receives iron ore from the Carajás
mines. Production is shipped to
customers through our Ponta da
Madeira maritime terminal.
Vale’s industrial complex. Two pellet
plants with a total nominal capacity
of 9.0 Mtpy. The pelletizing plants
are integrated with our distribution
center that has a nominal capacity of
40.0 Mtpy.
36.7(1)
Supplied through the national
electricity grid. Produced directly by
Vale or acquired through power
purchase agreements.
Operations at the Tubarão I and
Tubarão II pellet plants started up in
the first half of 2018 in response to
market conditions. Operations at
these plants had been suspended
since 2012.
100.0
–
4.5
7.0
7.5
9.0
Supplied through the national
electricity grid. Produced directly by
Vale or acquired through power
purchase agreements.
Supplied through the national
electricity grid. Produced directly by
Vale or acquired through power
purchase agreements.
100.0
100.0
Operations at the Fábrica plant have
been suspended since February
2019, following a determination of
the ANM (see Business overview—
Failure of the tailings dam at the
Córrego do Feijão mine).
Operations at the Vargem Grande
plant have been suspended since
February 2019, following a
determination of the ANM (see
Business overview—Failure of the
tailings dam at the Córrego do Feijão
mine).
Supplied through the national
electricity grid. Produced directly by
Vale or acquired through power
purchase agreements.
Operation at the São Luís plant
restarted in the second half of 2018
in response to market conditions.
Operations at this plant had been
suspended since 2012.
100.0
–
–
–
Supplied through the national
electricity grid.
Oman plants are supplied by iron ore
from the Iron Quadrangle state of
Minas Gerais through the Tubarão
port and by iron ore from Carajás
through the Ponta da Madeira
maritime terminal.
70.0
Oman Oil
Company S.A.O.C.
(1) Our environmental operating licenses for the Tubarão pellet plants provide for a capacity of 36.2 Mtpy.
43
Lines of Business
1.1.4
Iron ore pellets production
The following table sets forth information about our main iron ore pellet production.
Company
Vale(1) .............................................................................................
Total .............................................................................................
Production for the year ended December 31,
2017
2018
2016
(million metric tons)
46.2
46.2
50.3
50.3
55.3
55.3
(1) Figure indicates actual production, including full production from our pellet plants in Oman and the five pellet plants we lease in Brazil. The operating leases
for the Itabrasco, Nibrasco and Hispanobras pellet plants expire in 2019, and the operating leases for the Kobrasco pellet plant expire in 2033.
1.1.5 Customers, sales and marketing
We supply all of our iron ore and iron ore pellets 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 2018, China accounted for 56% of our iron ore and iron ore pellet shipments, and Asia as a whole accounted
for 70%. Europe accounted for 22%, followed by Brazil with 8%. Our ten largest customers collectively purchased
146 million metric tons of iron ore and iron ore pellets from us, representing 40% of our 2018 iron ore and iron ore
pellet sales volumes and 39% of our total iron ore and iron ore pellet revenues. In 2018, no individual customer
accounted for more than 7% of our iron ore and iron ore pellet shipments.
Of our 2018 pellet production, 54% was blast furnace pellets and 46% was direct reduction pellets. Blast furnace
and direct reduction are different technologies employed by steel mills to produce steels, each using different
types of pellets. In 2018, the Asian market (mainly Japan), the European market and the Brazilian market were
the primary markets for our blast furnace pellets, while the Middle East and North America were the primary
markets for our direct reduction pellets.
We invest in customer service in order to improve our competitiveness. We work with our customers to
understand their 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 improve our competitiveness in relation to competitors that may be more conveniently
located geographically. In addition to offering technical assistance to our customers, we have offices in St. Prex
(Switzerland), Tokyo (Japan), Singapore, Dubai (UAE) and Shanghai (China), which support global sales by Vale
International, and an office in Brazil, which supports sales to South America. 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.
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. Our pricing is generally linked to market price indexes
and uses a variety of mechanisms, including current spot prices and average prices over specified
44
Lines of Business
periods. In cases where the products are priced before the final price is determinable at delivery, we recognize
the sale based on a provisional price with a subsequent adjustment reflecting the final price.
In 2018, we hedged part of our total exposure to bunker oil prices relating to our owned fleet and long-term
contracts of affreightment connected to our FOB and CFR international and domestic sales. The 2018 hedge
program was settled in 2018.
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.
• Asia - Our main competitors in the Asian market are located in Australia and include subsidiaries and
affiliates of BHP, Rio Tinto Ltd (“Rio Tinto”) and Fortescue Metals Group Ltd. 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
content 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. 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. We rely on long-term contracts of affreightment to secure transport capacity and
enhance our ability to offer our products in the Asian market at competitive prices on a CFR basis,
despite higher freight costs compared to Australian producers. To support our commercial strategy for
our iron ore business, we operate two distribution centers, one in Malaysia and one in Oman and we
have long-term agreements with sixteen ports in China, which also serve as distribution centers. In
2015, we launched the Brazilian blend fines (BRBF), a product resulting from blending fines from
Carajás, which contain a higher concentration of iron and a lower concentration of silica in the ore,
with fines from the Southern and Southeastern Systems, which contain a lower concentration of iron
in the ore. In August 2018, Metal Bulletin launched a new index, the 62% Fe low-alumina index,
which is based on our BRBF. During the remainder of 2018, the 62% Fe low-alumina index traded
with a premium of US$4.50 per dmt over the 62% Fe index. The resulting blend offers strong
performance in any kind of sintering operation. It is produced in our Teluk Rubiah Maritime Terminal
in Malaysia and in sixteen distribution centers in China, which reduces the time to reach Asian
markets and increases our distribution capillarity by using smaller vessels.
• Europe - Our main competitors in the European market are Luossavaara Kiirunavaara AB (“LKAB”),
ArcelorMittal Mines Canada Inc., Iron Ore Company of Canada, a subsidiary of Rio Tinto., Kumba
Iron Ore Limited and Société Nationale Industrielle et Miniére. 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.
• Brazil - The Brazilian iron ore market is also competitive and includes several small iron ore
producers. Some steel companies, including Gerdau S.A. (“Gerdau”), Companhia Siderúrgica
Nacional (“CSN”), Vallourec Tubos do Brasil S.A., 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.
45
With respect to pellets, our major competitors are LKAB, Iron Ore Company of Canada, Ferrexpo Plc, Arcelor
Industrial
Mittal Mines Canada (former Quebec Cartier Mining Co.) and Bahrain Steel (former Gulf
Investment Co.).
Lines of Business
1.2
Manganese ore and ferroalloys
1.2.1 Manganese ore operations and production
We conduct our manganese mining operations in Brazil through Vale S.A. and our wholly owned subsidiaries
Vale Manganês S.A. (“Vale Manganês”) and MCR. Our mining operations are carried out under concessions from
the federal government granted for an indefinite period. Our mines produce metallurgical ore, used primarily for
the production of manganese ferroalloys, a raw material used to produce carbon and stainless steel.
Mining
complex
Azul ........................................................ Vale S.A.
Company
Location
Description/History Mineralization Operations
State of Pará Open-pit mining
operations and
on-site beneficiation
plant.
High- and
medium-grade
oxide-ores
(24-46%
manganese
grade).
Crushing,
scrubbing
and
classification
steps,
producing
lumps and
fines.
Morro da Mina ........................................ Vale
Manganês
State of
Minas Gerais
Open-pit mining
operations and
concentration plant.
Urucum ................................................... MCR
State of Mato
Grosso do
Sul
Underground mining
operations and
on-site beneficiation
plant.
Medium- and
low-grade
silicocarbonate
ores (an
average
content of 30%
manganese
grade).
High-and
medium-grade
oxide ores (an
average
content of 46%
manganese
grade).
Crushing,
screening
and
dense-heavy
medium
separation
DMS / HMS
process
producing
lumps to the
Barbacena
and Ouro
Preto
ferroalloy
plants.
Crushing,
scrubbing
and
classification
steps,
producing
lumps and
fines.
Access/
Transportation
Manganese ore
is transported
by truck and
EFC railroad to
the Ponta da
Madeira
maritime
terminal.
Power
source
Supplied
through the
national
electricity
grid.
Produced
directly by
Vale or
acquired
through
power
purchase
agreements.
Supplied
through the
national
electricity
grid. Acquired
from regional
utility
companies.
Manganese ore
is transported
by truck to the
Barbacena and
Ouro Preto
ferroalloy
plants.
Supplied
through the
national
electricity
grid. Acquired
through
power
purchase
agreements.
Manganese ore
is transported
by barge
traveling along
the Paraguay
and Paraná
rivers to
transhippers at
the Nueva
Palmira port in
Uruguay.
46
Lines of Business
The following table sets forth information about our manganese ore production, obtained after beneficiation
process, and mass recovery.
Mine
Type
2016
Production for the year ended December 31,
2017
(million metric tons)
2018
Azul ........................................................
Morro da Mina ........................................
Urucum ................................................... Underground
Total .....................................................
Open pit
Open pit
1.7
0.0
0.7
2.4
1.4
0.1
0.7
2.2
2018
process
recovery(1)
(%)
43
82
79
1.0
0.1
0.7
1.8
(1) Percentage of the run-of-mine recovered in the beneficiation process.
1.2.2 Manganese ferroalloys operations and production
We conduct our manganese ferroalloys business through our wholly owned subsidiary Vale Manganês. The
production of manganese ferroalloys consumes significant amounts of electricity, which is provided through power
purchase agreements.
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 seven furnaces,
two of which are refining furnaces
and a briquetting plant. Ouro
Preto has three furnaces, two of
which are currently not operating
due to market conditions.
Bahia Plant ................................................. City of Simões Filho
Four furnaces, two converters and
a sintering plant.
Supplied through the
national electricity grid.
Acquired from Furnas—
Centrais Elétricas S.A. or
through power purchase
agreements.
Supplied through the
national electricity grid.
Acquired from
Companhia Hidrelétrica
do São Francisco
(CHESF) or through
power purchase
agreements.
Barbacena: 66,000
metric tons per year
(54,000 metric tons per
year of ferro-silicon
manganese and 12,000
metric tons per year of
ferro-manganese
medium carbon). Ouro
Preto: 64,000 metric tons
per year of ferro-silicon
manganese.
135,000 metric tons per
year (42,000 metric tons
per year of ferro-silicon
manganese and 93,000
metric tons per year of
high carbon
ferro-manganese). The
plant has a capacity to
refine until 40,000 metric
tons per year of
ferro-manganese high
carbon to produce
ferro-manganese
medium carbon alloy,
according to market
demand.
47
The following table sets forth information about our manganese ferroalloys production.
Lines of Business
Plant
Barbacena ..............................................................................................................
Ouro Preto ..............................................................................................................
Simões Filho ..........................................................................................................
2016
Production for the year ended December 31(1),
2017
(thousand metric tons)
58
3
88
48
–
77
2018
Total ..................................................................................................................
124
149
(1) Production figures reflect hot metal, which is further processed by a crushing and screening facility. Average mass recovery in this process is 85%.
1.2.3 Manganese ore and ferroalloys: sales and competition
55
10
103
168
The markets for manganese ore and ferroalloys are highly competitive. Competition in the manganese ore market
takes place in two segments. High- and medium-grade manganese ore competes on a global seaborne basis,
while low-grade ore competes on a regional basis. For some manganese ferroalloys, especially ferromanganese,
higher-grade manganese ores are required to achieve competitive quality and cost, while medium- to lower-grade
ores may be used in silicomanganese production. 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,
South Africa, Ghana, Kazakhstan, India and Mexico.
We compete in the seaborne market with both high- and medium-grade ores from the Azul and Urucum mines,
where we benefit from extensive synergies with our iron ore operations, from mine to rail to port to vessel
operations. Our main competitors in this segment are South32 (Australia and South Africa) and Eramet (Gabon).
Our lower-grade ores, especially those from Morro da Mina, are consumed internally in our ferroalloy smelters.
The manganese ferroalloy market is characterized by a large number of participants who compete primarily on
the basis of price. Our competitors are located principally in countries that produce manganese ore or carbon
steel. Potential entrants and substitutes come from silicon or chrome ferroalloys, which can occasionally shift their
furnaces to manganese alloys, and from electrolytic manganese producers. Competitors may be either integrated
smelters like us, who feed manganese ore from their own mines, or non-integrated smelters. The principal
competitive factors in this market are the costs of manganese ore, electricity, logistics and reductants such as
coke, coal and charcoal. We compete with both stand-alone and integrated producers.
Focusing mainly in the Brazilian, South and North American steelmaking customers, our ferroalloys operations
also benefit from synergies with our iron ore sales, marketing, procurement and logistics activities. We buy our
energy and coke supplies at reasonable market prices both though medium- and long-term contracts.
Competitors in the Brazilian market are about a dozen smelters with capacities from five to 90 thousand metric
tons per year, most of which are not integrated and some of which are customers of our manganese ores. We
have a distinctive advantage in comparison to them in producing ferroalloys with higher manganese content.
48
2.
BASE METALS
2.1
Nickel
2.1.1 Operations
We conduct our nickel operations primarily through our wholly owned subsidiary Vale Canada Limited, which operates two nickel production systems, one
in the North Atlantic region and the other in the Asia Pacific region. We also produce copper as a coproduct in our nickel operations in Canada and,
through Vale S.A., operate a third nickel production system, Onça Puma, in the South Atlantic region. Our nickel operations are set forth in the following
table.
Lines of Business
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/containership) through
both east and west coast Canadian
ports.
Company/Mining System
Location
Description/History
Operations
Mining title
Power source
North Atlantic:
Vale Canada ............................... Canada —Sudbury,
Ontario
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.
We acquired the Sudbury operations in
2006.
Patented mineral rights with
no expiration date; mineral
leases expiring between
2018 and 2038; and mining
licenses of occupation with
indefinite expiration date(1).
Supplied by Ontario’s provincial
electricity grid and produced
directly by Vale via hydro
generation.
Nickel. Primarily underground mining
operations with nickel sulfide ore bodies,
which also contain some copper, cobalt,
PGMs, gold and silver. We also process
external feeds from third parties and from
our Thompson operation. By the end of
2017, we ceased receiving Voisey’s Bay
feed in Sudbury. 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. In 2018, as part of our efforts to
reduce sulfur dioxide and other air
emissions to meet regulatory changes in
Ontario and Manitoba, and to rationalize
our smelting and refining assets across
Canada, we modified our processes to
capture SO2 emissions from the converters
as the final major milestone of the
emissions reduction project.
Copper. We produce two intermediate
copper products, copper concentrate and
copper matte, and we also produce a
finished electrowon copper cathode
product. In September 2017, we switched
to a single flash furnace in Sudbury, and as
a result, we ceased copper anode
production resulting in increased
production of copper concentrate and
copper matte.
49
Company/Mining System
Location
Description/History
Operations
Mining title
Power source
Lines of Business
Access/
Transportation
Vale Canada ............................ Canada —Thompson, Manitoba Mining and milling operations to
Vale Newfoundland &
Labrador Limited ................
Canada —Voisey’s Bay and
Long Harbour, Newfoundland
and Labrador
Vale Europe Limited ................ U.K.— Clydach, Wales
Asia/Pacific
PT Vale Indonesia Tbk
(“PTVI”) ..............................
Indonesia —Sorowako,
Sulawesi
process ore into nickel concentrate.
We phased out smelting and refining
activities in Thompson during 2018.
Thompson mineralization was
discovered in 1956, and Thompson
operations were acquired by us in
2006.
Integrated open-pit mining and milling
operation at Voisey’s Bay producing
nickel and copper concentrates with
refining of nickel concentrate at Long
Harbour into finished metal products
with an expected nominal capacity of
approximately 50,000 metric tons of
refined nickel per year upon ramp-up.
Voisey’s Bay’s operations started in
2005 and was purchased by us in
2006.
Stand-alone nickel refinery (producer
of finished nickel), with nominal
capacity of 40,000 metric tons per
year. The Clydach refinery
commenced operations in 1902 and
was acquired by us 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 59.28% of PTVI’s share
capital, Sumitomo Metal
Mining Co., Ltd (“Sumitomo”) holds
20.09%, Sumitomo Corporation holds
0.14% and the public holds 20.49%.(2)
PTVI was established in 1968,
commenced its commercial operations
in 1978, was listed on the Indonesian
stock exchange in 1990 and was
acquired by us in 2006.
Nickel. Primarily underground mining
operations with nickel sulfide ore
bodies, which also contain some
copper and cobalt. In 2017, we
permanently shut down one of the two
furnaces in Thompson and the other
was shut down in 2018, permanently
shutting down smelting and refining
operations. By the end of 2017, we
had ceased processing Voisey’s Bay
feed in Thompson, and since the
second half of 2018, we have started
sending the majority of the nickel
concentrate from Thompson to be
refined in Sudbury.
Comprised of the Ovoid open pit mine,
and deposits for underground
operations at a later stage. We mine
nickel sulfide ore bodies, which also
contain copper and cobalt. The Long
Harbour facility continued to ramp up
in 2018 while processing feed from
Voisey’s Bay concentrate exclusively.
Copper concentrate from the open pit
mine is sold directly to the market.
Order in Council leases
expiring between 2020 and
2025; mineral leases
expiring in 2034.
Supplied by Manitoba’s
provincial utility company.
Intermediate concentrates are
delivered in Ontario.
Mining lease expiring in
2027, with a right of further
renewals for 10-year
periods.
Power at Voisey’s Bay is 100%
supplied through Vale owned
diesel generators. Power at the
Long Harbour refinery is
supplied by the Newfoundland
and Labrador provincial utility
company.
The nickel and copper concentrates
from Voisey’s Bay are transported to
the port by haulage trucks and then
shipped by dry bulk vessels to either
overseas markets or to our Long
Harbour operations for further
refining.
Processes a nickel intermediate
product, nickel oxide, supplied from
our Sudbury and 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 our nickel refinery
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, entitled to two
consecutive ten-year
extensions, in the form of a
business license, subject to
approval of the Indonesian
government.(2)
Produced primarily by PTVI’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.
Transported to final customer in the
UK and continental Europe by truck.
Products for overseas customers are
trucked to the ports of Southampton
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.
50
Company/Mining System
Location
Description/History
Operations
Mining title
Power source
Mining concessions expiring
between 2022 and 2051(3).
Supplied through the national
electricity grid and by
independent producers.
Lines of Business
Access/
Transportation
Products are packed into containers
and are trucked approximately 4 km
to Prony port and shipped by ocean
container.
Vale Nouvelle-
Calédonie S.A.S. (“VNC”) .....
New Caledonia —Southern
Province
Vale Japan Limited ..................... Japan —Matsuzaka
Vale Taiwan Limited ................... Taiwan —Kaoshiung
Vale Nickel (Dalian) Co., Ltd....... China —Dalian, Liaoning
Mining and processing operations
(producer of nickel oxide, nickel
hydroxide and cobalt carbonate). We
hold 95% of VNC’s shares and the
remaining 5% is held by Société de
Participation Minière du Sud
Calédonien S.A.S. (“SPMSC”).
SPMSC has an obligation to increase
its stake in VNC to 10% within two
years after the startup of commercial
production.
Stand-alone nickel refinery (producer
of intermediate and finished nickel),
with a nominal capacity of 60,000
metric tons per year. We own 87.2% of
the shares, and Sumitomo owns the
remaining shares. The refinery was
built in 1965 and was acquired by us 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 us in 2006.
Stand-alone nickel refinery (producer
of finished nickel), with nominal
capacity of 32,000 metric tons per
year. We own 98.3% of the equity
interest and Ningbo Sunhu Chemical
Products Co., Ltd. owns the remaining
1.7%. The refinery commenced
production in 2008.
The ongoing ramp-up of our nickel
operation in New Caledonia is
expected to continue in the coming
years. VNC utilizes a high-pressure
acid leach process to treat limonitic
and saprolitic laterite ores. As part of
the ramp-up, VNC is undertaking a
review of the capacity of different units
of the plant to identify and eliminate
bottlenecks. We expect to continue to
ramp up VNC over the next five to six
years to reach nominal production
capacity of 50,000 metric tons per year
of nickel contained in nickel oxide,
which is further processed in our
refineries in Asia, and hydroxide in
cake form (IPNM) and cobalt in
carbonate form.
Produces intermediate products for
further processing in our refineries in
Asia and the UK, and finished nickel
products using nickel matte sourced
from PTVI.
Produced finished nickel for the
stainless steel industry, primarily using
intermediate products from our
Matsuzaka and New Caledonian
operations. We suspended operations
at this plant in 2017 due to market
conditions and it currently remains
under care and maintenance.
Produces finished nickel for the
stainless steel industry, primarily using
intermediate products from our
Matsuzaka and New Caledonian
operations.
51
–
–
–
Supplied through the national
electricity grid. Acquired from
regional utility companies.
Products trucked over public roads to
customers in Japan. For overseas
customers, the product is loaded into
containers at the plant and shipped
from the ports of Yokkaichi and
Nagoya.
Supplied through the national
electricity grid. Acquired from
regional utility companies.
Trucked over public roads to
customers in Taiwan. For overseas
customers, the product is loaded into
containers at the plant and shipped
from the port of Kaoshiung.
Supplied through the national
electricity grid. Acquired from
regional utility companies.
Product transported 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.
Company/Mining System
Location
Description/History
Operations
Mining title
Power source
Lines of Business
Access/
Transportation
South Atlantic
Vale/Onça Puma ....................... Brazil —Ourilândia
do Norte, Pará
Mining and smelting operation producing
a high-quality ferronickel for application
within the stainless steel industry.
Mining concession for
indefinite period.
Supplied through the national
electricity grid. Produced directly
by Vale or acquired through power
purchase agreements.
The ferro-nickel is transported by truck
to the Vila do Conde maritime terminal
in the Brazilian state of Pará, and
exported in ocean containers.
The Onça Puma mine is built to recover
nickel from saprolitic ore deposit. The
operation produces ferronickel via the
rotary kiln-electric furnace process. We
are currently operating a single line with
one electric furnace and two lines of
calcine and rotary kilns, with nominal
capacity estimated at 27,000 metric tons
per year. We will evaluate opportunities
to restart the second line operations in
light of market conditions and the
associated business case. Operations at
Onça Puma have been suspended since
September 2017 due a public civil
action. See Additional information—
Legal proceedings—Onça Puma
Litigation.
(1) We submitted applications for renewal of leases in Sudbury in 2017 and 2018 and the approval process is ongoing. All conditions required for the renewal have been fulfilled. This process usually takes a number of
years, and we can continue to operate while the approval process is ongoing.
(2) The contract of work between PTVI and the Indonesian government will expire in 2025, after which date PTVI will continue its operationin the form of a 10-year business license provided certain obligations are
satisfied (and PTVI can apply for a further 10 year extension provided that PTVI is in compliance with predefined requirements). The contract of work also provides that PTVI agrees to further divest an additional 20%
of its shares to Indonesian participants within five years of the issuance of a regulation dated October 2014 (approximately 20% of PTVI’s shares are already publicly traded and listed on the Indonesian stock
exchange).
(3) VNC has requested the renewal of some concessions that were scheduled to expire before 2018. All conditions required for the renewal have been fulfilled. This process usually takes a number of years and we can
continue to operate while the approval process is ongoing.
52
Lines of Business
2.1.2 Production
The following table sets forth our annual mine production by operating mine (or, on an aggregate basis in the
case of the Sulawesi operating areas operated by PTVI in Indonesia, because it is organized by mining areas
rather than individual mines) and the average percentage grades of nickel and copper. The mine production at
Sulawesi represents the product from PTVI’s screening station delivered to PTVI’s processing plant and does not
include nickel losses due to drying and 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. For our Onça Puma operation in
Brazil and VNC operation in New Caledonia the production and average grade represents in-place ore production
and does not include losses due to processing.
Ontario operating mines
Copper Cliff North ...............
Creighton ............................
Stobie ..................................
Garson ................................
Coleman .............................
Ellen ....................................
Totten ..................................
Total Ontario
operations ...........
Manitoba operating mines
Thompson ...........................
Birchtree .............................
Total Manitoba
operations ...........
Voisey’s Bay operating mines
Ovoid ..................................
Sulawesi operating mines
Sorowako ............................
New Caledonia operating mines
VNC ....................................
Brazil operating mines
Onça Puma(2) ....................
2016(1)
2017(1)
2018(1)
Production
Grade
Copper Nickel
Production
Grade
Copper Nickel
Production
Grade
Copper Nickel
979
832
1,373
711
1,209
75
671
5,850
1,140
503
1,643
2,392
4,708
2,919
1,710
1.44
2.17
0.57
1.34
3.76
0.42
1.86
1.26
2.76
0.64
1.91
1.47
0.88
1.43
1.84
1.47
–
–
–
1.97
1.36
1.78
1.44
2.62
–
–
–
1.93
1.53
2.04
814
595
448
635
1,007
–
710
4,210
1,229
329
1,557
2,378
4,569
3,030
964
1.40
2.91
0.53
1.48
3.76
–
1.90
1.30
3.17
0.62
1.93
1.53
–
1.33
2.18
1.65
–
–
–
1.94
1.30
1.81
1.44
2.56
–
1.89
1.47
–
2.05
746
608
–
655
618
–
710
3,337
1,034
–
1,034
1,895
4,469
2,620
–
1.30
2.77
–
1.35
3.31
–
2.02
1.29
2.55
–
2.00
1.40
–
1.39
2.10
1.70
–
–
–
2.05
–
2.05
1.32
2.37
–
–
–
1.90
1.46
–
(1) Production is stated in thousands of metric tons. Grade is % of copper or nickel, respectively.
(2) Mining activities in Onça Puma have been suspended since September 2017, as a result of an injunction granted in a public civil action.
53
Lines of Business
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 a contained nickel ore-source
basis.
Mine
Sudbury ..................................................................................................................
Thompson ..............................................................................................................
Voisey’s Bay(1) ......................................................................................................
Sorowako(2) ...........................................................................................................
Onça Puma ............................................................................................................
New Caledonia(3) ..................................................................................................
External(4) ..............................................................................................................
Type
Underground
Underground
Open pit
Open cast
Open pit
Open pit
–
Total(5) ................................................................................................................................................
Finished production by ore source for the year
ended December 31,
2018
2017
2016
(thousand metric tons contained nickel)
80.4
26.5
49.0
81.1
24.1
34.3
15.6
311.0
61.9
23.0
51.8
73.1
24.7
40.3
13.1
288.2
50.6
14.8
38.6
72.1
22.9
32.5
13.1
244.6
Includes finished nickel produced at Long Harbour, Sudbury and Thompson.
(1)
(2) These figures have not been adjusted to reflect our ownership. We have a 59.27% interest in PTVI, which owns the Sorowako mines.
(3) These figures have not been adjusted to reflect our ownership. We have a 95.0% interest in VNC.
(4) Finished nickel processed at our facilities using feeds purchased from unrelated parties.
(5) 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 2018, 46% of our refined nickel sales were
delivered to customers in Asia, 24% to Europe, 28% to North America and 2% 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 London Metal Exchange (“LME”) and Shanghai Futures
Exchange (“SHFE”), 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 have various levels of nickel content, (ii) nickel pig
iron has 1.5-15% nickel, (iii) ferro-nickel has 15-40% 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 (vi) high-purity nickel has a minimum of 99.9% nickel and does not
contain specific elemental impurities;
shape (such as discrete or filamentary powders, pellets, discs, squares and strips);
size (from micron powder particles to large full-sized cathodes); and
packaging (such as bulk, 2 ton bags, 250 kg drums, 10 kg bags)
54
Lines of Business
In 2018, the principal first-use applications for primary nickel were:
•
•
•
•
stainless steel (68% of global nickel consumption);
non-ferrous alloys, alloy steels and foundry applications (19% of global nickel consumption);
nickel plating (8% of global nickel consumption); and
batteries (5% of global nickel consumption).
In 2018, 67% of our refined nickel sales were made into non-stainless steel applications, compared to the industry
average for primary nickel producers of 30%. This brings more diversification and sales volume stability to our
nickel revenues. As a result of our focus on 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 through an established marketing
network headquartered at our head office in Toronto (Canada). 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 distributed around the world with primary back offices in Singapore and Toronto (Canada) and have sales
managers located in St.Prex (Switzerland), Paramus, New Jersey (United States) and at several sites throughout
Asia. 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 customer technical
support direct our products into applications and geographic regions that offer the highest margins for our
products.
Our nickel deliveries represented 11% of global consumption for primary nickel in 2018. In addition to us, the
largest mine-to-market integrated suppliers in the nickel industry (each with its own integrated facilities, including
nickel mining, processing, refining and marketing operations) are Nornickel, Glencore, Jinchuan Nonferrous
Metals Corporation and BHP Billiton. Together with us, these companies accounted for about 37% of global
refined primary nickel production in 2018.
The nickel market is based on the quality of the nickel products. Class I products, which have higher nickel
content and lower levels of deleterious elements, are more suitable for high-end nickel applications, such as
utilization in the specialties industries (e.g.: aircraft and spacecraft) and in batteries for electric vehicles. Class II
products, which present lower nickel content and higher levels of deleterious elements, are mostly absorbed into
the stainless steel market. The majority of the world nickel production is composed of Class II nickel products
(57% of the global market in 2018), which include the increasingly relevant nickel pig iron (NPI, with nickel content
under 15%). Most of our products are high quality nickel products, which makes Vale the producer of choice for
specialty nickel applications. In 2018, 58% of our nickel products were Class I and 26% were battery-suitable
Class II products, a product that does not fully satisfy the specifications of Class I, but has potential for use in
electric vehicles. Looking forward, as a result of the worldwide lower availability of nickel sulfide reserves (the
specific kind of orebodies that source Class I nickel) when compared to nickel laterite reserves (mainly producing
Class II products), we expect the
55
Lines of Business
market for Class I nickel to be further tightened, creating more opportunities for our premium product portfolio.
While stainless steel production is a major driver of global nickel demand, stainless steel producers can obtain
nickel 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. See Operating and Financial Review and
Prospects—Major factors affecting prices—Nickel.
Competition in the nickel market is based primarily on quality and 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.
56
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.
Mining complex/Location
Location
Description/History
Mineralization/Operations
Mining title
Power source
Access/Transportation
Brazil:
Vale/Sossego ...................... Carajás, state of
Pará.
Vale/Salobo ......................... 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. Production started in
2004 and has a nominal capacity
of approximately 93,000 tpy of
copper in concentrates.
Salobo I processing plant started
production in 2012 and has a total
capacity of 12 Mtpy of ore
processed. The open pit mine
and mill concluded their ramp up
in the fourth quarter of 2016 to a
capacity of 24 Mtpy of ore
processed with the full
implementation of Salobo II
expansion. Salobo I and II have a
total capacity of approximately
197,000 tpy of copper in
concentrates.
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 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 an
indefinite period.
Supplied through the
national electricity grid.
Produced directly by Vale or
acquired through power
purchase agreements.
We truck the concentrate to a
storage terminal in Parauapebas
and then transport it via the EFC
railroad to the Itaqui Port in São
Luís, state of Maranhão. We
constructed an 85-kilometer road
to link Sossego to Parauapebas.
Mining concession for an
indefinite period.
Supplied through the
national electricity grid.
Acquired through power
purchase agreements.
We truck the concentrate to a
storage terminal in Parauapebas
and then transport it via the EFC
railroad to the Itaqui Port in São
Luís, state of Maranhão. We
constructed a 90-kilometer road
to link Salobo to Parauapebas.
Canada:
Vale Canada ....................... Canada—Sudbury,
See —Base metals—Nickel—Operations
Ontario
Vale Canada/ Voisey’s Bay Canada—Voisey’s
Bay, Newfoundland
and Labrador
See —Base metals—Nickel—Operations
[GRAPHIC]
57
Lines of Business
2.2.2 Production
The following table sets forth our annual mine production in our Salobo and Sossego mines and the average
percentage grades of copper. The production and average grade represents in-place ore production and does not
include losses due to processing. For the annual production of copper as a coproduct in our nickel operations,
see—Base metals—Nickel—Production.
2016(1)
2017(1)
2018(1)
Production
Grade
Production
Grade
Production
Grade
Brazil
Sossego ......................................
Salobo .........................................
Total ............................................
12,687
57,279
69,966
0.82
0.62
0.66
12,380
61,573
73,953
0.81
0.63
0.66
15,664
50,963
66,627
0.72
0.69
0.70
(1) Production is stated in thousands of metric tons. Grade is % of copper.
The following table sets forth information on our copper production.
Mine
Brazil:
Type
Finished production by ore source for the year
ended December 31,
2017
(thousand metric tons)
2018
2016
Salobo ............................................................................................................
Sossego .........................................................................................................
Open pit
Open pit
Canada: (as coproduct of nickel operations)
Sudbury ..........................................................................................................
Voisey’s Bay ..................................................................................................
Thompson ......................................................................................................
External(1) .....................................................................................................
Underground
Open pit
Underground
−
Zambia:
Lubambe(2)....................................................................................................
Underground
Total ..........................................................................................................
176
93
122
32
3
21
8
453
193
100
98
34
2
12
7
446
193
92
72
26
1
11
−
395
(1) We process copper at our facilities using feed purchased from unrelated parties.
(2) For financial reporting purposes, Lubambe is accounted for under the equity method. We have included production numbers from Lubambe, adjusted to
reflect our 40% equity interest, as the level of production and operating performance from entities accounted for under the equity method impacts our
Adjusted EBITDA. Our use of Adjusted EBITDA is explained in—Results of operations—Results of operations by segment—Adjusted EBITDA by segment.
Vale sold its stake in the Lubambe mine in December 2017.
2.2.3 Customers and sales
We sell copper concentrates from Sossego and Salobo under medium- and long-term contracts to copper
smelters in Europe, India and Asia. We have medium-term copper supply agreements with domestic customer for
part of the copper concentrates and copper matte produced in Sudbury, which are also sold under long-term
contracts in Europe and Asia. We sell copper concentrates from Voisey’s Bay under long-term contracts to
customers in Europe and electrowon copper cathodes from Sudbury and Long Harbour in North America under
short-term sales agreements.
58
Lines of Business
2.2.4 Competition
The global refined 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, Jiangxi Copper Corporation Ltd., Glencore, Tongling Non-Ferrous Metals
Group Co. and Freeport McMoRan Copper & Gold Inc., each operating at the parent-company level or through
subsidiaries. Our participation in the global refined copper cathodes market is marginal as we position ourselves
more competitively in the copper concentrate market.
Copper concentrate and copper matte are intermediate products in the copper production chain. Both the
concentrate and matte markets are competitive, having numerous producers but fewer participants and smaller
volumes than in the copper cathode market due to the high levels of integration by the major copper producers.
In the copper concentrate market, mining occurs on a global basis with a predominant share from South America,
while consumers are custom smelters located mainly 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 Freeport McMoRan, Glencore,
BHP Billiton, Codelco, Anglo American, Antofagasta plc, Rio Tinto and First Quantum; each operating at the
parent-company level or through subsidiaries. Our market share in 2018 was about 2% of the total copper
concentrate market.
2.3
PGMs and other precious metals
As byproducts of our Sudbury nickel operations in Canada, we recover significant quantities of PGMs, as well as
small quantities of gold and silver. We operate a processing facility in Port Colborne, Ontario, which produces
PGMs, gold and silver intermediate products using feed from our Sudbury operation. The refinery in Acton,
England, where our PGM intermediates and PGM feeds purchased from third parties were processed was closed
in 2018 as part of business optimization, and the PGM concentrates from our Port Colborne operation are being
sold to third parties. Gold and silver intermediates are also sold to third parties. Our copper concentrates from our
Salobo and Sossego mines in Carajás, in the Brazilian state of Pará, also contain gold, the value of which we
realize in the sale of those products.
In February 2013, we sold to Wheaton Precious Metals Corp. (formerly Silver Wheaton) (“Wheaton”) 25% of the
gold produced as a byproduct at our Salobo copper mine, in Brazil, for the life of that mine, and 70% of the gold
produced as a byproduct at our Sudbury nickel mines, in Canada, for 20 years. In each of March 2015 and
August 2016, we sold to Wheaton an additional 25% of the gold produced as a byproduct at our Salobo copper
mine. In consideration for the August 2016 sale, we received an initial cash payment of US$800 million, an option
value of approximately US$23 million from a reduction of the exercise price of the warrants of Wheaton held by
Vale since 2013, and ongoing payments of the lesser of US$400 per ounce (subject to a 1% annual inflation
adjustment starting January 1, 2019) and the prevailing market price, for each ounce of gold that we deliver under
the agreement. We may receive an additional cash payment if we expand our capacity to process Salobo copper
ores to more than 28 Mtpy before 2036. The additional cash payment may range from US$113 million to
US$953 million, depending on ore grade, timing and size of the expansion. See Business overview—Significant
changes in our business. Pursuant to the gold stream contract, Wheaton received 282,879 oz. of gold in 2018.
59
Lines of Business
The following table sets forth information on the contained volume of precious metals and platinum group metals
(PGMs) as a byproduct of our production of nickel and copper concentrates.
Mine
Sudbury(1):
Type
2016
2018
2017
(thousand troy ounces of contained metal)
Platinum ..................................................................................................................
Palladium ................................................................................................................
Gold(2) ....................................................................................................................
Underground
Underground
Underground
Salobo:
Gold(2) ....................................................................................................................
Open pit
Sossego:
Gold.........................................................................................................................
Open pit
166
322
98
317
67
144
214
74
346
65
135
218
57
361
59
(1)
(2)
Includes metal produced from unrelated parties feed purchases. Includes production out of Ontario
(Canada) and Acton (England) production. Excludes tolling from unrelated parties.
Figures represent 100% of Salobo and Sudbury contained volume of gold as a byproduct of our
production of nickel and copper concentrates and do not deduct the portion of the gold sold to Wheaton.
2.4
Cobalt
We recover significant quantities of cobalt as a byproduct of our nickel operations. In 2018, we produced 1,288
metric tons of refined cobalt metal (in the form of cobalt rounds) at our Port Colborne refinery, 1,630 metric tons of
cobalt rounds at our Long Harbour refinery, 2,105 metric tons of cobalt in a cobalt-based intermediate product in
New Caledonia, and our remaining cobalt production consisted of 70 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 byproduct of our nickel production will increase in the
coming years. We sell cobalt on a global basis. The cobalt metal and the Long-Harbour cobalt rounds are
electro-refined at our Port Colborne refinery and have very high purity levels (99.8%), meeting 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.
In June 2018, we sold to Wheaton and Cobalt 27 Capital Corp. (“Cobalt 27”) a combined 75% of the cobalt
produced as a byproduct at our Voisey’s Bay mine from January 1, 2021, which includes the ramp-down of
production from the existing mine and the life-of-mine production from our underground mine expansion project.
In consideration, we received US$690 million in cash from Wheaton and Cobalt 27 upon closing of the transaction
on June 28, 2018, and will receive additional payments of 20%, on average, of cobalt prices upon delivery. Vale
remains exposed to approximately 40% of future cobalt production from Voisey’s Bay, through Vale’s retained
interest in 25% of cobalt production and the additional payments upon delivery. See Business overview—
Significant changes in our business. The following table sets forth information on our cobalt production.
Mine
Sudbury ..........................................................................................................................
Thompson ......................................................................................................................
Voisey’s Bay...................................................................................................................
New Caledonia ...............................................................................................................
Others(1) ........................................................................................................................
Total ...............................................................................................................................
Type
Underground
Underground
Open pit
Open pit
−
Finished production by ore source for the year
ended December 31,
2017
(contained metric tons)
2018
2016
882
700
887
3,188
143
5,799
840
138
1,829
2,780
224
5,811
520
198
1,902
2,104
371
5,093
(1) These figures do not include tolling of feeds for unrelated parties. Includes cobalt processed at our facilities using feeds purchased from unrelated parties
and PTVI ore source 24 metric tons in 2016, 6 metric tons in 2017 and 173 metric tons in 2018.
60
3.
COAL
3.1
Operations
We produce metallurgical and thermal coal through our subsidiary Vale Moçambique, which operates the Moatize mine. We also have a minority interest
in a Chinese company, Henan Longyu Energy Resources Co., Ltd. (“Longyu”).
Company/
Mining complex
Vale Moçambique
Location
Description/History
Mineralization/ Operations
Mining title
Power source
Access/ Transportation
Lines of Business
Moatize ............................... Tete,
Mozambique
Open-cut mine, which was
developed directly by Vale.
Operations started in August 2011
and are expected to reach a
nominal production capacity of 22
Mtpy, considering the Moatize
expansion, comprised of
metallurgical and thermal coal and
the Nacala Logistics Corridor
ramp-up. Vale has an indirect
80.75% stake, Mitsui has an
indirect 14.25% stake and the
remaining is owned by Empresa
Moçambicana de Exploração
Mineira, S.A.
Produces metallurgical and
thermal coal. Moatize’s main
branded products are the
Chipanga premium hard coking
coal and Moatize Low Vol
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 currently processed
at a CHPP with a capacity of
4,000 metric tons per hour. An
additional CHPP began
production in August 2016, which
increased feed capacity by
additional 4,000 metric tons per
hour.
Mining concession
expiring in 2032,
renewable thereafter.
Supplied by local utility
company. Back up supply on
site.
The coal is transported from the
mine to the port at
Nacala-à-Velha via the Nacala
Logistics Corridor.
61
Lines of Business
3.2
Production
The following table sets forth information on our marketable coal production.
Operation
Metallurgical coal:
Mine type
Production for the year ended December 31,
2017
(thousand metric tons)
2018
2016
Moatize(1) .....................................................................................................................
Open-cut
Thermal coal:
Moatize(1) .....................................................................................................................
Open-cut
3,480
2,012
6,953
4,307
6,161
5,444
(1) These figures correspond to 100% production at Moatize, and are not adjusted to reflect our ownership.
3.3
Customers and sales
Coal sales from our Moatize operations, in Mozambique, target global steel and energy markets, including Asia,
Africa, Europe and the Americas. Our Chinese coal joint venture directs its sales into the Chinese domestic
market.
3.4
Competition
The global coal industry comprises markets for metallurgical and thermal coal and is highly competitive.
The demand for steel, especially in Asia, underpins demand for metallurgical coal, while demand for electricity
underpins demand for thermal coal. Competitiveness in the coal industry is primarily based on the economics of
production costs, coal quality, transportation costs and proximity to the market. Our key competitive strengths are
a new and competitive transportation corridor and the size and quality of our reserves. The logistics facilities in
Mozambique help us ensure that our products are delivered on time and at a relatively low cost in comparison to
lengthy waits at the ports in Queensland, Australia and on the east coast of the United States.
Our main competitors in the metallurgical coal business are located in Australia and Canada and include
subsidiaries, affiliates and joint ventures of BHP Billiton, Glencore, Anglo American, Peabody, Jellinbah
Resources, among others. In the thermal coal business, our main competitors are located in Indonesia, South
Africa, Australia, Colombia, USA, Russia and include subsidiaries affiliates and joint ventures of Glencore, Anglo
American, Drummond Co, Pt Bumi Resources and PT Adaro, among others.
62
Lines of Business
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.
Company
Business
Location
Voting
Vale ...................................... Railroad (EFVM and EFC),
port and maritime terminal
operations
VLI(1) ................................... Railroad, port, inland
terminal and maritime
terminal operations. Holding
of certain general cargo
logistics assets
Brazil
Brazil
(%)
–
37.6
Total
–
37.6
Partners
–
FI-FGTS, Mitsui and
Brookfield
Our share of capital
MRS ..................................... Railroad operations
Brazil
47.1
48.2
CPBS ................................... Port and maritime terminal
Brazil
operations
PTVI ..................................... Port and maritime terminal
Indonesia
operations
Vale Logística Argentina(2) . Port operations
Vale Logística Uruguay ........ Port operations
Central East African
Railroad
Railways (“CEAR”)(3) .....
Argentina
Uruguay
Malawi
Corredor de
Railroad
Mozambique
Desenvolvimento do
Norte (“CDN”)(3) .............
Corredor de
Desenvolvimento do
Norte—Porto (“CDN
Porto”)(3) .........................
Corredor Logístico
Integrado de
Nacala S.A. (“CLN”)(4) ...
Port and maritime terminal
operations
Mozambique
Railroad and port
operations
Mozambique
Vale Logistics Limited
Railroad operations
Malawi
(“VLL”)(4) ........................
Transbarge Navegación ...... Paraná and Paraguay
Paraguay
Waterway System
(Convoys)
VNC ...................................... Port and maritime terminal
New Caledonia
operations
VMM ..................................... Port and maritime terminal
Malaysia
Vale Newfoundland &
Labrador Limited .............
operations
Port operations
Vale Oman Distribution
Center LLC ......................
Port and maritime terminal
operations
Voisey’s Bay and
Long Harbour, in
Newfoundland
and Labrador
Oman
100
59.2
100
100
46.2
46.2
46.2
50.0
50.0
100
95.0
100
100
100
100
59.2
100
100
46.2
46.2
46.2
50.0
50.0
100
95.0
100
100
100
CSN, Congonhas Minérios,
Usiminas Participações e
Logísticas, Gerdau,
Railvest Investments and
public investors.
–
Sumitomo, public investors
–
–
Mitsui, investors
Mitsui, investors
Mitsui, investors
Mitsui
Mitsui
–
SPMSC
–
–
–
(1) BNDES holds debentures issued by Vale that are exchangeable into part of Vale’s stake in VLI. Vale’s equity interests in VLI may be reduced by up to 6.88%
if BNDES exercises its rights under those debentures.
(2) Vale Logística Argentina is no longer operational.
(3) Vale holds its interest in CEAR, CDN and CDN Porto through a 50.0% interest in Nacala Corridor Holding Netherlands B.V., which indirectly owns 92.4% of
these operating companies that comprise the NLC.
(4) Vale holds its interest in CLN and VLL through a 50.0% interest in Nacala Corridor Holding Netherlands B.V., which indirectly owns 100% of these operating
companies that comprise the NLC.
63
Lines of Business
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 888-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 584 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
purchase railroad transportation capacity on our EFVM railroad. In 2018, the EFVM railroad transported a daily
average of 334.5 thousand metric tons of iron ore and 60.2 thousand metric tons of other cargo. The EFVM
railroad also carried 1.135 million passengers in 2018. In 2018, we had a fleet of 322 locomotives and 19,413
wagons at EFVM, which were operated by Vale and third parties.
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 997
kilometers from our Carajás mines to our Ponta da Madeira maritime terminal complex facilities. Its main cargo is
iron ore, principally carried for us. VLI has rights to purchase railroad transportation capacity on our EFC railroad.
In 2018, the EFC railroad transported a daily average of 559.8 thousand metric tons of iron ore and 31.1 thousand
metric tons of other cargo. EFC also carried 317.9 thousand passengers in 2018. EFC supports the largest train,
in terms of capacity, in Latin America, which measures 3.5 kilometers, weighs 41.67 thousand gross metric tons
when loaded and has 330 cars. In 2018, EFC had a fleet of 282 locomotives and 21,087 wagons, which were
operated by Vale and third parties.
The principal items of cargo of the EFVM and EFC railroads are:
•
•
•
•
iron ore and iron ore pellets and manganese ore, carried for us and customers;
steel, coal, pig iron, limestone and other raw materials carried for customers with steel mills located
along the railroad;
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 other criteria, subject to price caps set forth in the relevant concession
agreements, and are regulated by the Brazilian transportation regulatory agency, ANTT (Agência Nacional de
Transportes Terrestres).
VLI. VLI provides integrated logistics solutions through 7,940 kilometers of railroads in Brazil (FCA and FNS),
eight inland terminals with a total storage capacity of 795,000 metric tons and three maritime
64
terminals and ports operations. We hold a 37.6% stake in VLI, and are party to a shareholders’ agreement with
FI-FGTS, Mitsui and Brookfield, which hold the remaining equity interests in VLI. VLI’s main assets are:
Lines of Business
• Ferrovia Centro-Atlântica (“FCA”). Central-east regional railway network of the Brazilian national
railway system, held 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;
• Ferrovia Norte-Sul railroad (“FNS”). A 30-year renewable subconcession for the commercial
operation of a 720-kilometer stretch of the North-South railroad in Brazil, between the cities
Açailandia, in the Brazilian state of Maranhão, and Porto Nacional, in the Brazilian state of Tocantins.
This railway is connected to EFC railroad, and 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;
• Right to purchase capacity of our EFVM and EFC railroads for general cargo; and
• Right to purchase capacity of our Tubarão and Praia Mole terminals for general cargo.
In 2018, VLI transported a total of 38.4 billion ntk of general cargo, including 18.4 billion ntk from FCA and FNS
and 8.0 billion ntk through operational agreements with Vale.
MRS Logística S.A. (“MRS”). The MRS railroad, in which we have a 48.2% equity interest, is 1,643 kilometers
long and links the Brazilian states of Rio de Janeiro, São Paulo and Minas Gerais. The MRS railroad transports
our iron ore products from the Southern System mines to our maritime terminals. In 2018, it transported a daily
average of 317.4 thousand metric tons of iron ore and 160.0 thousand metric tons of other cargo.
Africa
The Nacala Logistics Corridor (NLC) connects the Moatize mine to the Nacala-à-Velha maritime terminal, located
in Nacala, Mozambique, and crosses into the Republic of Malawi. The NLC consists of railway and port
infrastructure, including greenfield and rehabilitation of existing railways in Mozambique and Malawi and a new
coal port terminal in Mozambique. The NLC transports our coal products from the Moatize mine to our maritime
terminal and supports our operations in Southeastern Africa. In Mozambique, we are operating under two
concession agreements, one related to the Mozambican greenfield railway and another related to the newly
constructed coal port, both held by our subsidiary Corredor Logístico Integrado de Nacala S.A. (“CLN”), which will
expire in 2043, subject to renewal. We have also rehabilitated existing railroads under a concession held by our
subsidiary, CDN, which will expire in 2035. In Malawi, we are operating under a concession held by our
subsidiary, VLL, which will expire in 2046, subject to renewal, and we have also rehabilitated existing railroads
under a concession held by our subsidiary, CEAR, which will expire in 2046. In 2018, the NLC transported a daily
average of 32.42 thousand metric tons of coal and 1.48 thousand metric tons of other cargo. The NLC also
carried 800,883 passengers in 2018. In 2018, we had a fleet of 101 locomotives and 2,677 wagons at NLC, which
were operated by CLN.
In November 2017, the NLC companies obtained project financing in the total amount of US$2.730 billion. The
transaction closed in March 2018. Vale received US$2.6 billion in proceeds, in repayment of certain shareholders
loans provided for construction of NLC, net of certain commissions paid by NLC. The project financing will be
repaid in 14 years with the proceeds obtained from the tariff charged by NLC in connection with the provision of
coal transportation.
65
Lines of Business
4.1.2 Ports and maritime terminals
Brazil
We operate ports 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 Ferrous minerals—Iron ore and iron ore
pellets—Iron ore operations. We also use our ports and terminals to handle customers’ cargo.
Tubarão and Praia Mole Ports. The Tubarão port, which covers an area of 18 square kilometers, is located in the
Brazilian state of Espírito Santo and contains the iron ore maritime terminal and the general cargo terminals
(Terminal de Granéis Líquidos and the Terminal de Produtos Diversos). The Praia Mole port is also located in the
Brazilian state of Espírito Santo.
• The iron ore maritime terminal has two piers. From this terminal in the Tubarão port, we export mostly
iron ore produced from our Southeastern system. 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 210,000 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. The iron ore maritime terminal has a storage yard with a capacity of 3.1 million metric
tons. In 2018, 96.8 million metric tons of iron ore and iron ore pellets were shipped through the
terminal for us.
• The Terminal de Produtos Diversos handled 6.7 million metric tons of grains and fertilizers in 2018.
VLI has the right to purchase the capacity of the Terminal de Produtos Diversos.
• The Terminal de Granéis Líquidos handled 582 thousand metric tons of fuel in 2018. VLI has the right
to purchase the capacity of the Terminal de Granéis Líquidos.
• The Praia Mole terminal is principally a coal terminal and handled 12.7 million metric tons of coal and
other related cargo in 2018. VLI has the right to purchase the capacity of the Praia Mole terminal.
Ponta da Madeira maritime terminal. Our Ponta da Madeira maritime terminal is located 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
metric tons per hour. Pier III, which has two berths and three shiploaders, can accommodate vessels of up to
210,000 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 metric tons per hour. Pier IV (north 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 metric tons per hour. In 2018, Vale received from the Brazilian tax authorities,
the customs authorization for the operations of Pier IV (north berth). Cargo shipped through our Ponta da Madeira
maritime terminal consists of the Northern system production of iron ore, pellets and manganese. In 2018,
198 million metric tons of iron ore were shipped through the terminal. The Ponta da Madeira maritime terminal
has a storage yard with a static capacity of 7.2 million metric tons.
Itaguaí maritime terminal—Cia. Portuária Baía de Sepetiba (“CPBS”). From this terminal we mostly export iron
ore from our Southern system. CPBS is a wholly owned subsidiary that operates the Itaguaí
66
Lines of Business
terminal, at the Itaguaí Port, in Sepetiba in the Brazilian state of Rio de Janeiro, which is leased from Companhia
Docas do Rio de Janeiro (CDRJ). The Itaguaí port terminal has a pier with one berth that allows the loading of
ships up to 17.8 meters of draft and approximately 200,000 DWT of capacity. In 2018, the terminal loaded
19.2 million metric tons of iron ore.
Guaíba Island maritime terminal. From this terminal we export mostly iron ore from our Southern system. 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 2018, the
terminal loaded 41.2 million metric tons of iron ore.
VLI also operates Inácio Barbosa maritime terminal (TMIB), owned by Petrobras, in the Brazilian state of Sergipe;
Santos maritime terminal (TIPLAM), in the Brazilian state of São Paulo, which is jointly owned by VLI and Vale
Fertilizantes; and Pier II in the Itaqui Port, which can accommodate vessels of up to 155,000 DWT and has a
maximum loading rate of 3,800 metric tons per hour for pig iron and of 3,000 metric tons per hour for grains.
Uruguay
Since October 2017, our subsidiary Vale Logística Uruguay S.A. (“VLU”) contracts third-party services to operate
the Corporación Navios port terminal in the Nueva Palmira Free Zone in Uruguay. The port terminal provides
facilities for the unloading, storing, weighing and loading of bulk materials from Corumbá, Brazil, by river barge for
transshipment to ocean-going vessels destined for Brazilian, Asian and European markets. In 2018, we handled
1.058 thousand metric tons of iron and manganese ore through the Corporación Navios port.
Canada
Vale Newfoundland & Labrador Limited operates a port as part of our mining operation at Voisey’s Bay, Labrador
and a port as part of our processing operation at Long Harbour, Newfoundland. The port at Voisey’s Bay is used
for shipping nickel, copper and re-supply. The port at Long Harbour is used to receive nickel concentrate from
Voisey’s Bay along with goods and materials required for the Long Harbour operation.
Oman
Vale Oman Distribution Center LLC operates a distribution center in Liwa, Sultanate of Oman. The maritime
terminal has a large deep-water jetty, a 600-meter long platform connected to the shore by means of a 700-meter
long trestle, and is integrated with a storage yard that has throughput capacity to handle 40 Mtpy of iron ore and
iron ore pellets per year. The loading nominal capacity is 10,000 metric tons per hour and the nominal unloading
capacity is 9,000 metric 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 10,000 DWT, two barge slips for barges with capacity of up to 4,000 DWT
each for dry bulk cargo, and a general cargo wharf for vessels of up to 2,000 DWT.
67
• 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 5,000 DWT, totaling capacity of 25,000 DWT.
Lines of Business
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 58,000
DWT can unload at a rate of 8,000 metric tons per day and a general cargo wharf where vessels up to 200m long
can berth. The general cargo wharf can move containers at a rate of seven per hour and liquid fuels (LPG, HFO,
diesel) at a rate of 350 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 1,000 units. A bulk storage yard is linked to the port by a
conveyor and has a storage capacity of 94,000 metric tons of limestone, 95,000 metric tons of sulfur, and 60,000
metric tons of coal.
Malaysia
Teluk Rubiah Maritime Terminal (“TRMT”). TRMT is located in the Malaysian state of Perak and has a pier with
two berths that allows the unloading of vessels of approximately 400,000 DWT of capacity and the loading of
vessels up to 220,000 DWT of capacity. In 2018, the terminal unloaded 24 million metric tons of iron ore and
loaded 24 million metric tons of iron ore.
4.1.3 Shipping
Maritime shipping of iron ore and pellets
In 2018, we shipped approximately 248 million metric tons of iron ore and pellets in transactions in which we were
responsible for transportation. We ship a large amount of our iron ore products from Brazil to Asia through
long-term contracts of affreightment with owners of very large ore carriers (VLOCs). These vessels reduce energy
consumption and greenhouse emissions by carrying an increased amount of cargo in a single trip, offering lower
shipping costs. In 2018, approximately 64 million metric tons of iron ore products were transported under long
term contracts of affreightment on vessels of 400,000 DWT.
We also own three capesize vessels with capacities ranging from 150,000 to 180,000 DWT.
We have changed our strategy with respect to maritime shipping. In the past, we owned and operated a low-cost
fleet of vessels to carry our cargoes from Brazil to our markets, especially in Asia. We now focus on securing
long-term shipping capacity and protecting against volatility in freight pricing through long-term contracts of
affreightment, without incurring the costs relating to building, owning and operating the vessels. Since 2014, we
have sold 19 of our VLOCs of 400,000 DWT for an aggregate amount of US$1.940 billion. In 2018, Vale
concluded negotiations of long-term contracts of affreightment with shipowners to employ 47 new VLOCs of
325,000 DWT. These shipowners plan to build the new vessels in China, South Korea and Japan, with deliveries
estimated to take place between 2019 and 2023. Vessels will be equipped with similar engines to the ones that
are currently being used in the second generation of Valemax vessels, and which are much more fuel-efficient.
68
Paraná—Paraguay waterway system
Through our subsidiary, Transbarge Navegación, and other chartered convoys, we transport iron ore and
manganese ores through the Paraná and Paraguay waterway system. The barges are unloaded in our local
customers’ terminals in Argentina or in a contracted terminal in the Nueva Palmira Free Zone in Uruguay, where
we load the ore into ocean going vessels. We transported 2.1 million metric tons through the waterway system in
2018, including 1.046 thousand metric tons of ore through our local customers’ terminals and 1.058 thousand
metric tons of ore through a port in Uruguay.
Lines of Business
Tugboats
We manage a fleet of 15 owned tugboats. We directly operate nine tugboats in the ports of Vitória and
Mangaratiba, in the Brazilian states of Espírito Santo and Rio de Janeiro, respectively. We have a 50% stake in a
consortium that operates five tugboats in the port of São Luís in the Brazilian states of Maranhão. One additional
tugboat is hired to and operated by third parties, under their responsibility, in other ports in Brazil. We also own
two tugboats in New Caledonia.
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 2018, our installed capacity in
Brazil was 1.6 GW, sourced from both directly and indirectly owned power plants. We use the electricity produced
by these plants for our internal consumption needs. We currently own direct stakes in three hydroelectric power
plants and three small hydroelectric power plants in operation. The hydroelectric power plant of Candonga, the
operations of which remain suspended since November 2015 as a result of the failure of the Samarco Dam, is
located in the Southeastern region, Machadinho is located in the Southern region, and Estreito is located in the
Northern region. The small hydroelectric power plants of Mello, Glória and Nova Maurício are located in the
Southeastern region. In 2018, we sold the Ituerê hydroelectric power plant, located in the Southeastern region,
due to its high required investments, low capacity and high cash cost when compared to our other assets.
Through our 55% participation in Aliança Geração de Energia S.A. (“Aliança Geração”), we also have indirect
stakes in the hydroelectric power plants of Igarapava, Porto Estrela, Funil, Candonga, Aimorés, Capim Branco I,
Capim Branco II, , located in the Southeastern Region and, additionally, we have indirect stake in Santo Inácio, a
Wind Complex located in Ceará State, which started operations in December 2017. Part of the electricity
generated by these assets is supplied to our operations through power purchase agreements with Aliança
Geração.
In order to achieve electricity self-sufficiency in Brazil by 2030 and increase renewable energy sources, we signed
a long-term energy supply contract for 20 years, which will be supplied by the Folha Larga Sul wind farm, a 151.2
MW project in Campo Formoso, Bahia, Brazil. This project is expected to begin commercial operation by the first
half of 2020. The agreement also includes a future asset call option held by Vale.
We also have a 4.59% indirect 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, which started operations in April
2016. Our participation in the Belo Monte project gives us the right to purchase 9% of
69
the electricity generated by the plant, which has already been contracted through a long-term power purchase
agreement entered into with Norte Energia.
We also produce, through our subsidiary Biopalma da Amazônia S.A. (“Biopalma”), palm oil in the Brazilian state
of Pará.
Lines of Business
Canada
In 2018, our wholly owned and operated hydroelectric power plants in Sudbury generated 19% of the electricity
requirements of our Sudbury operations. The power plants consist of five separate generation stations with an
installed generator nameplate capacity of 55 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 2018, average demand for electrical energy was 162 MW to all surface plants and mines in the
Sudbury area.
In 2018, diesel generation provided 100% of the electric requirements of our Voisey’s Bay operations. We have
six diesel generators on-site, with output ranging from 12 to 14 MW, in order to meet seasonal demands.
Indonesia
Energy costs are a significant component of our nickel production costs for the processing of lateritic ore at our
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
Below is a list of our main investments:
• Pelletizing plants. We have a 25% stake in two iron ore pelletizing plants in China, Zhuhai YPM and
Anyang. The remaining stake in Zhuhai YPM is owned by Zhuhai Yueyufeng Iron and Steel Co. Ltd.
and Halswell Enterprises Limited, and the remaining stake in Anyang is owned by Anyang Iron &
Steel Co., Ltd.
• Coal operations. We have a 25% stake in Longyu (in the Henan province) coal operations in China.
Longyu produces metallurgical and thermal coal and other related products, and the remaining
interests are owned by Yongmei Group Co., Ltd.
(former Yongcheng Coal & Electricity
(Group) Co. Ltd.), Shanghai Baosteel International Economic & Trading Co., Ltd. and other minority
shareholders.
• Nickel refinery. We have a 25% indirect stake in Korea Nickel Corporation, which operates a nickel
refinery in South Korea. The remaining stake is held by Korea Zinc Co., Ltd, Posteel Co., Ltd., Young
Poong Co., Ltd., and others. Korea Nickel Corporation produces finished nickel for the stainless steel
industry using intermediate products from our Matsuzaka and New Caledonia operations.
70
Lines of Business
• Steel producers. We own a 50% stake in California Steel Industries, Inc. (“CSI”), a producer of
flat-rolled steel and pipe products located in California, United States. The remainder is owned by
JFE Steel. CSI’s annual production capacity is approximately 2.8 million metric tons of flat and pipe
products. We also own a 50% stake in Companhia Siderúrgica do Pecém (“CSP”), an integrated 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. CSP’s annual production capacity is 3.0 million metric tons.
• Bauxite. We own a 40% stake in Mineração Rio do Norte S.A. (“MRN”), a bauxite mining business
located in Brazil.
• Samarco. We own a 50% stake in Samarco, an integrated system comprised of two mines, three
beneficiation plants, three pipelines, four pellet plants and a port. The mines and the beneficiation
plants are located in the state of Minas Gerais and the pellet plants and port are located in the state
of Espírito Santo. From Minas Gerais to Espírito Santo state production flows through the three
pipelines which extend for approximately 400 Km. Samarco’s mining and pelletizing operations have
been suspended following the failure of one of its tailings dams located in Minas Gerais in November
2015 (see Business overview—Failure of Samarco’s tailings dam in Minas Gerais).
71
RESERVES
PRESENTATION OF INFORMATION CONCERNING 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 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 (i) quantity is computed from dimensions
revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the
results of detailed sampling; and (ii) 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 2018, we performed an analysis of our reserve estimates for certain projects and operations,
which is presented in this report. Reserve estimates for each operation assume that we either have or expect to
obtain all the necessary rights and permits to mine, extract and process mineral reserves at each mine. For some
of our operations, the projected exhaustion date includes stockpile reclamation. Where we own less than 100% of
the operation, reserve estimates have not been adjusted to reflect our proportional 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.
As a part of Vale internal governance process, we have a Mineral Resources and Mineral Reserves Global
Committee coordinated by our exploration and projects department and composed of representatives of all
business units (Ferrous, Coal and Base Metals) and the accounting, investor relations and capital projects
departments. The purpose of these committee is ensuring the transparency, consistency, professional
competence and reliability of all information prepared for internal purposes and public reporting. It is also
responsible for overseeing the governance of our estimation and reporting of mineral reserves, which include
external audit when applicable.
We report our reserves in accordance with the SEC’s Industry Guide 7, as summarized above. In 2018, the SEC
adopted new rules governing disclosures on mining properties, including reporting of reserves and resources,
which will take effect for our 2021 fiscal year (although earlier adoption is permitted). The new SEC rules will align
SEC disclosure requirements more closely with global regulatory practices and standards, as embodied in
standards developed by CRIRSCO (Committee for Mineral Reserves International Reporting Standards). We
already estimate our reserves under CRIRSCO standards, therefore we do not expect material changes when the
new SEC standards become effective.
Our reserve estimates are based on certain assumptions about prices. We have determined that our reported
reserves could be economically produced if prices for the products identified in the following
72
Reserves
table were equal to the three-year average historical prices through December 31, 2018. For this purpose, we
used the three-year historical average prices set forth in the following table.
Commodity
Iron ore:
Three-year average historical price
Pricing source
Vale(1) ...................................................................
US$66.4 per dry metric ton
Average Platts IODEX (62% Fe CFR China)
Coal:(2)
Metallurgical – Moatize ..........................................
Thermal – Moatize .................................................
US$179.4 per metric ton
US$82.3 per metric ton
Base metals:
Nickel(3) .................................................................
Copper ...................................................................
US$11,037 per metric ton
US$5,850 per metric ton
Platts PHCC (PLV)
Richards Bay FOB
LME Ni
LME Cu
Nickel and copper byproducts:
Platinum .................................................................
Palladium ...............................................................
Gold........................................................................
Cobalt(3) ................................................................
Manganese ore(4):
US$938 per oz
US$838 per oz
US$1,258 per oz
US$54,423 per metric ton
Average realized price
Average realized price
Average realized price
99.3% low cobalt metal (source: Metal Bulletin)
Manganese ............................................................
US$5.81 per dry metric ton
Average CRU (44% Mn CFR China)
(1) The economic assessment of our iron ore reserves is based on the average of 62% Fe iron ore prices, as adjusted to reflect the effects of freight, moisture
and the quality premium for our iron ore.
(2) As received basis (8% moisture).
(3) 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.
(4) The economic assessment of our manganese ore reserves is based on the average CRU prices, adjusted to reflect the effects of freight, moisture and the
quality premium for our manganese ore prices on a CFR China basis.
IRON ORE RESERVES
The tables below set forth our iron ore reserves and other information about our iron ore mines. Our reserve table
reflects our production and operational plans, which are based on the facilities (consisting of both mines and
processing plants) within each system, rather than the individual mines.
We classify our iron ore reserves as proven reserves to the extent that they satisfy the requirements of the
definition of proven (measured) reserves, as described above, and that we have obtained the environmental
licenses for the corresponding pit operation and have at least a reasonable expectation of obtaining on a timely
basis any additional licenses necessary to conduct the operations.
We periodically review the economic viability of our iron ore reserves in light of changes in the iron ore industry.
We have determined that the Urucum and Corumbá mines, although at production stage, are not economically
viable based on three-year average historical prices. Accordingly, we are not reporting reserves at those facilities
since 2015.
Variations in iron ore reserves from 2017 to 2018 reflect depletion resulting from mine production for all mines.
Our reserves for Fazendão, Fábrica Nova and Capanema (located at the Mariana complex in our Southeastern
System), João Pereira, Galinheiro and Sapecado (located at the Minas Itabirito complex in our Southern System)
and Capitão do Mato (located at the Vargem Grande complex in our Southern System) have been positively
affected by new geological information and estimates. Also, we are no longer reporting reserves for the Conta
História project, located at the Mariana complex in our Southeastern System, because we are reviewing our long
term plan for Mariana complex.
73
Reserves
Following the failure of Dam I tailing dam in January 2019 and the shutdown of the Feijão and Jangada mines and
related infrastructure, all located in the Paraopeba Complex (Southern System), we are reviewing these
operations and Capim Branco project. Under these circumstances, we are currently not in a position to report
these reserves. For more information about the failure of Feijão tailing dam, see Business overview—Failure of
the tailings dam at the Córrego do Feijão mine.
On January 29, 2019, we announced our decision to accelerate the decommissioning of our upstream tailings
dams. In order to proceed with the accelerated decommissioning of these upstream tailings dams, we will
temporarily halt production at the units where the structures are located, namely: Abóboras, Capitão do Mato and
Tamanduá (located at the Vargem Grande complex); Segredo and João Pereira (located at the Fábrica
sub-complex in the Minas Itabirito complex). We will also suspend production at Fábrica and Vargem Grande
pelletizing plants. The temporary halt of these operations does not impact our mineral reserves, because the
upstream dams being decommissioned were no longer in use and are not necessary for these operations. We
expect to resume these operations once the decommissioning work is completed.
Proven – 2018
Probable – 2018
Total – 2018
Total – 2017
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Iron ore reserves(1)
(As of December 31, 2018)
Southeastern System(2)
Itabira(3) ..........................................
Minas Centrais(4) ...........................
Mariana(5) .......................................
687.5
163.6
366.6
Total Southeastern System ..............
1,217.7
Southern System(6)
Minas Itabirito(7) .............................
Vargem Grande(8) ..........................
Paraopeba(9) ..................................
Total Southern System ......................
Northern System(10)
436.9
368.9
42.9
848.6
Serra Norte(11) ...............................
576.2
Serra Sul(12)...................................
1,969.0
Serra Leste .....................................
Total Northern System ......................
Total Vale Systems ............................
6.9
2,552.1
4,618.4
45.7
48.5
46.9
46.4
54.8
44.0
63.2
50.5
66.3
66.1
66.7
66.2
58.1
173.9
570.7
3,507.9
4,252.6
3,243.7
1,170.5
123.2
4,537.3
1,443.6
2,319.1
249.3
4,012.0
12,802.0
45.8
57.4
44.5
46.3
43.7
47.9
60.6
45.3
65.7
66.4
65.4
66.1
52.1
861.4
734.4
3,874.5
5,470.4
3,680.5
1,539.3
166.1
5,385.9
2,019.9
4,288.1
256.2
6,564.1
17,420.4
45.7
55.4
44.7
46.3
45.0
47.0
61.3
46.1
65.9
66.3
65.4
66.1
53.7
920.2
776.5
4,100.4
5,797.1
3,658.2
1,462.5
308.5
5,429.2
2,169.2
4,195.3
258.1
6,622.6
17,848.9
45.6
55.1
44.3
45.9
45.0
48.3
60.4
46.7
66.0
65.5
65.4
65.6
53.5
(1)
Iron Ore Reserve estimates stated as metric million tonnes inclusive moisture and dry %Fe grade; following moisture contents: Itabira 1.66%; Minas Centrais
7,46%; Mariana 3.66%; Minas Itabirito 4.74%; Vargem Grande 5.17%; Paraopeba 6.29%; Serra Norte 6.39%; Serra Sul 4.47%; Serra Leste 3.18%.
(2) Approximate drill hole spacing used to classify the Reserves were: 100m × 100m to Proven Reserves and 200m × 200m to Probable Reserves. Average
product recovery (tonnage basis) of the iron ore reserves are: 53% for Itabira, 78% for Minas Centrais and 62% for Mariana.
(3)
Includes reserves for Conceição and Minas do Meio mines.
(4)
Includes reserves for Brucutu mine and Apolo project. Our operations at the Brucutu mine have been suspended since February 4, 2019. On April 15, 2019,
the court of appeals of the State of Minas Gerais reversed the last injunction that prevented us from operating the Brucutu mine. We expect to resume
operations at Brucutu soon, but the proceedings challenging our right to use the dams supporting our operations at Brucutu are still ongoing.
(5)
Includes reserves for Alegria, Fábrica Nova and Fazendão mines and Capanema. For 2017, we also reported reserves for Conta Histórica project.
(6) Approximate drill hole spacing used to classify the Reserves were: 100m × 100m to Proven Reserves and 200m × 200m to Probable Reserves. Average
product recovery (tonnage basis) of the iron ore reserves are: 59% for Minas Itabirito, 58% for Vargem Grande and 96% for Paraopeba.
(7)
Includes reserves for Sapecado, Galinheiro, João Pereira and Segredo mines.
(8)
Includes reserves for Tamanduá, Capitão do Mato and Abóboras mines.
74
(9) Paraopeba integrated operation includes Jangada, Córrego do Feijão, Mar Azul and Capão Xavier mines and the Capim Branco project. For 2018, we only
report reserves for Mar Azul and Capão Xavier mines. We are not in a position to report reserves for the Jangada and Córrego do Feijão mines and the
Capim Branco project, which are under review following the failure of Dam I at the Feijão mine.
(10) Approximate drill hole spacing used to classify the reserves were: 150m × 100m to proven reserves and 300m × 200m to probable reserves, except Serra
Leste which is 100m × 100m to proven reserves and 200m × 200m to probable reserves. Average product recovery (tonnage basis) of the iron ore reserves
are: 100% for Serra Norte, 100% for Serra Leste and 100% for Serra Sul.
Reserves
(11) Includes reserves for N1, N2, N3, N4W, N4E and N5 mines.
(12) Includes reserves for S11C and S11D deposits.
The mine exhaustion schedule has been adjusted due to our new production plan and our revision of project
capacity.
Iron ore integrated operations
Type
Operating since
Projected
exhaustion date(1)
Vale interest
Southeastern System
Itabira ..............................................................
Minas Centrais ................................................
Mariana ...........................................................
Southern System
Minas Itabirito..................................................
Vargem Grande ..............................................
Paraopeba ......................................................
Northern System
Serra Norte .....................................................
Serra Sul .........................................................
Serra Leste .....................................................
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
Open pit
1957
1994
1976
1942
1993
2001
1984
2016
2014
2028
2054
2106
2120
2059
2036
2042
2062
2062
(1)
Indicates the life-of-mine for the operating mine with the longest projected exhaustion date in the complex.
Manganese ore reserves
(%)
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
The following tables set forth manganese ore reserves and other information about our mines. The variation in the
mine’s ore reserves from 2017 to 2018 predominantly reflects depletion through mine production and update due
to new geological information and estimates of ore reserves for Azul and Morro da Mina. Our manganese ore
reserves information for Urucum are currently being reviewed to consider new economic assumptions and
ongoing geotechnical studies, which are expected to be completed by 2020. Although the Urucum mine continues
to operate, we are not in a position to report reserves for the Urucum mine until these studies are concluded.
Manganese ore reserves(1)(2)
(As of December 31, 2018)
Proven – 2018
Probable – 2018
Total – 2018
Total – 2017
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Azul ........................................................
Urucum ...................................................
Morro da Mina ........................................
Total ..................................................
10.3
–
4.8
15.1
26.5
–
28.4
27.1
4.4
–
3.7
8.1
27.5
–
24.5
26.1
14.7
–
8.5
23.2
26.8
–
26.7
26.7
15.0
9.3
8.5
32.7
26.6
46.5
30.4
33.2
(1) Manganese Ore Reserve estimates stated as metric million tonnes inclusive moisture and dry %Mn grade; following moisture contents: Morro da Mina
(3.4%) and Mina do Azul (18.0%).
(2) Approximate drill hole spacing used to classify the reserves was: 100m × 100m for Proven Reserves and 200m × 200m for Probable Reserves. Average
product recovery (tonnage basis) of the iron ore reserves are: Azul (40%) and Morro da Mina (70%).
75
The mine exhaustion schedule has been adjusted to reflect our new production plan.
Type
Operating since
Projected
exhaustion date
Vale interest
Manganese ore mines
Azul .................................................................................
Open pit
Urucum ............................................................................
Underground
Morro da Mina .................................................................
Open pit
1985
1976
1902
2026
–
2049
(%)
100.0
100.0
100.0
Reserves
COAL RESERVES
Our coal reserve estimates have been provided on an in-place material basis after adjustments for depletion
through mine production, anticipated mining losses and dilution. Marketable reserves include adjustments for
losses associated with beneficiation of raw coal mined to meet saleable product requirements.
We continue our exploration program in Moatize, targeting areas within the current mine plan and the extension of
it, with the purpose of aggregating more reserves in the future. In 2018, we drilled 52% (approximately 92,000
meters) of the total 177,000 meter exploration drill campaign, which will continue in 2019. The results of this
campaign are still under analysis and have not been reflected in our mineral reserve disclosure.
Coal ore reserves(1)
(As of December 31, 2018)
ROM(2)
Proven – Probable –
Marketable reserves(3)
Coal type
2018
2018
Total – 2018
Total – 2017
2018
2017
Tonnage
Tonnage
CV
Tonnage
CV
Tonnage
Tonnage
Moatize .............................................. Metallurgical & thermal
194.8
791.0
985.7
26.0
1,022.5 26.0 (thermal)
403.0
415.0
(1) The reserve stated above is 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 and is reported on an in situ 4.0% moisture basis. Calorific Value (CV) for thermal coal is stated as the Gross
Calorific Value (Mj/Kg) on air-dried basis.
(3) Tonnage is stated in millions of metric tons.
Type
Operating since
Coal mines
Projected
exhaustion date
Moatize ............................................................................
Open pit
2011
2039
Vale interest
(%)
80.75
76
Reserves
NICKEL ORE RESERVES
Our nickel mineral reserve estimates are of in-place material after adjustments for depletion and mining losses (or
screening and drying in the case of PTVI) and recoveries, with no adjustments made for metal losses due to
processing.
Nickel ore reserves(1)
(As of December 31, 2018)
Proven – 2018
Probable – 2018
Total – 2018
Total – 2017
Recovery
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
range
(%)
Canada
Sudbury .............................................
Thompson .........................................
Voisey’s Bay .....................................
20.9
–
15.5
1.65
–
2.24
40.8
–
15.5
1.27
–
2.00
61.7
–
31.0
1.40
–
2.12
64.9
–
32.4
1.43
75 – 85
–
85 – 90
2.13
80 – 90
Indonesia
PTVI ..................................................
101.8
1.76
14.7
1.64
116.4
1.74
95.1
1.79
85 – 90
New Caledonia
VNC...................................................
–
–
–
–
–
–
–
–
–
Brazil
Onça Puma .......................................
Total .......................................................
60.7
199.0
1.66
1.75
53.1
124.0
1.38
1.45
113.8
322.9
1.53
1.64
106.5
298.9
1.53
1.66
85 – 90
(1) Tonnage is stated in millions of dry metric tons. Grade is % of nickel.
In Canada, our Sudbury operation’s mineral reserves decreased in 2018 due to depletion and minor adjustments
due to re-evaluations of reserves at the Copper Cliff Mine. The Voisey’s Bay operations mineral reserves
decreased due to depletion. In Indonesia, the mineral reserves at the PTVI operations increased due to the
conversion of resource to reserve, considering an extension of the mining rights until 2045. The mineral reserves
at Onça Puma, in Brazil, increased due to the conversion of the Puma West resources to reserves and an update
of the Puma block model.
We are not reporting the mineral reserves of VNC and Thompson as of December 31, 2018, because the mineral
reserves for our operations in New Caledonia and Thompson would not be economically viable at the three-year
historical average price, due to the decline in nickel prices in the past three years. However, based on our
expectations about future prices, our operations in New Caledonia and Thompson continue to be economically
viable. VNC and Thompson continue to operate and are currently conducting studies to identify measures to
reduce their costs of production.
Type
Operating since
Projected
exhaustion date
Vale interest
Nickel ore mines
Canada
Sudbury ......................................................................
Underground
Thompson ..................................................................
Underground
Voisey’s Bay(1) .......................................................... Open pit/Underground
Indonesia
PTVI ...........................................................................
Open pit
New Caledonia
VNC............................................................................
Open pit
Brazil
Onça Puma ................................................................
Open pit
(1) Voisey’s Bay will transition from an open pit mine to an underground mine.
1885
1961
2005
1977
2011
2011
77
2042
–
2033
2040
–
2071
(%)
100.0
100.0
100.0
59.27
95.0
100.0
Reserves
COPPER ORE RESERVES
Our copper mineral 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 – 2018
Probable – 2018
Total – 2018
Total – 2017
Recovery
Tonnage
Grade
Tonnage
Grade
(%)
Grade
Tonnage
Grade
range
Copper ore reserves(1)
(As of December 31, 2018)
Canada
Sudbury .............................................
Voisey’s Bay .....................................
Brazil
Sossego ............................................
Salobo ...............................................
Total .......................................................
20.9
15.5
103.1
619.2
758.7
2.43
1.00
0.66
0.63
0.69
40.8
15.5
5.9
537.7
599.9
1.44
0.88
0.69
0.58
0.65
61.7
31.0
109.0
1,156.9
1,358.5
1.78
0.94
0.66
0.61
0.67
64.9
32.4
120.1
1,193.4
1,410.8
1.80
0.96
0.68
0.61
0.68
%
90 – 95
90 – 95
90 – 95
80 – 90
(1) Tonnage is stated in millions of dry metric tons. Grade is % of copper.
In Canada, our Sudbury operation’s mineral reserves decreased in 2018 due to depletion and minor adjustments
due to re-evaluations of mineral reserves at Copper Cliff Mine, and our Voisey’s Bay operation’s mineral reserves
decreased due to mining depletion. In Brazil, the Sossego operations mineral reserves decreased due to
depletion and stockpile reclamation. The mineral reserve estimates at the Salobo operation decreased due to
depletion and re-evaluation work, partially offset by medium- and low-grade stockpile additions.
Type
Operating since
Projected exhaustion
date
Vale interest
Copper ore mines
Canada
Sudbury .............................................
Underground
Voisey’s Bay .....................................
Open pit/Underground
Brazil
Sossego ............................................
Salobo ...............................................
Open pit
Open pit
1885
2005
2004
2012
2042
2033
2027
2051(1)
(1) Reduction in the number of years due to the approval of the Salobo III copper expansion project.
(%)
100.0
100.0
100.0
100.0
78
PGMS AND OTHER PRECIOUS METALS RESERVES
We expect to recover significant quantities of precious metals as byproducts of our Sudbury, Sossego and Salobo
operations. Our mineral 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.
Reserves
Precious metals reserves(1)
(As of December 31, 2018)
Proven – 2018
Probable – 2018
Total – 2018
Total – 2017
Recovery
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
range
(%)
Canada
Sudbury
Platinum ..............................
Palladium ............................
Gold ....................................
20.9
20.9
20.9
Brazil
Sossego
Gold ....................................
103.1
Salobo
Gold ....................................
Total Pt + Pd(2) .............................
Total Gold ......................................
619.2
20.9
743.2
1.3
1.5
0.6
0.2
0.3
2.9
0.3
40.8
40.8
40.8
1.2
1.5
0.4
61.7
61.7
61.7
1.2
1.5
0.5
64.9
64.9
64.9
1.2
1.4
0.5
80 – 90
80 – 90
80 – 90
5.9
0.2
109.0
0.2
120.1
0.2
75 – 80
537.7
40.8
584.4
0.3
2.7
0.3
1,156.9
61.7
1,327.6
0.3
2.8
0.3
1,193.4
64.9
1,378.4
0.3
2.6
0.3
60 – 70
(1)
(2)
Tonnage is stated in millions of dry metric tons. Grade is grams per dry metric ton.
Pt+Pd is the sum of Platinum and Palladium grades.
In Sudbury our mineral reserve estimates for platinum, palladium and gold decreased for the same reasons
discussed above in connection with the nickel mineral reserves. In Brazil, mineral reserve estimates for gold
changed for the same reasons discussed above in connection with the copper mineral reserves.
Type
Operating since
Projected exhaustion
date
Vale interest
Precious metals mines
Canada
Sudbury .............................................
Underground
Brazil
Sossego ............................................
Salobo ...............................................
Open pit
Open pit
1885
2004
2012
2042
2027
2051
(%)
100.0
100.0
100.0
79
Reserves
COBALT ORE RESERVES
We expect to recover significant quantities of cobalt as a byproduct of our Sudbury and Voisey’s Bay operations.
Our cobalt reserve estimates are of in-place material after adjustments for depletion and mining losses, with no
adjustments for metal losses due to processing.
Proven – 2018
Probable – 2018
Total – 2018
Total – 2017
Recovery
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
Tonnage
Grade
range
Cobalt ore reserves(1)
(As of December 31, 2018)
Canada
Sudbury .............................................
Voisey’s Bay .....................................
New Caledonia
VNC...................................................
Total .............................................
20.9
15.5
–
36.4
0.04
0.13
–
0.08
40.8
15.5
–
56.3
0.02
0.12
–
0.05
61.7
31.0
–
92.7
0.03
0.13
–
0.06
64.9
32.4
–
97.3
0.04
0.13
–
0.07
%
20 – 40
70 – 80
(1)
Tonnage is stated in millions of metric tons. Grade is % of cobalt.
Our cobalt reserve estimates decreased in 2018 for the same reasons discussed above in connection with the
nickel mineral reserves.
Type
Operating since
Projected exhaustion
date
Vale interest
Cobalt ore mines
Canada
Sudbury .............................................
Underground
Voisey’s Bay .....................................
Open pit/ Underground
New Caledonia
VNC...................................................
Open pit
1885
2005
2011
2042
2033
–
(%)
100.0
100.0
95.0
80
CAPITAL EXPENDITURES
The figures discussed in this section are for project execution and sustaining existing operations and replacement
projects.
The 2019 investment budget approved by our Board of Directors is US$703 million for project execution,
reflecting a 27.7% decrease compared to the 2018 investment budget, and US$3.731 billion for sustaining
existing operations and replacement projects, reflecting a 30.2% increase compared to 2018. Most of the capital
expenditures budget for project execution will be invested in Brazil (96%).
Project execution (construction in
progress) ..........................................
Investments to sustain existing
operations and replacement
projects (property, plant and
equipment) .......................................
Total ......................................................
2017 expenditures(1)
2018 expenditures(1)
2019 budget
(US$ million)
(US$ million)
(% of total)
1,617
888
703
15.9
2,231
US$3,848
2,896
US$3,784
3.731
US$4.434
84.1
100%
(1) Executed capital expenditures comprise the sum of cash outflows.
We are developing a focused organic growth portfolio with fewer projects, but higher expected rates of return. Our
main initiative, S11D, accounts for 44.2% of the US$703 million budgeted for project execution in 2019.
The following table sets forth total expenditures in 2018 for our main investment projects and expenditures
budgeted for those projects in 2019, together with estimated total expenditures for each project and the actual or
estimated start-up date of each project as of December 31, 2018.
Business area
Main projects(1)
Actual or
estimated
start-up
Executed CAPEX
Expected CAPEX
2018(2)
Total
executed(3)
2019(4)
Total
expected(5)
Iron ore .......................... CLN S11D(6)
1H14 to 2H19
Base Metals—North
Atlantic ..................... VBME
Iron ore .......................... Gelado
Base Metals—South
Atlantic
Salobo III
1H21
2H21
1H22
578
163
5
3
(US$ million)
7,146
223
5
3
209
311
87
193
7,679
1,694
428
1,128
(1) Projects approved by our Board of Directors.
(2) Executed capital expenditures comprise the sum of cash outflows.
(3) Total executed CAPEX through December 31, 2018, including capital expenditures in prior periods.
(4) Figure presented corresponds to the amount approved in the US$4.434 billion investment budget.
(5) Estimated total capital expenditure cost for each project, including capital expenditures in prior periods. Total expected CAPEX includes expenses, in line
with the budget approved by our Board of Directors, while these expenses are not included in the expected CAPEX for the year or in the total executed
CAPEX figures.
(6) Original expected CAPEX for CLN S11D was US$11.582 billion.
Our key investment projects are described in more detail below:
• The largest ongoing capital expenditure project is the increase in the logistics capacity of the Northern
System to support the S11D mine, including the expansion of approximately 570 km of railway,
construction of a railway spur of 101 km, acquisition of wagons and locomotives and port expansion
(onshore and offshore expansions at Ponta da Madeira maritime terminal). This project is expected to
increase EFC’s nominal logistics capacity to approximately 230 Mtpy. The duplication of the railway
achieved 95% of physical progress and the railway spur was totally completed. The port offshore
started up in the last quarter
81
Capital Expenditures
of 2016. The project is 97% complete, with executed capital expenditures (total cash outflows) of
US$7.146 billion. The start-up is expected to continue through the second half of 2019.
• The Voisey’s Bay underground mine extension project (“VBME”) project is expected to extend the
mine life of Voisey’s Bay and to increase Voisey’s Bay production to an estimated annual production
of around 45 kt of nickel, on average, about 20 kt of copper and about 2.6 kt of cobalt, in total. VBME
will replace existing Voisey’s Bay mine production, thus being recorded as a sustaining investment for
the purpose of the dividend policy. The project is 17% complete, with executed capital expenditures
(total cash outflows) of US$223 million. Start-up is expected in the first half of 2021. In June 2018, we
announced a cobalt streaming transaction that enabled the development of VBME.
•
•
•
In September 2018, our Board of Directors approved a sustaining investment in the Gelado project,
which will recover approximately 10 Mtpy of pellet feed with 64.3% Fe content, 2.0% silica and 1.65%
alumina from tailings dams in the Carajás Complex in order to feed the São Luís pellet plant. The
project is 3% complete, with executed capital expenditures (total cash outflows) of US$5 million.
Start-up is expected in the second half of 2021.
In October 2018, our Board of Directors approved investment in the Salobo III copper project, a
brownfield expansion increasing processing throughput capacity. The project encompasses a third
concentrator line, and will use Salobo’s existing infrastructure. Salobo III will produce an average
copper volume of approximately 50 ktpy in the first 5 years, 42 ktpy in the first 10 years and 36 ktpy
throughout the life of mine. Start-up is scheduled for the first half of 2022 with a ramp-up of
15 months.
In December 2018, we announced an expansion of the S11D mine production by 10 Mtpy (from 90
Mtpy to 100 Mtpy) and of the Northern System’s logistics from 230 Mtpy to 240 Mtpy, with start-up in
2022, given the expected increase in demand for high-grade ores.
82
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
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 for our continuing operations.
Location
Mining title
Brazil ...............................................................
Canada(1) ....................................................... Mining concessions (terminology varies among provinces)
Indonesia(2) ....................................................
New Caledonia(3) ...........................................
Mozambique(4) ...............................................
Contract of work
Mining concessions
Mining concessions
Mining concessions (including under applications)
Approximate area covered
(in hectares)
Expiration date
595,523
218,761
118,017
21,077
23,780
Indefinite
2018 – 2038
2025
2022 – 2051
2032
(1) The expiration date of our leases in Sudbury is subject to current renewal applications. The approval process for applications submitted in 2018 is in
progress. All conditions required for the renewal were fulfilled. This process usually takes a number of years and we can continue to operate while the
approval process is ongoing.
(2) The contract entered into by PTVI and the Indonesian government will expire in 2025. PTVI is entitled to two 10-year extensions in the form of a business
license, subject to government approval.
(3) VNC has requested renewal of some concessions that were scheduled to expire before 2018. We may continue to operate while the approval process is
ongoing.
(4) Entitled to 25-year extensions, subject to approval by the Mozambique government.
In addition to the concessions listed above, we have exploration licenses and exploration applications covering
3.6 million hectares in Brazil and 1.5 million hectares in other countries.
There are several proposed or recently adopted changes in mining legislation and regulations in the jurisdictions
where we have operations that could materially affect us. For instance, on June 12, 2018, the Brazilian President
issued Decree 9,406 instituting a new legislative and regulatory framework for the mining industry. This decree
provides for an overhaul of the Brazilian mining code and the regulations of the ANM, the new national mining
agency succeeding the DNPM, including the adoption of international standards of classification of mineral
resources and reserves for the purpose of exploration reports and establishment of competitive proceedings for
areas released from prior concessions. The ANM approved resolutions in 2018 confirming the stability of mining
titles, including mining concessions, which had no impact on our disclosed reserves.
83
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:
Regulatory Matters
• Brazil. We are required to pay a royalty known as 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 calculation of the CFEM is done as follows: (i) for domestic
sales, the basis for calculation of CFEM is the revenue from sales, net of sales taxes and
contributions; (ii) for exports, the basis for calculation of CFEM is the amount equivalent to the
transfer pricing in federal income tax legislation; and (iii) for a company’s internal mineral
consumption, the basis for calculation of CFEM is the value equivalent to the current price of the ore
in the domestic market, the international markets or a reference value, as to be determined by the
ANM. The current CFEM rates are: 3.5% for iron ore; 2% for copper, nickel, fertilizers and other
materials; 3% for bauxite, potash and manganese ore; and 1.5% for gold.
• Brazilian states. Several Brazilian states, including Minas Gerais, Pará and Mato Grosso do Sul,
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$3.593 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.
• Mozambique. The mining agreement signed in June 2007 with the Mozambican government requires
that we pay a royalty known as IPM (Imposto sobre a Produção Mineira) on revenues from sales of
extracted coal, net of insurance and transportation costs incurred before sales. The royalty rate on
coal mining activity in Mozambique is currently 3%.
•
Indonesia. Our subsidiary PTVI pays mining royalties of 2% on its nickel matte revenues when LME
nickel prices are below US$21,000 per metric ton and 3% of its nickel matte revenues when LME
nickel prices are above or equal to US$21,000 per metric ton.
• New Caledonia. The mining code of New Caledonia requires us to pay royalties linked to the
ownership of mining concessions. The basis of calculation is (i) 800 Pacific francs per hectare when
the owned surface is less than 15,000 hectares and (ii) 1,000 Pacific francs per hectare when the
owned surface is greater than 15,000 hectare.
84
Regulatory Matters
ENVIRONMENTAL REGULATIONS
We are also subject to environmental regulations that apply to the specific types of mining and processing
activities we conduct. We are required to obtain approvals, licenses, permits or authorizations from governmental
authorities to construct and operate. In most jurisdictions, the development of new facilities requires us to submit
environmental and social impacts assessments for approval and often to make investments to mitigate
environmental and social impacts, and we must 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, funding research into new and alternative technologies to reduce
environmental and social impacts, use and continuous improvement of a Best Practices Guide for Environmental
Licensing and the Environment, the deployment of highly-skilled specialist teams and closer interaction with
environmental regulators.
Environmental regulations affecting our operations relate, among other matters, to emissions of pollutants into the
air, soil and water, including greenhouse gas and climate change regulations; recycling and waste management;
protection and preservation of forests, coastlines, caves, cultural heritage sites, watersheds and other features of
the ecosystem; water use; and financial provisions and closure plans required for mining licenses, including
decommissioning and reclamation costs. 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, especially
following the entry into force of the Paris Agreement in late 2016.
There are several examples of environmental regulation and compliance initiatives that could affect our
operations. For instance, under applicable Brazilian regulations for the protection of caves, we are required to
conduct extensive technical studies and negotiate compensatory measures with Brazilian environmental
regulators in order to continue to operate in certain sites. 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. Also, a Brazilian regulation for the protection of indigenous people, which was enacted in 2011
and revised in 2015, requires us to conduct specific studies of impact and sponsor mitigation programs in
connection with operations and projects close to indigenous people’s lands. In 2017, the federal government
created new rules for the payment of environmental compensation for activities subjected to environmental
assessment. As a result, in 2018 we recognized a liability related to regulatory obligations stemming from the new
rules.
BRAZILIAN REGULATION OF MINING DAMS
In May 2017, the DNPM (predecessor to the ANM) created new obligations for companies operating mining dams
in Brazil, primarily:
• Audit: Companies operating mining dams must conduct two annual stability audits for each dam and
prepare a stability condition report and the corresponding Stability Condition Statement (DCE). One
of these audit must be conducted by external auditors.
• Dam Periodic Safety Reviews (RPSB—Revisão Periódica de Segurança de Barragem): The report
must include detailed analysis of all dam’s documentation, including projects and procedures, stability
analysis of the structures and the impacts on surrounding communities, including hazards and failure
impact studies. Companies operating mining dams classified as
85
Regulatory Matters
high associated potential damage (DPA) completed these studies in June 2018, while those for
medium-DPA mining dams were completed in December 2018. Studies for low-DPA mining dams
must be completed by June 2019. The RPSB reports must be renewed each 3, 5 and 7 years for
high, medium and low DPA respectively, and whenever any structural modifications are made.
• Emergency Action Plan of Mining Dams Training: Companies operating high-DPA mining dams must
conduct two annual emergency action plan training sessions for their employees.
• Monitoring: Additional video monitoring must be implemented for all high-DPA mining dams by June
2019.
In February 2019, the ANM issued a resolution on dam safety requiring companies that own upstream tailings
dams to submit a technical decommissioning project by August 2019 and to fully decommission any inactive
upstream tailings dam by August 2021, and any active upstream tailings dam by August 2023. In addition, the
resolution requires the decommissioning of our facilities within the Self-Rescue Zone of a tailings dam. This new
resolution is already in effect, but is under public consultation for potential adjustments until May 1, 2019.
In February 2019, a new statute approved by the state of Minas Gerais prohibits the increase, modification or
construction of any upstream dam. The statute also prohibits the increase, modification or construction of any
dam if communities are established within its Self-Rescue Zone, an area which encompasses the portion of the
valley downstream of the dam where timely evacuation and intervention by the competent authorities in
emergency situations is not possible. In general, it imposes certain restrictions on the use of any other type of
tailings dams and significant restrictions on our ability to increase any existing dam.
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 Infrastructure and the regulatory agency for ground
transportation (ANTT). The concessions for EFC and EFVM expire in 2027 and may be renewed at
the federal government’s discretion. VLI has also been awarded a subconcession contract for
commercial operation of a 720-kilometer segment of the FNS railroad in Brazil, which expires in 2037,
and FCA and MRS concessions expire in 2026. Rail transportation prices 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 railway operators, to make investments in the railway
network, and to meet certain productivity and safety requirements, among other obligations. In 2016,
we and other railroad concessionaries in Brazil initiated discussions with ANTT regarding the
possibility of early renewal of railways concession contracts, which are ongoing. Approval would
require a formal analysis of the economic and technical conditions by the federal government, federal
court of auditors (TCU) and the approval of our Board of Directors. As part of the process, nine public
hearings took place in 2018 and the ANTT technical analysis is now in its final
86
Regulatory Matters
phase. If we agree to an earlier renewal of our concessions, we may have to agree with additional
performance indicators, new investments obligations and new service standards.
• Brazilian port regulation. Port operations in Brazil are subject to regulation and supervision by
ANTAQ, the federal agency in charge of maritime transportation services, and by the Ministry of
Infrastructure through the Secretary of Ports (SNP), whose purpose is to formulate policies and
guidelines. The agreements to operate our private terminals are valid until 2039, with the exception of
the agreement with CPBS, which will expire in 2026.
• 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. We are compliant with the requirements of the REACH regulations. In
addition, South Korea is currently implementing a regulation similar to REACH, and we anticipate
further expansion of REACH-like regulations in other Asian countries.
• Regulation of
international maritime
transportation. We are subject
to health, safety and
environmental regulation by the International Maritime Organization (IMO). IMO rules apply not only
to the international shipping categories, but also to the types of cargoes transported, including special
rules for iron ore, coal, nickel and copper. The IMO is currently discussing further measures for
enhancing the energy efficiency of international shipping and reducing its overall greenhouse gas
emissions. In April 2018, reduction targets were defined as part of the IMO’s initial strategy for
curbing the sector’s emissions. These targets include a 50% reduction in greenhouse gas emissions
by 2050, based on 2008 levels. The organization will reach a final strategy, including the measures to
be adopted, by 2023. These measures may increase our freight cost in the future. In 2016, the IMO
also approved regulation establishing limits for sulfur oxides emission limits, which will become
effective in 2020. This regulation may increase freight cost due to the need to use bunker with low
sulfur content or to install additional pollutant control equipment to limit air emissions. Also, the
International Convention for the Control and Management of Ships’ Ballast Water and Sediments
became effective in September 2017 for new ships (those with keels laid after that date). For existing
ships, the convention will become effective in stages beginning in September 2019, following which
date each vessel will have a specific deadline for compliance, with the global fleet required to be fully
compliant by September 2024. Under this convention, all compliant ships during their international
voyages are required to manage their ballast water and sediments in accordance with the defined
requirements, which may also result in increases of freight and port operation costs.
87
III. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
OVERVIEW
Our performance in 2018 was overshadowed by the tragic event in Brumadinho in January 2019. For a discussion
of the expected impact of the dam failure on our future results, see Business overview—Failure of the tailings
dam at the Córrego do Feijão mine.
In 2018, our net income from continuing operations in 2018 was US$6.988 billion, compared to US$6.334 billion
in 2017, and our Adjusted EBITDA in 2018 was US$16.593 billion, 8.2% higher than in 2017, mainly as a result of
higher realized prices (impact of US$977 million) and higher sales volumes (impact of US$975 million) for ferrous
minerals, which were partially offset by higher costs and expenses for ferrous minerals (impact of
US$616 million), driven by cost factors that are directly linked to iron ore prices. Adjusted EBITDA is a non-GAAP
measure, which is calculated using net income or loss and adding back (i) depreciation, depletion and
amortization, (ii) income taxes, (iii) financial results, net, (iv) equity results and other results in associates and joint
ventures, net of dividends received, and (v) special events. For more information on the reconciliation of our
Adjusted EBITDA to our net income, see note 4 to our consolidated financial statements.
IMPACT OF THE FAILURE OF DAM I AT THE CÓRREGO DO FEIJÃO MINE
The failure of Dam I represents an event subsequent to the financial statements as of and for the year ended
December 31, 2018. Accounting impacts of the dam failure will consequently be reflected in the financial
statements for 2019, beginning with the financial statements as of and for the quarter ended March 31, 2019. We
expect the failure of Dam I and its consequences to have extensive impact on our financial performance and
results of operations. We have not yet determined the full scope and amount of all the consequences, but some
major expected impacts are summarized below.
• Reduced revenues due to the suspension of operations. As of April 15, 2019, the estimated impact of
the suspension of operations following the dam failure on our production is 92.8 million metric tons
per year (including the estimated annual impact of the suspension of the Brucutu mine). The
suspension of these operations may cause a decrease in our revenues for the year of 2019.
•
•
Increased expenditures for assistance and remediation. We expect to incur significant expenses as a
result of assistance and remediation actions following the dam failure. As of the date hereof, we
cannot estimate the impact of these increased expenditures in our financial statements.
Impairments of fixed assets. We expect to write off assets of the Córrego do Feijão mine and those
related to the upstream dams in Brazil, resulting in a loss of US$124 million in 2019. Additional
impairments, write-off or write-down of assets may be recognized in 2019.
• Provisions for costs of decommissioning and further remediation. We expect to recognize provisions
for the costs for decommissioning of our existing upstream dams. We are evaluating the measures to
be taken to decommission our tailings dams, but cannot estimate the timing and costs associated
with this process. At this point we cannot estimate the amounts of provisions to be recognized.
• Provisions for legal proceedings. We are subject to a number of investigations and legal proceedings
in connection with the failure of Dam I, which may result in significant liabilities. On February 15,
2019, we entered into a preliminary agreement with labor
88
Overview
prosecutors in Minas Gerais pursuant to which we agreed to indemnify direct and indirect employees
affected by the closure of our operations at Córrego do Feijão mine. We currently estimate that a
provision of approximately US$220 million will be recognized in 2019 in connection with this
proceeding. On February 20, 2019, we entered into a preliminary agreement with certain public
authorities, pursuant to which we agreed to provide certain emergency indemnification payments to
the residents of Brumadinho and the communities that are located in a certain region by the
Paraopeba river. We estimate a provision ranging from US$260 million to US$520 million in
connection with this settlement. Our potential liabilities resulting from the dam failure are significant,
and additional provisions may be recognized during the year of 2019.
• Freeze of assets. Various Brazilian courts have ordered the freezing of an aggregate of R$17.6 billion
(US$4.5 billion) of our financial assets to secure the payment of damages resulting from the dam
failure, including balances in our bank accounts, judicial deposits and common shares that we hold in
treasury.
MAJOR FACTORS AFFECTING PRICES
Iron ore and iron ore pellets
Iron ore and iron ore pellets are priced based on a wide array of quality levels and physical characteristics. Price
differences derive from various factors, such as the iron content of specific ore deposits, the beneficiation
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. Also, fines,
lump ore and pellets typically command different prices.
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 real estate and infrastructure construction and global industrial production.
Demand from China has been the principal driver of world demand and prices.
In 2018, China’s “supply-side reform” was broadened to include coke and iron ore operations, in addition to steel
operations. As a result, supply constraints were observed in both industries. During the year, iron ore price levels
were mainly sustained by these constraints, combined with firm steel consumption and higher steel prices. As a
result, steel mills increased their productivity in response to the increase in demand and price, which supported
the premium for high-grade ores, such as our iron ore from Carajás, and pellets.
China’s steel sector outperformed in 2018, mainly driven by machinery, manufacturing and real estate. The
infrastructure sector underperformed during the year, mainly driven by deleveraging and tighter public—private
partnership policies. Manufactured goods enjoyed healthy external demand driven by strong orders from the
United States and developed countries, as well as robust internal demand driven by improvements in the
industry’s profit margins, all leading China to deliver a record-high steel production of 928.3 Mt in 2018, an
increase of 6.6% year-on-year as per the World Steel Association.
Global steel production excluding China also posted strong growth in 2018 with 880.3 Mt, an increase of 2.5%
year-on-year, as the world enjoys its first synchronized growth since the global financial crisis of 2008 and 2009
as consumption and job creation increased and investments resumed, reflecting in steel demand and production.
89
Overview
As a results of the macroeconomic condition mentioned above, in 2018 there was an increase in the price
spreads between high- and low-quality ores. Improved steel profitability, high coking coal price and the
environmental restrictions imposed during 2018 led mills to source high-quality ores like the Carajás iron ore
(IOCJ), with around 65% Fe, which provide higher productivity and lower emission levels. While the Metal Bulletin
58% average of US$40.5/dmt in 2018 was only 13% lower year-on-year, the Metal Bulletin 65% average of
US$90.4/dmt in 2018 represented an increase of 3% year-on-year.
The price differentials between high- and low-grade iron ores are a structural change that should continue to
impact the market in the coming years. The move towards a more efficient steel industry, with the enforcement of
stricter environmental policies in China, should support the demand for high-quality ores that enable productivity
and lower emission levels like pellets and IOCJ.
While the increased demand for higher grade ores should support the quality premiums, the relatively strong
supply of ores with lower Fe and high contaminant levels should also maintain pressure on the discounts for such
products. Iron ore Platts IODEX 62% averaged US$69.5/dmt in 2018, in line with the 2017 level of 71.3/dmt, as
the steel sector outperformance led to higher steel prices and iron ore premiums across the world.
In 2019, we expect China’s economic growth to moderate from 2018 with some downward risks from property,
trade and certain manufacturing sectors (e.g. auto and home appliances). However, since the property stock level
has been reduced, the investments and new starts should see only a small decrease. In addition, the Chinese
government has showed clear signs to support infrastructure investment that should partly offset the headwinds
from the property and trade sectors.
Nickel
Nickel is an exchange-traded metal, listed on the LME and, starting in 2015, on the SHFE. Most nickel products
are priced based on 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, 70% of global primary nickel consumption in 2018.
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 2018, 67% of
our refined nickel sales were made for non-stainless steel applications, compared to the industry average for
primary nickel producers of 30%, 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.
Stainless steel is a significant driver of demand for nickel, particularly in China. In 2018, stainless steel production
in China represented 41% of total nickel demand. As a consequence, changes in Chinese stainless steel
production have a large impact on global nickel demand. In 2018, Chinese stainless steel production grew 2%
compared to 7% in 2017. Also, the growth in stainless focused on 300-series grade steels, which contains
relatively high amounts of nickel, due to superior physical characteristics compared to other austenitic stainless
steel series. We anticipate that demand will continue growing in 2019.
While stainless steel production is a major driver of global nickel demand, stainless steel producers can obtain
nickel 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. On average between 2014 and 2018,
secondary nickel accounted for approximately 40% of total nickel used for stainless steel. Regional availability
and consumption of secondary nickel varies. In China, due to low availability of scrap,
90
Overview
the use of secondary nickel represents 22% of the total nickel used for stainless steel, while nickel pig iron, a
relatively low grade nickel product made primarily in China from imported lateritic ores, accounts for
approximately 36%.
In recent years, Chinese domestic production of nickel pig iron accounted for the majority of world nickel supply
growth. In 2018, approximately 449kt thousand metric tons, representing 22% of world primary nickel supply was
produced as nickel pig iron in China using nickel ore from the Philippines and Indonesia. Chinese nickel pig iron
production was adversely affected by export restriction of unprocessed ores from Indonesia, beginning in 2014. In
January 2017, the Indonesian government issued a ministerial decree changing the 2009 mining law that banned
the export of unprocessed and semi-processed ores from the country. The ministerial decree allows for the
controlled recommencement of nickel ore exports from Indonesia giving broad availability of ores for the
production of nickel pig iron in China. As a result, the bottleneck for production has shifted away from ore
availability to nickel pig iron capacity. Furthermore, Indonesia is emerging as a large producer of nickel pig iron. In
2018, 263kt of nickel as nickel pig iron was produced in Indonesia much of it integrated directly to produce
stainless steel. We expect nickel pig iron production in Indonesia and China to continue to grow.
The nickel market was in deficit in 2018 by approximately 146kt. Global exchange inventories (London Metals
Exchange and Shanghai Future Exchange) declined 188,239 metric tons from January 1, 2018 to December 31,
2018, implying some off-exchange inventory holding. We expect the market to remain in deficit in 2019, although
less so than we estimated for 2018.
In the long term, the battery segment shows important upside potential as electric vehicle production continues to
attract significant investments, which could positively affect nickel price and our nickel premiums. As currently
foreseeable, commercially viable electric vehicle battery technologies utilize nickel; increasing nickel content in
such batteries results in improved energy storage and lower cost. As a result, nickel demand is expected to surge,
particularly given the expected increase in production of electric vehicles and the trends towards increased
battery size and increased nickel content in batteries to improve performance and lower cost.
Copper
Copper demand in recent years has been driven primarily by China, 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, SHFE and COMEX, 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.
Demand for refined copper grew by approximately 3% in 2018, with China responsible for approximately 49% of
worldwide consumption. Predominant use of copper in China was in construction and in the electrical grid. In
2018, supply disruptions due to labor negotiations were expected to continue in 2018, particularly from 2017.
However, these disputes were averted, resulting in mine production increasing approximately 3% compared to
2017. In the first half of the year, demand in China as well as a positive macroeconomic environment helped
improve copper prices. Yet, this trend reversed during the second half of the year where trade war disputes
between China and the United States put downward pressure on copper prices. We anticipate that the market will
reach a balance in 2019, as demand continues to grow and projects complete ramping up.
91
Overview
Coal
Demand for metallurgical coal is fundamentally driven by steel demand, and future growth continues to be
expected in Asia. Asia, including India, accounts for more than half of the steel market and consumes
approximately 75% of seaborne metallurgical coal. Chinese total coking coal imports decreased by 7% to almost
65 million metric tons in 2018 compared to approximately 70 million metric tons imported in 2017, mainly due to
increased domestic coal consumption. In 2018, China accounted for approximately 20% of total metallurgical coal
imports. Global demand excluding China has increased by approximately 2.1% in 2018, compared to 2017,
mainly driven by India, and is expected to increase by 10% (to 55 million metric tons), mainly driven by South
America and Southeast Asia.
The Chinese government has implemented a number of policies in order to conduct structural reforms and
address oversupply capacity, while improving overall safety standards and the long-term competitiveness of its
domestic coal industry. Between 2016 and 2018, total closures reached approximately 60Mt and the Chinese
government set up plans to cut an additional 200Mt by 2020. In order to meet air quality rules implemented as
part of new environmental measures, Chinese coal mines and coke makers have been inspected several times
during 2018 and were shut down for not meeting safety and environmental standards in the Fenwei region. This
has resulted in shortages of coke and premium coking coal, leading to higher prices.
In the international market, price volatility continued in 2018. Premium coking coal average price climbed 10.1%
year-on-year from US$187 per metric ton in 2017 to US$207 per metric ton. Seaborne coking coal prices were
strong at US$262 per metric in early January amid severe weather conditions and logistics constraints. Prices
reached a bottom of US$179 per metric ton, mainly driven by weaker currency related to the trade war, steel
production cuts and weak demand from India with ongoing monsoons. However, prices rebounded in the second
half of 2018, mainly due to an increase in demand from China after the end of the winter cuts, logistic constraints
and supply tightness in Queensland due to port maintenance, and tightness in the U.S. industry related to
hurricane Florence, reaching a price of US$220 per metric ton at year-end. The price of metallurgical coal on
January 10, 2019 was US$199 per metric ton.
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. Global
power demand increased 3.6% year on year and thermal coal demand increased 1.6% year on year. The
Chinese seaborne thermal coal import posted a second year in a row increase, reaching approximately
220 million metric tons in 2018, up 9.7% year on year, as a result of increased power demand. Demand in Asian
countries (excluding China) has been relatively stable, Coal consumption for power generation has fallen for the
fifth consecutive year in Europe, and demand is estimated to drop by 6.5% year on year. The European seaborne
import decrease was largely impacted by the decline in coal consumption in the UK and Germany, and continued
competition against gas and renewables. However, short-term factors, such as low water levels in Europe
reducing hydropower generation and nuclear and gas supply issues have kept demand volatile. In India,
year-on-year thermal coal demand remained firm, and seaborne imports increased by 9% in 2018, compared to
2017, due to increased power generation and lower than expected domestic production. The power sector in India
is expected to grow in the near term and domestic production plans set by the Indian government are unlikely to
reach targets due to a number of land acquisition issues and infrastructure projects.
The Newcastle Index average in 2018 reached US$107.3 per metric ton, up 21% year on year, while the Richards
Bay Coal Index increased by 21% to US$97.8 per metric ton. Thermal coal prices started the year on a strong
note supported by healthy demand in India and in China. However, prices fell in the second half of 2018 due to
weaker demand from China and improved renewables in Europe. Chinese import restrictions, improved Chinese
domestic supply, and warmer winters have dented the high ash
92
Overview
off-specification prices and the discounts of Richards Bay widened from US$7 per metric ton in the beginning of
2018 to US$23 per metric ton by year-end.
Climate change policies may continue to adversely impact coal demand in Europe, North America and China.
However, consumption in other developing Asian economies is expected to expand. On the supply side, current
investments are low and the lack of new project development is expected to impact supply and demand balance
by 2020, at which point prices will be set by incentive prices.
FAILURE OF SAMARCO’S FUNDÃO TAILINGS DAM
We own a 50% interest in Samarco and account for it under the equity method. Below is a summary of the impact
of the failure of Samarco’s dam, which occurred in November 2015, in our financial statements:
• The carrying value for our investment in Samarco was reduced to zero in 2015.
•
In June 2016, pursuant to the Framework Agreement, Samarco, Vale S.A. and BHPB created the
Fundação Renova to develop and implement remediation and compensation programs over many
years. The Framework Agreement provides that to the extent that Samarco does not meet its funding
obligations to the foundation, each of Vale S.A. and BHPB must provide funds to Fundação Renova
in proportion to its 50% equity interest in Samarco. As a result of uncertainty related to the timing of
Samarco’s resumption of operations and expected cash flows, we recognized a provision for
estimated costs.
• The amount of provisions related to Samarco as of December 31, 2018 is US$1,121 million, 13%
higher than in 2017, mainly due to the increase of the estimated costs driven by the revision of the
plan to mitigate and compensate for the impacts of the disruption from Samarco’s tailing dam, net of
the contributions made to Fundação Renova. This provision represents the present value of our best
estimate of the amounts we may incur to comply with our obligations under the Framework
Agreement, considering our 50% stake in Samarco. At each reporting period, we reassess the key
assumptions used by Samarco in the preparation of its projected future cash flows and adjust the
provision, if required.
•
In 2018, we contributed R$1,379 million (US$374 million), which was allocated as follows:
(i) R$1,065 million (US$290 million) contributed to Fundação Renova and Samarco to be used in the
reparation programs in accordance with the Framework Agreement, and deducted from the provision,
and (ii) R$315 million (US$84 million) was used by Samarco to fund its working capital. These
contributions were made through the issuance by Samarco of non-convertible private debentures,
which were equally subscribed by Vale and BHPB. We recognized an impairment in our statement of
income for the year ended December 31, 2018 for the amount of these non-convertible private
debentures.
• We intend to make available short-term facilities up to US$88 million to support Samarco’s operations
during the first half of 2019, and for expenses related to the experts named pursuant to the
preliminary agreements with the MPF, signed in January 2017. These funds will be released as
needed, but we have not undertaken an obligation to Samarco. BHPB has stated that it will make
available to Samarco short-term facilities with similar terms and conditions.
• Upon creation of Fundação Renova, Samarco transferred to Fundação Renova most of the
reparation and compensation programs. Therefore, we made contributions directly to Fundação
Renova in the total amounts of R$239 million (US$71 million), R$941 million
93
Overview
(US$294 million) and R$1,045 million (US$284 million) in 2016, 2017 and 2018, respectively, and we
expect to contribute R$1,160 million (US$309 million) in 2019, to be used in the programs in
accordance with the Framework Agreement.
EFFECT OF CURRENCY EXCHANGE VARIATION
Our results are affected in several ways by changes in the value of the Brazilian real. Year-end exchange rate
variations impact our financial results, while the average exchange rate impacts our operational performance.
In 2018, the Brazilian real depreciated 17.1% against the U.S. dollar, from an exchange rate of R$3.31 to
US$1.00 on December 31, 2017 to R$3.87 to US$1.00 on December 31, 2018. The most important effects were
non-cash losses, as described below.
• We have
intercompany
International which are
transactions between Vale S.A. and Vale
denominated in U.S. dollar. Due to the different functional currency of our parent company, changes
in the value of the U.S. dollar against the Brazilian real result in exchange gain or loss. In 2018, our
net foreign exchange loss of US$2,247 million mainly relates to exchange losses on our net U.S.
dollar-denominated liabilities, due to the depreciation of the Brazilian real against the U.S. dollar
• We had real-denominated debt of US$3.432 billion as of December 31, 2018, excluding accrued
charges. Since most of our revenues are in U.S. dollars, we used swaps to convert part of our debt
service from Brazilian reais to U.S. dollars. Changes in the value of the U.S. dollar against the
Brazilian real result in fair value variation on these derivatives, affecting our financial results. As a
result of the depreciation of the Brazilian real against the U.S. dollar in 2018, we had fair value losses
on our currency derivatives of US$279 million. For more information on our use of derivatives, see
Risk management.
In 2018, the annual average exchange rate for Brazilian reais against the U.S. dollar depreciated by 13.0%, from
an average exchange rate of R$3.19 to US$1.00 in 2017 to R$3.66 to US$1.00 in 2018. This had a positive
impact on our operational result and cash flows. The most important effect is described below:
• Most of our revenues are denominated in U.S. dollars, while our cost of goods sold are denominated
in various currencies, including the Brazilian real (50.8% in 2018), the U.S. dollar (35.7% in 2018) and
the Canadian dollar (11.2% in 2018). As a result, the depreciation of the Brazilian real and other
currencies against the U.S. dollar decreased our costs and expenses by US$1.082 billion.
In January 2017, we implemented hedge accounting for the foreign currency risk arising from Vale S.A.’s net
investments in Vale International and Vale Austria. Under the hedge accounting program, our debt denominated
in U.S. dollars and Euros serves as a hedge instrument for these investments. With the program, the impact of
exchange rate variations on debt denominated in U.S. dollars and Euros has been partially recorded under other
comprehensive income, reducing the volatility of our financial performance.
Starting on January 1, 2019, we will treat certain long-term intercompany loans payable by Vale S.A. to Vale
International, for which settlement is neither planned nor likely to occur in the foreseeable future, as part of
Vale S.A.’s net investment in Vale International. Until December 31, 2018, the impact of the exchange variation
on these intercompany loans was reflected on our consolidated income statement. With the change in the
accounting treatment, the foreign exchange differences associated with our net
94
investment in Vale International will be recognized in other comprehensive income in in our stockholders’ equity.
This amount would be reclassified from stockholders’ equity to income statement in case of disposal or partial
disposal of the net investment in Vale International. Upon implementation of this change, the effect of net foreign
exchange gains or losses in the financial results reported in our consolidated income statement is expected to
reduce.
CHANGES IN ACCOUNTING POLICIES
Certain new accounting standards became effective for the accounting period beginning on or after January 1,
2018. The key changes to accounting policies are described below:
Overview
•
•
IFRS 9—Financial Instruments (“IFRS 9”) is applicable for annual periods beginning on or after
January 1, 2018. This standard addresses the classification and measurement of financial assets and
liabilities, and provides for new impairment model and new rules for hedge accounting. IFRS 9 did not
cause a material impact on our financial statements for 2018.
IFRS 15—Revenue from Contracts with Customers (“IFRS 15”) is applicable for annual periods
beginning on or after January 1, 2018. IFRS 15 provides a single comprehensive accounting model
for recognition of revenue arising from contracts with customers based on a core principle that
revenue is recognized at the time the control of a good or service is transferred to a customer and in
an amount that reflects the consideration expected to be received in exchange for the transfer of this
good or service. IFRS 15 did not impact revenue recognition for most of our contracts, since usually
the transfer of risks and rewards and the transfer of control are at the same point in time.
Under IFRS 15, for contracts in which we are responsible for providing shipping services after the date of transfer
of control of goods to customers (sales under CFR or CIF Incoterms), the provision of shipping services is
accounted for as a separate performance obligation, and a portion of the transaction price is allocated to such
services and recognized over time. The impact on the timing of revenue recognition did not significantly impact
our financial statements for 2018. Therefore, we did not present this revenue separately in our financial
statements.
•
IFRS 16—Leases (“IFRS 16”) is applicable for annual periods beginning on or after January 1, 2019.
IFRS 16 eliminates the distinction between operating and finance leases for lessees, and requires
that most leases be reflected on the lessee’s balance sheet as a right-of-use asset and a lease
liability.
As of December 31, 2018, we have non-cancellable operating lease commitments in the nominal amount of
US$2.498 billion. We have reviewed these leasing commitments over the last year in light of the new lease
accounting rules in IFRS 16. Of these commitments, we expect to recognize right-of-use assets and lease
liabilities ranging from US$1.8 billion to US$2 billion on January 1, 2019, which corresponds to the net present
value of these non-cancellable operating lease commitments.
The actual impact of adopting the standard is subject to further changes because we have not finalized the testing
and assessment of controls over our new IT systems. Also, the new accounting policies are subject to change
until we present our first financial statements from the date of initial application.
For more information, see note 2 to our consolidated financial statements.
95
RESULTS OF OPERATIONS
CONSOLIDATED REVENUES
In 2018, our net operating revenues from continuing operations increased by 7.7% to US$36.575 billion, primarily
resulting from higher realized prices for iron ore fines and pellets (an impact of US$980 million on our net
revenues) and higher sales volumes of iron ore fines and pellets (an impact of US$1.848 billion on our net
revenues). Our net operating revenues were also positively impacted by higher prices for base metals (positive
impact of US$685 million). Net operating results of each segment are discussed below under—Results of
operations by segment.
Our revenue depends, among other factors, on the volume of production at our facilities and the prices for our
products. For more information on our production, see Information on the Company—Lines of Business.
Increases in the capacity of our facilities resulting from our capital expenditure program have an important effect
on our performance. Our production is also affected by acquisitions and dispositions.
The following table summarizes, for the periods indicated, the distribution of our net operating revenues from
continuing operations based on the geographical location of our customers.
2016
Net operating revenues by destination
2017
2018
(US$ million)
(% of total)
(US$ million)
(% of total)
(US$ million)
(% of total)
North America
Canada ..............................................................................
United States.....................................................................
South America
Brazil .................................................................................
Other .................................................................................
Asia
China .................................................................................
Japan ................................................................................
South Korea ......................................................................
Taiwan ...............................................................................
Other .................................................................................
Europe
Germany ...........................................................................
United Kingdom ................................................................
Italy ....................................................................................
France ...............................................................................
Other .................................................................................
Rest of the world .............................................................
1,172
1,005
2,177
2,064
354
2,418
12,747
1,741
880
621
889
16,878
1,379
326
435
429
2,079
4,648
1,367
Total .............................................................................
27,488
CONSOLIDATED OPERATING COSTS AND EXPENSES
4.3%
3.7
7.9
7.5
1.3
8.8
46.4
6.3
3.2
2.3
3.2
61.4
5.0
1.2
1.6
1.6
7.6
16.9
5.0
100%
1,008
1,310
2,318
3,475
664
4,139
14,018
2,456
1,399
700
1,483
20,056
1,389
346
521
551
2,695
5,502
1,952
33,967
3.0%
3.9
6.8
10.2
2.0
12.2
41.3
7.2
4.1
2.1
4.4
59.0
4.1
1.0
1.5
1.6
7.9
16.2
5.7
100%
656
1,353
2,009
3,248
822
4,070
15,242
2,743
1,299
513
1,854
21,651
1,653
327
553
655
2,920
6,107
2,738
36,575
1.8%
3.7
5.5
8.9
2.2
11.1
41.7
7.5
3.6
1.4
5.1
59.2
4.5
0.9
1.5
1.8
8.0
16.7
7.5
100%
Our cost of goods sold and services rendered from continuing operations totaled US$22.109 billion in 2018,
increasing by 5.1%, or US$1.070 billion, from the US$21.039 billion recorded in 2017. Higher costs were mostly
driven by higher freight costs (impact of US$589 million) and higher costs per metric ton on ferrous minerals
(impact of US$997 million) due to external factors such as the increase in royalties’ rate and raw material inflation.
The increase in cost of goods sold was partially offset by the positive impact
96
caused by the depreciation of the Brazilian real against U.S. dollar and other currencies (impact of
US$946 million).
Our selling, general, administrative and other expenses from continuing operations totaled US$968 million in
2018, in line with US$951 million recorded in 2017. We decreased our pre-operating and stoppage expenses by
US$142 million, as S11D ramp-up matured and began to be accounted for as costs in 2018. This reduction was
partially offset by the increase by 9.7% in our research and evaluation expenses, to US$373 million in 2018 from
US$340 million in 2017.
Results of Operations
RESULTS OF OPERATIONS BY SEGMENT
Net operating revenue by segment
The following table summarizes our net operating revenues by product for the periods indicated.
Ferrous minerals:
Iron ore .......................................................................................................................
Pellets ........................................................................................................................
Ferroalloys and manganese ......................................................................................
Other ferrous products and services .........................................................................
Subtotal .................................................................................................................
Coal .................................................................................................................................
Base metals:
Nickel and other products(1) .....................................................................................
Copper concentrate(2) ...............................................................................................
Subtotal .................................................................................................................
Other products and services(3) ......................................................................................
2016
15,784
3,827
302
438
20,351
839
4,472
1,667
6,139
159
Net operating revenues...................................................................................................
27,488
Includes nickel coproducts (copper) and byproducts (precious metals, cobalt and others).
(1)
(2) Does not include copper produced in our nickel operations.
(3)
Includes energy.
% change
Year ended December 31,
2017
(US$ million, except for %)
% change
17.4%
47.7
55.3
10.3
23.5
86.8
4.4
32.2
11.9
151.6
23.6%
18,524
5,653
469
483
25,129
1,567
4,667
2,204
6,871
400
33,967
9.9%
17.7
(3.2)
(1.9)
11.2
4.9
(1.2)
(5.0)
(2.4)
(26.0)
7.7%
2018
20,354
6,651
454
474
27,933
1,643
4,610
2,093
6,703
296
36,575
Sales volumes
The following table sets forth, for our principal products, the total volumes we sold in each of the periods
indicated.
2016
Year ended December 31,
2017
(thousand metric tons, except where
indicated)
2018
Ferrous minerals:
Iron ore fines ..............................................................................................................................................
Pellets ........................................................................................................................................................
Manganese ................................................................................................................................................
Ferroalloys .................................................................................................................................................
ROM ...........................................................................................................................................................
Coal:
Thermal coal ..............................................................................................................................................
Metallurgical coal .......................................................................................................................................
Base metals:
Nickel .........................................................................................................................................................
Copper .......................................................................................................................................................
PGMs (000’ oz.) .........................................................................................................................................
Gold (000’ oz.) ...........................................................................................................................................
Silver (000’ oz.) ..........................................................................................................................................
Cobalt (metric tons) ...................................................................................................................................
289,940
47,709
1,851
127
3,496
5,457
4,907
311
430
507
497
2,578
4,734
288,692
51,775
1,826
132
2,637
4,602
7,178
295
424
350
471
2,179
5,013
307,433
56,592
1,572
141
1,548
5,393
6,240
236
379
374
484
2,169
4,974
97
Average realized prices
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 our net operating revenues, which consist of the price
charged to customers, excluding certain items that we deduct in arriving at net operating revenues, mainly
value-added tax.
Results of Operations
Year ended December 31,
2017
(US$ per metric ton, except where indicated)
2016
2018
Ferrous minerals:
Iron ore .............................................................................................................................................
Pellets ...............................................................................................................................................
Manganese .......................................................................................................................................
Ferroalloys ........................................................................................................................................
Coal:
Thermal coal .....................................................................................................................................
Metallurgical coal ..............................................................................................................................
Base metals:
Nickel ................................................................................................................................................
Copper ..............................................................................................................................................
Platinum (US$/oz) ............................................................................................................................
Gold (US$/oz) ...................................................................................................................................
Silver (US$/oz) .................................................................................................................................
Cobalt ...............................................................................................................................................
54.44
80.26
110.87
757.67
46.17
119.54
9,800.00
4,458.00
919.00
1,260.49
16.22
24,273.00
64.17
109.18
159.01
1,353.72
71.05
172.69
10,654.00
5,970.00
891.00
1,247.00
15.30
51,513.00
66.21
117.52
162.51
1,178.50
84.19
190.60
13,666.83
5,583.00
901.00
1,254.15
14.43
62,910.72
Cost of goods sold by segment
The following table presents, for each indicated period, our cost of goods sold by segment and the percentage
change from year to year. Because significant portions of changes in our cost of goods sold may derive from
exchange rate variations, we also present in the table below the effect of exchange variations and the changes on
a constant currency basis.
Ferrous minerals:
Iron ore .................................................................................
Pellets ..................................................................................
Ferroalloys and manganese ................................................
Other ferrous products and services ...................................
Subtotal ...........................................................................
Coal ...........................................................................................
Base metals:
Nickel and other products(1) ...............................................
Copper(2) .............................................................................
Subtotal ...........................................................................
Other .........................................................................................
Total (excluding depreciation) ...................................................
Depreciation ..............................................................................
Total (including depreciation) ....................................................
2017
2018
Year ended December 31,
Cost of goods
sold
Cost of goods
sold
Variation as
reported
Exchange rate
impact in 2018
Variation
without
exchange rate
impact
2018
Variation—
constant
currency
basis
(US$ million, except for %)
7,950
2,876
278
306
11,410
1,354
3,437
979
4,416
375
17,555
3,484
21,039
9,048
3,393
290
313
13,044
1,575
3,060
960
4,020
263
18,902
3,207
22,109
13.8%
18.0
4.3
2.3
14.3
16.3
(11.0)
(1.9)
(9.0)
(29.9)
7.7
(8.0)
(534)
(208)
(29)
(34)
(805)
–
(14)
(96)
(110)
(31)
(946)
(191)
5.1%
(1,137)
1,632
725
41
41
2,439
221
(363)
77
(286)
(81)
2,293
(86)
2,207
22.0%
27.2
16.5
15.1
23.0
16.3
(10.6)
8.7
(6.6)
(23.5)
13.8
(2.6)
11.1%
(1)
Includes nickel coproducts (copper) and byproducts (precious metals, cobalt and others).
98
(2) Does not include copper produced in our nickel operations.
Results of Operations
2016
2017
2017
Year ended December 31,
Cost of goods
sold
Cost of goods
sold
Variation as
reported
Exchange rate
impact in 2017
Variation
without
exchange rate
impact
Variation—
constant
currency basis
(US$ million, except for %)
Ferrous minerals:
Iron ore .......................................................................
Pellets ........................................................................
Ferroalloys and manganese ......................................
Other ferrous products and services .........................
Subtotal .................................................................
Coal .................................................................................
Base metals:
Nickel and other products(1) .....................................
Copper(2) ...................................................................
Subtotal .................................................................
Other ...............................................................................
Total (excluding depreciation) .........................................
Depreciation ....................................................................
Total (including depreciation) ..........................................
6,622
2,002
231
269
9,124
872
3,204
924
4,128
259
14,383
3,267
17,650
7,950
2,876
278
306
11,410
1,354
3,437
979
4,416
375
17,555
3,484
21,039
20.1%
43.7
20.3
13.8
25.1
55.3
7.3
6.0
7.0
44.8
22.1
6.6
19.2%
Includes nickel coproducts (copper) and byproducts (precious metals, cobalt and others).
(1)
(2) Does not include copper produced in our nickel operations.
Expenses by segment (excluding depreciation)
330
110
14
36
490
–
64
81
145
20
655
159
814
998
764
33
1
1,796
482
169
(26)
143
96
2,517
58
2,575
14.4%
36.2
13.5
0.3
18.7
55.3
5.2
(2.6)
3.3
34.4
16.7
1.7
13.9%
The following table summarizes, for each indicated period, our expenses (consisting of selling, general and
administrative, research and evaluation, pre-operating, stoppage and other expenses, net of other revenues) by
segment and the percentage change from year to year. Because significant portions of
99
changes in our expenses may derive from exchange rate variations, we also present in the table below the effect
of exchange variations and the changes on a constant currency basis. See—Impairment charges.
Results of Operations
2017
2018
2018
Year ended December 31,
Expenses Expenses
Variation as
reported
Exchange rate
impact in
2018
Variation without
exchange rate
impact
(US$ million, except for %)
Variation—
constant
currency
basis
Ferrous minerals:
Iron ore ............................................................................................
Pellets .............................................................................................
Ferroalloys and manganese ...........................................................
Other ferrous products and services ..............................................
Subtotal ......................................................................................
Coal ......................................................................................................
Nickel and other products(1) ..........................................................
Copper(2) ........................................................................................
Subtotal ......................................................................................
Others ..................................................................................................
258
35
12
(9)
296
30
171
28
199
955
301
56
4
6
367
30
119
22
141
930
Total (excluding depreciation) ..............................................................
Depreciation .........................................................................................
Total (including depreciation) ...............................................................
1,480
224
1,704
1,468
144
1,612
16.7%
60.0
(66.7)
(166.7)
24.0
–
(30.4)
(21.4)
(29.1)
(2.6)
(0.8)
(35.7)
(5.4)%
Includes nickel coproducts (copper) and byproducts (precious metals, cobalt and others).
(1)
(2) Does not include copper produced in our nickel operations.
(34)
(5)
(1)
–
(40)
–
2
(2)
–
(96)
(136)
(25)
(161)
77
26
(7)
15
111
–
(54)
(4)
(58)
71
124
(55)
69
34.4%
86.7
(63.6)
(166.7)
43.4
–
(31.2)
(15.4)
(29.1)
8.3
9.2
(27.6)
4.5%
2016
2017
2017
Year ended December 31,
Expenses Expenses
Variation as
reported
Exchange rate
impact in
2017
Variation without
exchange rate
impact
(US$ million, except for %)
Variation—
constant
currency
basis
Ferrous minerals:
Iron ore ............................................................................................
Pellets .............................................................................................
Ferroalloys and manganese ...........................................................
Other ferrous products and services ..............................................
Subtotal ......................................................................................
Coal ......................................................................................................
Base metals:
Nickel and other products(1) ..........................................................
Copper(2) ........................................................................................
Other base metals ..........................................................................
Subtotal ......................................................................................
Others ..................................................................................................
Total (excluding depreciation) ..............................................................
Depreciation .........................................................................................
Total (including depreciation) ...............................................................
489
70
12
10
581
(7)
191
21
(150)
62
690
1,326
220
1,546
258
35
12
(9)
296
30
171
28
–
199
955
1,480
224
1,704
(47.2)%
(50.0)
–
(190.0)
(49.0)
(528.6)
(10.5)
33.3
(100.0)
221.0
38.4
11.6
1.8
10.2%
Includes nickel coproducts (copper) and byproducts (precious metals, cobalt and others).
(1)
(2) Does not include copper produced in our nickel operations.
38
5
1
1
45
1
(2)
2
–
–
37
83
10
93
(269)
(40)
(1)
(20)
(330)
36
(18)
5
150
137
228
71
(6)
65
(51.0)%
(53.3)
(7.7)
(181.8)
(52.7)
(600.0)
(9.5)
21.7
(100.0)
220.9
31.4
5.0
(2.6)
4.0%
100
Results of Operations
Adjusted EBITDA by segment
Our management uses adjusted EBITDA to assess each segment’s contribution to our performance and to
support decisions about resource allocation. Adjusted EBITDA is a non-GAAP measure, which is calculated for
each segment using operating income or loss for this segment plus dividends received and interest from
associates and joint ventures, and adding back the amounts charged as (i) depreciation, depletion and
amortization and (ii) special events. For more information, see note 4 to our consolidated financial statements.
The table below shows a reconciliation of our consolidated Adjusted EBITDA from continuing operations with our
net income (loss) from continuing operations for the periods indicated.
Income from continuing operations attributable to Vale’s stockholders ...............................................................
Income (loss) attributable to noncontrolling interests ................................................................................................
Income from continuing operations ...........................................................................................................................
Depreciation, depletion and amortization ..................................................................................................................
Income taxes..............................................................................................................................................................
Financial results, net ..................................................................................................................................................
Equity results and other results in associates and joint ventures, net of dividends received ...................................
Special events............................................................................................................................................................
Adjusted EBITDA from continuing operations ..........................................................................................................
Adjusted EBITDA from discontinued operations (Fertilizers) .........................................................................................
Total Adjusted EBITDA.................................................................................................................................................
2016
Year ended December 31,
2017
(US$ million)
6,313
21
5,211
(8)
2018
5,203
3,487
2,781
(1,843)
1,104
1,240
11,972
209
12,181
6,334
3,708
1,495
3,019
488
294
15,338
4
15,342
6,952
36
6,988
3,351
(172)
4,957
570
899
16,593
(3)
16,590
Special events are gains or losses recognized in our operating results that are not related to the performance of
the business segments. We exclude special events from adjusted EBITDA to keep the segment performance
analysis comparable with prior periods. The special events we identified are as follows:
2016
Year ended December 31,
2017
(US$ million)
(481)
458
(271)
(66)
–
(1,174)
2018
(322)
–
(577)
(899)
Result in disposal of assets ...................................................................................................................................
Nacala Logistic Corridor ........................................................................................................................................
Impairment and onerous contracts ........................................................................................................................
Total .................................................................................................................................................................................
(1,240)
(294)
101
Results of Operations
2016
Adjusted
EBITDA
Year ended December 31,
2017
Adjusted
EBITDA
(US$ million)
2018
Adjusted
EBITDA
Ferrous minerals:
Iron ore .....................................................................................................................................................................
Pellets ......................................................................................................................................................................
Ferroalloys and manganese ....................................................................................................................................
Other ferrous products and services .......................................................................................................................
Subtotal ...............................................................................................................................................................
Coal ...............................................................................................................................................................................
Base metals:
Nickel and other products(1) ...................................................................................................................................
Copper(2) .................................................................................................................................................................
Other ........................................................................................................................................................................
Subtotal ...............................................................................................................................................................
Other(3) .........................................................................................................................................................................
Total Adjusted EBITDA from continuing operations .....................................................................................................
Adjusted EBITDA from discontinued operations (Fertilizers) .......................................................................................
Total Adjusted EBITDA .................................................................................................................................................
8,683
1,858
59
159
10,759
(26)
1,081
722
150
1,953
(714)
11,972
209
12,181
10,346
2,823
179
205
13,553
362
1,059
1,197
–
2,256
(833)
15,338
4
15,342
11,033
3,356
160
162
14,711
181
1,431
1,111
–
2,542
(841)
16,593
(3)
16,590
Includes nickel coproducts (copper) and byproducts (precious metals, cobalt and others).
(1)
(2) Does not include copper produced in our nickel operations.
(3)
Includes energy.
We discuss below, for each segment, the changes in our net operating revenues, cost of goods sold (excluding
depreciation, depletion and amortization), expenses (excluding depreciation, depletion and amortization and
excluding impairment charges) and Adjusted EBITDA.
Ferrous minerals
2018 compared to 2017.
• Our net operating revenues from sales of ferrous minerals increased 11.2%, from US$25.129 billion
in 2017 to US$27.933 billion in 2018, reflecting higher realized prices for iron ore and pellets
(US$980 million) and higher volumes (US$1.822 billion). Our average prices in 2018 were 3.1% and
7.6% higher than our average realized prices in 2017 for iron ore and iron ore pellets, respectively.
Our iron ore sales volume was 6.5% higher than in 2017, reaching 307.4 Mt in 2018 mainly due to the
S11D ramp-up.
• Our cost of goods sold from ferrous minerals, excluding depreciation, amortization and depletion,
increased by 23.0% on a constant currency basis, mainly due to the negative effect of cost factors
that are directly linked to iron ore prices, such as higher freight costs driven by higher bunker oil
prices (US$589 million) and royalties.
• Our net expenses from ferrous minerals, excluding depreciation, amortization and depletion, and
excluding impairment charges, increased by US$111 million on a constant currency basis, mainly due
to the recovery of the insurance associated with the destruction of the “Fábrica Nova—Timbopeba”
long distance belt conveyor in 2017, which was partially
102
Results of Operations
offset by lower pre-operating expenses in S11D as there was an increase in the production curve.
• Our adjusted EBITDA from ferrous minerals was US$14.711 billion in 2018, 8.5% higher than the
US$13.553 billion we reported in 2017. The increase was mainly as a result of (i) higher realized
prices for iron ore and pellets (US$980 million), (ii) higher iron ore and pellets sales volumes
(US$975 million) and (iii) the positive impact of BRL depreciation against USD and other currencies
on costs and expenses (US$845 million), which were partially offset by higher costs and expenses
(US$1.698 billion). Dividends received and interest from associates and joint ventures operating in
the ferrous minerals segment totaled US$189 million in 2018, in line with the US$130 million received
in 2017.
2017 compared to 2016
• Our net operating revenues
from sales of
from
US$20.351 billion in 2016 to US$25.129 billion in 2017, reflecting higher realized prices, higher
premiums and lower discounts. Our average realized prices in 2017 were 17.9% and 36.0% higher
than our average realized prices in 2016 for iron ore and iron ore pellets, respectively. Our iron ore
sales volume reached 288.7 Mt in 2017, in line with 2016, mainly due to the S11D ramp-up, offset by
the curtailment of high silica products in the Southern and Southeastern Systems and build-up of
offshore inventories.
increased by 23.5%,
ferrous minerals
• Our cost of goods sold from ferrous minerals, excluding depreciation, amortization and depletion,
increased by 18.7% on a constant currency basis, mainly as a result of the negative effect of cost
factors that are directly linked to iron ore prices, such as higher freight costs (US$642 million) driven
by higher bunker oil prices.
• Our net expenses from ferrous minerals, excluding depreciation, amortization and depletion, and
excluding impairment charges, decreased by 52.7% on a constant currency basis, mainly due to
lower pre-operating expenses in S11D.
• Our adjusted EBITDA from ferrous minerals was US$13.192 billion in 2017, 25.9% higher than the
US$10.476 billion we reported in 2016. The increase was mainly due to higher market prices, higher
premiums and the initiatives of supply discipline, portfolio mix management, global supply chain
management and focus on cost savings. Dividends received and interest from associates and joint
ventures operating in the ferrous minerals segment totaled US$130 million in 2017, in line with the
US$113 million received in 2016.
Coal
2018 compared to 2017.
• Our net operating revenues from sales of coal increased by 4.8%, to US$1.643 billion in 2018 from
US$1.567 billion in 2017. This increase primarily reflected higher realized prices, for both thermal and
metallurgical coal, and higher sales volumes of thermal coal. Sales volumes of metallurgical coal
totaled 6.240 Mt in 2018, decreasing 938 Mt as compared to 2017, while sales volumes of thermal
coal totaled 5.393 Mt in 2018, increasing 791 Mt as compared to 2017.
103
Results of Operations
• Our cost of goods sold from coal, excluding depreciation, amortization and depletion, increased by
16.3% on a constant currency basis, from US$1.354 billion in 2017 to US$1.575 billion in 2018,
primarily due to the increase of US$204 million in services costs driven by the impact of the logistics
tariff, which was in force for the full year in 2018, while in 2017 it was applied only after March, 2017,
when we ceased to consolidate NLC in our financial statements.
• Our net expenses from coal, excluding depreciation, amortization and depletion, and excluding
impairment charges, totaled US$30 million in 2018, in line with 2017.
• Our adjusted EBITDA from coal was US$181 million in 2018, 50.0% lower than the US$362 million
we reported in 2017, this decrease was impacted by higher costs (US$221 million), was primarily
reflected the impact of the logistics tariff.
2017 compared to 2016
• Our net operating revenues from sales of coal increased by 86.8%, to US$1,567 million in 2017 from
US$839 million in 2016. This increase primarily reflected higher realized prices, for both thermal and
metallurgical coal, and higher sales volumes of metallurgical coal. Sales volumes of metallurgical coal
totaled 7.178 Mt in 2017, increasing 2.271 Mt as compared to 2016, as a result of ramp-up of our new
coal handling processing plant in Moatize and the Nacala Logistics Corridor.
• Our cost of goods sold from coal, excluding depreciation, amortization and depletion, increased by
55.3% on a constant currency basis, from US$872 million in 2016 to US$1.354 billion in 2017,
primarily due to the impact of the logistic tariff applied after we ceased to consolidate NLC in our
financial statements.
• Our net expenses from coal, excluding depreciation, amortization and depletion, and excluding
impairment charges, totaled US$30 million in 2017, increasing US$37 million as compared to the gain
of US$7 million recorded in 2016. This increase in net expenses in 2017 mainly derives from
adjustments to the net realizable value of the thermal coal inventory in Mozambique.
• Our adjusted EBITDA from coal was a gain of US$330 million in 2017, while in 2016 we had a loss of
US$54 million, reflecting the higher realized prices (US$386 million) and higher sales volumes from
Mozambique (US$129 million). These higher prices and sales volumes were partially offset by the
higher costs and expenses (US$73 million), due to the impact of the logistics tariff.
Base metals
2018 compared to 2017.
• Our net operating revenues from sales of base metals totaled US$6.703 billion in 2018, a 2.5%
decrease from US$6.871 billion in 2017. The decrease was mainly driven by lower sales volumes for
copper (US$264 million) and nickel (US$620 million), following the strategy to reduce our low grade
nickel sales volume, which were partially offset by higher nickel prices (US$712 million).
104
Results of Operations
• Our cost of goods sold from base metals, excluding depreciation, amortization and depletion,
decreased 6,6% on a constant currency basis. After adjusting for the effects of lower volumes
(US$631 million), costs increased by US$346 million compared to 2017 due to a lower fixed cost
dilution and as a result of the extended maintenance at Coleman mine and Voisey’s Bay decreased
mine production.
• Our net expenses from base metals, excluding depreciation, amortization and depletion, and
excluding impairment charges, decreased 29.1% on a constant currency basis, mainly due to Long
Harbour ramp-up resulting in a lower pre operating expenses in 2018 (US$42 million).
• Our adjusted EBITDA from base metals was US$2.542 billion in 2018, a 12.7% increase from the
US$2.256 billion recorded in 2017. The increase was mainly due to higher realized prices
(US$685 million), lower expenses (US$59 million) and favorable effect of exchange rate variations
(US$110 million). These price effects were partially offset by higher costs (US$346 million) and lower
volumes (US$222 million).
2017 compared to 2016
• Our net operating revenues from sales of base metals totaled US$6.871 billion in 2017, a 11.9%
increase from US$6.139 billion in 2016. The increase was mainly driven by higher sales prices for
nickel (US$257 million), copper (US$642 million) and cobalt (US$138 million).
• Our cost of goods sold from base metals, excluding depreciation, amortization and depletion,
increased 3.3% on a constant currency basis. After adjusting for the effects of lower volumes
(US$94 million), costs increased by US$237 million compared to 2016 mainly as a result of higher
nickel costs (US$353 million) due to the transition to a simpler and more efficient nickel flowsheet in
the North Atlantic operations and the increase of nickel unit costs because of lower production
volumes. The cost increase was partially offset by lower copper costs (US$116 million).
• Our net expenses from base metals, excluding depreciation, amortization and depletion, and
excluding impairment charges, increased 220,9% on a constant currency basis, mainly due to the
one-off positive effects from goldstream transactions totaling US$150 million in 2016.
• Our adjusted EBITDA from base metals was US$2.139 billion in 2017, a 15.7% increase from the
US$1.848 billion recorded in 2016. The increase was mainly due to higher realized prices for copper,
nickel and cobalt. These price effects were partially offset by higher costs (US$237 million), lower
volumes (US$203 million), higher expenses (US$148 million), and the unfavorable effect of exchange
rate variations (US$150 million).
IMPAIRMENT OF NON-CURRENT ASSETS AND ONEROUS CONTRACTS
2018 compared to 2017.
In 2018, we recorded an impairment of non-current assets and onerous contracts of US$577 million compared to
US$271 million in 2017. In 2018 we recorded an impairment of US$184 million due to the review undertaken of
the business plan related to our certain forestry assets, leading to a reduction in the
105
Results of Operations
expected operational capacity of these assets. We also recorded an additional provision of US$393 million in
relation to onerous contracts in the Midwest system for fluvial transportation and port structure.
2017 compared to 2016.
In 2017, we recorded an impairment of non-current assets and onerous contracts of US$271 million compared to
US$1,174 million in 2016. The most significant single impairment in 2017 was for an underground mine in
Sudbury that was affected by seismic activities, for which the cost to repair the asset is deemed not recoverable in
the current market conditions. We have placed this asset on care and maintenance and an impairment of US$133
was recognized in the income statement.
FINANCIAL RESULTS, NET
The following table details our net financial results, net, from continuing operations for the periods indicated.
2016
Year ended December 31,
2017
(US$ million)
2018
Financial income(1) ............................................................................................................................................................
Financial expenses(2) ........................................................................................................................................................
Gains (losses) on derivatives, net......................................................................................................................................
Foreign exchange gains (losses), net ................................................................................................................................
Indexation losses, net ........................................................................................................................................................
Financial results, net ..........................................................................................................................................................
170
(2,677)
1,256
3,252
(158)
1,843
478
(3,273)
454
(467)
(211)
(3,019)
423
(2,345)
(266)
(2,247)
(522)
(4,957)
(1)
(2)
Includes short-term investments and other financial income (see note 6 to our consolidated financial statements)
Includes loans and borrowings gross interest, capitalized loans and borrowing costs, financial expenses associated with labor, tax and civil lawsuits,
participative stockholders’ debentures, expenses of REFIS and others financial expenses (see note 6 to our consolidated financial statements).
2018 compared to 2017.
In 2018, our financial results, net, were an expense of US$4,957 million compared to an expense of
US$3,019 million in 2017. This mainly resulted from:
• Net foreign exchange loss of US$2,247 million in 2018 compared to net foreign exchange loss of
US$467 million in 2017, mainly due to the 17.1% depreciation of the Brazilian real against the U.S.
dollar in 2018, compared to a 1.5% depreciation of the Brazilian real in 2017.
• The net effect of fair value changes in derivatives, which represented a loss of US$266 million in
2018 compared to a gain of US$454 million in the same period in 2017. This reflected the following
main categories of derivatives transactions:
o Currency and interest rate swaps. We recognized a net loss of US$279 million in
2018 from currency and interest rate swaps, compared to a net gain of
US$313 million
to convert debt
denominated in other currencies into U.S. dollars in order to protect our cash flow
from exchange rate volatility.
in 2017. These swaps are primarily used
106
Results of Operations
o Nickel derivatives. We recognized a loss of US$25 million in 2018 compared to a
gain of US$30 million in 2017. These derivatives are part of our nickel price
protection program.
o Bunker oil derivatives. We recognized a gain of US$6 million in 2018 compared to a
loss of US$80 million in 2017. These gains or losses resulted from the fair value of
the hedge contracts and the variation is due to volatility in the spot price of bunker oil.
• A loss on inflation-indexed instruments of US$522 million in 2018 compared to a loss of
US$211 million in 2017.
2017 compared to 2016.
In 2017, our financial results, net, was a loss of US$3.019 billion, compared to an income of US$1.843 billion in
2016. This principally resulted from:
• Net foreign exchange losses of US$463 million in 2017 compared to net foreign exchange gains of
US$3.252 billion in 2016, principally due to the depreciation of the Brazilian real against the U.S.
dollar.
• The net effect of fair value changes in derivatives, which represented a gain of US$454 million in
2017 compared to a gain of US$1.256 billion in 2016. This reflected the following main categories of
derivatives transactions:
o Currency and interest rate swaps. We recognized gains of US$313 million in 2017
from currency and interest rate swaps, compared to a gain of US$959 million in 2016.
These swaps are primarily used 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 gain of US$30 million in 2017 compared to a
loss of US$42 million in 2016. These derivatives are part of our nickel price protection
program.
o Bunker oil derivatives. We recognized a loss of US$80 million in 2017 compared to a
gain of US$268 million in 2016. These gains or losses resulted from the fair value of
the hedge contracts and the variation is due to the sharp volatility in the spot price of
bunker oil.
• A net indexation loss of US$211 million in 2017 compared to a net loss of US$158 million in 2016,
mainly due to changes in discount rates on asset retirement obligation provisions.
EQUITY RESULTS AND OTHER RESULTS IN ASSOCIATES AND JOINT VENTURES
2018 compared to 2017.
Our equity results and other results in associates and joint ventures in 2018 were a loss of US$182 million,
compared to a loss of US$82 million in 2017, mostly due to the US$487 million loss related to our investment in
Samarco, driven by the additional provision recognized in 2018 (See Business overview-Failure of Samarco’s
Fundão tailings dam and note 22 to our consolidated financial statements), partially
107
Results of Operations
offset by positive results in 2018 from our equity positions in our joint venture pelletizing plants (US$305 million).
2017 compared to 2016.
Our equity results and other results in associates and joint ventures in 2017 were a loss of US$82 million,
compared to a loss of US$911 million in 2016, mostly due to the US$180 million loss related to our investment in
Samarco, driven by the write-downs of the debts instruments used to fund its working capital, partially offset by
positive results in 2017 from our equity positions in our joint ventures (US$98 million). In 2016, we recognized an
impairment of US$1.109 billion related to our investments in Samarco.
RESULTS OF DISCONTINUED OPERATIONS
2018 compared to 2017.
In 2018, we had a net loss from discontinued operations attributable to Vale’s stockholders of US$92 million
compared to a loss of US$806 million in 2017. In January 2018, we concluded the transaction with The Mosaic
Company (“Mosaic”), and received US$1,080 million in cash and 34.2 million common shares, corresponding to
8.9% of Mosaic’s outstanding common shares after the issuance of these shares (US$899 million, based on the
Mosaic’s quotation at closing date of the transaction) and recognized an additional loss of US$55 million in the
income statement from discontinued operations. In May 2018, we concluded the transaction with Yara
International ASA to sell our assets located in Cubatão and received US$255 million in cash and recognized a
loss of US$69 million in the income statement from discontinued operations. For more information on our
discontinued operations, see note 14 to our consolidated financial statements.
2017 compared to 2016.
In 2017, we had a net loss from discontinued operations attributable to Vale’s stockholders of USS$806 million,
compared to a loss of US$1,229 million in 2016. In December 2016, we entered into an agreement with Mosaic to
sell a significant part of our fertilizer business. In January 2018, we concluded the transaction with Mosaic, which
was preceded by final adjustments under the original terms and conditions of the negotiation. As consequence of
these adjustments, an impairment loss of US$729 million was recognized in 2017. Additionally, in November
2017, we entered into an agreement with Yara International ASA to sell our nitrogen assets located in Cubatão,
Brazil and an impairment loss of US$156 million was recognized in 2017.
INCOME TAXES
2018 compared to 2017.
In 2018, we recorded a net income tax benefit of US$172 million, compared to a net income tax expense of
US$1.495 billion in 2017, principally because of a benefit related to the recognition of a tax loss carry forward
from a foreign subsidiary. In 2018, our effective tax rate was 18.1%, excluding this benefit. The effective tax rate
was different from the statutory rate mainly due to: unrecognized tax on current year losses, partially offset by the
tax benefit from interest on stockholders’ equity and the tax incentives for our iron ore, copper and nickel
operations in the North and Northeast regions of Brazil. The incentives are calculated based on the taxable
income of the incentive activity (tax operating income), taking into account the allocation of tax operating income
to different tranches of production during the periods
108
Results of Operations
specified for each product. In 2018, this tax incentive structure reduced our net income tax expense by
US$1.449 billion.
2017 compared to 2016.
In 2017, we recorded net income tax expense of US$1.495 billion, compared to a net income tax expense of
US$2.781 billion in 2016. In 2017, our effective tax rate was 19.1%. The effective tax rate was different from the
statutory rate mainly due to US$432 million of unrecognized tax on current year losses, partially offset by the tax
benefit from interest on stockholders’ equity and the tax incentives for our iron ore, copper and nickel operations
in the North and Northeast regions of Brazil. The incentives are calculated based on the taxable income of the
incentive activity (tax operating income), taking into account the allocation of tax operating income to different
tranches of production during the periods specified for each product. In 2017, this tax incentive structure reduced
our net income tax expense by US$1.100 billion.
109
LIQUIDITY AND CAPITAL RESOURCES
In the ordinary course of business, our principal funding requirements are for capital expenditures, dividend
payments and debt service. We will also need funding for remediation and reparation measures in connection
with the failure of Dam I at Córrego do Feijão mine. We expect to meet these requirements, in line with our
historical practice, by using cash generated from operating activities and borrowings, supplemented by
dispositions of assets.
For 2019, we have budgeted capital expenditures of US$4.334 billion, including US$703 million for project
execution and US$3.731 billion for sustaining existing operations and replacement projects. A principal amount of
US$773 million of our debt matures in 2019.
We have taken measures to reduce our capital expenditures, and we are constantly evaluating opportunities for
additional cash generation. Finally, we are committed to continue the reduction in our costs and expenses, to
reduce our debt leverage and to maintain discipline in capital allocation.
SOURCES OF FUNDS
Our principal sources of funds are operating cash flow and borrowings, supplemented by disposition of assets.
The amount of operating cash flow is strongly affected by global prices for our products. In 2018, our operating
activities generated cash flows from continuing operations of US$12.901 billion, in line with the US$12.450 billion
generated in 2017.
In 2018, we borrowed US$1.225 billion in pre-export financing agreements with commercial banks.
In 2018, we received US$1.481 billion as a result of divestments and sales of interests in certain joint ventures
and investments and sales of assets. The main divestment transactions in 2018 are described below:
•
•
In January 2018, we received US$1.080 billion from Mosaic following the conclusion of the sale of a
substantial part of our fertilizer business (See Results of Operations—Results of discontinued
operations and note 14 to our consolidated financial statements).
In May 2018, we received US$255 million from Yara International ASA upon completion of the sale of
our wholly owned subsidiary, Vale Cubatão Fertilizantes Ltda., which operated nitrogen and
phosphate assets in Cubatão, Brazil.
• We also received US$2.572 billion in proceeds from the project financing, in repayment of certain
shareholders loans provided for construction of NLC (See—Business Overview—Significant changes
in our business- Partnership in coal assets in Mozambique).
USES OF FUNDS
In the ordinary course of business, our principal funding requirements are for capital expenditures, dividend
payments and debt service. We will also need funding for remediation and reparation measures in connection
with the failure of Dam I at Córrego do Feijão mine.
Capital expenditures
Our capital expenditures in 2018 amounted to US$3.807 billion, including US$911 million for project execution
and US$2.896 billion dedicated to sustaining existing operations. For more information about
110
Liquidity and Capital Resources
the specific projects for which we have budgeted funds, see Information on the Company—Capital expenditures.
Distributions and repurchases
On March 15, 2018, we paid a second tranche of dividends on the results of the 2017 fiscal year of
US$664 million and dividends on the results of the 2018 fiscal year of US$773 million, both classified as interest
on stockholders’ equity. We also repurchased 71,173,683 of our common shares (including common shares
represented by ADSs), in the total amount of US$1 billion.
On September 20, 2018, we paid dividends on the results of the 2018 fiscal year of US$1.876 billion
(US$1.659 billion and US$217 million as dividends, both classified as interest on stockholders’ equity.
Tax payments
We paid US$676 million in income tax in 2018, excluding the payments in connection with REFIS, compared to
US$563 million in 2017. In connection with our participation in the REFIS, our outstanding commitment totals
US$4.349 billion, which will be paid in 118 monthly installments. In 2018, we paid a total of US$452 million in
connection with the REFIS.
Liability Management
In 2018, we repaid US$6.479 billion in debt. Our main liability management transactions in the year are
summarized below.
• The full redemption of US$499 million of Vale Overseas Limited’s (“Vale Overseas”) outstanding
4.625% guaranteed notes due 2020.
• Cash repurchases of US$969 million of Vale Overseas’ outstanding 5.875% guaranteed notes due
2021, US$1,181 million of Vale Overseas’ outstanding 4.375% guaranteed notes due 2022,
US$600 million of Vale Overseas’ outstanding 6.875% guaranteed notes due 2036 and
US$980 million of our outstanding 5.625% notes due 2042. Combined, the tender offers allowed us to
repay an aggregate principal amount of US$3.730 billion in debt.
• The repayment of US$1.100 billion in pre-export payments facilities and US$259 million in Export
Notes with commercial banks.
• The repayment of US$891 million in loans with development agencies.
DEBT
As of December 31, 2018, our total outstanding debt was US$15.466 billion (including US$15.228 billion of
principal and US$238 million of accrued interest) compared with US$22.489 billion at the end of 2017. As of
December 31, 2018, US$233 million of our debt was secured by liens on some of our assets. As of December 31,
2018, the weighted average of the remaining term of our debt was 8.9 years, in line with 2017.
As of December 31, 2018, the short-term debt and the current portion of long-term debt was US$1.003 billion,
including accrued interest.
111
Our major categories of long-term indebtedness are described below. The principal amounts given below include
the current portion of long-term debt and exclude accrued interest.
Liquidity and Capital Resources
• U.S. dollar-denominated loans and financing (US$2.337 billion as of December 31, 2018). 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$8.219 billion as of December 31, 2018). We have
issued in public offerings several series of fixed-rate debt securities, directly by Vale and through our
finance subsidiary Vale Overseas, guaranteed by Vale, totaling US$7.819 billion. Our subsidiary Vale
Canada has outstanding fixed-rate debt in the amount of US$400 million.
• Euro-denominated loans and financing (US$229 million as of December 31, 2018). This category
includes loans from export credit agencies.
• Euro-denominated fixed rate notes (US$859 million as of December 31, 2018). We have issued in
public offering this series of fixed rate debt securities denominated in Euro an amount of €750 million.
• Other debt (US$3.584 billion as of December 31, 2018). We have outstanding debt, principally owed
to BNDES, Brazilian commercial banks and holders of infrastructure debentures, denominated in
Brazilian reais and other currencies.
We have a variety of credit lines available, including the following, as of December 31, 2018:
• A R$10.050 billion (US$3.3 billion) financing agreement with BNDES to finance part of the
implementation of the S11D project and its infrastructure (CLN S11D). As of December 31, 2018, the
total amount available under this facility was R$834 million (US$215 million).
• We have two revolving credit facilities with syndicates of international banks, which will mature in
2020 and 2022. The revolving credit lines allow more efficient cash management, consistent with our
strategic focus on cost of capital reduction. As of December 31, 2018, we had not drawn any amounts
under these facilities and the total amount available under these facilities was US$5.000 billion (with
US$3.000 billion available until 2020), which can be drawn by Vale, Vale Canada and Vale
International.
Some of our long-term debt instruments contain financial covenants. In particular, instruments representing
approximately 18% of the aggregate principal amount of our total debt require that we maintain, as of the end of
each quarter, (i) a consolidated ratio of total debt to adjusted EBITDA for the past 12 months not exceeding 4.5 to
one and (ii) a consolidated interest coverage ratio of at least 2.0 to one. These covenants appear in our financing
agreements with BNDES, with other export and development agencies, and with some other lenders.
As of December 31, 2018, the corporate guarantees we provided (corresponding to our direct or indirect interest)
for the companies Norte Energia S.A. and Companhia Siderúrgica do Pecém S.A. totaled US$331 million and
US$1.404 billion, respectively.
112
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations as of December 31, 2018. This table excludes other
common non-contractual obligations that we may have, including pension obligations, deferred tax liabilities and
contingent obligations arising from uncertain tax positions, all of which are discussed in the notes to our
consolidated financial statements.
Total
Less than
1 year
2020
2021
2022
Thereafter
Payments due by period
Debt less accrued interest ................
Interest payments(1) .........................
Operating lease obligations(2) ..........
Purchase obligations(3) ....................
Total .............................................
15,228
8,950
2,497
7,327
34,002
773
831
250
2,677
4,531
(US$ million)
1,053
799
201
1,445
3,498
1,233
732
189
548
2,702
1,872
662
165
463
3,162
10,297
5,926
1,692
2,194
20,109
(1) Consists of estimated future payments of interest on our loans, financings and debentures, calculated based on interest rates and foreign exchange rates
applicable as of December 31, 2018 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. Amounts do not include
derivatives transactions.
(2) Amounts include fixed payments related to operating lease agreements in place with third parties for port structures and port operations, transportation
services, energy plants and property leases for its operational facilities. We also have long-term agreements for the exploration and processing of iron ore
with its joint ventures, such as the agreements to lease pelletizing plants in Brazil.
(3) The purchase obligations derive mainly from take-or-pay contracts, contracts for the acquisition of fuel and energy and the acquisition of raw materials and
services. For more information, see note 32 to our consolidated financial statements.
113
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2018, we did not have any off-balance sheet arrangements as defined in Form 20-F.
114
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.
CONSOLIDATION
In some circumstances, our judgment is required to determine whether, after considering all relevant factors, we
have either control, joint control or significant influence over an entity. Significant influence includes situations of
collective control. We hold the majority of the voting capital in five joint arrangements (Aliança Geração de
Energia S.A., Aliança Norte Energia Participações S.A., Companhia Hispano-Brasileira de Pelotização,
Companhia Ítalo-Brasileira de Pelotização and Companhia Nipo-Brasileira de Pelotização), but our management
has concluded that we do not have a sufficiently dominant voting interest to have the power to direct the activities
of the entity, as the power to make relevant decisions shared with other parties, pursuant to the terms of
shareholders’ agreements. As a result, these entities are accounted for under the equity method.
MINERAL RESERVES AND MINES USEFUL LIFE
We regularly evaluate and update our estimates of proven and probable mineral reserves. These reserves are
determined using generally accepted estimation techniques. Calculating our reserves requires us to make
assumptions about future conditions that are 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
these assumptions could have a significant impact on our recorded proven and probable reserves.
The estimated volume of mineral reserves is used as basis for the calculation of depletion of the mineral
properties and also for the estimated useful life, which is a major factor to quantify the provision for asset
retirement obligation, environmental recovery of mines and impairment of long-lived assets. 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 and assessments of impairment.
ASSET RETIREMENT OBLIGATIONS
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.
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:
• 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;
115
Critical Accounting Policies and Estimates
•
•
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 the
applicable discount rates that reflect the current market assessments of the time value of the money
and the risks specific to the liability; 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 executive officers define the policies and procedures that are used to evaluate our asset retirement
obligations. The future costs of retirement of our mines and processing assets at all our 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 using applicable discount rates that reflect current
market assessments of the time value of money and of the risks specific to the liability.
As of December 31, 2018, we estimated the fair value of our total asset retirement obligations to be
US$3.115 billion.
IMPAIRMENT OF NON-CURRENT ASSETS AND ONEROUS CONTRACTS
Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount might not be recoverable. An impairment loss is recognized for the amount by which the asset’s
carrying value exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less
costs of disposal (“FVLCD”) and value in use (“VIU”).
FVLCD is generally determined as the present value of the estimated future cash flows expected to arise from the
continued use of the asset, including any expansion prospects, and its eventual disposal. VIU model is
determined as the present value of the estimated future cash flows expected to arise from the continued use of
the asset in its present form. VIU is determined by applying assumptions specific to the company’s continued use
and cannot take into account future development. These assumptions are different to those used in calculating
fair value and consequently the VIU calculation is likely to give a different result to a FVLCD calculation.
Assets that have an indefinite useful life and are not subject to amortization, such as goodwill, are tested annually
for impairment.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (Cash Generating Units (“CGUs”)). Goodwill is allocated to CGUs or CGU groups that are
expected to benefit from the business combinations in which the goodwill arose and are identified in accordance
with the operating segment.
Non-current assets (excluding goodwill) in which the company recognized impairment in the past are reviewed
whenever events or changes in circumstances indicate that the impairment may no longer be applicable. In such
cases, an impairment reversal will be recognized.
For onerous contracts, a provision is recognized for certain long-term contracts when the present value of the
unavoidable cost to meet our obligation exceeds the economic benefits that could be received from those
contracts.
116
Critical Accounting Policies and Estimates
FAIR VALUES OF DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
Derivatives transactions that are not qualified for hedge accounting are classified and presented as an economic
hedge, as we use derivative instruments to manage our financial risks as a way of hedging against these risks.
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 the statement of comprehensive income
or in stockholders’ equity when the transaction is eligible for effective hedge accounting.
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 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.
DEFERRED INCOME TAXES
We recognize deferred tax effects of tax loss carryforwards and temporary differences in our consolidated
financial statements. We do not recognize a tax asset when it is probable that it will not be fully recoverable in the
future.
Deferred tax assets arising from tax losses, negative social contribution basis and temporary differences are
registered taking into consideration the analysis of future performance, based on economic and financial
projections, prepared based on internal assumptions and macroeconomic, trade and tax scenarios that may be
subject to changes in future.
When we prepare our consolidated financial statements, the provision for income tax is calculated individually for
each entity of the Company based on Brazilian tax rates, on an accrual basis, by applying the differential between
the nominal local tax rates (based on rules in force in the location of the entity) and the Brazilian rate.
Determining our provision for income taxes and our deferred tax assets and liabilities 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. Deferred tax
assets recognized 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, commodity 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 28 to our consolidated financial statements.
117
Critical Accounting Policies and Estimates
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 an outflow of resources will be required to settle an
obligation, 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 as of December 31, 2018, totaling US$1.357 billion, consists of provisions of
US$496 million for labor, US$166 million for civil, US$692 million for tax and US$3 million for environmental
claims. Claims for which the likelihood of loss, in our opinion and based on the advice of our legal counsel, is
reasonably possible but not probable, and for which we have not made provisions, amounted to a total of
US$13.124 billion as of December 31, 2018,
labor claims,
US$1.957 billion for civil claims, US$8.641 billion for tax claims and US$1.051 billion for environmental claims.
including claims of US$1.475 billion
for
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 29 to our consolidated financial statements and include, among others,
the discount rate, the expected long-term rate of return on plan assets and increases in salaries.
PROVISION RELATED TO SAMARCO MINERAÇÃO S.A.
The provision requires the use of assumptions that may be mainly affected by: (i) changes in scope of work
required under the Framework Agreement as result of further technical analysis, (ii) uncertainty regarding the
timing of resumption of Samarco’s operations; (iii) updates in the discount rate; and (iv) resolution of existing and
potential legal claims. As a result, future expenditures may differ from the amounts currently provided and
changes to key assumptions could result in a material impact to the amount of the provision in future reporting
periods. For each reporting period, we will reassess the key assumptions used by Samarco in the preparation of
the projected cash flows and will adjust the provision, if required.
DEFERRED REVENUE
Defining the gain on sale of mineral interest and the deferred revenue portion of the transaction requires the use
of critical accounting estimates as follows: (i) discount rates used to measure the present value of future inflows
and outflows; (ii) allocation of costs between nickel or copper and gold based on relative prices; and (iii) expected
margin for the independent elements (sale of mineral rights and service for gold extraction) based on our best
estimate.
118
RISK MANAGEMENT
The purpose of our risk management strategy is to promote company-wide risk management that supports the
achievement of our objectives, financial strength and flexibility and business continuity.
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 associated with inadequate or failed internal processes, people,
systems or external events (operational risk), risks arising from third-party obligations (credit risk), risks from
exposure to legal penalties, fines or reputational losses associated with failure to act in accordance with
applicable laws and regulations, internal policies or best practices (compliance risk), and risks associated with our
business model, governance and political and regulatory conditions in countries in which we operate (strategic
risk), among others. See note 33 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.
In order to achieve this objective and to further improve our corporate governance practices, our Board of
Directors created the Governance, Compliance and Risk Committee. See Management—Advisory Committees to
the Board of Directors. In 2018, we approved a new Risk Management Policy with the purposes described below.
• Supporting the strategic planning, budget and sustainability of our business.
• Strengthening the capital structure and asset management of our business.
• Strengthening our governance practices, based on lines of defense model described below.
• Managing risks considering the concepts of international norms, such as ISO 31000 and
COSO-ERM.
• Measuring and monitoring our risks, on a consolidated basis, considering the effect of diversification,
when applicable, of our entire business.
• Assessing the impact of new investments, acquisitions and divestitures on our risk map and risk
approach.
• Adapting our risk approach to the needs of its growth plan, our strategic planning and our business
continuity.
RISK GOVERNANCE STRUCTURE
Our integrated risk governance practice is based on lines of defense model described below. We reevaluate our
risk practices from time to time to ensure the alignment between strategic decisions, performance and the risk
approach determined by our Board of Directors.
First line of defense. Consists on the personnel in charge of addressing the specific risk and the process
executors of business, project, support and administrative areas. This is the personnel directly responsible for
identifying, evaluating, treating, monitoring and managing the risk events in an integrated way. This first line of
defense must:
• Take measures to maintain the risks under its responsibility within the defined levels, implement and
execute effective preventive and mitigation controls, ensure appropriate
119
Risk Management
definition and execution of action plans and establish corrective actions for the continuous
improvement of risk management.
• Continuously assess the applicability of risks in our integrated risk map to the activities and
geographies under its responsibility.
• Report to our Board of Executive Officers and the Board of Directors the potential impacts that are in
the imminence to occur, following the existing governance mechanisms to address the treatment of
mapped risks, as well as report on the risks under its responsibility to the Risk Executive Committee,
Board of Executive Officers, Board of Directors or to one of our Advisory Committees, as applicable.
• Establish and implement crisis management protocols and business continuity plans for the risk
events under their responsibility, as applicable. For events with significant impacts, drills should be
performed in order to verify the efficiency and effectiveness of the crisis management protocols. The
frequency of the drills should be defined by the first line of defense according to the criticality,
observing local rules and specific legislation.
• Meet the guidelines defined by the second line of defense.
Second line of defense. Corresponds to risk management, internal controls, policies management, legal
compliance and other specialist areas. The second line of defense is in charge of supervising and supporting the
work of first line of defense, providing training and instruments for risk management. The second line of defense
must identify and monitor new and emerging risks, ensure compliance with laws, regulations, internal norms and
promote continuous improvement in risk management.
Our Board of Executive Officers is responsible for defining the responsibilities of Governance, Risk and
Compliance (GRC) area, which includes:
• Developing and implementing policies, methodologies, processes and infrastructure for integrated
risk management.
• Reporting to our Risk Executive Committee, periodically, the main risks to which we are exposed,
within the defined scope, and how those risks are being monitored, controlled and treated.
• Ensuring a compliance environment, not only addressing legal issues, but also including the
compliance with internal policies and standards.
• Ensuring compliance with risk governance model.
Some areas, such as Environment, Health and Safety, Corporate Integrity and Information Security, act as a
second line of defense with respect to specific risks, monitoring risks and controls, and ensuring the compliance
with regulations, policies and standards. The definition of the areas that will be the second line of defense
specialist has been delegated to the Risk Executive Committee.
Based on our risk matrix, the Board of Executive Officers will define the scope and the operating model of GRC
area, considering the combination of severity with probability whose occurrence could jeopardize the achievement
of organization’s objectives.
120
Third line of defense. The third line of defense is composed of areas that are independent from our
management. It includes the Internal Audit and the Ethics and Conduct Office, which perform, within their scopes
of work, evaluations, inspections, control tests, risk analysis and investigations of complaints, providing
independence assurance, including with respect to the effectiveness of risk management, internal controls and
compliance.
Risk Management
MARKET RISK
We are exposed to various market risk factors that can impact our cash flow. An assessment of the potential
impact of the consolidated market risk exposure is performed periodically to support the decision making process
regarding the risk management strategy, which may incorporate financial instruments, including derivatives. The
financial instrument portfolio is 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 and of interest rate on loans and financings. 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 also have debt instruments denominated in currencies other than U.S. dollars, mainly in Brazilian
reais and euros. We may use swaps and forward transactions to convert into U.S. dollars a portion of
the cash outflows of these debt instruments.
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 to LIBOR
(London Interbank Offer Rate) in U.S. dollars.
• Product prices and input costs. We are also exposed to market risks associated with commodities
price volatilities. We may enact risk mitigation programs in situations such as the following: (i) where
there is a risk of financial distress; (ii) to support commercial activities and specific needs of our
business segments; and (iii) to protect from the increase of certain cost items, such as bunker oil and
freight chartering. These programs include predominantly forward transactions, futures contracts and
options.
OPERATIONAL AND CYBER RISK
Operational risk
Operational risk management is the structured approach we take to manage uncertainty related to internal and
external events. Internal events consist of inadequate or failed internal processes, people and systems, while
external events include natural and operational catastrophes caused by third parties.
We mitigate operational risk with new controls and improvement of existing ones, new mitigation plans and
transfer of risk through insurance. We seek a clear view of the major risks we are exposed to, the cost-benefit on
mitigation plans and the controls in place to closely monitor the impact of operational risks and to efficiently
allocate capital to reduce it.
121
Risk Management
Cyber risk
Cybernetic risk is the approach taken to manage information security risks such as theft and leakage of
information, technology assets unavailability and compromising data integrity.
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 and a credit limit 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, risk mitigation strategies may be used to manage our credit risk. The main
credit risk mitigation strategies include non-recourse discount of receivables, insurance instruments, letters of
credit, corporate and bank guarantees, mortgages, among others.
From a geographic standpoint, we have a diversified accounts receivable portfolio, with Asia, Europe and Brazil,
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 the counterparty exposure in the portfolio periodically
and we block additional commercial credit to customers in delinquency.
Treasury credit risk management
To manage the credit exposure arising from cash investments and derivative instruments, credit limits are
approved to each counterparty to which we have credit exposure. We control the portfolio diversification and
monitor different indicators of solvency and liquidity of our different counterparties that were approved for trading.
COMPLIANCE RISK
Under our bylaws, we are prohibited from making, directly or indirectly through third parties, any contribution to
political movements in Brazil or abroad, including those organized as political parties, and to their representatives
or candidates.
STRATEGIC RISK
Strategic risk comprises governance, business model, external environment issues, regulatory, political, economic
or social actions taken by governments or other stakeholders.
122
IV. SHARE OWNERSHIP AND TRADING
MAJOR SHAREHOLDERS
Our corporate capital is currently composed of 5,284,474,770 common shares and 12 golden shares issued to the
Brazilian government. The 12 golden shares have 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. In July 2018,
the Board of Directors approved a US$1 billion share buy-back program, which was concluded in November
2018.
The following table sets forth information regarding ownership of Vale shares by the shareholders we know
beneficially own more than 5% of our outstanding capital stock, and by our directors and executive officers as a
group, as of December 31, 2018.
Litel Participações S.A.(1). ................................................................................................................................................
Capital Research and Management Company(2) .............................................................................................................
BNDESPAR(3) ...................................................................................................................................................................
Bradespar S.A.(4) ..............................................................................................................................................................
Mitsui ..................................................................................................................................................................................
BlackRock, Inc.(5) ..............................................................................................................................................................
Directors and executive officers as a group ......................................................................................................................
Common shares owned
% of class
1,075,773,534
485,848,934
342,484,176
296,009,366
286,347,055
272,763,231
20.4%
9.2%
6.5%
5.6%
5.4%
5.2%
960,191 Less than 1%
Includes common shares owned by Litela Participações S.A.
(1)
(2) Capital Research and Management Company administers, through its independent investment divisions Capital Research Global Investors, Capital
International Investors and Capital World Investors, respectively, 265,599,956 common shares, 14,405,939 common shares and 205,843,039 common
shares, corresponding to, respectively, 5.0%, 0.3% and 3.9% of our share capital.
(3) BNDESPAR is a wholly owned subsidiary of BNDES. As reported in BNDESPAR’s amended beneficial ownership report on Schedule 13D, filed with the
SEC on September 25, 2018.
(4) 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.
(5) As reported in BlackRock, Inc.’s beneficial ownership report on Schedule 13G, filed with the SEC on February 4, 2019.
The table below sets forth information regarding ownership of Litel Participações S.A. as of December 31, 2018.
Litel Participações S.A. shareholders(1)
BB Carteira Ativa ..........................................................................................................................................................
Carteira Ativa II FIA ......................................................................................................................................................
PETROS .......................................................................................................................................................................
Singular FIA ..................................................................................................................................................................
Others ...........................................................................................................................................................................
Total .........................................................................................................................................................................
222,125,666
31,688,469
19,115,854
2,583,921
439
275,514,349
80.62%
11.50%
6.94%
0.94%
0.00%
100.00%
Common shares owned
% of class
(1) Each of BB Carteira Ativa, Carteira Ativa II and Singular FIA is a Brazilian investment fund. BB Carteira Ativa is 100% owned by Previ—Caixa de Previdência
dos Funcionários do Banco do Brasil. Carteira Ativa II is 100% owned by Fundação dos Economiários Federais—FUNCEF. Singular FIA is 100% owned by
Fundo de Investimentos em Cotas de Fundo de Investimento em Ações VRD, which in turn is 100% owned by Fundação CESP—Funcesp. Each of PREVI,
Funcef, Petros and Funcesp is a Brazilian pension fund, managing pension plans of employees of Banco do Brasil, Caixa Econômica Federal, Petróleo
Brasileiro S.A. and Cia. Energética do Estado de São Paulo, respectively.
123
CHANGES IN OUR SHAREHOLDING STRUCTURE
In 2017, we successfully completed a series of measures to simplify our shareholding structure and enhance our
corporate governance. These measures are summarized below:
Major Shareholders
•
•
•
In August and October 2017, we converted our preferred class A shares into common shares (and
ADSs representing our preferred class A shares into ADSs representing our common shares). As a
result, we removed our preferred class A shares from trading on the B3 and ADSs representing
preferred class A shares from trading on the New York Stock Exchange (“NYSE”).
In August and December 2017, we concluded a series of amendments to our bylaws in order to
enhance our corporate governance and prepare the Company to join the Novo Mercado segment of
the B3.
In August 2017, Valepar S.A. (Valepar), former controlling shareholders of Vale, merged into Vale at
an exchange ratio that represented a dilution of approximately 3% of the shareholding interest held by
the other shareholders of Vale. Consequently, the former shareholders of Valepar own 36.72% of our
outstanding common stock after the merger of Valepar. See—Shareholders’ Agreement for more
information on the new agreement among the former shareholders of Valepar.
•
In December 2017, Vale was listed on the Novo Mercado segment of the B3, the special listing
segment for companies committed to the highest standards of corporate governance;
SHAREHOLDERS’ AGREEMENT
On August 14, 2017, Litel, Bradespar, Mitsui and BNDESPAR executed the Shareholders’ Agreement, by means
of which they undertook to vote jointly on certain issues. The following are key provisions of the Shareholders’
Agreement:
• Term: The Shareholders’ Agreement will be effective until November 9, 2020.
• Shares subject to the agreement: The Shareholders’ Agreement will only apply to a portion of the
common shares of Vale to be owned by the parties thereto, in a total amount of 20% of Vale’s
common shares (not including treasury shares). However, in any general shareholders’ meeting,
common shares owned by the parties to the Shareholders’ Agreement but not subject to the
agreement must be voted in accordance with the shares subject to the agreement.
• Shareholders’ prior meetings: The Shareholders’ Agreement does not require meetings thereunder
prior to each meeting of the Vale Board of Directors or general shareholders’ meeting, unless
convened any of the parties to the proposed Vale shareholders’ agreement.
• Qualified quorum matters: The Shareholders’ Agreement requires approval, in a prior meeting, of
shareholders holding at least 75% of the shares subject to the agreement owned by the parties in
attendance for approval of the following matters, among others:
o any amendment of Vale’s bylaws;
o any increase or reduction of Vale’s capital stock;
124
Major Shareholders
o any issuance of debentures of Vale, whether or not convertible into shares of Vale,
call options (bônus de subscrição) or any other security of Vale;
o any amalgamation, spin-off or merger to which Vale is a party, as well as any change
to Vale’s corporate form;
o any dissolution, receivership, bankruptcy or any other voluntary act for financial
reorganization of Vale or the suspension of any of these proceedings;
o
o
the removal of any member of Vale’s Board of Directors, and the election and
removal of any executive officer of Vale;
the approval of the aggregate and individual compensation of members of the Board
of Directors, Board of Executive Officers and advisory committees;
o creation of companies by Vale, the conversion of currently existing companies into
another types of legal entity, the direct or indirect acquisition or disposition of Vale’s
interests in the capital stock of other companies or entities, including through mergers
and spin-offs, as well as the amendment of the corporate documents of these legal
entities, whenever the amount involved is equal or greater than 1% of Vale’s
shareholders’ equity, based on Vale’s most recent quarterly financial information;
o
o
o
o
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
50% of the net income;
the creation of any security interest or guarantee by Vale to any third parties,
including companies controlled by or affiliated with Vale, except for subsidiaries of
which Vale owns at least 99% of the capital stock;
the approval of Vale’s maximum limit of indebtedness;
the approval of Vale’s strategic guidelines and plan, as well as annual and
pluriannual budgets and fundraising plan;
o any investments or divestments by Vale, as well as any investment agreements, in
an amount equal to or greater than 1% of Vale’s shareholders’ equity, based on
Vale’s most recent quarterly financial information;
o
o
o
o
the approval of any related-party transactions policy;
the disposal of fixed assets of Vale in an amount exceeding (i) separately, 0.15% of
Vale’s total assets, or (ii) in the aggregate, in a twelve-month period, 0.5% of Vale’s
total assets, based on Vale’s most recent quarterly financial information;
the cancellation of Vale’s listing or the reduction of Vale’s listing level on the B3; and
the appointment and removal by Vale’s Board of Executive Officers of the chief
executive officer in subsidiaries, companies affiliated with Vale or other companies in
which Vale is entitled to appoint the chief executive officer.
125
RELATED PARTY TRANSACTIONS
We have a policy on related party transactions, which sets forth rules and principles to ensure transparency and
arm’s-length terms in our transactions with related parties and other situations of potential conflicts of interest.
The definition of related party is based on applicable accounting standards and on this internal policy, which may
be more restrictive than applicable laws and regulations under certain circumstances. Pursuant to that policy and
our bylaws, our Governance, Compliance and Risk 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. In addition, if we identify a conflict of interest with a member of the Board
of Directors or an executive officer, then such member of the Board or executive officer may not participate in any
discussions or have access to any information or document related to 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 associate companies and joint ventures and for information regarding transactions with
major related parties, see notes 16 and 31 to our consolidated financial statements.
We have engaged, and expect to continue to engage, in arm’s-length transactions with certain entities controlled
by, or affiliated with, our principal shareholders.
BRADESCO
Bradespar 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, investment
banking, advisory or general financing and banking services for us and our affiliates, from time to time, in the
ordinary course of business. An affiliate of Bradesco owns preferred shares representing 36.4% of the total capital
of our subsidiary MBR.
BANCO DO BRASIL
Previ, a pension fund of the employees of Banco do Brasil S.A. (“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 in turn
holds 20.4% of the common shares of Vale. 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, investment banking, advisory or general financing and banking services for us and our affiliates, from time
to time, in the ordinary course of business.
MITSUI
We have commercial relationships in the ordinary course of our business with Mitsui, a large Japanese
conglomerate. Mitsui has direct investments in some of our subsidiaries, joint ventures and associated
companies. Mitsui is also our joint venture partner at VLI. Mitsui has an indirect stake in Vale Mozambique and
Nacala Corridor Holding, which controls the coal operations (mine, rail and port) in Mozambique (see Information
on the Company—Business overview—Significant changes in our business).
126
Related Party Transactions
BNDES
BNDES is the Brazilian state-owned development bank and the parent company of one of our major
shareholders, BNDESPAR. Below is a description of our main transactions with BNDES:
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 ore 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$3.9 billion (US$1.2 billion) financing for our CLN 150 Mtpy project
and a R$6.2 billion (US$1.9 billion) financing for our S11D project and its infrastructure (CLN S11D). For more
information on our transactions with BNDES, see Operating and financial review and prospects—Liquidity and
capital resources.
BNDES holds a total of R$937 million (US$242 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 metric tons of copper.
BNDES holds debentures issued by Vale exchangeable into common shares of VLI.
BNDESPAR is in the control group of several Brazilian companies with which we have commercial relationships
in the ordinary course of our business.
127
DISTRIBUTIONS
Immediately following the failure of Dam I, our Board of Directors determined the suspension of our dividend
policy, and therefore no payment of dividends or interest on shareholders’ equity will be made pursuant to Vale’s
Distribution Policy, and no decision with respect to share buyback will be made until further determination of our
Board of Directors.
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. In September 2018, we paid dividends
to our shareholders in the amount of US$1.876 billion, which exceeds the minimum dividends required by law for
the year of 2018.
The tax regime applicable to distributions to ADR 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.
We make cash distributions on the common 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 net of the depositary’s fees. For information on
taxation of dividend distributions, see Additional information—Taxation—Brazilian tax considerations.
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. Amounts are stated before any applicable withholding tax.
Year
2014 ........
2015 ........
2016 ........
2017 ........
2018 ........
Payment date
April 30
October 31
April 30
October 31
December 16
April 28
March 15
September 20
Reais per share
Dividends
–
0.34
–
0.37
–
–
–
0.17
Interest on equity
0.90
0.65
0.60
–
0.17
0.91
0.91
1.31
Total
0.90
0.99
0.60
0.37
0.17
0.91
0.91
1.48
U.S. dollars per share(1)
Total
U.S. dollars total(1)
(US$ million)
0.41
0.41
0.19
0.10
0.05
0.28(2)
0.28(2)
0.36(2)
2,100
2,100
1,000
500
250
1,470(2)
1,451(2)
1.861(2)
(1) As approved by the Board of Directors.
(2) Calculated based on the exchange rate for the US dollar (Ptax-Option 5) published by the Central Bank of Brazil (BCB), on the day prior to payment.
128
TRADING MARKETS
Our publicly traded share capital consists of common shares, without par value. Our common shares are publicly
traded in Brazil on the B3, under the ticker symbol VALE3. Our common shares also trade on the LATIBEX, under
the ticker symbols XVALO. 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, are traded on the NYSE, under the ticker symbol
VALE. Our common ADSs are traded on Euronext Paris under the ticker symbol VALE3. Citibank N.A. serves as
the depositary for the common ADSs. On December 31, 2018, there were 1,211,272,764 common ADSs
outstanding, representing 22.92% of our total share capital.
129
DEPOSITARY SHARES
Citibank N.A. serves as the depositary for our ADSs. ADR 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 are required to pay the depositary amounts in respect of expenses incurred by the depositary or its
agents on behalf of ADR holders, including expenses arising from compliance with applicable law, taxes or other
governmental charges, facsimile transmission or conversion of foreign currency into U.S. 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 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 of ADSs upon deposit of shares, excluding issuances as a result of distributions described in
the following item ..........................................................................................................................................
Up to US$5.00 or less per 100 ADSs (or fraction
thereof) issued
Distribution of securities other than ADSs or rights to purchase additional ADSs (i.e., spin-off shares).......... Up to US$5.00 or less per 100 ADSs (or fraction
thereof) held
Distribution of cash dividends or other cash distributions (i.e., sale of rights and other entitlements) ............. Up to US$5.00 or less per 100 ADSs (or fraction
thereof) held
Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, or (ii) exercise of
rights to purchase additional ADSs ..............................................................................................................
Up to US$5.00 or less per 100 ADSs (or portion
thereof) held
Delivery of deposited property against surrender of ADSs ............................................................................... Up to US$5.00 or less per 100 ADSs (or portion
thereof) surrendered
ADS services...................................................................................................................................................... Up to US$5.00 per 100 ADSs (or fraction thereof)
held on the applicable record date(s) established by
the depositary
The depositary may deduct applicable depositary fees and charges from the funds being distributed in the case of
cash distributions. For distributions other than cash, the depositary will invoice the amount of the applicable
depositary fees to the applicable holders.
ADDITIONAL CHARGES
The holders, beneficial owners, persons depositing shares and persons surrendering ADSs for cancellation and
for the purpose of withdrawing deposited securities are also subject to the following charges: (i) taxes (including
applicable interest and penalties) and other governmental charges; (ii) registration fees as may be applicable from
time to time; (iii) reimbursement of certain expenses as provided in the deposit agreement; (iv) the expenses and
charges incurred by the depositary in the conversion of foreign currency; (v) certain fees and expenses incurred
by the depositary in connection with compliance with exchange control regulations and other regulatory
requirements; and (vi) certain fees and expenses incurred in connection with the delivery or servicing of deposited
shares, as provided for under the deposit agreement.
130
The depositary reimburses us for certain expenses we incur in connection with the ADR programs and other
expenses, 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. The depositary also agreed to make an
additional reimbursement annually based on the issuance and cancellation fees, dividend fees and depositary
service fees charged by the depositary to our ADS holders. For the year ended December 31, 2018, Citibank N.A.
reimbursed us US$4.673 million.
Depositary Shares
131
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
AFFILIATED PURCHASERS
On December 11, 2018, we announced the completion of the US$1 billion share repurchase program approved
by the Board of Directors on July 25, 2018. We acquired 71,173,683 common shares at an average price of
US$14.05 per share (including common shares represented by ADSs), for a total aggregate purchase price of
US$1.0 billion. The repurchased shares represent 1.37% of the free float of common shares outstanding before
the launching of the program. See note 30 to our consolidated financial statements for further information.
The results of our share repurchase program for 2018 are set forth below.
Total number of
common shares
purchased(1)
Average price paid
per common share
(US$)
Total number of
common shares
purchased as part of
publicly announced
programs
Maximum number
of shares that may
yet be purchased
under the program
August 2018 .................................................................
September 2018 ..........................................................
October 2018 ...............................................................
November 2018 ...........................................................
Total ........................................................................
32,353,894
6,802,524
13,136,543
18,880,722
71,173,683
13.35
13.80
14.78
14.83
14.05
32,353,894
6,802,524
13,136,543
18,880,722
71,173,683
–
–
–
–
–
(1)
Includes common shares represented by ADSs.
132
Management
V. 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 for a Board of Directors consisting of
12 members and 12 alternates, each of whom serves on behalf of a particular director. Our bylaws provide that
the chief executive officer cannot serve as chairman of the Board of Directors. In the shareholders’ meeting
scheduled for April 30, 2019, our shareholders will vote a proposal to increase the number of members of our
Board of Directors to 13 members.
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.
All members (and their respective alternates) 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. The terms of all of our directors and alternate
directors will expire at the Ordinary General Shareholder’s meeting of 2019.
Eight of our eleven current directors (and seven of our eight alternate directors) were appointed by the parties to
the Shareholders’ Agreement. 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 may elect a member and an alternate to our Board of Directors. See Memorandum and Articles of
Association—Voting Rights.
New listing rules applicable to independence requirements for the Novo Mercado came into force in January
2018. Pursuant to the Novo Mercado listing rules and our bylaws, at least two directors or 20% of our directors,
whichever number is higher, must be independent. We currently have two independent members. If the proposal
to increase the number of board members to 13 is approved, we expect to have at least one additional
independent member in our Board of Directors. To be considered independent under our bylaws and the Novo
Mercado listing rules in effect in 2018, a director may not (i) have current professional ties to Vale other than as a
member of the Board of Directors or be a significant shareholder of Vale; (ii) have been an employee or executive
of Vale or of any party to the Shareholders’ Agreement for at least the past three years; (iii) sell goods or services
to or purchase goods or services from Vale; (iv) be affiliated with any party to the Shareholders’ Agreement; (v) be
a relative, to the second degree, of any director or executive of Vale; (vi) have been a member of Vale’s audit
committee in the past three years; and (vii) be an affiliate of any non-profit organization receiving significant
financial resources from Vale.
133
The following table lists the current members of the Board of Directors and each director’s alternate.
Management
Director
Gueitiro Matsuo Genso (chairman) .....................................................
Fernando Jorge Buso Gomes (vice-chairman) ...................................
Oscar Augusto de Camargo Filho .......................................................
Dan Antônio Marinho Conrado ............................................................
Marcel Juviniano Barros ......................................................................
Lucio Azevedo(1) .................................................................................
Eduardo Refinetti Guardia ...................................................................
Toshiya Asahi.......................................................................................
Vacant ..................................................................................................
Sandra Maria Guerra de Azevedo(2)(3) ..............................................
Isabella Saboya de Albuquerque(3) ....................................................
Ney Roberto Ottoni de Brito .................................................................
Year first
elected
2015
2015
2003
2012
2012
2015
2016
2017
–
2017
2017
2018
Year
first
elected
Alternate director
Gilberto Antonio Vieira ......................................................................... 2015
Vacant ..................................................................................................
Eduardo de Oliveira Rodrigues Filho ................................................... 2011
Arthur Prado Silva ................................................................................ 2015
Gilmar Dalilo Cezar Wanderley ........................................................... 2017
Raimundo Nonato Alves Amorim(1) .................................................... 2017
Robson Rocha ..................................................................................... 2011
Yoshitomo Nishimitsu .......................................................................... 2015
Luiz Mauricio Leuzinger ....................................................................... 2012
Vacant ..................................................................................................
Vacant ..................................................................................................
Vacant ..................................................................................................
–
–
–
–
(1)
(2)
(3)
Appointed by our employees.
Ms. Guerra was elected in a separate election by non-controlling shareholders.
Independent directors.
Below is a summary of the business experience, activities and areas of expertise of our current directors.
Gueitiro Matsuo Genso, 47: Chairman of Vale’s Board of Directors since February 2016 (Member of Vale’s
Board of Directors since March 2015); Member of the Personnel Committee since November 2017.
Professional experience: Coordinator of Vale’s Finance Committee from May 2018 to December 2018; Chief
Executive Officer of PREVI—Caixa de Previdência dos Funcionários do Banco do Brasil S.A. from 2015 to 2018;
Member of Vale’s Executive Development Committee from April 2017 to October 2017 and of Vale’s Strategic
Committee from 2015 to 2017; Chief Executive Officer of Valepar from 2015 to August 2017; Executive Officer of
Private Customers of Banco do Brasil S.A. from 2014 to 2015; Member of the Board of Directors of the Brazilian
Interbank Payment Chamber from 2014 to 2015; Member of the Fiscal Council of Grupo Segurador BB Mapfre
from 2011 to 2015; Sector Officer of the Brazilian Bank Federation (Febraban) from 2010 to 2015; Executive
Officer of Real Estate Credit of Banco do Brasil S.A. from 2011 to 2014; Executive Officer of Home Loans of
Banco do Brasil S.A. from 2011 to 2014; Executive Officer of Loans of Banco do Brasil S.A. from 2010 to 2011;
and Executive Officer of Products of Banco Nossa Caixa S.A. from 2009 to 2010.
Academic background: Degree in business administration from Faculdade SPEI; MBA from Fundação Getúlio
Vargas; and MBA in agribusiness from Escola Superior de Agricultura Luiz de Queiroz.
Fernando Jorge Buso Gomes, 62: Vice Chairman of Vale’s Board of Directors since January 2017 (Member of
Vale’s Board of Directors since April 2015); Member of the Finance Committee since April 2015, Coordinator of
the Sustainability Committee and Member of the Personnel Committee since November 2017.
Other current director or officer positions: Chief Executive Officer and Investor Relations Executive Officer of
Bradespar since 2015 and 2015, respectively; Executive Officer of Millennium Security Holdings Corp. since
2015; and Vice Chairman of Bradespar’s Board of Directors since April 2018.
Professional experience: Coordinator of Vale’s Governance Sustainability Committee and Member of the
Executive Development Committee from April 2015 to October 2017; Member of the Strategy Committee from
April 2017 to October 2017; Executive Officer of Valepar from 2015 to 2017; Member of the Board of Directors of
Valepar from 2015 to 2017 (and Vice-Chairman of Board of Directors from
134
Management
January to August 2017); Member of the Board of Directors of Sete Brasil S.A. from 2011 to 2015; Chairman of
the Board of Directors of Smartia Corretora de Seguros S.A. from 2012 to 2015; Chairman of the Board of
Directors of SMR Grupo de Investimentos e Participações S.A. from 2014 to 2015; Member of the Board of
Directors of BCPAR S.A. from 2013 to 2015; Member of the Board of Directors of BR Towers S.A. from 2013 to
2014; Member of the Board of Directors of CPFL Energias Renováveis S.A. from 2011 to 2012; and Member of
the Board of Directors of LOG Commercial Properties S.A. from 2013 to 2015; Executive Officer of Banco
Bradesco BBI S.A. from 2006 to 2015; Member of the Board of Directors of 2b Capital S.A. from November 2014
to December 2018; Chief Executive Officer and Executive Officer of 2b Capital S.A. from May 2015 to June 2016
and from June 2016 to December 2018, respectively; Member of Vale’s Board of Directors from April 2015 to
January 2017; Chief Executive Officer of Antares Holding Ltda. from April 2015 to April 2017; Chief Executive
Officer of Brumado Holdings Ltda from April 2015 to April 2017; and Member of the Investments Committee of
Fundo de Investimento em Participações Sondas from May 2011 to April 2015.
Academic background: Degree in economic sciences from Faculdades Integradas Bennett.
Oscar Augusto de Camargo Filho, 81: Member of Vale’s Board of Directors since October 2003 and
Coordinator of the Personnel Committee since November 2017.
Other current director or officer positions: Managing Partner of CWH Consultoria Empresarial, since 2003.
Professional experience: Member of the Board of Directors of Valepar from 2003 to 2014; Member of Vale’s
Strategy Committee from March 2006 to October 2017; Coordinator of Vale’s Executive Development Committee
from November 2003 to October 2017; Secretary to Board and Commercial Executive Officer of Motores Perkins
from 1963 to 1973; Commercial Executive Officer of MBR and Caemi Group from 1973 to 1981; Chief Executive
Officer of Caemi International and Commercial Vice President of Caemi Group from 1981 to 1988; Chief
Executive Officer of Caemi Mineração e Siderurgia from 1988 to 1992; Chief Executive Officer of Caemi
Mineração e Siderurgia and Member of the Board of Directors of MRS Ferrovias from 1996 to 2002.
Academic background: Degree in law from Universidade de São Paulo; and Post-graduate degree in
international marketing from Cambridge University.
Dan Antonio Marinho Conrado, 54: Member of Vale’s Board of Directors since October 2012; Member of the
Sustainability Committee since November 2017.
Professional experience: Member of Vale’s Governance and Sustainability Committee from April 2017 to October
2017 and of Vale’s Strategic Committee from October 2012 to April 2015; Chairman of Vale’s Board of Directors
from October 2012 to February 2016; Chairman of Valepar’s Board of Directors from 2012 to 2017; Chief
Executive Officer of Valepar from 2012 to 2015; Chief Executive Officer of PREVI—Caixa de Previdência dos
Funcionários do Banco do Brasil S.A. from 2012 to 2014, Alternate Member of the Board of Directors of Mapfre
BB SH2 Participações S.A. from 2011 to 2017; and Alternate Member of the Board of Directors of Petróleo
Brasileiro S.A.—Petrobrás and Member of the Board of Directors of its wholly owned subsidiary, BR Distribuidora,
from July 2015 to November 2015.
Academic background: Degree in law from Universidade Dom Bosco; MBA from Universidade Federal do Rio de
Janeiro, COPPEAD; and MBA from Instituto de Ensino e Pesquisa em Administração of Universidade Federal de
Mato Grosso, Inepad.
135
Management
Marcel Juviniano Barros, 56: Member of Vale’s Board of Directors since October 2012; Member of the
Personnel Committee since November 2017.
Other current director or officer positions: Officer of Securities of PREVI—Caixa de Previdência dos Funcionários
do Banco do Brasil S.A. since 2012.
Professional experience: Member of the Executive Development Committee of Vale from February 2013 to
October 2017; Member of the Board of Directors of Valepar from 2012 to August 2017; held several positions at
Banco do Brasil S.A., including Union Auditor, between 1987 and 2012; and General Secretary of the National
Confederation of Financial Branch Workers from 2008 to 2011.
Academic background: Degree in history from Fundação Municipal de Ensino Superior de Bragança Paulista.
Lucio Azevedo, 60: Member of Vale’s Board of Directors since April 2015.
Professional experience: Chairman of Railway Labor Unions in the Brazilian states of Maranhão, Pará and
Tocantins since 2013.
Academic background: Incomplete secondary education.
Eduardo Refinetti Guardia, 53: Member of Vale’s Board of Directors since July 2016; Member of the Finance
Committee since April 2017 and Coordinator of the Finance Committee since December 2018.
Professional experience: Coordinator of the Finance Committee from August 2017 to May 2018; Executive
Officer of Products of BM&FBOVESPA (now B3) from 2013 to 2016; Executive Officer of Finance and Investor
Relations of BM&FBOVESPA (now B3) from 2010 to 2013; Chairman of the Board of Directors of Banco do
Brasil S.A. from June 2016 to April 2017; Executive Secretary of the Department of the Treasury from June 2016
to March 2018; Minister of the Department of Treasury from April 2018 to December 2018; and Manager of the
Capital and Risk Committee of Banco do Brasil S.A. from September 2017 to December 2018.
Academic background: Degree in economics from Pontifícia Universidade Católica; Master’s Degree in
economics from Universidade Estadual de Campinas; and PhD in economics from Universidade de São Paulo.
Ney Roberto Ottoni de Brito, 73: Member of Vale’s Board of Directors since January 2018; Coordinator of the
Governance, Compliance and Risk Committee and Member of the Finance Committee since January 2018.
Other current director or officer positions: Chief Executive Officer of Ney O. Brito e Associados since 1978.
Academic background: Graduate degree in mechanical engineering from Escola Politécnica of the Universidade
Federal do Rio de Janeiro; Master’s degree in production engineering from COPPE of the Universidade Federal
do Rio de Janeiro; PhD in finance from Stanford University.
Toshiya Asahi, 52: Member of Vale’s Board of Directors since October 2017.
136
Management
Other current director or officer positions: Vice President of Mitsui & Co. (Brasil) S.A. since 2015; and Member of
the Board of Directors of Gaspetro since October 2016.
Professional experience: Deputy General Manager of New Metals and Aluminum of Mitsui & Co. Ltd. from 2014
to 2015; Deputy Executive Officer of Mitsui & Co. Ltd. from 2012 to 2014.
Academic background: Graduate degree in metallurgical engineering from the University of Kyushu.
Sandra Maria Guerra de Azevedo, 63: Member of Vale’s Board of Directors since October 2017 and Member of
the Governance, Compliance and Risk Committee since November 2017.
Other current director or officer positions: Founding Partner of Better Governance Consulting Services since
2005; and Member of the Board of Directors of Global Reporting Initiative since January 2017.
Professional experience: Member of the Board of Directors of Companhia Paranaense de Energia from October
2016 to April 2017; Consulting counselor of Solvi Participações from 2011 to 2013; Consulting counselor of Solvi
Valorização Energética from January 2013 to June 2013; Consulting counselor of Solvi Saneamento from June
2012 to December 2012; Consulting counselor of Grupo Itapemirim from 2009 to 2013; Co-founder of the
Brazilian Institute of Corporate Governance (IBGC), serving as Chairman of its Board of Directors from 2012 to
2016; and Member of the Board of Directors of Vix Logística S.A. from April 2015 to April 2018.
Academic background: Graduate degree in social communications-journalism from Universidade Paulista; MBA
from Universidade de São Paulo.
Isabella Saboya de Albuquerque, 48: Member of Vale’s Board of Directors since October 2017
Other current director or officer positions: Member of the Board of Directors of Wiz Soluções e Corretagem de
Seguros S.A. since April 2016; Vice-chairman of the Board of Directors of the Brazilian Institute of Corporate
Governance (IBGC) since April 2017; Member of the State Governance Market Advisory Chamber of B3 since
August 2017; Member of the Council of Autoregulation in Investment Governance Abrapp/Sindapp/ICSS since
December 2016.
Professional experience: Member of the Fiscal Council of Bradespar S.A. from April 2016 to July 2016; Member
of the Fiscal Council of Mills S.A. from April 2016 to April 2017; Member of the Board of Directors of BR
Malls S.A. from May 2016 to March 2017; Partner at Jardim Botânico Investimentos S.A. from 2009 to 2015.
Academic background: Graduate degree in economics from Pontifícia Universidade Católica do Rio de Janeiro.
ADVISORY COMMITTEES TO THE BOARD OF DIRECTORS
Our bylaws provide for the following advisory committees to the Board of Directors, each governed by its own
internal rules.
• The Personnel Committee, which is responsible for evaluating the adequacy of the compensation
model for members of the Board of Executive Officers and the proposed annual, global budget for the
compensation of executives, supporting the Board of Directors in the setting and monitoring of goals
for performance evaluation of our executive officers
137
Management
and certain other key managers, supporting the Board of Directors in determining disciplinary
treatment of confirmed allegations against members of the Board of Executive Officers or other
managers who report directly to the Chief Executive Officer or to the Board of Directors, supporting
the Board of Directors in the process of selecting and appointing the Chief Executive Officer,
monitoring the development of the succession plan for the Executive Board and other leaders who
report directly to the Chief Executive Officer, evaluating and recommending adjustments to corporate
governance best practices, identifying and recommending potential candidates to be directors and to
be members of the Advisory Committees, among other matters. The current members of the
Personnel Committee are Oscar Augusto de Camargo Filho, Gueitiro Matsuo Genso, Marcel
Juviniano Barros, Fernando Jorge Buso Gomes and Ana Silvia Matte.
• The Finance Committee, which is responsible for evaluating the structure and conditions of
investment and divestment transactions, including mergers, consolidations and spin-offs in which
Vale is involved, evaluating the compatibility and consistency between the compensation level of
shareholders and the parameters established in the annual budget and financial scheduling, as well
as Vale’s general policy on dividends and capital structure, evaluating Vale’s annual budget and
annual investment plan, evaluating Vale’s annual funding plan and indebtedness limits, evaluating
current and capital investments, monitoring the financial execution of capital expenditure projects,
ongoing budget and cash flow, monitoring financial risks and controls, preparing and approving the
Finance Committee’s annual work plan, among other matters. The current members of the Finance
Committee are Eduardo Refinetti Guardia, Ney Brito, Fernando Jorge Buso Gomes, Eduardo de
Oliveira Rodrigues Filho and Gilmar Dalilo Cezar Wanderley.
• The Governance, Compliance and Risk Committee, which is responsible for monitoring the structure,
processes, practices and systems in place to ensure compliance with all applicable legal and
regulatory requirements, monitoring the suitability, strength and performance of all of Vale’s internal
control systems and proposing improvements, , supporting the Board of Directors in setting risk
exposure limits, monitoring Vale’s integrated risk map, as well as proposing improvements in risk
mitigation plans, ensuring the effectiveness of mechanisms to handle conflicts of interests in Vale’s
transactions, as well as opining on related-party transactions, evaluating proposals for modifying the
corporate governance documents, such as the By-Laws, the Code of Ethical Conduct and Internal
Rules of Vale’s Advisory Committees and Board of Directors, and other Policies, among other
matters. The current members of the Governance, Compliance and Risk Committee are Ney Brito,
Arthur Prado Silva, Yoshitomo Nishimitsu and Sandra Guerra.
• The Sustainability Committee, which is responsible for evaluating Vale’s sustainability strategy, and
ensuring that it is considered when setting overall strategy, evaluating Vale’s policies and conduct
related to Safety, the Environment, Health, Social Actions, Communication and Institutional Relations,
evaluating and proposing Vale’s adherence to national or international initiatives or agreements
related to socio-environmental responsibility matters, and monitoring the preparation and disclosure
of the sustainability report, monitoring all operational risks and controls from the perspective of the
integrated risk map, including risks to safety, the environment, health and social actions and
reputational risks, as well as proposing improvements in risk mitigation plans, among other matters.
The current members of the Sustainability Committee are Fernando Jorge Buso Gomes, Dan Antonio
Marinho Conrado, Eduardo de Oliveira Rodrigues Filho and Clarissa Lins.
138
INDEPENDENT AD HOC ADVISORY COMMITTEES TO THE BOARD OF DIRECTORS CREATED IN
RESPONSE TO DAM I FAILURE
Management
•
•
•
Independent Ad Hoc Consulting Committee for Investigation (CIAEA), established to investigate the
causes of the dam failure. The committee is chaired by Dr. Ellen Gracie, former Justice of the
Brazilian Supreme Court, and also includes Manuel Martins and Jose Francisco Compagno.
Independent Ad Hoc Consulting Committee for Support and Recovery (CIAEAR), established to
monitor our measures to support the affected community and to remediate the impacted area, and
our provision of resources for this purpose. The committee is also responsible for examining the
action plans and recommending measures to our Board of Directors for effectively performing the
support actions related to the dam failure, following up the progress of the action plans. The
committee is chaired by Leonardo Pereira, former chair of the Brazilian Securities Commission, and
also include Ana Cristina Barros and Márcio Gagliato.
Independent Ad Hoc Consulting Committee for Dam Safety (CIAESB), established to evaluate safety
conditions of our dams, prioritizing upstream structures, structures in alert zones, among others, with
purpose of identifying and recommending measures to strengthen safety at these structures, based
on national and international advanced methodologies. The committee is responsible for examining
the action plans proposed by the our management regarding the safety of the dams, governance
related to security management plans and to recommend measures for their improvement. The
committee is chaired by Flávio Miguez de Mello, and also includes Willy Lacerda and Pedro Repetto.
EXECUTIVE OFFICERS
The executive officers are responsible for day-to-day operations and the implementation of the general policies
and guidelines set forth by our 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.
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
Officer
Eduardo de Salles Bartolomeo(1)(2) ......................................... 2017
Luciano Siani Pires .................................................................... 2012
Claudio de Oliveira Alves(2) ...................................................... 2019
Vacant(3) .................................................................................... 2019
Luiz Eduardo Fróes do Amaral Osorio ...................................... 2017
Alexandre Gomes Pereira ......................................................... 2017
Fabio Schvartsman(2)................................................................ 2017
Gerd Peter Poppinga(2) ............................................................. 2014
Position
Interim Chief Executive Officer
Chief Financial Officer and Executive Officer for Investor Relations
Interim Executive Officer (Ferrous Minerals and Coal)
Executive Officer (Base Metals)
Executive Officer (Sustainability and Institutional Relations)
Executive Officer (Business Support)
Executive Officer (on leave)
Executive Officer (on leave)
Age
55
49
51
–
45
49
65
59
(1)
Eduardo de Salles Bartolomeo was Executive Officer for Base Metals from 2017 to March 2019, and was
appointed Interim Chief Executive Officer in March 2019, during the temporary leave of Fabio
Schvartsman.
139
Management
(2)
In March 2019, the Board of Directors approved the requests from Fabio Schvartsman and Gerd Peter
Poppinga for temporary leave from their positions. See Business overview—Failure of the tailings dam at
the Córrego do Feijão mine. Consequently, the Board approved the appointment of Eduardo de Salles
Bartolomeo as Interim Chief Executive Officer and Claudio De Oliveira Alves as Interim Executive Officer
of Ferrous Minerals and Coal.
(3)
In March 2019, our Board of Directors appointed Mr. Mark James Travers as Executive Officer for Base
Metals, subject to him obtaining a visa and relocating to Brazil, as required under Brazilian law.
Below is a summary of the business experience, activities and areas of expertise of our current executive officers.
Eduardo de Salles Bartolomeo, 55: Interim Chief Executive Officer of Vale since March 2019.
Other current director or officer positions: Chairman of the Board of Directors of Login Logística Intermodal since
2016.
Professional experience: Executive Officer for Base Metals from 2017 to March 2019; Member of Vale’s Board of
Directors from September 2016 to December 2017; Coordinator of Vale’s Governance, Compliance and Risk
Committee from November 2017 to December 2017; Member of Vale’s Financial Committee from April to
December 2017; Chief Executive Officer of Nova Transportadora do Sudeste from April to December 2017;
Member of Vale’s Strategic Committee from September 2016 to October 2017; Executive Officer of Vale for
Integrated Operations from 2010 to 2012; Executive Officer of Vale for Logistics, Projects & Sustainability from
2007 to 2010; Member of the Board of Directors of Arteris S.A. from 2015 to 2017; Chief Executive Officer of
BHG—Brazilian Hospitality Group from 2013 to 2015; Member of the Board of Directors of MRS Logística S.A.
from 2007 to 2009; Head of Vale’s logistical operations from 2004 to 2006; and Chief Executive Officer of
Petroflex from 2006 to 2007.
Academic background: Graduate degree in metallurgical engineering from Universidade Federal Fluminense;
MBAs from Katholieke Universiteit Leuven and the Massachusetts Institute of Technology.
Luciano Siani Pires, 49: Chief Financial Officer and Executive Officer for Investor Relations of Vale since August
2012 and Member of the Executive Risk Management Committee since August 2012.
Other current director or officer positions: Member of the Board of Directors of The Mosaic Company since
January 2018; and Chairman of the Board of Directors of VLI S.A since September 2017.
Professional experience: Alternate Member of the Board of Directors of Vale, from 2005 to 2007; Member of
Vale’s Financial Committee from 2012 to 2015; Global Officer of Strategic Planning, from 2008 to 2009 and in
2011, and Global Officer of Human Resources and Governance from 2009 to 2011 of Vale; Member of the Board
of Directors of Valepar, from 2007 to 2008; 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; Several
executive positions at BNDES, including executive secretary and chief of staff of the presidency, Head of capital
markets and export finance, from 1992 to 1999 and from 2001 to 2008, respectively; and Consultant at
McKinsey & Company from 2003 to 2005.
Academic background: Degree in mechanical engineering from Pontifícia Universidade Católica do Rio de
Janeiro; and MBA in finance from the Stern School of Business, New York University.
Claudio de Oliveira Alves, 51: Interim Executive Officer for Ferrous Minerals and Coal of Vale since March
2019.
Professional experience: Chief Operating Officer of Pelletizing and Manganese Division of Vale from January
2017 to March 2019; Chief Global Officer of Iron Ore Marketing and Sales of Vale from August
140
Management
2013 to December 2016; Chief Marketing Officer from September 2011 to June 2013; and Chief Strategy Officer
from July 2010 to September 2011.
Academic background: Degree in production engineering from Federal University of Rio de Janeiro; Post
Graduate degree in Management from Fundação Dom Cabral; Specialization in Strategic Marketing from Darden
School of Business; MBA in Management from University of São Paulo; Specialization in Industrial Marketing
from INSEAD; Specialization in Transforming Leadership from Massachusetts Institute of Technology (MIT);
Specialization in Leadership from IMD; and participation on Innovation and Sustainability Program from MIT.
Luiz Eduardo Fróes do Amaral Osorio, 45: Executive Officer for Sustainability and Institutional Relations of
Vale since July 2017.
Other current director or officer positions: President of the Board of Directors of Instituto Brasileiro de
Mineração—IBRAM.
Professional experience: Executive Vice-President of Legal and Company Relations of CPFL Energia S.A. from
2014 to 2017; Member of the Board of Directors of CPFL Energias Renováveis S.A. from 2014 to 2017;
Vice-Chairman of the Board of Directors of Instituto CPFL from 2015 to 2017; Executive Director of International
Markets of Raízen from 2012 to 2014; Vice President, General Counsel and Chief Institutional Relations Officer of
CPFL Energy Group from May 2014 to July 2017; Executive Director for International Markets, based in London,
of Raízen from July 2012 to March 2014; Vice President for Sustainable Develompment and External Affairs of
Raízen from March 2011 to June 2012.
Academic background: Law degree from Pontifícia Universidade Católica do Rio de Janeiro; Master’s degree in
development management from American University’s School of International Service; Participated in coursework
in corporate social responsibility at Harvard Business School, general management skills at INSEAD, strategy
and leadership at the University of Pennsylvania and leadership in corporate counsel from Harvard Law School.
Alexandre Gomes Pereira, 49: Executive Officer for Business Support since August 2017.
Professional experience: Global Information Officer of Vale from 2011 to 2017; Head of Global IT Services of
Vale from 2009 to 2011; Vice President and Chief Information Officer of Vale’s global nickel business (Vale
Canada) from 2007 to 2009; IT General Manager of Vale from 2002 to 2007.
Academic background: Degree in mathematics/computer science from State University of Rio de Janeiro (UERJ);
Post-graduate degrees in business management from Fundação Dom Cabral and in computer networks from the
Federal University of Espírito Santo (UFES); and MBA from São Paulo University (USP).
Fabio Schvartsman, 65: Executive officer (on leave since March 2019). See Business overview—Failure of the
tailings dam at the Córrego do Feijão mine.
Professional experience: Chief Executive Officer of Vale from May 2017 to March 2019; Coordinator of Vale’s
Strategic Committee from May 2017 to October 2017; Chief Executive Officer of Klabin S.A. from 2011 to 2017;
Chief Executive Officer of SanAntonio Internacional from April 2008 to April 2010; Chief Executive Officer of
Telemar Participações S.A. from April 2007 to February 2008; several executive positions at Grupo Ultra from
May 1985 to April 2007, including Planning and Control Officer and Investor Relations Officer, Chief Financial
Officer of Ultrapar Holding and managing partner of Ultra S.A.; and General Manager of the Economic Studies,
Development and Planning areas of Duratex S.A. from February 1976 to April 1985.
141
Management
Academic background: Graduate and post-graduate degrees in production engineering from the University of
São Paulo and a post-graduate degree in Business Administration from Fundação Getúlio Vargas.
Gerd Peter Poppinga, 59: Executive officer (on leave since March 2019). See Business overview—Failure of the
tailings dam at the Córrego do Feijão mine.
Professional experience: Executive Officer for Ferrous Minerals of Vale from November 2014 to March 2019;
Executive Officer for Base Metals Operations and Information Technology of Vale from November 2011 to
November 2014; 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 Limited from November
2007 to April 2008; Several memberships on boards of directors and executive boards from 2005 to 2010 in
connection with his roles at Vale; Member of the Board of Directors of Samarco Mineração S.A. from December
2014 to April 2016; and several positions at Mineração da Trinidade S.A.—SAMITRI, a publicly held mining
company acquired by Vale in 2001, from 1985 to 1999.
Academic Background: Degree in geology from Universität Clausthal—Zellerfeld, Germany; Participated in
coursework in geostatistics at Universidade Federal de Ouro Preto (UFOP), executive MBA at Fundação Dom
Cabral, negotiation dynamics at INSEAD; senior leadership at the Massachusetts Institute of Technology and IMD
Business School in Lausanne, Switzerland, and strategic megatrends (Asia-focused) at Kellogg Singapore.
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, such 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. Under our Policy on Related
Party Transactions, any director or executive officer who has a conflict of interest cannot receive any relevant
documentation or information and may not participate in any related discussions. None of our directors or
executive officers can transact any business with us, 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 Share ownership and trading—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. Our management is required to obtain the Fiscal Council’s
pre-approval before engaging independent auditors to provide any audit or permitted non-audit services to Vale or
its consolidated subsidiaries. Our 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 included in this list, or that exceed the specified limits, or that relate to internal controls
must be separately approved by the Fiscal Council. The policy also sets forth a list of prohibited services. The
Fiscal Council is provided with reports on engagement and performance of the services included in the list on a
periodic basis, and it also reviews and monitors 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
142
Management
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 and internal regulations, our Fiscal Council is also responsible for evaluating the effectiveness
of the 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 is a competitor of 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 Rule 10A-3 under the Exchange Act, 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.
Our Board of Directors has determined that one of the members of our Fiscal Council, Mr. Marcus Vinicius Dias
Severini, is an audit committee financial expert. In addition, Mr. Marcus Vinícius Dias Severini 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 13, 2018. 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 the holders of our golden shares 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
Marcelo Amaral Moraes ...................................
Marcus Vinícius Dias Severini .........................
Eduardo Cesar Pasa........................................
Raphael Manhães Martins(1) ..........................
Daniel Rodrigues Alves(2) ...............................
Year first elected
2004
2017
2017
2015
2018
Alternate
Vacant(3) .........................................................
Vacant(4) .........................................................
Sergio Mamede Rosa do Nascimento .............
Gaspar Carreira Junior(1) ................................
Rodrigo Toledo Cabral Cota(2) .......................
Year first elected
–
–
2016
2017
2018
(1)
(2)
(3)
(4)
Appointed by minority shareholders of common shares.
Appointed by the holder of golden shares.
Vacant since the General Ordinary Shareholders’ meeting of 2014.
Vacant since the General Ordinary Shareholders’ meeting of 2017.
143
Management
Below is a summary of the business experience, activities and areas of expertise of the members of our Fiscal
Council.
Marcelo Amaral Moraes, 51: Member of Vale’s Fiscal Council since April 2004.
Other current director or officer positions: President of the Fiscal Council of Aceco TI S.A. since 2016; Member of
the Board of Directors of Eternit S.A. since 2016; and Member of the Board of Directors of CPFL Energia S.A.
since April 2017.
Professional experience: Managing Director of Capital Dynamics Investimentos Ltda. from 2012 to 2015.
Academic background: Degree in economics from Universidade Federal do Rio de Janeiro; MBA from
COPPEAD at the Universidade Federal do Rio de Janeiro; and Post-graduate Degree in corporate law and
arbitration from Fundação Getúlio Vargas.
Marcus Vinícius Dias Severini, 61: Member of Vale’s Fiscal Council since April 2017.
Other current director or officer positions: Member of the Fiscal Council of BRF S.A. since April 2015 and
member of Valia’s Audit Committee since January 2019.
Professional experience: Controller of Vale from 1994 to 2015. Member of the Fiscal Council of Mills Estruturas e
Serviços de Engenharia S.A. from April 2015 to April 2018.
Academic background: Degree in accounting sciences from UniverCidade; Graduate degree in electrical
engineering from Universidade Federal Fluminense; and a specialized degree in economic engineering from
UniSUAW.
Eduardo Cesar Pasa, 48: Member of Vale’s Fiscal Council since April 2017.
Other current director or officer positions: Accounting Management Officer of Banco do Brasil S.A. since April
2015; Member of the Deliberations Council of PREVI since 2010; Member of the Fiscal Council of Petrobras S.A.
since April 2017; and Alternate Member of the Fiscal Council of Brasilprev Seguros e Previdência since March
2018.
Professional experience: Coordinator of Vale’s Controlling Committee of Vale from 2014 to 2017; Member of the
Fiscal Council of Centrais Elétricas Brasileiras S.A. (Eletrobras) from 2015 to 2017; Member of the Fiscal Council
of Cateno Gestão de Contas de Pagamento S.A. from 2016 to 2017; General Accounting Manager of Banco do
Brasil S.A. from 2009 to 2015; Member of the Fiscal Council of CASSI from 2010 to 2014; Alternate Member of
the Fiscal Council of Banco Votorantim S.A. from 2009 to 2015; and Member of the Fiscal Council of BBTS-BB
Tecnologia e Serviços from 2008 to 2015.
Academic background: Graduate degree in accounting sciences from Centro Universitário de Brasília—UniCeub;
Post-graduate degree in accounting sciences from the Post-Graduate School of Economics at Fundação Getúlio
Vargas; Master’s Degree in accounting sciences from the School of Economics, Administration and Accounting of
the Universidade de São Paulo.
Raphael Manhães Martins, 36: Member of Vale’s Fiscal Council since April 2015.
Other current director or officer positions: Member of the Board of Directors of Eternit S.A. since April 2015;
Attorney for Faoro Advogados since April 2010; Member of the Board of Directors of Condor S.A.
144
Management
Indústria Química since May 2017; Member of the Board of Directors of Welser Itage Participações e
Comércio S.A. since May 2017; and Member of the Board of Directors of Light S.A. since August 2018.
Professional experience: Attorney for Cr2 Empreendimentos from 2007 to 2009; and Member of the Fiscal
Council of Light S.A. from 2014 to 2018.
Academic background: Degree in law from Universidade Estadual do Rio de Janeiro.
Daniel Rodrigues Alves, 76: Member of Vale’s Fiscal Council since April 2018.
Other current director or officer positions: Executive Assistant Secretary of the Brazilian Ministry of Finance since
2016; and Alternate Member of the Board of Directors of BB MAPFRE SH1 Participações S.A. since 2017.
Professional experience: Managing partner at Rodrigues Alves e Soares Duarte Advogados from 2011 to 2014;
Legal consultant at Empresa Gestora de Ativos—EMGEA, a state-owned company connected to the Brazilian
Ministry of Finance from 2015 to 2016.
Academic background: Degree in law from Associação de Ensino Unificado do Distrito Federal; and Specialized
degree in international law from Fundação Getúlio Vargas in Rio de Janeiro.
145
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. The Personnel Committee, composed of
four members of the Board of Directors and one independent non-director, advises the Board of Directors on the
distribution of the annual aggregate compensation among the directors and executive officers and in setting and
monitoring goals for the performance evaluation of the Executive Board. See Management and employees—
Management—Advisory committees to the Board of Directors.
As a global company, we require management with a deep knowledge of our business and market and unlimited
dedication. Attracting and retaining talent, and engaging and motivating the professionals holding strategic
positions, especially our executive officers, is critical for our success.
The compensation submitted by our Board of Directors for approval of our shareholders, and the distribution of
the aggregate compensation among the members of our Board of Directors and our Board of Executive Officers,
are based on benchmarking against the compensation policies and practices of the top global mining companies
and other large global companies in other similar industries, and various other factors, such as the directors’ and
officers’ responsibilities, time devoted to their duties, professional competence and reputation, market practices in
the places where we operate, and the alignment of short- and long-term strategies, shareholder returns and the
sustainability of the business.
One of the core principles for designing the compensation proposal is the alignment with our performance and
return to our shareholders. The compensation package offered to our Board of Executive Officers, assuming the
achievement of target average performance, is composed as follows: 27% fixed compensation, 27% short-term
(performance target-based) variable compensation and 46% long-term (share-based incentives) variable
compensation. The short-term variable compensation component is based on our cash generation, taking into
account economic and financial targets that reflect operating performance, as well as health and safety targets,
sustainability and accomplishment of strategic initiatives. Of the long-term variable portion, 20% of aggregate
compensation is to be awarded under our Matching Program and 26% is to be awarded as Performance Shares
Units (PSUs) under our phantom stock plan, for which payment is a direct function of our Total Shareholder
Return (TSR) indicator’s performance compared to a preselected group of comparable companies. As such, 73%
of the executive compensation package is at risk, and the mix offered can vary according to the performance
achieved and the return to our shareholders (pay-for-performance) in each year
In January 27, 2019, our Board of Directors determined the suspension of payments of all variable compensation
to our executive officers, from that date until the Board of Directors decides to revert such determination based on
the outcome of the investigations into the causes of the failure of Dam I. We made a payment under the PSU
program on January 15, 2019, prior to the failure of Dam I, which represents approximately 24% of the variable
compensation initially contemplated for 2019.
EXECUTIVE OFFICERS
As of December 31, 2018, we had six executive officers and all of them held their positions for the full year of
2018. For the year ended December 31, 2018, the average annual compensation paid to our executive officers
was US$4.06 million, the highest annual compensation paid to an executive officer was US$6.20 million and the
lowest annual compensation was US$1.44 million. The average annual compensation corresponds to the total
aggregate compensation paid to executive officers in 2018, not including amounts paid in 2018 for executive
officers who left in prior years, divided by the number of current officers. Including payments made in 2018 for
executive officers who left in prior years, the average annual compensation paid to our executive officers was
US$7.58 million.
146
For the year ended December 31, 2018, the total payments related to executive officers’ compensation packages
is set forth in the table below.
Management Compensation
Annual fixed compensation ........................................................................................................................................................................
In-kind benefits and pension plans ............................................................................................................................................................
Variable compensation(1) ...........................................................................................................................................................................
Total amount paid in 2018 to current executive officers ......................................................................................................................
Severance ..................................................................................................................................................................................................
Total amount paid in 2018 to current and former executive officers ....................................................................................................
Social security contributions ......................................................................................................................................................................
Total expenditures related to executive officers’ compensation packages ..........................................................................................
For the year ended
December 31, 2018
(US$ million)
5.63
1.93
13.93
21.49
18.73
40.22
5.29
45.51
(1)
Variable compensation includes bonus payments and payments under Matching Program and PSU
Program in 2018.
Fixed compensation and in-kind benefits include a base salary in cash, paid on a monthly basis, reimbursement
for certain investments in private pension plans, health care, relocation expenses, life insurance, driver and car
expenses. Variable compensation consists of (i) an annual cash bonus, based on specific targets for each
executive officer and on Vale’s global cash generation, both approved by our Board of Directors, and
(ii) payments tied to the performance of our shares under two programs, the Matching Program and the
Performance Share Unit (PSU) Program.
Under our Matching Program, our executive officers are permitted to purchase a certain number of common
shares or ADRs in the market within a purchase window through the plan administrator. At the end of a three-year
cycle, participants are entitled to receive a reward equivalent to the same number of common shares or ADRs
held through the end of the cycle. Participation in our Matching Program is mandatory for our Board of Executive
Officers in the years in which we pay cash bonuses. Participants may sell or transfers their common shares or
ADRs at any time during the vesting period, in which case they forfeit the right to receive any reward with respect
to these common shares or ADRs. The Board of Executive Officers must observe the Securities Trading Policy in
order to sell or transfer Matching Program shares. The 2019 cycle of our Matching Program to our executive
officers is temporarily suspended since January 27, 2019, pending conclusion of investigations related to the
failure of the Dam I and further resolution of the Board of Directors.
Under our PSU Program, our executive officers receive payments tied to Vale’s performance, as compared to a
selected group of mining companies, based on the total shareholder return (dividend or interest on equity
payments and share appreciation) of the common shares of those companies during the vesting period. Starting
in 2019, the PSU Programs will have three-year cliff vesting (instead of four-year scaled vesting) for each cycle.
The 2019 cycle of our PSU Program to our executive officers is temporarily suspended since January 27, 2019,
pending conclusion of investigations related to the failure of the Dam I and further resolution of the Board of
Directors.
Pension, retirement or similar benefits consist of our contribution to Valia, the manager of pension plans
sponsored by Vale.
Our severance packages for qualified terminations may comprise: (i) a lump-sum severance payment,
corresponding to one-half the annual fixed compensation for executive officers and equal to the annual fixed
compensation for the Chief Executive Officer, paid shortly after the termination date; (ii) non-compete agreement
compensation corresponding to twice the annual fixed compensation, to be paid in eight equal quarterly
installments after termination; (iii) pro-rated payment of any outstanding
147
long-term variable compensation grants (Matching and PSU Programs), paid shortly after the termination date;
and (iv) pro-rated payment of any outstanding short-term incentive plan (bonus), to be paid in April following the
termination date. Severance expenditures in 2018 were related to seven former executive officers who left the
company in 2016, 2017 and 2018.
Social security contributions are mandatory contributions we are required to make to the Brazilian government for
our executive officers.
Management Compensation
Vale has also entered into indemnification agreements with its officers.
BOARD OF DIRECTORS
As of December 31, 2018 our Board of Directors had 12 members and the monthly average number of members
that received compensation during 2018 was 12.08. For the year ended December 31, 2018, the average annual
compensation paid to the members of our Board of Directors was US$0.17 million, the highest annual
compensation paid to a member of the Board of Directors was US$0.3 million and the lowest annual
compensation was US$0.15 million.
In 2018, we paid US$2.09 million in aggregate to the members of our Board of Directors for services in all
capacities, all of which was fixed compensation. There are no pension, retirement or similar benefits for the
members of our Board of Directors. On February 28, 2019, the total number of common shares owned by our
directors and executive officers was 1,009,690. None of our directors or executive officers beneficially owns 1% or
more of any class of our shares. Vale has also entered into indemnification agreements with its directors.
FISCAL COUNCIL
As of December 31, 2018 our Fiscal Council had 5 members and the monthly average number of members that
received compensation during 2018 was 5. For the year ended December 31, 2018, the average, the highest and
the lowest annual compensation paid to a member of the Fiscal Council was US$ 0.11 million.
We paid an aggregate of US$0.56 million to members of the Fiscal Council in 2018. 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$0.48 million to members of our permanent advisory committees in 2018. Until May
2018, those members who were directors or officers of Vale were not entitled to additional compensation for
participating on a committee. Since June 2018, directors who participate in advisory committees are entitled to
receive, in addition to the compensation as a board member, compensation for participating in one or more
committees limited to 50% of the amount of a directors’ compensation. Members of our advisory committees are
also reimbursed for travel expenses related to the performance of their duties.
148
EMPLOYEES
The following tables set forth the number of our employees by business and by location as of the dates indicated.
By business:
Ferrous minerals ..............................................................................................................
Coal ..................................................................................................................................
Base metals .....................................................................................................................
Fertilizer nutrients(1) ........................................................................................................
Energy(2) .........................................................................................................................
Corporate activities ..........................................................................................................
Total ............................................................................................................................
2016
As of December 31,
2017(1)
2018
42,579
2,039
15,239
8,935
NA
4,270
73,062
42,734
2,258
15,243
8,055
NA
5,306
73,596
(1)
(2)
Discontinued operations.
Consists of Biopalma employees.
By location:
South America .................................................................................................................
Brazil ................................................................................................................................
North America ..................................................................................................................
Europe ..............................................................................................................................
Asia ..................................................................................................................................
Oceania ............................................................................................................................
Africa ................................................................................................................................
Total ............................................................................................................................
2016
As of December 31,
2017(1)
2018(1)
57,535
56,576
6,630
385
4,499
1,521
2,492
73,062
58,457
57,513
6,432
375
4,571
1,364
2,397
73,596
43,504
2,350
14,349
12
4,058
5,997
70,270
55,423
55,230
6,032
298
4,475
1,378
2,664
70,270
(1)
Since January 2017, we include in our total workforce figures all fixed-term contract employees, trainees
and employees hired through our affirmative action program for Persons with Disabilities.
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 Australia, Brazil, Canada, Indonesia,
Malawi, Mozambique, New Caledonia, Oman and the United Kingdom.
WAGES AND BENEFITS
Wages and benefits for Vale and its subsidiaries are generally established on a company-by-company basis. Our
benefits policy is aligned with our attraction and retention strategy, in accordance with applicable laws and market
practice in the countries where we operate. We provide an attractive and competitive benefits package ensuring
health, well-being, protection and life quality. Among the main benefits offered are medical and dental assistance,
life insurance, private pension plans and short-and long-term disability benefits.
We establish our wage and benefits programs for Vale S.A. and its subsidiaries, other than Vale Canada. In
November 2018, we reached a one-year agreement with the Brazilian unions providing for a salary increase of
6.0% beginning in November 2018. The provisions of our collective bargaining agreements with unions also apply
to our non-unionized employees.
Vale Canada also establishes wages and benefits for its unionized employees through collective bargaining
agreements. No collective bargaining took place in 2018, as no contracts expired within the year. On January 1,
2018, Vale Canada implemented a flexible benefits program for employees represented by the technical and
administrative union at our Sudbury operation; this plan was negotiated
149
during the collective bargaining process in 2017. For non-unionized employees, Vale Canada undertakes an
annual review of salaries and benefits. We also provide our employees and their dependents with other benefits,
including supplementary medical assistance, and in 2017 Vale Canada introduced a new flexible benefits plan for
its non-union employees.
Employees
PENSION PLANS
Brazilian employees of Vale and of most of its Brazilian subsidiaries are eligible to participate in pension plans
managed by Valia. Most of the participants in plans held by Valia are participants in a plan named “Vale Mais,”
which Valia implemented in 2000. This plan is primarily a defined contribution plan with a defined benefit feature
relating to service prior to 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 participate in defined benefit pension plans and defined
contribution pension plans. The defined benefit plans have been closed to new participants since 2009, and all
new employees within our Base Metals operations are eligible to participate in defined contribution pension plans.
PERFORMANCE-BASED COMPENSATION
All Vale parent-company employees may receive incentive compensation each year in an amount based on the
performance of Vale, which can range from 0 to 200% of a market-based reference amount, depending on certain
targets set, and the cash generation in each period. Similar incentive compensation arrangements are in place at
our subsidiaries.
Qualifying management personnel are eligible to participate in the PSU and Matching programs. See description
of these programs under Management compensation—Executive officers.
150
Legal Proceedings
VI. 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, 2018. See note 28 to our consolidated financial statements for further
information.
LEGAL PROCEEDINGS RELATED TO THE FAILURE OF DAM I
We are engaged in several investigations and legal proceedings relating to the failure of Dam I. These
proceedings are all in early stages, and we cannot reasonably estimate the range of loss or the timing for
decisions. Other proceedings or investigations relating to the failure of Dam I are expected. Our potential liabilities
resulting from the dam failure are significant, and additional provisions are expected.
a) Public civil actions brought by the State of Minas Gerais and state public prosecutors for damages
resulting from the failure of Dam I
We are party to public civil actions brought by the State of Minas Gerais and state prosecutors before various
state courts in Minas Gerais claiming economic and environmental damages resulting from the dam failure and a
broad range of injunctions ordering Vale to take specific remediation and reparation actions.
In January 2019, immediately after the failure of Dam I, state courts in Minas Gerais granted orders freezing
R$11.0 billion in cash in our bank accounts and requesting us to take a number of emergency and reparation
measures in connection with the failure of Dam I. These orders were granted in response to preliminary
injunctions filed by the State of Minas Gerais and state prosecutors in preparation for these public civil actions.
In one of these proceedings, on February 20, 2019, we entered into a preliminary agreement with the State of
Minas Gerais, and certain other authorities that joined this proceeding, in order to expedite payment of monetary
damages resulting from the failure of Dam I. Under this preliminary agreement, we agreed to advance
indemnification payments to the affected people and independent technical consulting services to affected
individuals and to reimburse or direct payment of the expenses incurred by the State of Minas Gerais.
In one of these public civil actions, the state prosecutors have requested that Vale be ordered to contribute
significant amounts to a fund, to be created and managed by state prosecutors with the purpose of funding
remediation and reparation measures.
b) Public civil actions brought by state prosecutors and other authorities regarding safety requirements
at other dams
We are party to more than ten public civil actions in which public prosecutors and other authorities seek the
suspension of operations, the imposition of restrictions on operations, or injunctions compelling us to implement
safety measures at other existing tailings dams.
151
Legal Proceedings
•
•
•
•
•
In various of these public civil actions, courts froze amounts in our bank accounts to secure payments
of damages and costs in connection with the evacuation and relocation of communities. The
aggregate amount frozen in these public civil actions is R$5 billion.
In March 2019, we suspended operations at our Timbopeba mine, following a decision of a state
court in the city of Ouro Preto restraining us from using the Doutor dam and other structures at the
Timbopeba mine.
In February 2019, a state court in Belo Horizonte ordered us to present emergency plans and
documents certifying the stability and safety of dams and to suspend activities that may create risks
to the Laranjeiras, Menezes II, Capitão do Mato, Dique B, Taquaras, Forquilha I, Forquilha II and
Forquilha III dams. Of the dams named in the injunction, only the Forquilha I, Forquilha II and
Forquilha III dams were built using the upstream method. Due to our inability to use the Laranjeiras
dam for tailings disposal from our Brucutu mine in the Minas Centrais complex, we halted production
at the Brucutu mine pending removal of the injunction. In March 2019, this court decision was
reversed with respect to the Laranjeiras dam, and SEMAD reinstated our provisional license to use
the Laranjeiras. On March 25, a state court in the city of Santa Barbara prohibited Vale from using the
Sul dam, another tailings dam located at the Brucutu mine. This decision was reversed by the Court
of Appeals of the State of Minas Gerais on April 15, 2019. The Laranjeiras dam receives tailings from
Vale’s mining operations at Brucutu mine, while the Sul dam receives discharges from Vale’s
concentration plant in emergency situations. These proceedings are still ongoing.
In October 2017, before the failure of Dam I, state prosecutors of the state of Minas Gerais had
brought public civil actions challenging our environmental licenses for the construction of the
Maravilhas III tailings dam, which is expected to support our operations in the Vargem Grande mining
complex, in our Southern System. After the failure of Dam I, the prosecutors filed a request for
preventive injunction seeking to discontinue the project, but the request was rejected by the court.
This proceeding is still ongoing. If the construction of this dam is interrupted, our ability to resume
operations in the mining complex of Vargem Grande could be adversely impacted.
In April 2018, state prosecutors brought a public civil action related to the Maravilhas II tailings dam,
requesting injunctions ordering us to (i) refrain from disposing tailings, operating, constructing or
making other interventions on the dam; (ii) refrain from increasing the risks of other structures in the
mining complex where Maravilhas II is situated; (iii) review technical studies and other documents
related to the dam, and conduct an external audit on the structure. The injunction requests were
granted by the Court of Itabirito on April 11, 2019. The Maravilhas II tailings dam supports our
operations in the Vargem Grande complex, which have been suspended since February 2019.
c) Public civil action brought by labor prosecutors
We are a party to a public civil action brought by labor prosecutors claiming, among other things, a pre-judgment
attachment to secure the payment of monetary damages and costs including expert reports, wages,
socio-economic relief, funeral expenses and other remediation measures to the workers affected by the failure of
Dam I. The labor court in Belo Horizonte, Minas Gerais, granted pre-judgment attachments in the amount of
R$1.6 billion million in cash in our bank accounts to secure the payment of damages and severance claims of
employees affected by the closure of our operations in the Córrego do Feijão mine.
152
On February 15, 2019, we entered into a preliminary agreement with the labor prosecutors pursuant to which we
agreed to indemnify our direct and indirect employees affected by the closure of Córrego do Feijão mine. Under
the terms of the agreement, we agreed to maintain the jobs of our direct employees until December 31, 2019 and
will assist third party employees with a replacement or pay their salaries until December 31, 2019. We also
agreed to keep paying wages regularly to the missing people until the authorities have considered them as fatal
victims of the event and will pay to the families of the fatal victims an amount equivalent to two thirds of their
wages until December 31, 2019 or until we reach the final agreement with the labor prosecutors. We will also
provide a lifelong medical insurance benefit to the spouses of the victims and a similar benefit to the dependents
of the victims until they are 22 years old. Our initial estimate is that this agreement will result in a provision of
approximately US$220 million in 2019.
Legal Proceedings
d) Putative class actions in the United States
We and certain of our officers have been named defendants in civil class action suits, under U.S. federal
securities laws, brought before federal courts in New York by holders of our securities. The plaintiffs allege that
we made false and misleading statements or omitted to make disclosures concerning the risks of the operations
of Dam I and the adequacy of the related programs and procedures. The plaintiffs have not specified an amount
of alleged damages in these actions.
We believe that the claims have no merit, and we will contest them. However, given the preliminary status of the
actions, it is not possible at this time to determine a range of outcomes or to make reliable estimates of the
potential exposure.
e) Criminal investigations
The Minas Gerais state police, the Brazilian federal police and state and federal prosecutors are conducting
criminal investigations in connection with the failure of Dam I. In connection with the investigation conducted by
the state prosecutors, the 2nd criminal court in Brumadinho ordered the temporary arrest of certain employees of
Vale and of a company that had provided testing and certification services to us. These individuals have been
released from detention and are still being investigated. We cannot estimate the timing for conclusion of the
investigations and do not have precise information on the potential crimes being investigated. We do not have
information on the names of all the individuals targeted by the investigation.
f) Investigation by Brazilian legislative bodies
In March 2019, the Brazilian Senate initiated an investigation (Comissão Parlamentar de Inquérito, or “CPI”) to
determine the causes of and responsibilities for the failure of Dam I and to propose changes to the existing legal
and regulatory regime applicable to the mining industry and other related matters. ln February 2019, the Brazilian
House of Representatives created a commission to monitor tailings dams across the country, and to oversee the
work of various public authorities in charge of monitoring such dams. In April 2019, the Brazilian House of
Representatives announced that it will initiate a CPI, similar to the one conducted by the Senate. State and local
legislative bodies have initiated other CPIs in response to the failure of Dam I, and other similar investigations and
inquiries. These investigations may result in the approval of more stringent rules applicable to our business.
153
Legal Proceedings
g) Other proceedings
We are a defendant in a number of private actions, before state and federal courts in the state of Minas Gerais,
brought by individuals, business entities, associations, non-governmental organizations and other entities seeking
remediation and compensation for environmental, property and personal damages resulting from the Dam I
failure. These proceedings include requests for significant amounts in damages, injunctions, pre-judgment
attachment of assets and seizure of our bank accounts. We are also engaged in several other investigations and
proceedings claiming damages resulting from the dam failure. These actions and proceedings are in early stages,
and we cannot reasonably estimate their impact. Other proceedings and investigations relating to the failure of the
tailings dam in Brumadinho are expected.
LEGAL PROCEEDINGS RELATED TO THE FAILURE OF SAMARCO’S TAILINGS DAM IN MINAS GERAIS
We are engaged in several legal proceedings relating to the failure of Samarco’s tailings dam in the city of
Mariana, in the state of Minas Gerais. Most of these proceedings are in early stages, and we cannot reasonably
estimate the possible loss or range of loss or the timing for a decision.
a) Public civil action filed by the Brazilian government and others and public civil action filed by the
Federal Prosecution Office
In November 2015, the Brazilian federal government, the states of Minas Gerais and Espírito Santo, certain
federal and state authorities and certain public entities collectively filed a public civil action before the 12th Federal
Court in Belo Horizonte, state of Minas Gerais, against Samarco and its shareholders, Vale and BHPB. The
plaintiffs claimed approximately R$20.2 billion in monetary damages and a number of measures to remediate the
environmental damages caused by the Fundão dam failure.
In March 2016, we, together with Samarco and BHPB, entered into a framework agreement with the federal
government, the state governments of Espírito Santo and Minas Gerais and certain other federal and state
authorities. The Framework Agreement has a 15-year term, renewable for successive one-year periods until all
the obligations under the Framework Agreement have been performed. The Framework Agreement does not
provide for admission of civil, criminal or administrative liability for the Fundão dam failure. The Framework
Agreement provides that, within three years of the date of the agreement, the parties would review its terms to
assessing the effectiveness of the ongoing remediation and compensation activities.
In May 2016, the MPF filed a public civil action before the 12th Federal Court in Belo Horizonte against Samarco,
Vale, BHPB, BNDES and the governmental authorities that are parties to the Framework Agreement. In this
action, the MPF requested that the court order a broad range of specific actions to be taken by the various
parties. The MPF also stated in its complaint that the required remedial measures would have a total value of
R$155 billion, based on a comparison with the costs of the Deepwater Horizon oil spill in the Gulf of Mexico in
2010. The MPF also claimed other forms of relief, including injunctions (i) ordering the defendants to implement
several measures to mitigate or remediate social, economic and environmental impacts arising from the failure of
the Fundão dam, as well as other emergency measures; (ii) preventing the defendants from encumbering or
disposing of their assets; (iii) preventing the defendants from paying dividends; (iv) ordering the defendants to
deposit R$7.7 billion into a fund, managed by the defendants, for implementation of social, environmental and
emergency programs; (v) ordering the defendants to provide collateral in the amount of R$155 billion to secure
their compliance with the final court decision; (vi) ordering the defendants to maintain working capital in the
amount of R$2 billion initially, and thereafter in an amount equal to 100% of the expenses of the
154
Legal Proceedings
remediation and compensation measures projected for the subsequent twelve months; and (vii) ordering BNDES
to take actions under its credit agreements with the defendants, including cessation of further drawings and
acceleration of outstanding principal.
In June 2018, Vale, Samarco, BHPB and the offices of the federal and state (Minas Gerais and Espírito Santo)
prosecutors, public defenders and attorneys general, among other parties entered into a comprehensive
agreement to improve the governance mechanism of Fundação Renova and establish a process for potential
revisions to the remediation programs provided under the Framework Agreement based on the findings of experts
hired by Samarco to advise the MPF over a two-year period (the June 2018 Agreement). The June 2018
Agreement terminated certain lawsuits, including public civil actions filed by the Brazilian federal government and
the states of Minas Gerais and Espírito Santo. It also contemplates the future termination of other public civil
actions upon agreement over the remediation programs under experts’ review, and confirmed the collateral
provided by the parties to secure the payment of remediation measures in the amount of R$2.2 billion.
We expect the Framework Agreement and the June 2018 Agreement to represent the first steps for the
settlement of the public civil action brought by the MPF and other related proceedings.
b) Criminal proceeding
In October 2016, the MPF filed criminal charges before the federal court of Ponte Nova, state of Minas Gerais,
against Samarco, Vale, BHPB and a number of individuals who were employees of Samarco or members of
Samarco’s governance bodies or advisory committees. The charges include murder, physical injury and various
environmental crimes due to the failure of Samarco’s Fundão dam.
The criminal charges were accepted by the judge in November 2016. The criminal proceedings is subject to
challenge in separate proceedings in federal courts. We are not able to anticipate when a judgment will be issued
or when the judge will correct the criminal process in accordance with the decision of the federal court.
c) Class actions in the United States
We and certain of our officers have been named as defendants in civil class action suits in federal courts in New
York brought by holders of our securities and by holders of Samarco’s bonds, each under U.S. federal securities
laws. The plaintiffs allege that we made false and misleading statements or omitted to make disclosures
concerning the risks of the operations of Samarco’s Fundão dam and the adequacy of the related programs and
procedures. The plaintiffs have not specified an amount of alleged damages in these actions.
We believe that the claims have no merit, and we will continue contesting them. However, given the preliminary
status of the actions, it is not possible to determine a range of outcomes or reliable estimates of the potential
exposure at this time, and no provision has been recognized so far.
c.1) Related to Vale’s American Depositary Receipts
Vale and certain of its officers were named as defendants in a securities class action in the U.S. Federal Court for
the Southern District of New York brought by holders of Vale’s ADRs under U.S. federal securities laws.
155
In March 2017, the judge issued a ruling dismissing a significant part of the claims against us and the individual
defendants, and allowing the case to continue based on more limited claims. The claims that were not dismissed
relate to certain statements contained in our 2013 sustainability report concerning risk mitigation plans, policies
and procedures, and certain statements made in a conference call in November 2015 concerning Samarco. This
lawsuit is currently in the discovery phase.
Legal Proceedings
c.2) Related to Samarco’s bonds
Vale, together with Samarco and BHPB, was named as defendant in class action alleging violations of U.S.
federal securities laws brought by holders of bonds issued by Samarco in the U.S. Federal Court for the Southern
District of New York. The defendants filed a joint motion to dismiss the complaint, and a decision on this motion is
still pending. Discovery will not commence until after the court rules on the defendants’ pending motion to dismiss.
d) Tax proceeding
In September 2018, the federal tax authorities filed a request before the 27th federal court in Belo Horizonte for an
order seizing Vale’s assets to secure the payment of federal tax debts of the joint venture, in the amount of
approximately R$10 billion. The court initially granted an order to freeze assets of Vale, but this decision was
reversed, in all material respects, because these tax debts are currently suspended under Brazilian law. We were
served in January 2019 and have submitted our defense immediately thereafter. We are vigorously contesting this
action.
e) Other proceedings
Vale is a defendant in several public civil actions brought by state prosecutors of Minas Gerais and Espírito
Santo, other authorities or civil associations claiming environmental damages as a result of the failure of
Samarco’s dam. The relief claimed in these proceedings are generally similar to the claims brought in the public
civil action brought by the Brazilian government and others and the public civil action brought by the MPF. In
2017, The Superior Court of Justice (STJ) decided that the 12th Federal Court in Belo Horizonte is the competent
court to rule on all these public civil actions. All these public civil actions have been suspended while we negotiate
an agreement with the MPF, as discussed in item a) above.
Vale has been named as a defendant in a number of private actions, before different state and federal courts in
the states of Minas Gerais and Espírito Santo, brought by individuals, business entities, municipalities and other
entities seeking remediation and compensation for environmental, property and personal damages resulting from
the Fundão dam failure. These proceedings include requests for significant amounts in damages, injunctions,
pre-judgment attachment of assets and seizure of our bank accounts. Vale has settled part of these suits, and
continues to defend itself in a number of these proceedings.
Samarco is engaged in several other investigations and proceedings claiming damages resulting from the dam
failure. Immediately after the dam failure, the environmental authority of the state of Minas Gerais and the DNPM
(currently, the ANM) commenced an investigation into the causes of the dam failure, and ordered the suspension
of Samarco’s operations pending the conclusion of these investigations.
TUBARÃO PORT LITIGATION
In January 2016, as part of an environmental investigation conducted by the Brazilian federal police, a federal
court in the state of Espírito Santo ordered the suspension of our activities in Pier II and the coal
156
Legal Proceedings
pier of the Tubarão port due to potential environmental damages resulting from the release of iron ore in the sea
area around the piers. Our operations in Pier II and the coal pier of the Tubarão port were suspended for four
days, until the Federal Court of Appeals (“TRF”) of the Second Region (Tribunal Regional Federal da Segunda
Região) suspended the effects of the injunction. In July 2016, the TRF confirmed the suspension of the effects of
the injunction and ordered an expert investigation to confirm that we had properly implemented measures to
monitor, control and mitigate the release of iron ore in the terminal. This expert investigation commenced in 2018
and the expert appointed by the court submitted its report in March 2019. Vale and the federal prosecutors will
submit their comments on the expert report in April 2019. As a result of this proceeding, we may be required to
suspend our activities in the Tubarão port or to implement additional measures to prevent or mitigate the release
of iron ore in the sea.
In September 2017, the federal police concluded its environmental investigation and recommended that the MPF
press charges against us for environmental crimes resulting from the release of iron ore in the sea around the
Tubarão port. In June 2018, the MPF requested that the federal police reopen and continued the investigation. In
September 2018, we entered into a settlement agreement with the MPF, state prosecutors and the environmental
and water authority of the state of Espírito Santo (IEMA), pursuant to which we agreed to take additional
measures to control emissions and to implement certain measures recommended by the environmental agency of
the state of Sao Paulo (CETESB). The estimated investments required to comply with these measures are
approximately R$1.27 billion. As part of this settlement, the MPF requested the suspension of the police
investigation and the preliminary injunction. The federal court requested an opinion from the Attorney General in
order to confirm such request. In the event that the Attorney General does not approve the request to ratify our
settlement agreement, the federal prosecutors may seek other actions against us, including requests for
suspension of our activities in the Tubarão port, or press charges for environmental crimes. We will vigorously
contest any action against us resulting from the federal police’s investigation.
ONÇA PUMA LITIGATION
In 2012, the MPF brought a public civil action against Vale and the Brazilian state of Pará, seeking the
suspension of our nickel operations in Onça Puma, in the state of Pará, due to the alleged impact on the Xikrin do
Cateté and Kayapó indigenous communities located close to the mining site. The federal prosecutors contend
that (i) our operations would be contaminating the water of the Catete River, which crosses the communities,
(ii) we have failed to comply with certain conditions under our environmental licenses, and (iii) the state of Pará
should not have granted environmental license to this operation.
In November 2018, the TRF of the First Region (Tribunal Regional Federal da Primeira Região) affirmed the
decision to suspend our nickel mining operations at Onça Puma until the conclusion of a number of expert
evaluations of the impact of our activities in the Catete River and the surrounding communities. The court also
ordered us to make a monthly payment to each member of the Xikrin and Kayapó tribes to compensate the
affected indigenous communities. Our mining activities in Onça Puma have been suspended since September
2017, when the court first granted an injunction in favor of the federal prosecutor.
We have appealed this decision, but a decision on our appeal is still pending and we cannot anticipate when our
mining activities in Onça Puma will resume. We believe that the MPF’s claims have no merit. Three expert reports
indicate that our activities do not cause harm to the Catete River and the surrounding indigenous communities,
and two additional expert evaluations are pending. We will continue to vigorously contest this action.
157
Legal Proceedings
PUBLIC CIVIL ACTION SEEKING SUSPENSION OF S11D MINE
In May 2016, associations representing the indigenous community of Xikrin do Cateté brought a public civil action
against Vale, the Federal Environmental Agency (IBAMA), the Federal Indigenous Agency (FUNAI) and the
National Bank of Economic and Social Development (BNDES), seeking the suspension of the environmental
permitting process of our S11D mine. The associations contend that FUNAI and IBAMA have failed to conduct the
appropriate studies regarding the affected indigenous communities during the environmental permitting process,
and consequently that the indigenous groups affected by this mine have not provided the required consent. The
plaintiffs also requested a monthly payment of R$2 million for each association until the defendants conclude the
studies.
Applicable law provides for mandatory consultation with the indigenous communities located within ten kilometers
of the mine, and these indigenous communities are located more than 12 kilometers away from the mine. We
have submitted our preliminary defense, and in January 2017 the court denied plaintiffs’ request for an injunction
suspending our S11D mine.
In July 2017, the judge of the Federal Court of Marabá partially modified the previous decision and ordered that
we prepare a study of the impacts of the S11D operation on the Xikrin tribe within 180 days. Vale submitted a
work plan for the study to FUNAI and the plan was approved. The court then ordered us to present the work plan
to the indigenous community and we are awaiting approval to continue with its preparation.
This decision does not affect our operations in S11D. We appealed this decision and will continue to vigorously
contest this action.
PUBLIC CIVIL ACTION SEEKING SUSPENSION OF SALOBO MINE
In July 2018, associations representing the indigenous community of Xikrin do Cateté brought a public civil action
against Vale, the Federal Environmental Agency (IBAMA) and the Federal Indigenous Agency (FUNAI), seeking
the suspension of the environmental permitting process of Salobo Mine. The associations contend that FUNAI
and IBAMA have failed to conduct the appropriate studies regarding the affected indigenous communities during
the environmental permitting process and contends that our operations would be contaminating the water of the
Itacaiúnas River and consequently that the indigenous groups affected by this mine have not provided the
required consent. The plaintiffs also requested a monthly payment of R$2 million for each association until the
defendants conclude the studies.
Applicable law provides for mandatory consultation with the indigenous communities located within ten kilometers
of the mine, and these indigenous communities are located more than 22 kilometers away from the mine. In
October 2017 the court denied plaintiffs’ request for an injunction suspending our Salobo Mine.
In February 2019, Vale, IBAMA, and the environmental agency Instituto Chico Mendes de Conservação da
Biodiversidade (ICMBio) filed a joint answer in court, rebutting the plaintiff’s claims, and reaffirming the legality of
the environmental permitting process of Salobo Mine and the fulfillment of all conditions imposed by relevant
authorities. In March 2019, the MPF presented an opinion for the suspension of the activities in the Salobo Mine.
A decision by the federal court is pending.
158
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$6.379 billion. An expert report
favorable to Vale has been issued, but the court granted the municipality’s request for additional expert evidence.
The preparation of this additional expert evidence is pending. Both parties agreed to suspend the action until the
presentation of an expert report, and to reconvene to discuss a potential settlement after such expert report is
presented.
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$6.7 billion. This
proceeding was suspended for a settlement negotiation, but has resumed its normal course as the parties have
not reached an agreement, and the evidence production phase will follow. We believe these suits are without
merits and will continue to vigorously contest them.
MINISTRY OF LABOR PROCEEDING
In February 2015, following an inspection in the facilities of a company that provided transportation services to us
between our mines Mina do Pico and Mina de Fábrica in the state of Minas Gerais, the Ministry of Labor
determined that this transportation company had failed to comply with certain obligations relating to health, safety,
overtime and other labor matters. By adopting a broad interpretation of the law, the Ministry of Labor concluded
that its employees were working in conditions similar to slavery. Upon learning of the findings, we promptly
remediated the problems and we eventually terminated the agreement with the transportation company.
Nevertheless, the Ministry of Labor commenced two administrative proceedings against us, one alleging illegal
outsourcing and another alleging that the illegally outsourced employees were working in conditions similar to
slavery. In December 2018, the regional labor court upheld Vale’s annulment action and confirmed that the
outsourcing of the transportation services in this case was lawful. However, in March 2019 the courts confirmed
administrative decision that determined that we had employees in conditions similar to slavery. We appealed this
decision and will continue to vigorously contest this action.
TAX PROCEEDINGS
a) CFEM-related proceedings
We are engaged in numerous administrative and judicial proceedings related to the mining royalty known as
CFEM. For more information about CFEM, see Information on the Company—Regulatory matters—Royalties and
other taxes on mining activities. These proceedings arise out of a large number of assessments by the DNPM
(currently, the ANM). The proceedings concern different interpretations of the agency’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. The aggregate amount claimed in the pending assessments
is approximately R$7.6 billion, including interest and penalties through December 31, 2018.
159
We are contesting these 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.
The agency’s assessments initially covered a period of up to 20 years before their issuances, based on the
interpretation that the applicable statute of limitation for CFEM claims would be 20 years. We challenged all the
assessments contending that these claims are subject to a 5-year statute of limitation. In December 2015, the
Attorney General’s Office issued a legal opinion concluding that CFEM claims are subject to a 10-year statute of
limitations. This conclusion is consistent with the decisions of the Superior Court of Justice (“STJ”), and we expect
that the ANM and the courts will exclude charges that are time barred under this legal opinion.
Legal Proceedings
b) ICMS tax assessments and legal proceedings
We are engaged in several administrative and court proceedings relating to additional charges of value-added tax
on services and circulation of goods (ICMS) by the tax authorities of different Brazilian states. In each of these
proceedings, the tax authorities claim that (i) certain credits we have deducted from our payments of ICMS were
not deductible; (ii) we have failed to comply with certain accessory obligations; (iii) we are required to pay the
ICMS on electricity purchases and (iv) we are required to pay ICMS in connection with goods that we bring into
the State of Pará. We estimate our possible losses resulting from these proceedings in R$3.049 billion.
The tax authorities of the State of Minas Gerais contend that we should have paid ICMS in relation to the costs of
transportation of iron ore, but we understand that ICMS is not applicable to this activity because the ore was
transported directly by us. The judicial court has definitively decided in our favor with respect to tax assessments
covering activities in 2009 and 2010 in an aggregate amount of R$632 million. With respect to activities in 2011,
2012 and 2013, the amount in dispute is R$959 million (included in the possible losses mentioned above). We
also expect a favorable outcome in this case.
In connection with a legal proceeding relating to ICMS, prosecutors in the state of Rio de Janeiro are seeking
criminal charges against members of management of our subsidiary MBR, alleging tax fraud. The defense has
presented its case in the criminal proceeding against these individuals and a decision is pending. The case has
been extinguished for one of the members of management of our subsidiary MBR, but remains pending for the
others. We believe that these allegations are without merit.
c) 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.
In 2013, we significantly reduced the amount in dispute by participating in the REFIS, a federal tax settlement
program for payment of amounts relating to Brazilian corporate income tax and social contribution. We settled the
claims related to the net income of our non-Brazilian subsidiaries and affiliates from 2003 to 2012, and we
continue to dispute the assessments with respect to 1996 to 2002. Under the REFIS, we paid R$5.9 billion in
2013, and we agreed to pay the remaining R$16.3 billion in monthly installments, bearing interest at the SELIC
rate. SELIC is a variable interest rate, established by the Brazilian central bank, used to update federal tax
obligations in Brazil. On December, 31, 2018, the SELIC rate was 6.5% per annum (as compared to 7.0% per
annum on December 31, 2017). As of December 31, 2018, the remaining balance was R$16.4 billion, to be paid
in 118 further installments.
160
We had initiated a direct legal proceeding (mandado de segurança) in 2003 challenging the tax authority’s
position. In December 2013, as required by the REFIS statute, we waived the legal arguments with respect to the
period between 2003 and 2012. We are continuing our direct legal proceeding with respect to the years not
included in the REFIS. At December 31, 2018, the total amount in dispute for the period between 1996 and 2002
was R$2.3 billion. In 2014, the Superior Court of Justice (STJ) ruled in our favor on certain of our arguments
against those assessments. The tax authorities filed an appeal before the Federal Supreme Court and a decision
is pending.
Legal Proceedings
d) Assessments and legal proceedings related to PIS/COFINS
We have received several tax assessments from the Brazilian federal tax authority contending that we incorrectly
claimed PIS and COFINS tax credits. 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 authorities claim that (i) some credits we have deducted from our payments of PIS and
COFINS were not deductible and (ii) we have not submitted adequate evidence of certain other credits. We are
contesting these assessments in the administrative and judicial levels. The total amount in dispute is R$4.2 billion
as of December 31, 2018, including disputes involving Vale’s subsidiaries and divested companies for which we
remain liable for taxes prior to divestment.
e) Income tax litigation
In 2004, a decision of the Brazilian Superior Court of Justice (STJ) granted us the right to deduct the amounts we
pay as social security contributions on the net income (CSLL) from our taxable income. The total CSLL deducted
from our taxable income between 2003 and 2018 was R$7.7 billion. In 2006, the Brazilian federal tax authorities
commenced a rescission action (ação rescisória) against us, seeking the reversal of the 2004 decision. The
rescission action was rejected by the federal court in Rio de Janeiro and by the Federal Court of Appeals (TRF) of
the Second Region. The tax authorities appealed to the Superior Court of Justice (STJ) and to the Supreme Court
(STF), and the STJ determined that the TRF had not properly considered one of the questions raised by the
federal government, and remanded the case for further decision of the TRF. If the courts decide for rescission of
the 2004 decision, we will no longer be able to deduct the CSLL from our future taxable income, and the decision
will determine whether or not we will be required to supplement the income tax payments we made.
f) Fines on the undue deduction of tax credits
We have received multiple assessments from the Brazilian federal tax authority imposing fines due to allegedly
undue deduction of tax credits from our payments of income tax and contributions on the net income (CSLL).
In these cases, the tax authority challenged our right to set off certain tax credits and issued assessments
imposing fines in the amount of 50% of the amount that was unduly deducted. As of December 31, 2018, the total
amount of fines imposed under these assessments were R$1 billion, and new assessments are expected. We are
challenging these assessments in administrative proceedings. These assessments cover only the fines resulting
from the allegedly undue deductions, as the principal amount of unpaid taxes, interest and other penalties for late
payment are being discussed in separate administrative proceedings. If we succeed in these separate
administrative proceedings, the corresponding fines are expected to be cancelled. The legal grounds for these
fines are currently being discussed by another company before the Federal Supreme Court (STF), and a
favorable decision to this other company will applicable to other taxpayers, including us.
161
Legal Proceedings
UPDATES ON OTHER PROCEEDINGS
As reported in our annual report on form 20-F for prior years, we were a party to legal proceedings against Rede
Ferroviária Federal S.A. (“RFFSA”) relating to contracts to build two railway networks in the city of Belo Horizonte.
In June 2012, a federal court rejected both the federal government’s (as successor to RFFSA) claims against us
and our contractual claim against RFFSA. All the appeals against these decisions have been rejected, and in
March 2019 the courts certified that decisions are final and unappealable.
We are a party to certain other proceedings reported on our annual report on form 20-F for prior years, including
(i) a proceeding in which the environmental authority of the Brazilian state of Minas Gerais seeks the suspension
of part of our Jangada and Córrego do Feijão mines in the Southern System, in order to protect caves located
near these mines; (ii) a public civil action filed by the MPF in 1997 seeking to annul the concession agreements
for the Praia Mole maritime terminal; and (iii) a citizen suit (ação popular) brought by certain officers of FUNCEF
(Caixa Econômica Federal’s pension fund) and oil sector workers challenging the conversion of preferred class A
shares into common shares. These proceedings are still ongoing, but we no longer believe that they may have
significant effects on the our financial position or profitability.
162
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
transmission, distribution and
and
commercialization of our own products, derivatives and sub products;
the production, generation,
forms of energy,
including
engagement, in Brazil or abroad, in 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 GOLDEN 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 7 billion common shares based solely on the approval of the Board of
Directors without any additional shareholder approval.
The Brazilian government holds 12 golden shares of Vale. Our bylaws do not provide for the conversion of golden
shares into common shares. In addition, the golden shares do not have any preference upon our liquidation and
there are no redemption provisions associated with the golden shares.
Voting Rights
Pursuant to Brazilian corporate law, non-controlling shareholders holding common shares representing at least
15% of a company’s voting capital have the right to appoint one member and an alternate to the board of
directors. If no group of common shareholders meets this threshold, holders of golden shares may combine their
holdings with those of holders of common shares, to reach at least 10% of the total
163
share capital in order to appoint one member and an alternate to the Board of Directors. Non-controlling holders
of common shares may also elect one member of the Fiscal Council and an alternate, pursuant to applicable
CVM rules. Holders of the golden shares may elect one member of the permanent Fiscal Council and the
respective alternate.
The golden shares are preferred shares that entitle the holder to veto any proposed action relating to the following
matters:
Memorandum and Articles of Association
•
•
•
•
•
•
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: mineral deposits, ore deposits, mines, railways, or 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.
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;
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;
164
Memorandum and Articles of Association
•
•
•
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, 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, 8 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—Valor Econômico—Estado do Rio de Janeiro is the
newspaper currently designated for this purpose. 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.
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.
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 with greater privileges than the golden shares or changing a
priority, preference, right, privilege or condition of redemption or amortization of the golden 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.
165
Memorandum and Articles of Association
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 or other person 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. If the proxy document is in a foreign language, it must be accompanied
by corporate documents or a power of attorney, as applicable, each duly translated into Portuguese by a sworn
translator. Notarization and consularization of proxies and supporting documents is not required. Proxies and
supporting documents in English or Spanish do not require translation.
Redemption rights
Our common shares and golden 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 (i) a merger, (ii) a stock merger as described above or (iii) 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.
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 the resolution is subject to confirmation by the holder of
golden shares (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.
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.
166
Memorandum and Articles of Association
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.
Tag-along rights and mandatory tender offers
In accordance with Novo Mercado listing rules and our bylaws:
•
•
•
in case of a transfer of control, the purchaser must conduct a tender offer to purchase any and all of
our common shares for the same price paid for the voting shares representing control;
in case of a proposed delisting from the Novo Mercado segment of B3, the controlling shareholder
must conduct a public offer to acquire any and all of our common shares for a price corresponding to
the economic value of the shares, as determined in an independent appraisal valuation; and
any shareholder who acquires 25% of our outstanding capital stock must, within 30 days after the
date in which such shareholder achieved the 25% stake, make a tender offer for any and all of our
common shares (oferta pública para aquisição) for a price equal to the greatest of (i) the economic
value of the shares, (ii) 120% of the weighted average price of our common shares in the 60 trading
days preceding the announcement of the tender offer and (iii) 120% of the highest price paid by the
purchaser in the 12 months before achieving the 25% stake.
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
167
Memorandum and Articles of Association
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.
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.
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 interest on shareholders’ equity is subject to Brazilian withholding income tax.
See Additional information—Taxation—Brazilian tax considerations. 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.
168
Memorandum and Articles of Association
Form and transfer of shares
Our common shares and golden 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, upon presentation of valid share transfer instructions to us by a transferor
or its representative. When 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 B3 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.
169
SHAREHOLDER DEBENTURES
At the time of the first stage of our privatization in 1997, we issued shareholder revenue interests known in Brazil
as “debêntures 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 all the relevant
mineral resources are exhausted, sold or otherwise disposed of by us.
We made available for withdrawal by holders of shareholder debentures US$84 million in 2016, US$147 million in
2017 and US$148 million in 2018. See note 13 to our consolidated financial statements for a description of the
terms of the debentures.
170
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
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 common shares represented by ADSs from
converting dividends, distributions or the proceeds from any sale of common shares or rights, as the case may
be, into U.S. 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 could adversely affect holders of ADRs.
Under CMN Resolution 4,373 of 2014 (“Resolution 4,373”), foreign investors, defined to include individuals, legal
entities, mutual funds and other collective investment entities, domiciled or headquartered outside Brazil, may
invest in almost all financial assets and engage in almost all transactions available in the Brazilian financial and
capital markets, provided that they:
i. appoint at least one representative in Brazil, with powers to perform actions relating to its
investment,
ii. complete the appropriate foreign investor registration form,
iii. register as a foreign investor with the CVM, and register its foreign investment with the
Central Bank of Brazil, and
iv. appoint a custodian, duly licensed by the Central Bank of Brazil, if the Brazilian
representative in item (1) is not a financial institution.
Resolution 4,373 specifies the manner of custody and the permitted means for trading securities held by foreign
investors under the resolution. The offshore transfer or assignment of securities or other financial assets held by
foreign investors pursuant to Resolution 4,373 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 4,373 also 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. 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 for common shares, the holder must, within five business days, seek to obtain
its own electronic registration with the Central Bank of Brazil under Law 4,131 of 1962 and Resolution 4,373.
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 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
171
Exchange Controls and Other Limitations Affecting Security Holders
remittance to foreign 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 for underlying common shares from converting distributions or the proceeds from any sale of
such shares, as the case may be, into U.S. dollars and remitting such U.S. 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 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.
172
TAXATION
The following summary contains a description of the principal Brazilian and U.S. federal income tax
consequences of the ownership and disposition of common shares or ADSs. 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 common shares or ADSs.
Holders of common shares or ADSs should consult their own tax advisors to discuss the tax consequences of the
purchase, ownership and disposition of common shares or ADSs, 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, 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 common shares or ADSs.
BRAZILIAN TAX CONSIDERATIONS
The following discussion summarizes the principal Brazilian tax consequences of the acquisition, ownership and
disposition of common shares or ADSs 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 common shares or ADSs.
Shareholder distributions
For Brazilian corporations, such as Vale, 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:
i.
ii.
the beneficiary is exempt from tax in Brazil, in which case the distribution will not be subject
to withholding income tax;
the beneficiary is located in a jurisdiction that does not impose income tax or where the
maximum income tax rate is lower than 17% (a “Low Tax Jurisdiction”) or where internal
173
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
iii.
the effective beneficiary is resident in Japan, in which case the applicable withholding income
tax rate is 12.5%.
Taxation
Interest on shareholders’ equity is calculated as interest rate on the sum of the following accounts: (i) share
capital, (ii) capital reserves, (ii) profits reserves, (iv) treasury stocks and (v) accumulated losses. The interest rate
applied may not exceed the 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) a holder that is not resident or domiciled in a Low Tax Jurisdiction, or in a jurisdiction where
internal legislation imposes restrictions on the disclosure of shareholding structure or the ownership
of the investment, and that has registered its investment in Brazil in accordance with Resolution 4,373
(a “4,373 Holder”), or (ii) a holder of ADSs; 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. 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 qualify as “assets located in Brazil” for this purpose. Arguably, the
ADSs do not constitute assets located in Brazil and therefore the gains realized by a Non-Brazilian Holder on the
disposition of ADSs 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.
Consequently, gains on a disposition of ADSs 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.
174
Taxation
Although there are arguments to the contrary, the deposit of common shares in exchange for ADSs 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 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 common shares were sold on that day, the average price on the Brazilian stock exchange in
which the greatest number of common shares were sold in the 15 trading sessions immediately
preceding such deposit.
The positive difference between the average price of the 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 conclude that such taxation is not applicable with respect to any 4,373 Holder, provided such
holder is not located in a Low Tax Jurisdiction.
The withdrawal of common shares by holders in exchange for ADSs 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 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.
Through December 31, 2018, any gain realized by a Non-Brazilian Holder on a sale or disposition of common
shares carried out on the Brazilian stock exchange was:
•
•
•
exempt from income tax where the Non-Brazilian Holder (i) is a 4,373 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 4,373
Holder and (ii) is not resident or domiciled in a Low Tax Jurisdiction or (B) (i) is a 4,373 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 4,373 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
175
Taxation
eventual income tax due on the capital gain. A 4,373 Holder that is not resident or domiciled in a Low Tax
Jurisdiction is not subject to this withholding tax.
Beginning on January 1, 2017, the taxation regime for capital gains in Brazil was significantly amended. Under the
new regime, capital gains realized by non-Brazilian residents and individuals resident in Brazil are subject to
income tax at progressive rates ranging from 15% to 22.5%, where the Non Brazilian Holder either (A)(i) is not a
4,373 Holder and (ii) is not resident or domiciled in a Low Tax Jurisdiction, or (B)(i) is a 4,373 Holder and (ii) is
resident or domiciled in a Low Tax Jurisdiction.
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 levied on the
transaction and can be offset against the eventual income tax due on the capital gain.
In the case of a redemption of common shares or ADSs 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
common shares or ADSs being redeemed is treated as capital gain and is therefore generally subject to income
tax at the progressive rate from 15% to 22.5%, while the 25% rate applies to residents in a Low Tax Jurisdiction.
Any exercise of pre-emptive rights relating to our 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 common shares in
Brazil will be subject to Brazilian income taxation in accordance with the same rules applicable to the sale or
disposition of common shares.
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 Tax 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 Tax 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
common shares or ADSs by a Non-Brazilian Holder, except for gift and inheritance taxes
176
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 common shares or ADS.
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 common shares or ADSs. This summary applies to
U.S. holders, as defined below, who hold their common shares or ADSs as capital assets and does not apply to
special classes of holders, such as:
Taxation
•
•
•
•
•
•
•
•
•
certain financial institutions,
insurance companies,
dealers in securities or foreign currencies,
tax-exempt organizations,
securities traders who elect to account for their investment in common shares or ADSs on a
mark-to-market basis,
persons holding 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,
or
persons owning, actually or constructively through attribution rules, 10% or more of our voting shares
or the total value of all classes of 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 the Medicare tax on net investment income, the alternative minimum tax, or 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.
177
Taxation
For purposes of this discussion, you are a “U.S. holder” if you are a beneficial owner of 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 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 common shares represented by those ADSs for U.S. federal income tax purposes.
Deposits and withdrawals of 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 common shares will be the same as your tax
basis in such ADSs, and the holding period in such common shares will include the holding period in such ADSs.
Taxation of dividends
The gross amount of a distribution paid on ADSs 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 generally 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 or common shares, as the case may be, with respect to which such distribution is made,
and thereafter as a capital gain.
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. 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 non-corporate 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 2018 taxable year. In addition, based on Vale’s audited financial statements and its current
expectations regarding the value
178
Taxation
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 2019 taxable year.
Based on existing guidance, it is not entirely clear whether dividends received with respect to 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 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 or common shares 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 categories 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 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 common shares or ADSs. This gain or loss will be long-term capital gain or loss if
your holding period in the 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.
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 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 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.
Foreign financial asset reporting
Certain U.S. holders that own “specified foreign financial assets” with an aggregate value in excess of US$50,000
are generally required to file an information statement along with their tax returns, currently on IRS Form 8938,
with respect to such assets. “Specified foreign financial assets” include any financial accounts held at a non-U.S.
financial institution, as well as securities issued by a non-U.S. issuer that are not held in accounts maintained by
financial institutions. The understatement of income attributable to
179
Taxation
“specified foreign financial assets” in excess of U.S.$5,000 extends the statute of limitations with respect to the
tax return to six years after the return was filed. U.S. holders who fail to report the required information could be
subject to substantial penalties. You are encouraged to consult with your own tax advisors regarding the possible
application of these rules, including the application of the rules to your particular circumstances.
Information reporting and backup withholding
Information returns may be filed with the IRS in connection with distributions on the 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.
Backup withholding is not an additional tax. 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.
A holder that is a foreign corporation or a non-resident alien individual may be required to comply with certification
and identification procedures in order to establish its exemption from information reporting and backup
withholding.
180
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, 2018. 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
FINANCIAL REPORTING
INTERNAL CONTROL OVER
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, 2018 based on the criteria established in “Internal Control—Integrated Framework (2013)” issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such assessment and
criteria, our management has concluded that our internal control over financial reporting was effective as of
December 31, 2018. The effectiveness of our internal control over financial reporting as of December 31, 2018
has been audited by KPMG Auditores Independentes, an independent registered public accounting firm, as stated
in their report which appears herein.
The adoption of IFRS 15 (Revenue from Contracts with Customers) required the implementation of new controls
and the modification of certain accounting processes related to revenue recognition. The impact of these changes
was not material to our internal control over financial reporting. Our management identified no other changes in
our internal control over financial reporting that occurred during our fiscal year ended December 31, 2018 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
181
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.
Since 2018, we also report our compliance with the Code of Best Practices for Corporate Governance of the
Brazilian Corporate Governance Institute (IBGC), as required by Brazilian regulations. The code is based on the
“comply or explain” principle, and we currently fully comply with 80% of the practices recommended by the IBGC
and partially comply with 17% of practices recommended by the code
Section
303A.01 A listed company must have a majority of
NYSE corporate governance rule for
U.S. domestic issuers
independent directors.
303A.03 The non-management directors of a listed
company must meet at regularly scheduled
executive sessions without management.
303A.04 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.
Our approach
We do not have a majority of independent directors.
At least 20% of our board of directors is composed
of independent directors, as required under Novo
Mercado listing rules and our bylaws.
We do not have any management directors.
We do not have a nominating/corporate governance
committee. However, we do have a Personnel
Committee and a Governance, Compliance and Risk
Committee, which are advisory committees to the
Board of Directors (which may include members who
are not directors) with written charters that cover
similar specified duties.
According to its charter, the Personnel Committee is
responsible, among other matters, for:
● supporting the Board of Directors in the process of
selecting and appointing the Chief Executive
Officer, and evaluating the Chief Executive
Officer’s appointment of other executives;
● evaluating and recommending adjustments to
corporate governance best practices concerning
the structure, size and composition of the Board of
Directors and the Advisory Committees, as well as
the balance of experiences, knowledge and
diversity of the profiles of their members;
● identifying and recommending potential
candidates to be directors and members of the
Advisory Committees; and
● supporting the Chairman of the Board of Directors
in organizing the process for performance
evaluation of the Board of Directors and Advisory
Committees.
182
Section
NYSE corporate governance rule for
U.S. domestic issuers
Our approach
Corporate Governance
According to its charter, the Governance,
Compliance and Risk Committee is responsible,
among other matters, for:
● ensuring the adoption and improvement of good
practices of compliance and integrity, including
evaluating events of potential conflicts of interest;
● monitoring the scope of activities and
effectiveness of the departments in charge of our
corporate governance, compliance, corporate
integrity, risk management and controls and
proposing improvements;
● evaluating proposals for modifying the corporate
governance documents, such as the By-Laws, the
Code of Ethical Conduct and written charters of
our Advisory Committees and Board of Directors,
in addition to other policies and documents which
are not the responsibility of other committees;
● ensuring the effectiveness of mechanisms to
handle conflicts of interests in our transactions, as
well as opining on related party transactions
submitted for resolution of the Board of Directors,
pursuant to the Policy on Transactions with
Related Parties;
● promoting, monitoring and ensuring the
development and efficacy of the governance
model, assuring that all initiatives are in line with
the best practices and are in synergy; and
● annually reviewing and recommending changes
necessary to improve Vale’s corporate
governance.
These committees’ charters allow for the inclusion of
one independent member. For this purpose, an
independent member is a person who:
● Has no current link to Vale, except for
membership on an Advisory Committee or a
non-material shareholding in our share capital or
investment in our bonds, and is not financially
dependent on compensation from us;
● Has not been an employee of the Company (or of
its subsidiaries) or of a direct or indirect controlling
shareholder, or a representative of any direct or
indirect controlling shareholder for, at least, three
years;
● Does not provide, purchase or offer (trade),
directly or indirectly, services and/or products to
us on a scale that is material to that person or to
us;
● Is not linked to a controlling shareholder, member
of the controlling group or of another group with
material shareholding, the spouse or relative up to
the second degree of the foregoing, or connected
to entities related to a controlling shareholder;
● Is not a spouse or relative up to the second
degree of any officer or manager of Vale;
183
Section
NYSE corporate governance rule for
U.S. domestic issuers
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.
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.
Corporate Governance
Our approach
● Has not been a partner, in the past three years, of
an auditing firm that audits or has audited Vale in
this same period; and
● Is not a member of a non-profit entity that receives
significant financial funds from us or from our
related parties.
We do not have a compensation committee.
However, we have a Personnel Committee, which is
an advisory committee to the Board of Directors
(which may include an independent member who is
not a director). This committee is responsible for:
● evaluating our general human resources policies
as submitted by the Executive Board to the Board
of Directors;
● evaluating and adjusting the compensation model
of members of the Executive Board;
● aiding the Board of Directors in setting and
monitoring goals for the performance evaluation of
the Executive Board and other leaders who report
directly to the Chief Executive Officer, and of
those in charge of Vale’s Governance Office,
Internal Auditing and Ethics and Conduct Office.
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;
184
Corporate Governance
Our approach
● 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.
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).
Section
NYSE corporate governance rule for
U.S. domestic issuers
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.
303A.09 A listed company must adopt and disclose
corporate governance guidelines that cover
certain minimum specified subjects.
303A.10 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.
185
CODE OF ETHICAL CONDUCT
We have a code of ethical 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 and the chief financial officer. We have
posted
(under English
Version/Investors/Corporate Governance/Policies). Copies of our code of ethical 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 code of ethical conduct since its adoption.
this code of ethical conduct on our website, at: http://www.vale.com
Ethics Channel
Any breaches of our policies and standards can be reported by anyone, including employees, contractors,
suppliers, members of affected communities and other stakeholders, via our Ethics Channel.
Allegations presented to our Ethics Channel are communicated to Vale’s Ethics and Conduct Office, an
independent department reporting directly to the Board of Directors and responsible for handling complaints as
well as disseminating Vale’s Code of Ethical Conduct. In 2018, Vale’s Board of Directors approved an updated
version of the Code of Ethical Conduct, which is now available in 8 languages.
Allegations are investigated by the Ethics and Conduct Office, except in the event of (i) lack of information to
initiate an examination, in which case the Office will request additional information to the person raising the
concern and will proceed with the investigation provided it receives additional information within 15 days, and
(ii) lack of pertinence to the Ethics and Conduct Office’s scope of work. The Ethics and Conduct Office’s scope of
work includes not only alleged violation of Vale’s Code of Ethics and Conduct, such as fraud and moral
harassment cases, but also the resolution of issues that have not been properly addressed by other lines of
reporting in the company, such as delay in payments to contractors.
In 2018, our Ethics and Conduct Office Channel received 2,709 complaints, 91% of which were investigated.
Investigations confirmed violations in 45% of these complaints. All confirmed violations triggered correction plans,
which are presented by company’s managers and approved by the Ethics and Conduct Office. As a general rule,
these plans contain measures to promote process improvements, training initiatives and feedback to employees.
Depending on the seriousness of the allegations, employees involved may be subject to administrative measures,
such as warnings, suspensions or terminations. Suppliers involved in serious violations of the Code of Ethical
Conduct are also subject to punitive measures, such as fines or contract termination.
Investigations by the Ethics and Conduct Office in 2018 resulted in 2,007 corrective actions, including the
termination of 214 employees.
186
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table summarizes the fees billed to us by our independent auditors KPMG Auditores Independentes
for professional services in 2017 and 2018:
Year ended December 31,
2017
2018
(US$ thousand)
Audit fees .....................................................................................................................................................................................
Audit-related fees .........................................................................................................................................................................
Other fees ....................................................................................................................................................................................
Total fees ................................................................................................................................................................................
6,159
90
18
6,267
4,490
15
13
4,518
“Audit fees” are the aggregate fees billed by KPMG Auditores Independentes 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 KPMG Auditores Independentes 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.”
On September 27, 2018, our Board of Directors approved the hiring of PricewaterhouseCoopers Auditores
Independentes, in replacement of KPMG Auditores Independentes, for the provision of audit services for a period
of five years. These services will begin in the fiscal year starting on January 1, 2019.
187
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
PricewaterhouseCoopers Auditores Independentes (“PwC”) replaced KPMG Auditores Independentes (“KPMG”)
as our independent public accountants and will audit our financial statements for the fiscal year starting on
January 1, 2019. The change in auditors is being made pursuant independent auditor’s rotation regulation
established by CVM that limits the consecutive terms of the engagement to five years. Because of the limitations
set forth in this regulation, KPMG’s contract was not renewed. The replacement of KPMG by PwC was approved
by our Board of Directors on September 27, 2018. KPMG is engaged as our independent auditor for the fiscal
years ended December 31, 2017 and 2018 until the filing of this Form 20-F with the SEC.
KPMG audited our financial statements for the fiscal years ended December 31, 2016, 2017 and 2018. None of
the reports of KPMG 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. There
were no disagreements with KPMG, whether or not resolved, on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not resolved to KPMG’s 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. KPMG did not audit any of our financial statements for any period subsequent to December 31, 2018.
We have provided KPMG with a copy of the foregoing disclosure, and have requested that it furnish us with a
letter addressed to the SEC 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 KPMG as required by Item 16F(a)(3) of Form 20-F.
During the fiscal years ended December 31, 2016, 2017 and 2018, we did not consult with PwC 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 PwC on our financial statements. Further, PwC 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.
188
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, B3, the SEC and the French
securities regulator Autorité des Marchés Financiers.
• Brazil. Vale’s Common Shares are listed on B3 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
B3’s “Novo Mercado” Corporate Governance Requirements. Our CVM filings are available from the
CVM at http://www.cvm.gov.br or from B3 at http://www.b3.com.br. In addition, they may be accessed
at our website, http://www.vale.com.
• 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 available to the public from the SEC at http://www.sec.gov. In addition, as with all of our security
filings, they may be accessed at our website, http://www.vale.com. 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. 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. disclosures.
189
EXHIBITS
Exhibit Number
1
4.1
8
10.24
12.1
12.2
13.1
15.1
15.2
101
Bylaws of Vale S.A., as amended on April 13, 2018 incorporated by reference to the current report on Form 6 K furnished to the Securities
and Exchange Commission on April 16, 2018 (File No. 001-15030, Accession No. 0001104659-18-024067)
Framework Agreement, dated March 2, 2016, by and among Vale S.A., BHP Billiton Brasil Ltda, Samarco Mineração S.A., the Federal
Government of Brazil, the states of Espirito Santo and Minas Gerais and certain other public authorities in Brazil, incorporated by
reference to Exhibit 4.12 to BHP Billiton Ltd.’s annual report on Form 20-F dated September 21, 2016 (File Nos. 001-09526 and
001-31714, Accession No. 0001193125-16-715037)
List of subsidiaries
Shareholders’ Agreement, dated August 14, 2017, among Litel Participações S.A., Litela Participações S.A., Bradespar S.A.,
Mitsui & Co., Ltd. and BNDES Participações S.A.—BNDESPAR incorporated by reference to the current report on Form 6-K furnished to
the Securities and Exchange Commission on August 15, 2017 (File No. 001-15030, Accession No. 0001104659-17-051910)
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 KPMG Auditores Independentes
Letter from KPMG Auditores Independentes required by Item 16F(a)(3)
Interactive Data File
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.
190
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.
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.
B3
B3 S.A.—Brasil, Bolsa, Balcão (formerly BM&FBOVESPA), a stock exchange located in São Paulo, Brazil.
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.
CFR ................................................ Cost and freight. Indicates that all costs related to the transportation of goods up to a named port of destination will be paid
by the seller of the goods.
Coal ................................................ Coal is a black or brownish-black solid combustible substance formed by the 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 .................................... Hard coking coal is the highest value segment of the metallurgical coal market segments (see metallurgical coal) because of
its high strength factors to form a strong coke.
Concentration ................................. Physical, chemical or biological process to increase the grade of the metal or mineral of interest.
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).
191
Glossary
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 its maximum permitted 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.
Ferroalloys ..................................... Manganese 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.
Hematite Ore .................................. Hematite is an iron oxide mineral, but also denotes the high-grade iron ore type within the iron deposits.
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 ore .............................. A hard brittle metallic element found primarily in the minerals pyrolusite, hausmannite and manganite. Manganese ore is
essential to the production of virtually all steels and is important in the production of cast iron.
Metallurgical coal ........................... Coal used in the production of steel, comprising multiple segments, including hard coking coal (see hard coking coal),
semi-hard coking coal, semi-soft coking coal, all used to produce coke to feed a blast furnace; and, PCI (pulverized coal
injection) coal used for direct injection fuel source into the blast furnace (see PCI). A bituminous hard coal with a quality that
allows the production of coke. Normally used in coke ovens for metallurgical purposes.
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(s) ........................ 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.
Mt
Million metric tons
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.
192
Glossary
Nickel laterite.................................. Deposits are formed by intensive weathering of olivine-rich ultramafic rocks such as dunite, peridotite and komatite.
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 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.
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.
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 for primary production of fertilizer
nutrients, animal feeds and detergents.
Pig iron ........................................... Product of smelting iron ore usually with coke and limestone in a blast furnace.
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.
193
Glossary
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 (i) 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 (ii) 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 (ore/mineral) .................. The part of a mineral deposit that could be economically and legally extracted or produced at the time of the reserve
determination.
ROM ............................................... Run-of-mine. Ore in its natural (unprocessed) state, as mined, without having been crushed.
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.
Slab ................................................ 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.
Thermal coal .................................. A type of coal that is suitable for energy generation in thermal power stations, cement plants and other coal fired ovens/kilns
Tpy ................................................. Metric tons per year.
in general industry.
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.
194
SIGNATURES
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.
VALE S.A.
By:
/s/ EDUARDO DE SALLES BARTOLOMEO
Name: Eduardo de Salles Bartolomeo
Title: Interim Chief Executive Officer
By:
/s/ LUCIANO SIANI PIRES
Name: Luciano Siani Pires
Title: Chief Financial Officer
Date: April 18, 2019
195
Vale S.A. Financial Statements
Contents
Report of Independent Registered Public Accounting Firm ..............................................................................................
Management’s Report on Internal Control over Financial Reporting ................................................................................
Consolidated Income Statement ......................................................................................................................................
Consolidated Statement of Comprehensive Income ........................................................................................................
Consolidated Statement of Cash Flows ...........................................................................................................................
Consolidated Statement of Financial Position ..................................................................................................................
Consolidated Statement of Changes in Equity .................................................................................................................
Notes to the Financial Statements ...................................................................................................................................
1. Corporate information .......................................................................................................................................
2. Basis for preparation of the financial statements ..............................................................................................
3. Brumadinho’s dam failure .................................................................................................................................
4. Information by business segment and by geographic area...............................................................................
5. Costs and expenses by nature .........................................................................................................................
6. Financial results ................................................................................................................................................
7. Streaming transactions .....................................................................................................................................
8. Income taxes ....................................................................................................................................................
9. Basic and diluted earnings (loss) per share ......................................................................................................
10. Accounts receivable .........................................................................................................................................
11. Inventories ........................................................................................................................................................
12. Recoverable taxes ............................................................................................................................................
13. Other financial assets and liabilities ..................................................................................................................
14. Non-current assets and liabilities held for sale and discontinued operations ....................................................
15. Subsidiaries ......................................................................................................................................................
16. Investments in associates and joint ventures ...................................................................................................
17. Noncontrolling interest ......................................................................................................................................
18. Intangibles ........................................................................................................................................................
19. Property, plant and equipment ..........................................................................................................................
20. Impairment and onerous contracts ...................................................................................................................
Page
F-3
F-6
F-7
F-8
F-9
F-10
F-11
F-13
F-13
F-13
F-18
F-25
F-33
F-34
F-35
F-36
F-40
F-40
F-41
F-42
F-42
F-43
F-46
F-47
F-53
F-54
F-56
F-58
F-1
21. Loans, borrowings and cash and cash equivalents ..........................................................................................
22. Liabilities related to associates and joint ventures ............................................................................................
23. Financial instruments classification ..................................................................................................................
24. Fair value estimate ...........................................................................................................................................
25. Derivative financial instruments ........................................................................................................................
26. Provisions .........................................................................................................................................................
27. Asset retirement obligations .............................................................................................................................
28. Litigation ...........................................................................................................................................................
29. Employee benefits ............................................................................................................................................
30. Stockholders’ equity .........................................................................................................................................
31. Related parties .................................................................................................................................................
32. Commitments ...................................................................................................................................................
33. Risk management .............................................................................................................................................
34. Additional information about derivatives financial instruments ..........................................................................
Page
F-61
F-64
F-66
F-69
F-72
F-75
F-76
F-77
F-80
F-91
F-96
F-99
F-100
F-104
F-2
KPMG Auditores Independentes
Rua do Passeio, 38 - Setor 2 - 17° andar - Centro
20021-290 - Rio de Janeiro/RJ - Brasil
Caixa Postal 2888 - CEP 20001-970 - Rio de Janeiro/RJ - Brasil
Telefone +55 (21) 2207-9400, Fax +55 (21) 2207-9000
www.kpmg.com.br
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Vale S.A.
Rio de Janeiro – RJ
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Vale S.A. and subsidiaries
(“Vale” or “the Company”) as of December 31, 2018 and 2017, the related consolidated statements of income,
comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended
December 31, 2018, and the related notes (collectively, the “consolidated financial statements”). We also have
audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31, 2018, 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, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
KPMG Auditores Independentes, uma sociedade simples
brasileira e firma-membro da rede KPMG de firmas-membro
independentes e afiliadas à KPMG International Cooperative
(“KPMG International”), uma entidade suíça.
KPMG Auditores Independentes, a Brazilian entity and a
member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.
F-3
Basis for Opinions
The Company’s management is responsible for these consolidated 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 an opinion on the Company’s consolidated financial statements and an
opinion on the Company’s internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are
free of material misstatement, whether due to error or fraud, and whether effective internal control over financial
reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. 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.
Emphasis of matter—Subsequent Event
We draw attention to Note 3 to the consolidated financial statements of the Company, which describes the
Brumadinho dam failure occurred at the Company’s operating facilities on January 25, 2019. The Company’s
management considered that the event is not a condition that existed at the end of the reporting period, and
therefore does not require adjustments to the financial statements as of December 31, 2018. The amounts
disclosed in the mentioned Note related to this event are based on management’s best estimates, however, at the
current stage of the investigations, assessments of causes and possible third parties lawsuits, it is not possible to
reliably measure all potential costs that the Company may incur for the purposes of disclosure in the financial
statements.
F-4
Definition and Limitations of Internal Control Over Financial Reporting
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 (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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.
/s/ KPMG AUDITORES INDEPENDENTES
KPMG Auditores Independentes
We have served as the Company’s auditor since 2014
Rio de Janeiro, RJ
April 18, 2019
F-5
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 Vale’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 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, 2018 based on the criteria established in Internal Control—Integrated Framework (2013) 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 are effective as of December 31, 2018.
The effectiveness of the company’s internal control over financial reporting as of December 31, 2018 has been
audited by KPMG Auditores Independentes, an independent registered public accounting firm, as stated in their
report which appears herein.
April 18th, 2019.
/s/ EDUARDO DE SALLES BARTOLOMEO
Eduardo de Salles Bartolomeo
Chief Executive Officer
/s/ LUCIANO SIANI PIRES
Luciano Siani Pires
Chief Financial Officer and Investors Relations
F-6
Consolidated Income Statement
In millions of United States dollars, except earnings per share data
Continuing operations
Net operating revenue .....................................................................................
Cost of goods sold and services rendered ......................................................
Gross profit.....................................................................................................
Operating expenses
Selling and administrative expenses ...............................................................
Research and evaluation expenses ................................................................
Pre operating and operational stoppage .........................................................
Other operating expenses, net ........................................................................
4(e)
5(a)
5(b)
5(c)
Notes
Impairment and disposal of non-current assets .............................................. 16, 19 and 20
Operating income ..........................................................................................
Financial income ..............................................................................................
Financial expenses ..........................................................................................
Other financial items ........................................................................................
Equity results and other results in associates and joint ventures ...................
Income before income taxes ........................................................................
Income taxes ..................................................................................................
Current tax .......................................................................................................
Deferred tax .....................................................................................................
6
6
6
16 and 22
8
Net income from continuing operations .....................................................
Net income (loss) attributable to noncontrolling interests ...............................
Net income from continuing operations attributable to Vale’s
stockholders..............................................................................................
Discontinued operations ...............................................................................
Loss from discontinued operations ..................................................................
Net income (loss) attributable to noncontrolling interests ...............................
Loss from discontinued operations attributable to Vale’s
stockholders..............................................................................................
Net income ......................................................................................................
Net income (loss) attributable to noncontrolling interests ...............................
Net income attributable to Vale’s stockholders .........................................
14
Earnings per share attributable to Vale’s stockholders:
Basic and diluted earnings per share: ........................................................
Common share (US$) ......................................................................................
9
2018
36,575
(22,109)
14,466
(523)
(373)
(271)
(445)
(1,612)
(899)
11,955
423
(2,345)
(3,035)
(182)
6,816
(752)
924
172
6,988
36
6,952
(92)
–
(92)
6,896
36
6,860
Year ended December 31
2016
2017
33,967
(21,039)
12,928
27,488
(17,650)
9,838
(531)
(340)
(413)
(420)
(1,704)
(294)
10,930
478
(3,273)
(224)
(82)
7,829
(849)
(646)
(1,495)
6,334
21
6,313
(813)
(7)
(806)
5,521
14
5,507
(507)
(319)
(453)
(267)
(1,546)
(1,240)
7,052
170
(2,677)
4,350
(911)
7,984
(943)
(1,838)
(2,781)
5,203
(8)
5,211
(1,227)
2
(1,229)
3,976
(6)
3,982
1.32
1.05
0.77
The accompanying notes are an integral part of these financial statements.
F-7
Consolidated Statement of Comprehensive Income
In millions of United States dollars
Net income ...............................................................................................................................................
Other comprehensive income (loss):
Items that will not be reclassified subsequently to the income statement
Translation adjustments ............................................................................................................................
Retirement benefit obligations ..................................................................................................................
Fair value adjustment to investment in equity securities ..........................................................................
Transfer to reserve ....................................................................................................................................
Total items that will not be reclassified subsequently to the income statement, net of tax ..........
Items that may be reclassified subsequently to the income statement
Translation adjustments ............................................................................................................................
Fair value adjustment to debt instruments................................................................................................
Cash flow hedge .......................................................................................................................................
Net investments hedge .............................................................................................................................
Transfer of realized results to net income ................................................................................................
Total of items that may be reclassified subsequently to the income statement, net of tax ...........
Total comprehensive income ................................................................................................................
Comprehensive income (loss) attributable to noncontrolling interests.....................................................
Comprehensive income (loss) attributable to Vale’s stockholders ..................................................
From continuing operations .................................................................................................................
From discontinued operations .............................................................................................................
2018
6,896
(6,762)
41
60
(16)
(6,677)
3,899
–
–
(543)
(78)
3,278
3,497
(84)
3,581
3,589
(8)
3,581
Year ended December 31
2016
3,976
2017
5,521
(717)
(46)
–
–
(763)
1,026
–
–
(95)
(11)
920
5,678
13
5,665
5,696
(31)
5,665
6,460
(70)
–
–
6,390
(3,677)
1
10
–
(78)
(3,744)
6,622
111
6,511
6,642
(131)
6,511
Items above are stated net of tax and the related taxes are disclosed in note 8.
The accompanying notes are an integral part of these financial statements.
F-8
Consolidated Statement of Cash Flows
In millions of United States dollars
Cash flow from operating activities:
Income before income taxes from continuing operations .....................................................................................
Adjusted for:
Equity results and other results in associates and joint ventures ........................................................................
Impairment and disposal of non-current assets ...................................................................................................
Depreciation, amortization and depletion .............................................................................................................
Financial results, net .............................................................................................................................................
Changes in assets and liabilities:
Accounts receivable ..............................................................................................................................................
Inventories .............................................................................................................................................................
Suppliers and contractors .....................................................................................................................................
Provision—Payroll, related charges and others remunerations ...........................................................................
Proceeds from cobalt and gold stream transactions ............................................................................................
Other assets and liabilities, net .............................................................................................................................
Interest on loans and borrowings paid (note 21) ..................................................................................................
Derivatives paid, net .............................................................................................................................................
Interest on participative stockholders’ debentures paid .......................................................................................
Income taxes (including settlement program) ......................................................................................................
Net cash provided by operating activities from continuing operations .......................................................
Cash flow from investing activities:
Capital expenditures .............................................................................................................................................
Additions to investments .......................................................................................................................................
Proceeds from disposal of assets and investments .............................................................................................
Dividends and interest on capital received from associates and joint ventures ...................................................
Others investments activities, net(1) ....................................................................................................................
Proceeds from gold stream transaction ................................................................................................................
Net cash provided by (used in) investing activities from continuing operations .......................................
Cash flow from financing activities:
Loans and borrowings from third-parties (note 21) ..............................................................................................
Payments of loans and borrowings from third-parties (note 21) ..........................................................................
Dividends and interest on capital paid to stockholders ........................................................................................
Dividends and interest on capital paid to noncontrolling interest .........................................................................
Share buyback program (note 30) ........................................................................................................................
Transactions with noncontrolling stockholders .....................................................................................................
Net cash used in financing activities from continuing operations ...............................................................
Net cash used in discontinued operations (note 14) ......................................................................................
Increase in cash and cash equivalents ............................................................................................................
Cash and cash equivalents in the beginning of the year ......................................................................................
Effect of exchange rate changes on cash and cash equivalents .........................................................................
Effects of disposals of subsidiaries and merger, net of cash and cash equivalents ............................................
Cash and cash equivalents at end of the year ................................................................................................
Non-cash transactions:
Additions to property, plant and equipment—capitalized loans and borrowing costs ..........................................
2018
6,816
182
899
3,351
4,957
(156)
(817)
(376)
(11)
690
(205)
15,330
(1,121)
(67)
(113)
(1,128)
12,901
(3,784)
(23)
1,481
245
2,240
–
159
1,225
(7,841)
(3,313)
(182)
(1,000)
(17)
(11,128)
(46)
1,886
4,328
(313)
(117)
5,784
Year ended December 31
2016
2017
7,829
82
294
3,708
3,019
1,277
(339)
232
372
–
(912)
15,562
(1,686)
(240)
(135)
(1,051)
12,450
(3,831)
(93)
922
227
(583)
–
(3,358)
1,976
(8,998)
(1,456)
(126)
–
(98)
(8,702)
(252)
138
4,262
(60)
(12)
4,328
7,984
911
1,240
3,487
(1,843)
(2,744)
288
243
133
524
332
10,555
(1,663)
(1,602)
(84)
(805)
6,401
(4,951)
(239)
543
193
(239)
276
(4,417)
6,994
(7,717)
(250)
(291)
–
(17)
(1,281)
(118)
585
3,591
86
–
4,262
194
370
653
(1)
Includes loans and advances from/to related parties. For the year ended December 31, 2018, includes proceeds received from Nacala project finance
(note 31b) in the amount of US$2,572.
The accompanying notes are an integral part of these financial statements.
F-9
Consolidated Statement of Financial Position
In millions of United States dollars
Notes
December 31, 2018
December 31, 2017
Assets
Current assets
Cash and cash equivalents ..................................................................................................
Accounts receivable .............................................................................................................
Other financial assets ..........................................................................................................
Inventories ............................................................................................................................
Prepaid income taxes ..........................................................................................................
Recoverable taxes ...............................................................................................................
Others ..................................................................................................................................
Non-current assets held for sale ..........................................................................................
Non-current assets
Judicial deposits ...................................................................................................................
Other financial assets ..........................................................................................................
Prepaid income taxes ..........................................................................................................
Recoverable taxes ...............................................................................................................
Deferred income taxes .........................................................................................................
Others ..................................................................................................................................
Investments in associates and joint ventures ......................................................................
Intangibles ............................................................................................................................
Property, plant and equipment.............................................................................................
Total assets ........................................................................................................................
Liabilities
Current liabilities
Suppliers and contractors ....................................................................................................
Loans and borrowings..........................................................................................................
Other financial liabilities .......................................................................................................
Taxes payable ......................................................................................................................
Provision for income taxes ...................................................................................................
Liabilities related to associates and joint ventures ..............................................................
Provisions .............................................................................................................................
Dividends and interest on capital .........................................................................................
Others ..................................................................................................................................
10
13
11
12
14
28(c)
13
12
8(a)
16
18
19
21
13
8(d)
22
26
30(d)
Liabilities associated with non-current assets held for sale ................................................
14
Non-current liabilities
Loans and borrowings..........................................................................................................
Other financial liabilities .......................................................................................................
Taxes payable ......................................................................................................................
Deferred income taxes .........................................................................................................
Provisions .............................................................................................................................
Liabilities related to associates and joint ventures ..............................................................
Deferred revenue—Gold stream..........................................................................................
Others ..................................................................................................................................
Total liabilities ....................................................................................................................
Stockholders’ equity..........................................................................................................
Equity attributable to Vale’s stockholders ............................................................................
Equity attributable to noncontrolling interests ......................................................................
Total stockholders’ equity ................................................................................................
Total liabilities and stockholders’ equity ........................................................................
21
13
8(d)
8(a)
26
22
30
5,784
2,648
435
4,443
543
883
556
15,292
–
15,292
1,716
3,144
544
751
6,908
263
13,326
3,225
7,962
48,385
72,898
88,190
3,512
1,003
1,604
650
210
289
1,363
–
480
9,111
–
9,111
14,463
2,711
3,917
1,532
7,095
832
1,603
2,094
34,247
43,358
43,985
847
44,832
88,190
4,328
2,600
2,022
3,926
781
1,172
538
15,367
3,587
18,954
1,986
3,232
530
638
6,638
267
13,291
3,568
8,493
54,878
80,230
99,184
4,041
1,703
986
697
355
326
1,394
1,441
992
11,935
1,179
13,114
20,786
2,894
4,890
1,719
7,027
670
1,849
1,463
41,298
54,412
43,458
1,314
44,772
99,184
The accompanying notes are an integral part of these financial statements.
F-10
Consolidated Statement of Changes in Equity
In millions of United States dollars
Balance at December 31, 2015 ........................................
Net income (loss) ..............................................................
Other comprehensive income:
Retirement benefit obligations ............................................
Cash flow hedge .................................................................
Available-for-sale financial instruments ..............................
Translation adjustments .....................................................
Transactions with stockholders:
Dividends and interest on capital of Vale’s stockholders ....
Dividends of noncontrolling interest ....................................
Acquisitions and disposal of noncontrolling interest ...........
Capitalization of noncontrolling interest advances ..............
Appropriation to undistributed retained earnings ................
Balance at December 31, 2016 ........................................
Net income ........................................................................
Other comprehensive income:
Retirement benefit obligations ............................................
Net investments hedge .......................................................
Translation adjustments .....................................................
Share
capital
61,614
–
–
–
–
–
–
–
–
–
–
61,614
–
–
–
–
Results on
conversion
of shares
(152)
–
Capital
reserve
–
–
Net ownership
changes in
subsidiaries
(702)
–
Profit
reserves
985
–
Treasury
stocks
(1,477)
–
Unrealized
fair value
gain
(losses)
(992)
–
Cumulative
translation
adjustments
(25,687)
–
Retained
earnings
–
3,982
Equity
attributable
to Vale’s
stockholders
33,589
3,982
Equity
attributable
to noncontrolling
interests
2,115
(6)
Total
stockholders’
equity
35,704
3,976
–
–
–
–
–
–
–
–
–
(152)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3
–
–
(699)
–
–
–
–
–
–
–
195
–
–
–
–
3,023
4,203
–
–
–
(158)
–
–
–
–
–
–
–
–
–
(1,477)
–
–
–
–
(70)
7
1
(93)
–
–
–
–
–
(1,147)
–
(46)
–
10
–
–
–
2,387
–
–
–
–
–
(23,300)
–
–
(95)
447
–
–
–
102
(1,061)
–
–
–
(3,023)
–
5,507
–
–
–
(70)
7
1
2,591
(1,061)
–
3
–
–
39,042
5,507
(46)
(95)
299
–
–
–
117
–
(268)
(1)
25
–
1,982
14
–
–
(1)
(70)
7
1
2,708
(1,061)
(268)
2
25
–
41,024
5,521
(46)
(95)
298
The accompanying notes are an integral part of these financial statements.
F-11
Transactions with stockholders:
Dividends and interest on capital of Vale’s
stockholders ..............................................
Dividends of noncontrolling interest .................
Acquisitions and disposal of noncontrolling
interest .......................................................
Capitalization of noncontrolling interest
advances ...................................................
Appropriation to undistributed retained
earnings .....................................................
Merger of Valepar (note 30).............................
Balance at December 31, 2017 .....................
Net income .....................................................
Other comprehensive income:
Retirement benefit obligations .........................
Fair value adjustment to investment in equity
securities ...................................................
Net investments hedge ....................................
Translation adjustments ..................................
Transactions with stockholders:
Dividends and interest on capital of Vale’s
stockholders ..............................................
Dividends of noncontrolling interest .................
Acquisitions and disposal of noncontrolling
interest .......................................................
Capitalization of noncontrolling interest
advances ...................................................
Appropriation to undistributed retained
earnings .....................................................
Share buyback program ..................................
Balance at December 31, 2018 .....................
Consolidated Statement of Changes in Equity (Continued)
In millions of United States dollars
Share
capital
Results on
conversion
of shares
Capital
reserve
Net ownership
changes in
subsidiaries
Profit
reserves
Treasury
stocks
Unrealized
fair value
gain
(losses)
Cumulative
translation
adjustments
Retained
earnings
Equity
attributable
to Vale’s
stockholders
Equity
attributable
to noncontrolling
interests
Total
stockholders’
equity
–
–
–
–
–
–
–
–
–
–
–
–
–
–
61,614
–
–
(152)
–
1,139
1,139
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(255)
–
–
–
(954)
–
(16)
–
–
–
–
–
–
–
(658)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,032
–
7,419
–
–
(1,477)
–
–
(1,183)
–
–
(22,948)
–
–
–
–
(1,257)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
41
60
–
49
–
–
–
–
–
–
–
(543)
(1,613)
–
–
–
–
–
–
61,614
–
–
(152)
–
–
1,139
–
–
(970)
4,806
–
10,968
–
(1,000)
(2,477)
–
(1,033)
–
(25,104)
(1,475)
–
–
–
(4,032)
–
–
6,860
–
–
–
–
(2,054)
–
–
–
(4,806)
–
–
(2,133)
–
(255)
–
–
1,139
43,458
6,860
25
60
(543)
(2,821)
(2,054)
–
–
–
–
(1,000)
43,985
The accompanying notes are an integral part of these financial statements.
–
(202)
(512)
33
–
–
1,314
36
–
–
–
(120)
–
(166)
(229)
12
–
847
(2,133)
(202)
(767)
33
–
1,139
44,772
6,896
25
60
(543)
(2,941)
(2,054)
(166)
(229)
12
–
(1,000)
44,832
F-12
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated
1. Corporate information
Vale S.A. and its direct and indirect subsidiaries (“Vale” or “Company”) are global producers of iron ore and iron
ore pellets, key raw materials for steelmaking, and producers of nickel, which is used to produce stainless steel
and metal alloys employed in the production of several products. The Company also produces copper,
metallurgical and thermal coal, manganese ore, ferroalloys, platinum group metals, gold, silver and cobalt. The
information by segment is presented in note 4.
Vale S.A. (the “Parent Company”) is a public company headquartered in the city of Rio de Janeiro, Brazil with
securities traded on the stock exchanges of São Paulo—B3 S.A. (VALE3), New York—NYSE (VALE), Paris—
NYSE Euronext (VALE3) and Madrid—LATIBEX (XVALO).
On December 22, 2017 after the conversion of the class “A” preferred shares into common shares, the Company
migrated to the special listing segment of B3 S.A. (“Novo Mercado”) (further details in note 30).
2. Basis for preparation of the financial statements
a)
Statement of compliance
The consolidated financial statements of the Company (“financial statements”) have been prepared and are being
presented in accordance with the International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”).
b)
Basis of presentation
The financial statements have been prepared under the historical cost convention as adjusted to reflect: (i) the fair
value of financial instruments measured at fair value through income statement or at fair value through the
statement of comprehensive income; and (ii) impairment of assets.
The issue of these financial statements was authorized on April 18, 2019.
c)
Functional currency and presentation currency
The financial statements of the Company and its associates and joint ventures 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 (“R$”). For presentation purposes, these financial statements are presented
in United States dollar (“US$”) as the Company believes that this is how international investors analyze the
financial statements.
F-13
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
2. Basis for preparation of the financial statements (Continued)
The exchange rates used by the Company to translate its foreign operations are as follows:
US Dollar (“US$”) ...................................................................
Canadian dollar (“CAD”) .........................................................
Euro (“EUR” or “€”) .................................................................
d)
Significant accounting policies
2018
3.8748
2.8451
4.4390
Closing rate
2016
3.2591
2.4258
3.4384
2017
3.3080
2.6344
3.9693
Average rate for the year ended
2016
2017
3.4833
3.1925
2.6280
2.4618
3.8543
3.6088
2018
3.6558
2.8190
4.3094
Significant and relevant accounting policies for the understanding of the recognition and measurement basis used
in the preparation of these financial statements were included in the respective notes. The accounting polices
applied in the preparations of these financial statements are consistent with those adopted and disclosed in the
financial statements of prior years, except for new accounting policies related to the application of IFRS 9—
Financial Instruments and IFRS 15—Revenue from Contracts with Customers, which were adopted by the
Company from January 1, 2018.
The nature and effect of the changes as a result of adoption of these new accounting standards are described
below:
IFRS 9 Financial Instrument—This standard addresses the classification and measurement of financial assets
and liabilities, new impairment model and new rules for hedge accounting. The Company applied IFRS 9
prospectively, with an initial application date of January 1, 2018. The Company has not restated the comparative
information, which continues to be reported under IAS 39—Financial Instruments. The main changes are
described below:
Classification and measurement—Under IFRS 9, debt instruments are subsequently measured at fair value
through profit or loss (“FVTPL”), through amortized cost, or fair value through other comprehensive income
(“FVOCI”). The classification is based on the Company’s business model for managing the assets and whether
the instruments’ contractual cash flows represent ‘solely payments of principal and interest’ (“SPPI”) on the
principal amount outstanding.
On the date of initial application of IFRS 9, the Company has assessed which business models apply to the
financial assets held by the Company and has classified its financial instruments into the appropriate
F-14
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
2. Basis for preparation of the financial statements (Continued)
IFRS 9 categories. The reclassification of the financial instruments of the Company on January 1, 2018 were as
follows:
Measurement category
IFRS 9
IAS 39
IAS 39
Carrying amount
Difference
IFRS 9
Financial assets
Current
Financial investments ..............................................................................
Derivative financial instruments ...............................................................
Accounts receivable .................................................................................
Related parties .........................................................................................
Non-current
Derivative financial instruments ...............................................................
Loans .......................................................................................................
Related parties .........................................................................................
Financial liabilities
Current
Suppliers and contractors ........................................................................
Derivative financial instruments ...............................................................
Loans and borrowings..............................................................................
Related parties .........................................................................................
Non-current
Derivative financial instruments ...............................................................
Loans and borrowings..............................................................................
Related parties .........................................................................................
Participative stockholders’ debentures ....................................................
Loans and receivables
FVTPL
Loans and receivables
Loans and receivables
FVTPL
Loans and receivables
Loans and receivables
Loans and receivables
FVTPL
Loans and receivables
Loans and receivables
FVTPL
Loans and receivables
Loans and receivables
Loans and receivables
FVTPL
FVTPL
Amortized cost
Amortized cost
FVTPL
Amortized cost
Amortized cost
Amortized cost
FVTPL
Amortized cost
Amortized cost
FVTPL
Amortized cost
Amortized cost
Amortized cost
18
106
2,600
1,898
453
151
2,628
4,041
104
1,703
882
686
20,786
975
1,233
18
106
2,600
1,898
453
151
2,628
4,041
104
1,703
882
686
20,786
975
1,233
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
These reclassifications have no impact on the measurement categories. The financial instruments that were
classified as “Loans and receivables” under IAS 39 did meet the IFRS 9 criteria for classification at amortized
cost, because these financial instruments are held within a business model whose objective is to hold to collect
the cash flows, which represent solely payments of principal and interest. The derivatives held for trading are
required to be held as FVTPL under IFRS 9, therefore there were no changes in relation to these instruments
from the adoption of IFRS 9.
Impairment—IFRS 9 has replaced the IAS 39’s incurred loss approach with a forward-looking expected credit loss
(“ECL”) approach.
For accounts receivables, the Company has applied the standard’s simplified approach and has calculated ECLs
based on lifetime expected credit losses and the identified loss is deemed not significant. The Company has
established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking
factors specific to the economic environment and by any financial guarantees related to these accounts
receivables.
At each reporting date, the Company assesses whether financial assets carried at amortized cost are
credit-impaired. Information about the Company’s exposure to credit risk is set out in note 33.
F-15
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
2. Basis for preparation of the financial statements (Continued)
The new impairment approach of IFRS 9 did not have a significant impact to the Company for the year ended
December 31, 2018.
Hedge accounting—The Company has elected to adopt the new general hedge accounting model in IFRS 9. The
changes introduced by IFRS 9 relating to hedge accounting currently have no impact, as the Company does not
currently apply cash flow or fair value hedge accounting. The Company currently applies the net investment
hedge for which there are no changes introduced by this new standard (note 25).
IFRS 15 Revenue from Contracts with Customers—This standard establishes a comprehensive framework for
determining whether, how much and when revenue is recognized. It replaced IAS 18 Revenue, IAS 11
Construction Contracts and related interpretations. The Company has adopted the new standard using the
modified retrospective method. Accordingly, the comparative information presented has not been restated.
The Company has assessed its revenue streams and the nature and effect of the changes as a result of adoption
of IFRS 15 is described below:
• Sales of products—Under IFRS 15, there is no significant impact on the timing of products revenue
recognition since usually the transfer of risks and rewards and the transfer of control under the sales
contracts are at the same point in time.
• Shipping services—A proportion of Vale’s sales are under Cost and Freight (“CFR”) and Cost,
Insurance and Freight (“CIF”) Incoterms, in which the Company is responsible for providing shipping
services after the date that Vale transfers control of the goods to the customers. According to the
previous standard (IAS 18), the revenue from shipping services was recognized upon loading, as well
as the related costs, and was not considered a separate service.
Under IFRS 15, the provision of shipping services for CFR and CIF contracts should be considered as a separate
performance obligation in which a proportion of the transaction price would be allocated and recognized over time
as the shipping services are provided. The impact on the timing of revenue recognition of the proportion that
would have been allocated to the shipping service to the Company’s income statement for the year ended
December 31, 2018 is deemed not significant. Therefore, such revenue has not been presented separately in
these financial statements.
• Provisionally priced commodities sales—Under IFRS 9 and 15, the treatment of the provisional
pricing mechanisms embedded within the provisionally priced commodities sales remains unmodified.
Therefore, these revenues are recognized based on the estimated fair value of the total consideration
receivable, and the provisionally priced sales mechanism embedded within these sale arrangements
has the character of a derivative. The fair value of the sales price adjustment is recognized as
operational revenue in the income statement.
F-16
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
2. Basis for preparation of the financial statements (Continued)
Overall, there was no material impact on the Company’s financial statement from the IFRS 15 adoption for the
year ended December 31, 2018.
e)
Accounting standards issued but not yet effective
•
IFRS 16 Lease—IFRS 16 was issued in January 2016. It will result in vast majority of leases being
recognized in the balance sheet by lessees, as the distinction between operating and finance leases
is removed. Under the new standard, an asset (the right to use the leased item) and a financial
liability to pay rentals are recognized. There are recognition exemptions for short-term leases and
leases of low-value items.
The Company will apply the standard from its mandatory adoption date of January 1, 2019. Vale will apply the
simplified transition approach and will not restate comparative amounts for the year prior to first adoption.
Right-of-use assets will be measured at the amount of the lease liability on adoption.
As at December 31, 2018, the Company has non-cancellable operating lease commitments in the nominal
amount of US$2,498 (note 32). The Company has set up a project team which has reviewed these leasing
commitments over the last year in light of the new lease accounting rules in IFRS 16. Of these commitments, the
Company expects to recognize right-of-use assets and lease liabilities an amount ranging from US$1.8 billion to
US$2 billion at present value on January 1, 2019, an amount ranging from US$240 to US$260 on current
liabilities and US$1,560 to US$1,740 on non-current liabilities.
The actual impacts of adopting the standard may be subject to further changes because the Company has not
finalized the testing, assessment of controls over its new IT systems and the new accounting policies are subject
to change until the Company presents its first financial statements from the date of initial application.
The Company has not early adopted any standards and interpretations that have been issued or amended but are
not yet effective for the year ended December 31, 2018. Therefore, there are no other standards that are not yet
effective and that would be expected to have a material impact on the entity in the current or future reporting
periods.
f)
Critical accounting estimates and judgments
The preparation of financial statements requires the use of critical accounting estimates and the application of
judgment by management in applying the Company’s accounting policies. These estimates are based on the
experience, best knowledge, information available at the statement of financial position date and other factors,
including expectations of future events that are believed to be reasonable under the circumstances. Changes in
facts and circumstances may lead to the revision of these estimates. Actual future results may differ from the
estimates.
F-17
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
2. Basis for preparation of the financial statements (Continued)
The significant estimates and judgments applied by Company in the preparation of these financial statements are
as follows:
Significant estimates and judgments
Deferred revenue
Deferred income taxes
Consolidation
Note
7
8
16
19 Mineral reserves and mines useful life
Impairment of non-current assets
20
Liabilities related to associates and joint ventures
22
Fair values estimate
24
Asset retirement obligations
27
Litigation
28
Employee post-retirement obligations
29
3. Brumadinho’s dam failure
On January 25, 2019 (subsequent event), a breach has been experienced in the Dam I of the Córrego do Feijão
mine, which belongs to the Paraopebas Complex in the Southern System, located in Brumadinho, Minas Gerais,
Brasil (“Brumadinho dam”). This dam was inactive since 2016 (without additional tailings disposal) and there was
no other operational activity in this structure.
Due to the dam failure, 306 people lost their lives or are missing and ecosystems were affected. Around
11.7 million metric tons of iron ore waste were contained in the Brumadinho dam. It is not yet known the exact
volume of iron ore waste that was released due to the dam failure. The tailings contained in the Dam I have
caused an impact of around 270 km in extension, destroying some of Vale’s facilities, affecting local communities
and disturbing the environment. The Paraopeba river and its ecosystems have also been impacted by the event.
The Company has not been sparing efforts to support the victims and to mitigate and recover the social and
environmental damages resulting from the breach of the dam. Vale has provided support in multiple ways, aiming
to ensure the humanitarian assistance to those affected by the dam breach.
To determine the causes for the event, Vale has engaged a panel of independent experts. Furthermore, the
Company established three Extraordinary Independent Consulting Committees to support the Board of Directors,
which are composed by independent members that are unrelated to the management or to the Company’s
operations to ensure that the initiatives by the committees be unbiased. Following are the committees:
(i) The Extraordinary Independent Consulting Committee for Investigation (“CIAEA”), dedicated to
investigating the causes and responsibilities for the Brumadinho dam breach;
F-18
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
3. Brumadinho’s dam failure (Continued)
(ii) The Extraordinary Independent Consulting Committee for Support and Recovery (“CIAEAR”),
dedicated to follow-up on the measures taken to support the victims and the recovery of the areas
affected by the breach of the Brumadinho dam, assuring that all necessary resources will be applied;
and
(iii) The Extraordinary Independent Consulting Committee for Dam Safety (“CIAESB”), which will provide
support to the Board of Directors in questions related to the diagnosis of safety conditions,
management and risk mitigation related to Vale’s tailings dams, also providing recommendations of
actions to strengthen safety conditions of those dams.
In addition, Vale has determined the suspension (i) of the variable remuneration of its executives; (ii) the
Shareholder’s Remuneration Policy and (iii) any other resolution related to shares buyback. The Company paid
the shareholders in anticipation of the remuneration for the year, the amount of US$1,876 in September 2018,
approved by the Board of Directors on July 25, 2018. This payment was higher than the minimum mandatory
remuneration for the year ended December 31, 2018 and consequently no additional dividends to shareholders is
required (note 30).
a)
Financial impacts arising from the dam failure
The Company has concluded for the purpose of these financial statements that the dam breach and the following
events are not a condition that existed at the end of the reporting period, and therefore does not require
adjustments in the book values recognized in the financial statements prepared for the year ended December 31,
2018. Therefore, all accounting impacts will be recorded in 2019.
At the current stage of the investigations, assessments of the causes and possible third parties lawsuits, it is not
possible to have a reliable measure of all cost that the Company may incur for the purpose of disclosure in the
financial statements. The amounts that are being disclosed took into consideration the best estimates by the
Company’s management.
i)
Operation stoppages and de-characterization of the upstream dams
On January 29, 2019 the Company has informed the market and Brazilian authorities its decision to speed up the
plan to “de-characterize” all of its tailings dams built by the upstream method (same method as Brumadinho dam),
located in Brazil. The “de-characterizing” means that the structure will be dismantled and will no longer have its
original operational characteristics.
The Company is developing specific studies for the de-characterization of these dams which will be submitted for
approval by the relevant authorities when concluded, in accordance with regulations and legal requirements. The
estimate on January 29, 2019, based on a preliminary assessment, resulted in a total amount of US$1.3 billion
(R$5 billion) assuming the removal and reprocessing of all tailings contained in the upstream dams, followed by
the fully recovery of the sites in the “de-characterization” method.
F-19
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
3. Brumadinho’s dam failure (Continued)
Before the event, the decommissioning plans of these dams were based on a method which aimed to ensure the
physical and chemical stability of the structures, not necessarily, in all cases, removing and reprocessing the
tailings contained in the dams. Since the event, the Company has been working on an individual detailed
engineering plans to each of these dams to allow the total de-characterization of the structures. The Company is
still developing the revised estimate for the costs to de-characterize the upstream dams and, therefore, the
additional amount to the provision that will be recognized and disclosed in 2019 could not be reliably estimated.
In order to carry out safely the de-characterization of the dams, the Company has temporarily stopped the
production of the units where the upstream dams are located, as already disclosed to the market. The stoppage
results in a reduction in production of approximately 40 million tons of iron ore on annual basis.
In addition, the Company has other operations that are temporarily suspended due to judicial decisions or
technical analysis performed by the Company on the dams, which represents a potential reduction in sales of
52.8 million tons of iron ore. The Company is working on legal and technical measures to resume these
operations.
For reference, the Company sold 365 million tons of iron ore and pellets in 2018.
Due to the dam failure and review undertaken on the safety requirements for other dams in the Minas Gerais
region, when necessary people were placed in temporary accommodation.
ii)
Assets write-offs
Following the event and the decision to speed up the de-characterization of the upstream dams, the Company will
write-off assets of the Córrego do Feijão mine and those related to the upstream dams in Brazil, resulting in a loss
of US$124 (R$480 million) in 2019, which will impact the Company’s balance sheet and income statement.
iii)
Framework Agreements
The Company has been working together with the authorities and society to remediate the environmental and
social impacts of the event. As a result, the Company has started negotiations and entered into agreements with
the relevant authorities and affected people.
Public Ministry of Labor
On February 15, 2019, Vale entered into a preliminary agreement with the Public Ministry of Labor to indemnify
the direct and third-party employees of the Córrego do Feijão mine who were affected by the termination of this
operation. Under the terms of the agreement, Vale will maintain the jobs of its direct employees until
December 31, 2019 and will either assist terminated third party employees with a replacement or pay their
salaries until December 31, 2019.
F-20
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
3. Brumadinho’s dam failure (Continued)
The Company will also keep paying wages regularly to the missing people until the authorities have considered
them as fatal victims of the event and will pay to the families of the fatal victims an amount equivalent to two thirds
of their wages until December 31, 2019 or until Vale reaches the final agreement with the Public Ministry of Labor.
Under the terms proposed by Vale and considering the uncertainties related to the necessary procedures to
estimate the amount to be spent, including the number of individuals entitled to indemnification, the Company has
estimated that this agreement will result in a provision of approximately US$220 (R$850 million) in 2019.
Moreover, the Company will provide a lifelong medical insurance benefit to the widows and widowers and a
similar benefit to the dependents of the victims until they are 22 years old. Due to the preliminary stage of this
agreement and considering the complexity of an actuarial estimate, it is not possible yet to determine a range of
outcomes or reliable estimates and, therefore, the amount of the provision related to this obligation could not be
estimated. The Company expects to have this information during the course of 2019.
Brazilian Federal Government, State of Minas Gerais, Public Prosecutors and Public Defendants
On a judicial hearing that took place on February 20, 2019, in the scope of the public civil action
n° 5010709-36.2019.8.13.0024, in process of the 6th Public Treasury Lower Court of Belo Horizonte, Vale
entered into a preliminary agreement with the State of Minas Gerais, Federal Government and representatives of
Public Authorities in which the Company commits to make emergency indemnification payments to the residents
of Brumadinho and the communities that are located up to one kilometer from the Paraopeba river bed, from
Brumadinho to the city of Pompéu, subject to registration.
Due to this agreement, the Company will anticipate indemnification to each family member through monthly
payments during a 12-month period, which changes based, among other factors, on the age of the beneficiary.
The Company has initially estimated a provision ranging from US$260 (R$1 billion) to US$520 (R$2 billion)
related to these payments, depending on the number of beneficiaries that will be registered.
The agreement also includes the following measures: (i) independent technical assistance to support on the
individual indemnities of those affected, if requested; and (ii) reimbursement or direct funding of the extraordinary
expenses of the State of Minas Gerais and its governmental bodies due to the dam failure, including
transportation, accommodation and food expenses of the employees involved in the rescue and other emergency
actions. The respective amounts are still being estimated by the State of Minas Gerais and will be presented in
Court.
F-21
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
3. Brumadinho’s dam failure (Continued)
iv)
Donations and other incurred expenses
Donations
Vale has offered donations of US$26 thousand (R$100 thousand) to each of the families with missing members or
affected by fatalities, US$13 thousand (R$50 thousand) to families that resided in the Self-Saving Zone (“ZAS”)
near to Brumadinho dam, US$4 thousand (R$15 thousand) to business owners of the region and US$1 thousand
(R$5 thousand) for each family that resided in the ZAS of Sul Superior dam, which belongs to the Gongo Soco
mine, in Barão de Cocais. The estimated amount spent to date is around US$16 (R$62 million). These
humanitarian donations will not be subject to any compensation with eventual indemnification obligations that the
Company may have with its beneficiaries.
Vale also entered into an agreement with the Brumadinho city, in which the Company will donate to the city an
amount of approximately US$21 (R$80 million) over the next 2 years.
Environment and fauna
The Company is building a retention dike for the tailings on the affected areas. The Company has also installed
anti-turbidity barriers for sediment retention alongside the Paraopeba River. In addition, Vale has mobilized
cleaning, de-sanding and dredging the Paraopeba river channel.
Daily collection points of water and barriers for sediment retention were installed alongside the Paraopeba River,
Três Maias reservoir and São Francisco river.
Vale also has set up an exclusive structure for treatment of the rescued animals, enabling emergency care and
recovery before the animals are authorized, after veterinarian assessment, to be returned to their tutors.
Furthermore, the Company has agreed to pay the administrative fines imposed by the State Secretary for
Environment and Sustainable Development—SEMAD MG, in the total approximated amount of US$26
(R$99 million).
F-22
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
3. Brumadinho’s dam failure (Continued)
The Company has incurred the following expenses up to the present moment:
Incurred expenses
Administrative sanctions ....................................................................................................................................................
Donations to the affected people and to the city ...............................................................................................................
Drilling and infrastructure ..................................................................................................................................................
Environmental recovery .....................................................................................................................................................
Medical aid and other materials ........................................................................................................................................
Fuel and transportation .....................................................................................................................................................
Others(*) ............................................................................................................................................................................
2019
26
16
5
4
2
2
22
78
(*)
Includes expenses with communication, accommodation, humanitarian assistance, equipment, legal services, water, food aid, taxes, among others.
Off the events identified at this stage, a significant portion has not been disbursed or measured. The total costs
incurred with Vale’s employees dedicated to providing support with matters related to the event (including wages),
equipment and materials were not measured yet.
b)
Contingencies and other legal matters
Vale is subject to significant contingencies due to the Brumadinho dam failure. Vale has already been named on
several judicial and administrative proceedings brought by authorities and affected people and is currently under
investigations. New contingencies are expected to come in the future. Vale is still evaluating these contingencies
and will recognize a provision based on the stage of these claims. Due to the preliminary stage of the
investigations and claims, it is not possible to determine a range of reliable results or estimates of potential
exposure related to dam breach at this point in time.
Lawsuits
On January 27, 2019, following the injunctions granted upon the requests of the Public Prosecutors of the State of
Minas Gerais and the State of Minas Gerais, the Company had restricted US$2.8 billion (R$11 billion) on its bank
accounts to take the necessary measures to reassure the stability of the other dams of the Córrego do Feijão
Mine Complex, provide accommodation and assistance to the affected people, remediate environmental impacts,
among other obligations.
On January 31, 2019, the Public Ministry of Labor filed a Public Civil Action and a couple of preliminary
injunctions were granted determining the freezing of US$400 (R$1.6 billion) on the Company’s bank accounts to
secure the indemnification of direct and third-party employees that worked in the Córrego de Feijão mine at the
time of the Brumadinho dam breach.
F-23
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
3. Brumadinho’s dam failure (Continued)
On March 18, 2019 the Public Prosecutor of the State of Minas Gerais filed a Public Civil Action and a preliminary
injunction was granted to freeze US$258 (R$1 billion) of the Company’s assets, aiming to grant funds that could
be required to indemnify for losses that may arise from the evacuation of the community of Sebastião de Águas
Claras—Macacos community.
On March 25, 2019, the Public Prosecutor of the State of Minas Gerais filed a Public Civil Action and a
preliminary injunction was granted to freeze US$761 (R$2.95 billion) of the Company’s assets, to grant funds that
might be required to indemnify for losses that may arise from evacuation of the communities in Gongo Soco,
Barão de Cocais.
In total, approximately US$4.4 billion (R$16.9 billion) of the Company’s assets were blocked, of which
the Company’s bank accounts, US$3.3 billion
approximately US$121 (R$468 million) were
(R$12.6 billion) were converted into judicial deposits and US$1 billion (R$3.75 billion) was guaranteed using
75,312,728 treasury shares out of the 158,216,372 treasury shares held by Vale as at December 31, 2018.
freeze on
Other collective and individual claims related to the Brumadinho dam breach were filed. Some collective claims
were extinguished by the applicable court.
Administrative sanctions
In addition, the Company was notified of the imposition of administrative fines by Brazilian Institute of the
Environment and Renewable Natural Resources (“IBAMA”), in the amount of US$65 (R$250 million) and a daily
fine of US$26 thousand (R$100 thousand), drawn up on February 7, 2019, which Vale has presented defenses
against all of them. In addition, the Brumadinho Municipal Department of the Environment has also imposed fines
totaling approximately US$28 (R$108 million), which the Company has also presented a defense.
U.S. Securities class action suits
Vale and certain of its current officers have been named as defendants in securities class action complaints in
Federal Courts in New York brought by holders of Vale’s securities under U.S. federal securities laws. The
complaints allege that Vale made false and misleading statements or omitted to make disclosures concerning the
risks and potential damage of a breach of the dam in the Córrego de Feijão mine. The plaintiffs have not specified
an amount of alleged damages in these complaints. Vale intends to defend these actions and mount a full
defense against these claims. As a consequence of the preliminary nature of these proceedings, it is not possible
to determine a range of outcomes or reliable estimates of the potential exposure at this time, and the amount of
provision that will be recognized in 2019 could not be estimated.
The Company is negotiating with insurers under its operational risk, general liability and engineering risk policies,
but these negotiations are still at a preliminary stage. Any payment of insurance proceeds will depend on the
coverage definitions under these policies and assessment of the amount of loss. In light of the uncertainties, no
indemnification to the Company was recognized in Vale’s financial statements.
F-24
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
4. Information by business segment and by geographic area
The Company operated the following reportable segments during this year: Ferrous Minerals, Coal, Base Metals
and Fertilizers (presented as discontinued operations). The segments are aligned with products and reflect the
structure used by Management to evaluate Company’s performance. The responsible bodies for making
operational decisions, allocating resources and evaluating performance are the Executive Boards and the Board
of Directors. The performance of the operating segments is assessed based on a measure of adjusted EBITDA.
The information presented to the Executive Board on the performance of each segment is derived from the
accounting records, adjusted for reallocations between segments.
The main activities of the operating segments are as follows:
Ferrous minerals—comprise of the production and extraction of iron ore, iron ore pellets, manganese,
ferroalloys, other ferrous products and its logistic services.
Coal—comprise of the production and extraction of metallurgical and thermal coal and its logistic services.
Base metals—include the production and extraction of nickel and its by-products (copper, gold, silver, cobalt,
precious metals and others) and copper, as well as their by-products (gold and silver).
Fertilizers (Discontinued operations)—include the production of potash, phosphate, nitrogen and other fertilizer
products (note 14).
a) Adjusted EBITDA
The definition of adjusted EBITDA for the Company is the operating income or loss plus dividends received and
interest from associates and joint ventures, and excluding the amounts charged as (i) depreciation, depletion and
amortization and (ii) special events (note 4b).
The Company allocate in “Others” the sales and expenses of other products, services, research and
development, investments in joint ventures and associates of other business and unallocated corporate
expenses.
F-25
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
4. Information by business segment and by geographic area (Continued)
In 2018, the Company has allocated general and corporate expenses to “Others” as these are not directly related
to the performance of each business segment. The comparative periods were restated to reflect this change in
the allocation criteria.
Year ended December 31, 2018
Net
operating
revenue
Cost of goods
sold and
services
rendered
Selling,
administrative
and other
operating
expenses
Research
and
evaluation
Pre operating
and
operational
stoppage
Dividends
received and
interest from
associates and
joint ventures
Ferrous minerals
Iron ore .........................................................
Iron ore Pellets .............................................
Ferroalloys and manganese ........................
Other ferrous products and services ...........
Coal..............................................................
Base metals
Nickel and other products ............................
Copper .........................................................
Others ..........................................................
Total of continuing operations .................
Discontinued operations (Fertilizers) ......
Total .............................................................
20,354
6,651
454
474
27,933
1,643
4,610
2,093
6,703
296
36,575
121
36,696
(9,048)
(3,393)
(290)
(313)
(13,044)
(1,575)
(3,060)
(960)
(4,020)
(263)
(18,902)
(120)
(19,022)
(76)
(11)
(3)
(4)
(94)
(9)
(47)
(4)
(51)
(752)
(906)
(4)
(910)
(110)
(26)
(1)
(1)
(138)
(21)
(39)
(18)
(57)
(157)
(373)
–
(373)
(115)
(19)
–
(1)
(135)
–
(33)
–
(33)
(21)
(189)
–
(189)
28
154
–
7
189
143
–
–
–
56
388
–
388
Adjusted
EBITDA
11,033
3,356
160
162
14,711
181
1,431
1,111
2,542
(841)
(16,593)
(3)
(16,590)
F-26
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
4. Information by business segment and by geographic area (Continued)
Net
operating
revenue
Cost of goods
sold and
services
rendered
Selling,
administrative
and other
operating
expenses
Research
and
evaluation
Pre operating
and operational
stoppage
Dividends
received and
interest from
associates and
joint ventures
Adjusted
EBITDA
Year ended December 31, 2017
Ferrous minerals
Iron ore ...................................................
Iron ore Pellets .......................................
Ferroalloys and manganese ..................
Other ferrous products and services .....
Coal........................................................
Base metals
Nickel and other products ......................
Copper ...................................................
Others ....................................................
Total of continuing operations ...........
Discontinued operations
(Fertilizers) .......................................
Total .......................................................
18,524
5,653
469
483
25,129
1,567
4,667
2,204
6,871
400
33,967
1,746
35,713
(7,950)
(2,876)
(278)
(306)
(11,410)
(1,354)
(3,437)
(979)
(4,416)
(375)
(17,555)
(1,606)
(19,161)
11
(9)
(8)
11
5
(12)
(47)
(15)
(62)
(791)
(860)
(102)
(962)
(88)
(19)
–
(2)
(109)
(14)
(49)
(13)
(62)
(155)
(340)
(12)
(352)
(181)
(7)
(4)
–
(192)
(4)
(75)
–
(75)
(9)
(280)
(25)
(305)
30
81
–
19
130
179
–
–
–
97
406
3
409
10,346
2,823
179
205
13,553
362
1,059
1,197
2,256
(833)
15,338
4
15,342
F-27
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
4. Information by business segment and by geographic area (Continued)
Net
operating
revenue
Cost of goods
sold and
services
rendered
Selling,
administrative
and other
operating
expenses
Research
and
evaluation
Pre operating
and operational
stoppage
Year ended December 31, 2016
Dividends
received and
interest from
associates and
joint ventures
Adjusted
EBITDA
Ferrous minerals
Iron ore ................................................... 15,784
3,827
Iron ore Pellets .......................................
302
Ferroalloys and manganese ..................
Other ferrous products and
services .............................................
Coal........................................................
Base metals
Nickel and other products .....................
Copper ..................................................
Other base metals products ..................
Others ...................................................
Total of continuing operations ..........
438
20,351
839
4,472
1,667
–
6,139
159
27,488
Discontinued operations
(Fertilizers) ......................................
Total ......................................................
1,875
29,363
(6,622)
(2,002)
(231)
(269)
(9,124)
(872)
(3,204)
(924)
–
(4,128)
(259)
(14,383)
(1,545)
(15,928)
(248)
(35)
(1)
(4)
(288)
63
1
(16)
150
135
(573)
(663)
(87)
(750)
(91)
(13)
–
(2)
(106)
(15)
(78)
(5)
–
(83)
(116)
(320)
(22)
(342)
(150)
(22)
(11)
(4)
(187)
(41)
(114)
–
–
(114)
(1)
(343)
(16)
(359)
10
103
–
–
113
–
4
–
–
4
76
193
4
197
8,683
1,858
59
159
10,759
(26)
1,081
722
150
1,953
(714)
11,972
209
12,181
Year ended December 31
2016
5,203
3,487
2,781
(1,843)
1,104
1,240
11,972
2017
6,334
3,708
1,495
3,019
488
294
15,338
2018
6,988
3,351
(172)
4,957
570
899
16,593
Adjusted EBITDA is reconciled to net income (loss) as follows:
From continuing operations
Net income from continuing operations ...............................................................................................................................
Depreciation, depletion and amortization ..................................................................................................................................
Income taxes ..............................................................................................................................................................................
Financial results, net ..................................................................................................................................................................
Equity results and other results in associates and joint ventures, net of dividends received ...................................................
Special events (note 4b) ............................................................................................................................................................
Adjusted EBITDA from continuing operations .....................................................................................................................
F-28
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
4. Information by business segment and by geographic area (Continued)
From discontinued operations
Loss from discontinued operations ............................................................................................................................................
Depreciation, depletion and amortization ........................................................................................................................................
Income taxes ....................................................................................................................................................................................
Financial results, net ........................................................................................................................................................................
Equity results in associates and joint ventures, net of dividends received .....................................................................................
Impairment of non-current assets ....................................................................................................................................................
Adjusted EBITDA from discontinued operations .......................................................................................................................
b) Special events occurred during the year
Year ended December 31
2016
(1,227)
347
(630)
(20)
1
1,738
209
2017
(813)
1
(102)
28
5
885
4
2018
(92)
–
(40)
5
–
124
(3)
Special events are gains or losses recognized in the Company’s operating results that are not related to the
performance of the business segments. The Company excludes special events from adjusted EBITDA to keep the
segment performance analysis comparable with prior periods.
The special events identified by the Company are as follows:
Result in disposal of assets (note 19) .................................................................................................................................................
Nacala Logistic Corridor (note 16) ......................................................................................................................................................
Impairment and onerous contracts (note 20) .....................................................................................................................................
Total ....................................................................................................................................................................................................
c) Assets by segment
Year ended December 31
2016
(66)
–
(1,174)
(1,240)
2017
(481)
458
(271)
(294)
2018
(322)
–
(577)
(899)
Ferrous minerals ....................................
Coal ........................................................
Base metals ...........................................
Others ....................................................
Total .......................................................
Product
inventory
2,210
119
1,147
11
3,487
Investments in
associates and
joint ventures
1,814
317
14
1,080
3,225
December 31, 2018
Property, plant
and equipment
and intangible(i)
31,377
1,589
21,295
2,086
56,347
Product
inventory
1,770
82
1,009
6
2,867
Investments in
associates and
joint ventures
1,922
317
13
1,316
3,568
December 31, 2017
Property, plant
and equipment
and intangible(i)
36,103
1,719
23,603
1,946
63,371
F-29
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
4. Information by business segment and by geographic area (Continued)
Ferrous minerals ...............................................
Coal ..................................................................
Base metals .....................................................
Others ..............................................................
Total ................................................................
Capital expenditures(ii)
Project
Sustaining
execution
capital
823
1,569
24
132
34
1,189
7
6
888
2,896
2018
Depreciation,
depletion and
amortization
1,672
252
1,351
76
3,351
Capital expenditures(ii)
Project
Sustaining
execution
capital
1,485
1,194
45
73
50
960
20
4
1,600
2,231
2017
Depreciation,
depletion and
amortization
1,709
296
1,590
113
3,708
Year ended December 31
2016
Depreciation,
depletion and
amortization
1,533
185
1,636
133
3,487
Capital expenditures(ii)
Project
Sustaining
execution
capital
2,355
891
463
149
12
1,045
33
3
2,863
2,088
(i)
Goodwill is allocated mainly to ferrous minerals and base metals segments in the amount of US$1,841
and US$1,812 in December 31, 2018 and US$2,157 and US$1,953 in December 31, 2017, respectively.
(ii)
Cash outflows.
d) Investment in associates and joint ventures, intangible and property, plant and equipment by
geographic area
Brazil .....................................................
Canada ..................................................
Americas, except Brazil and Canada ...
Europe ...................................................
Indonesia ...............................................
Asia, except Indonesia ..........................
Australia ................................................
New Caledonia ......................................
Mozambique..........................................
Oman ....................................................
Other regions ........................................
Total ......................................................
Investments in
associates and
joint ventures
2,604
–
247
–
–
374
–
–
–
–
–
3,225
December 31, 2018
Property,
plant and
equipment
29,226
9,905
–
366
2,776
1,025
–
2,796
1,459
829
3
48,385
Total
37,705
11,861
247
366
2,777
1,399
–
2,796
1,589
829
3
59,572
Intangible
5,875
1,956
–
–
1
–
–
–
130
–
–
7,962
Investments in
associates and
joint ventures
2,993
–
200
–
–
375
–
–
–
–
–
3,568
December 31, 2017
Property,
plant and
equipment
34,209
10,967
–
394
2,787
1,100
45
2,965
1,532
868
11
54,878
Total
43,433
13,085
200
394
2,787
1,475
45
2,965
1,675
869
11
66,939
Intangible
6,231
2,118
–
–
–
–
–
–
143
1
–
8,493
F-30
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
4. Information by business segment and by geographic area (Continued)
e) Net operating revenue by geographic area
Americas, except United States and Brazil ..........................................................
United States of America ......................................................................................
Germany ...............................................................................................................
Europe, except Germany ......................................................................................
Middle East/Africa/Oceania ..................................................................................
Japan ....................................................................................................................
China .....................................................................................................................
Asia, except Japan and China ..............................................................................
Brazil .....................................................................................................................
Net operating revenue ........................................................................................
Americas, except United States and Brazil ..........................................................
United States of America ......................................................................................
Germany ...............................................................................................................
Europe, except Germany ......................................................................................
Middle East/Africa/Oceania ..................................................................................
Japan ....................................................................................................................
China .....................................................................................................................
Asia, except Japan and China ..............................................................................
Brazil .....................................................................................................................
Net operating revenue ........................................................................................
Americas, except United States and Brazil ..........................................................
United States of America ......................................................................................
Germany ...............................................................................................................
Europe, except Germany ......................................................................................
Middle East/Africa/Oceania ..................................................................................
Japan ....................................................................................................................
China .....................................................................................................................
Asia, except Japan and China ..............................................................................
Brazil .....................................................................................................................
Net operating revenue ........................................................................................
Ferrous
minerals
820
388
1,130
2,218
2,562
2,072
14,381
1,798
2,564
27,933
Ferrous
minerals
593
355
1,097
1,721
1,768
1,927
13,442
1,332
2,894
25,129
Ferrous
minerals
334
232
1,077
1,482
1,252
1,292
11,985
912
1,785
20,351
Coal
–
–
–
436
151
163
–
767
126
1,643
Coal
–
–
–
396
171
130
–
711
159
1,567
Coal
20
–
–
218
95
121
63
305
17
839
Year ended December 31, 2018
Others
–
13
–
–
–
–
–
–
283
296
Total
1,478
1,353
1,653
4,454
2,738
2,743
15,242
3,666
3,248
36,575
Year ended December 31, 2017
Others
70
83
–
11
–
–
–
–
236
400
Total
1,672
1,310
1,389
4,113
1,952
2,456
14,018
3,582
3,475
33,967
Year ended December 31, 2016
Others
–
24
–
17
–
–
–
–
118
159
Total
1,526
1,005
1,379
3,269
1,367
1,741
12,747
2,390
2,064
27,488
Base
metals
658
952
523
1,800
25
508
861
1,101
275
6,703
Base
metals
1,009
872
292
1,985
13
399
576
1,539
186
6,871
Base
metals
1,172
749
302
1,552
20
328
699
1,173
144
6,139
F-31
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
4. Information by business segment and by geographic area (Continued)
Accounting policy
Vale recognizes revenue when the control of a good or service transfers to a customer of an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. Net revenue
excludes any applicable sales taxes.
Depending on the contract, sales revenue can be recognized when the product is available at the loading port,
loaded on the ship, at the port of discharge or at the customer’s warehouse. Service revenues are recognized in
the amount by which the services are rendered and accepted by the customer.
Generally, the contract payment terms consider the upfront payments or the use of credit letters. The payment
terms do not have a significant financing component and were not changed from previous years. In some cases,
the sale price is determined on a provisional basis at the date of sale and adjustments to the sale price
subsequently occur based on movements in the quoted market or contractual prices up to the date of final pricing.
Revenue is recognized based on the estimated fair value of the total consideration receivable, and the
provisionally priced sale mechanism embedded within these sale arrangements has the character of a derivative.
Accordingly, the fair value of the final sale price adjustment is re-estimated continuously and changes in fair value
are recognized as operational revenue in the income statement.
Commodity price risk—The commodity price risk arises from volatility of iron ore, nickel, copper and coal prices.
The Company is mostly exposed to the fluctuations in the iron ore and copper price. The selling price of these
products can be measured reliably at each period, since the price is quoted in an active market.
As of December 31, 2018, the Company had 27 million tons (2017: 33 million tons) provisionally priced based on
iron ore forward prices and 78 thousand tons (2017: 106 thousand tons) provisionally priced based on copper
forward prices. The final price of these sales will be determined during the first quarter of 2019. A 10% change in
the price of iron ore realized on the provisionally priced sales, with all other factors held constant, would increase
or reduce net income by US$185. A 10% change in the price of copper realized on the provisionally priced sales,
with all other factors held constant, would increase or reduce net income by US$56.
F-32
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
5. Costs and expenses by nature
a) Cost of goods sold and services rendered
Personnel .............................................................................................................................................................................
Materials and services .........................................................................................................................................................
Fuel oil and gas ....................................................................................................................................................................
Maintenance.........................................................................................................................................................................
Energy ..................................................................................................................................................................................
Acquisition of products .........................................................................................................................................................
Depreciation and depletion ..................................................................................................................................................
Freight ..................................................................................................................................................................................
Others ..................................................................................................................................................................................
Total .....................................................................................................................................................................................
Cost of goods sold ...............................................................................................................................................................
Cost of services rendered ....................................................................................................................................................
Total .....................................................................................................................................................................................
b) Selling and administrative expenses
Personnel .............................................................................................................................................................................
Services ...............................................................................................................................................................................
Depreciation and amortization .............................................................................................................................................
Others ..................................................................................................................................................................................
Total .....................................................................................................................................................................................
c) Other operating expenses, net
Provision for litigation ...........................................................................................................................................................
Profit sharing program .........................................................................................................................................................
Others ..................................................................................................................................................................................
Total .....................................................................................................................................................................................
2018
2,278
3,957
1,538
2,807
906
513
3,207
4,306
2,597
22,109
21,526
583
22,109
Year ended December 31
2016
2,087
3,108
1,233
2,747
694
511
3,267
2,509
1,494
17,650
2017
2,295
3,814
1,313
3,096
963
543
3,484
3,346
2,185
21,039
20,426
613
21,039
17,148
502
17,650
Year ended December 31
2016
209
72
120
106
507
2017
234
77
91
129
531
2018
212
92
62
157
523
Year ended December 31
2016
137
76
54
267
2017
169
149
102
420
2018
185
187
73
445
F-33
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
6. Financial result
Financial income
Short-term investments .....................................................................................................................
Others ...............................................................................................................................................
Financial expenses
Loans and borrowings gross interest ................................................................................................
Capitalized loans and borrowing costs .............................................................................................
Participative stockholders’ debentures .............................................................................................
Interest on REFIS .............................................................................................................................
Others ...............................................................................................................................................
Other financial items
Net foreign exchange gains (losses) on loans and borrowings .......................................................
Derivative financial instruments ........................................................................................................
Other net foreign exchange gains (losses) .......................................................................................
Net indexation losses ........................................................................................................................
Financial results, net ......................................................................................................................
a) Hedge in foreign operations
2018
177
246
423
(1,185)
194
(550)
(202)
(602)
(2,345)
(2,666)
(266)
419
(522)
(3,035)
(4,957)
Year ended December 31
2016
2017
176
302
478
(1,697)
370
(625)
(397)
(924)
(3,273)
(249)
454
(218)
(211)
(224)
(3,019)
92
78
170
(1,768)
653
(417)
(514)
(631)
(2,677)
3,314
1,256
(62)
(158)
4,350
1,843
As at January 1, 2017, Vale S.A., which the functional currency is Reais, designated its debts in US$ and Euro,
as an instrument in a hedge of its investment in foreign operations (Vale International S.A. and Vale International
Holding GmbH; hedging objects) to mitigate part of the foreign exchange risk on financial statements. Further
details are disclosed in note 25.
b) Net investment in the foreign operation
From January 1, 2019 (subsequent event), the Company will consider certain long-term loans payable to Vale
International S.A., for which settlement is neither planned nor likely to occur in the foreseeable future, as part of
its net investment in the foreign operation. The foreign exchange differences arising on the monetary item,
forming part of the net investment in the foreign operation, will be recognized in other comprehensive income and
reclassified from stockholders’ equity to income statement on disposal or partial disposal of the net investment.
Therefore, upon adoption the effect of net foreign exchange gains or losses in the income statement is expected
to reduce.
Accounting policy
Transactions in foreign currencies—Transactions in foreign currencies are translated into the functional
currency using the exchange rate prevailing at the transaction date. The foreign exchange gains and losses
resulting from the translation at the exchange rates prevailing at the end of the year are recognized in the income
statement as “financial income or expense”. The exceptions are transactions related to
F-34
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
6. Financial result (Continued)
qualifying net investment hedges or items that are attributable to part of the net investment in a foreign operation,
for which gains and losses are recognized in the statement of comprehensive income.
7. Streaming transactions
Cobalt streaming
In June 2018, the Company entered into two different agreements, one with Wheaton Precious Metals Corp
(“Wheaton”) and the other with Cobalt 27 Capital Corp. (“Cobalt 27”), to sell a stream equivalent to 75% of the
cobalt extracted as a by-product from the Voisey’s Bay mine, in Canada, starting on January 1, 2021.
Furthermore, the Company restarted the Voisey’s Bay underground mine expansion project, which is going to
increase the expected useful life of Voisey’s Bay mine from 2023 to 2034. The first year of underground
production is expected to be 2021, when the current operations on the open pit mine begin to ramp down.
Upon completion of the transaction, the Company received an upfront payment of US$690 in cash, US$390 from
Wheaton and US$300 from Cobalt 27, which has been recorded as other non-current liabilities. Vale will receive
additional payments of 20%, on average, of the market reference price for cobalt, for each pound of finished
cobalt delivered.
Thus, from January 1, 2021 onwards, Wheaton and Cobalt 27 will be entitled to receive 42.4% and 32.6%,
respectively, of cobalt equivalent to the production from the Voisey’s Bay mine, while Vale remains exposed to
approximately 40% of the cobalt economic exposure, as Vale retains the rights to 25% of the future cobalt
production and will receive 20% additional payments for the cobalt stream. The estimated result of the sale of the
mineral rights is not expected to be significant and it will be accounted for once certain production thresholds have
been met at Voisey’s Bay mine.
Gold streaming
In August 2016, the Company made an amended to the gold transaction entered into to 2013 with Wheaton
Precious Metals Corp (“Wheaton”) to include in each contract an additional 25% of the gold extracted as
by-product over a lifetime of the Salobo copper mine. Hence, Wheaton holds the rights to 75% of the contained
gold in the copper concentrated from the Salobo mine and 70% of the gold extracted as a by-product of the
Sudbury nickel mines.
The transactions were bifurcated into two identifiable components (i) the sale of the mineral rights recognized in
the income statement under “Other operating income (expenses), net” and, (ii) the deferred revenue (liability)
related to the services for gold extraction on the portion in which Vale operates as an agent for Wheaton gold
extraction.
The Company recognized US$150 in the income statement for the year ended December 31, 2016, related to the
sale of mineral rights from the additional transaction in August 2016.
F-35
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
7. Streaming transactions (Continued)
Critical accounting estimates and judgments
Defining the gain on sale of mineral interest and the deferred revenue portion of the gold transaction requires the
use of critical accounting estimates as follows:
• Discount rates used to measure the present value of future inflows and outflows;
• Allocation of costs between nickel or copper and gold based on relative prices;
• Expected margin for the independent elements (sale of mineral rights and service for gold extraction)
based on Company’s best estimate.
8. Income taxes
a) Deferred income tax assets and liabilities
Taxes losses carryforward ................................................................................................................
Temporary differences:
Employee post retirement obligations .............................................................................................
Provision for litigation .......................................................................................................................
Timing differences arising on assets ...............................................................................................
Fair value of financial instruments ...................................................................................................
Allocated goodwill ............................................................................................................................
Others ..............................................................................................................................................
Total ......................................................................................................................................................
Assets ...................................................................................................................................................
Liabilities ...............................................................................................................................................
December 31, 2018
December 31, 2017
4,882
674
409
1,253
538
(2,328)
(52)
494
5,376
6,908
(1,532)
5,376
4,471
684
457
1,268
549
(2,433)
(77)
448
4,919
6,638
(1,719)
4,919
F-36
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
8. Income taxes (Continued)
Changes in deferred tax are as follows:
Balance at December 31, 2016 .......................................
Utilization of taxes losses carryforward .............................
Timing differences arising on assets .................................
Fair value of financial instruments .....................................
Allocated goodwill ..............................................................
Others ................................................................................
Effect in income statement .............................................
Transfers between asset and liabilities ..............................
Translation adjustment.......................................................
Other comprehensive income ............................................
Effect of discontinued operations
Effect in income statement ................................................
Balance at December 31, 2017 .......................................
Taxes losses carryforward .................................................
Timing differences arising on assets .................................
Fair value of financial instruments .....................................
Allocated goodwill ..............................................................
Others ................................................................................
Effect in income statement .............................................
Transfers between asset and liabilities ..............................
Translation adjustment.......................................................
Other comprehensive income ............................................
Effect of discontinued operations
Effect in income statement ................................................
Transfer to net assets held for sale ...................................
Balance at December 31, 2018 .......................................
Assets
7,343
(2,143)
103
388
–
897
(755)
40
(24)
(68)
102
6,638
665
152
147
–
(77)
887
(70)
(673)
123
14
(11)
6,908
Liabilities
1,700
–
–
–
(109)
(109)
40
75
13
–
1,719
–
–
(37)
(37)
(70)
(102)
22
–
–
1,532
Deferred taxes, net
5,643
(2,143)
103
388
109
897
(646)
–
(99)
(81)
102
4,919
665
152
147
37
(77)
924
–
(571)
101
14
(11)
5,376
The tax loss carryforward does not expire in the Brazilian jurisdiction and their compensation is limited to 30% of
the taxable income for the year. The local profits of subsidiaries abroad are also taxed in Brazil and there is no
restriction on their offset against tax losses generated previously by the foreign entity or by the Parent Company.
F-37
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
8. Income taxes (Continued)
b) Income tax reconciliation—Income statement
The total amount presented as income taxes in the income statement is reconciled to the statutory rate, as
follows:
Income before income taxes .........................................................................................................
Income taxes at statutory rates—34% ..........................................................................................
Adjustments that affect the basis of taxes:
Income tax benefit from interest on stockholders’ equity .................................................................
Tax incentives ...................................................................................................................................
Equity results.....................................................................................................................................
Additions (reversals) of tax loss carryforward(i) ...............................................................................
Unrecognized tax losses of the year ................................................................................................
Nondeductible effect of impairment ..................................................................................................
Others ...............................................................................................................................................
Income taxes ...................................................................................................................................
2018
6,816
(2,317)
873
576
104
1,510
(458)
(24)
(92)
172
Year ended December 31
2016
2017
7,984
7,829
(2,715)
(2,662)
728
372
35
99
(432)
(43)
408
(1,495)
87
344
107
(273)
(708)
(97)
474
(2,781)
(i)
In 2018, the Company recognized tax loss carryforward from tax losses of subsidiary abroad.
c) Tax incentives
In Brazil, Vale has tax incentives to partially reduce the income tax generated by the operations conducted in the
North and Northeast regions that includes iron ore, manganese, copper and nickel. The incentive is calculated
based on the taxable income of the incentive activity (tax operating income) and takes into account the allocation
of tax operating income into different incentives applicable to different tranches of production during the periods
specified for each product, usually 10 years. Most of our incentives are expected to expire up to 2024 and the last
recognized tax incentive will expire in 2027. An amount equal to that obtained with the tax saving must be
appropriated in retained earnings reserve account in stockholders’ equity, and cannot be distributed as dividends
to stockholders.
In addition to those incentives, the amount equivalent to 30% of the income tax due, can be reinvested in the
acquisition of new machinery and equipment, subject to subsequent approval by the regulatory agency
responsible, Superintendência de Desenvolvimento da Amazônia (“SUDAM”) and/or the Superintendência de
Desenvolvimento do Nordeste (“SUDENE”). The reinvestment subsidy is accounted in retained earnings reserve
account, which restricts the distribution as dividends to stockholders. This tax incentive will expire in 2023.
Vale is subject to the revision of income tax by local tax authorities in a range up to 10 years depending on
jurisdiction where the Company operates.
d) Income taxes—Settlement program (“REFIS”)
The balance mainly relates to REFIS to settle most of the claims related to the collection of income tax and social
contribution on equity gains of foreign subsidiaries and affiliates from 2003 to 2012. As
F-38
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
8. Income taxes (Continued)
December 31, 2018, the balance of US$4,349 (US$432 as current and US$3,917 as non-current) is due in 118
remaining monthly installments, bearing interest at the SELIC rate (Special System for Settlement and Custody),
while at December 31, 2017, the balance was US$5,375 (US$485 as current and US$4,890 as non-current).
As at December 31, 2018, the SELIC rate was 6.50% per annum (7.00% per annum at December 31, 2017).
Accounting policy
The recognition of income taxes as deferred taxes is based on temporary differences between carrying amount
and the tax basis of assets and liabilities as well as tax losses carryforwards. The deferred income tax assets and
liabilities are offset when there is a legally enforceable right on the same taxable entity.
The deferred tax assets arising from tax losses and temporary differences are not recognized when is not
probable that future taxable profit will be available against which temporary differences and/or tax losses can be
utilized.
Income taxes are recognized in the income statement, except for items recognized directly in stockholders’ equity.
The provision for income tax is calculated individually for each entity of the Company based on Brazilian tax rates,
on an accrual basis, by applying the differential between the nominal local tax rates (based on rules enacted in
the location of the entity) and the Brazilian tax rate.
Critical accounting estimates and judgments
Deferred tax assets arising from tax losses, negative social contribution basis and temporary differences are
registered taking into account the analysis of future performance, considering economic and financial projections,
prepared based on internal assumptions and macroeconomic environment, trade and tax scenarios that may be
subject to changes in the future. The assumptions of future profits are based on production and sales planning,
commodity prices, operational costs and planned capital costs.
F-39
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
9. Basic and diluted earnings per share
The basic and diluted earnings per share are presented below:
Net income (loss) attributable to Vale’s stockholders:
Net income from continuing operations ............................................................................................
Loss from discontinued operations ...................................................................................................
Net income .......................................................................................................................................
Thousands of shares
Weighted average number of shares outstanding—common shares ..............................................
Basic and diluted earnings per share from continuing operations:
Common share (US$) .......................................................................................................................
Basic and diluted loss per share from discontinued operations:
Common share (US$) .......................................................................................................................
Basic and diluted earnings per share:
Common share (US$) .......................................................................................................................
2018
6,952
(92)
6,860
Year ended December 31
2016
2017
6,313
(806)
5,507
5,211
(1,229)
3,982
5,182,445
5,197,432
5,197,432
1.34
(0.02)
1.32
1.21
(0.16)
1.05
1.00
(0.23)
0.77
The Company does not have potential outstanding shares or other instruments with dilutive effect on the earnings
per share.
10. Accounts receivable
Accounts receivable ....................................................................................................
Expected credit loss ....................................................................................................
Revenue related to the steel sector—% ...................................................................
Impairment of accounts receivable recorded in the income statement .......................
December 31, 2018
December 31, 2017
2,710
(62)
2,648
85.50%
2,660
(60)
2,600
82.90%
2018
(7)
Year ended December 31
2016
2017
(5)
(4)
There is no customer that individually represents over 10% of accounts receivable or revenues.
Accounting policy
Accounts receivable is the total amount due from sale of products and services rendered by the Company.
Accounts receivable consists of financial assets initially recognized at fair value and subsequently measured at
amortized cost, except for component of provisionally priced commodities sales that are subsequently measured
at fair value through profit or loss (“FVTPL”).
The portion of accounts receivables measured at amortized cost is subsequently measured using the effective
interest (“EIR”) method and it is subject to impairment. The Company has established a provision
F-40
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
10. Accounts receivable (Continued)
matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the
economic environment and by any financial guarantees related to these accounts receivables.
Commercial credit risk management—For the commercial credit exposure, which arises from sales to final
customers, the risk management area, in accordance with the current delegation level, approves or requests the
approval of credit risk limits for each counterparty.
Vale attributes an internal credit risk rating for each counterparty using its 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, risk mitigation strategies may be used to manage the Company`s credit
risk. The main credit risk mitigation strategies include non-recourse sale of receivables, insurance instruments,
letters of credit, corporate and bank guarantees, mortgages, among others.
Vale has a diversified accounts receivable portfolio from a geographical standpoint, with Asia, Europe and Brazil
the regions with more significant exposures. According to each region, different guarantees can be used to
enhance the credit quality of the receivables.
11. Inventories
Finished products ........................................................................................................
Work in progress .........................................................................................................
Consumable inventory .................................................................................................
Total ...........................................................................................................................
Reversal (provision) for net realizable value ..............................................................
December 31, 2018
2,797
690
956
4,443
December 31, 2017
2,219
648
1,059
3,926
2018
4
Year ended December 31
2016
2017
(199)
(86)
Finished and work in progress product inventory by segments is presented in note 4(c).
Accounting policy
Inventories are stated at the lower of cost 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. At each statement of financial position date, inventories are assessed for impairment and a provision for
losses on obsolete or slow-moving inventory may be recognized. The write-downs and reversals are included in
“Cost of goods sold and services rendered”.
F-41
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
12. Recoverable taxes
Recoverable taxes are presented net of provisions for losses on tax credits.
Value-added tax ....................................................................................................................................
Brazilian federal contributions ...............................................................................................................
Others ...................................................................................................................................................
Total ......................................................................................................................................................
Current ..................................................................................................................................................
Non-current ...........................................................................................................................................
Total ......................................................................................................................................................
December 31, 2018
813
808
13
1,634
883
751
1,634
December 31, 2017
887
880
43
1,810
1,172
638
1,810
13. Other financial assets and liabilities
Other financial assets
Financial investments .....................................
Loans ..............................................................
Derivative financial instruments (note 25) ......
Investments in equity securities (note 14) ......
Related parties—Loans (note 31) ...................
Other financial liabilities
Derivative financial instruments (note 25) ......
Related parties (note 31) ................................
Participative stockholders’ debentures ...........
December 31, 2018
Current
December 31, 2017
December 31, 2018
Non-Current
December 31, 2017
32
–
39
–
364
435
470
1,134
–
1,604
18
–
106
–
1,898
2,022
104
882
–
986
–
153
392
987
1,612
3,144
344
960
1,407
2,711
–
151
453
–
2,628
3,232
686
975
1,233
2,894
Participative stockholders’ debentures
At the time of its privatization in 1997, the Company issued debentures to then-existing stockholders, including
the Brazilian Government. The debentures’ terms were set to ensure that pre-privatization stockholders would
participate in potential future benefits that might be obtained from exploration of mineral resources.
A total of 388,559,056 debentures were issued with a par value of R$0.01 (one cent of Brazilian Real) and are
inflation-indexed to the General Market Price Index (“IGP-M”), as set forth in the Issue Deed. The Company paid
as remuneration the amount of US$148 and US$147, respectively, for the year ended December 31, 2018 and
2017.
F-42
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
14. Non-current assets and liabilities held for sale and discontinued operations
Assets
Accounts receivable .................................................................................................................................................................................
Inventories ................................................................................................................................................................................................
Other current assets ................................................................................................................................................................................
Investments in associates and joint ventures ..........................................................................................................................................
Property, plant and equipment and Intangible .........................................................................................................................................
Other non-current assets .........................................................................................................................................................................
Total assets ............................................................................................................................................................................................
Liabilities
Suppliers and contractors ........................................................................................................................................................................
Other current liabilities .............................................................................................................................................................................
Other non-current liabilities ......................................................................................................................................................................
Total liabilities ........................................................................................................................................................................................
Net non-current assets held for sale ...................................................................................................................................................
a) Fertilizers (discontinued operations)
December 31, 2017
Fertilizers
90
460
110
83
2,149
695
3,587
324
215
640
1,179
2,408
In January 2018, the Company and The Mosaic Company (“Mosaic”) concluded the transaction entered in
December 2016, to sell (i) the phosphate assets located in Brazil, except for those located in Cubatão, Brazil;
(ii) the control of Compañia Minera Miski Mayo S.A.C., in Peru; (iii) the potassium assets located in Brazil; and
(iv) the potash projects in Canada. The Company received US$1,080 in cash and 34.2 million common shares,
corresponding to 8.9% of Mosaic’s outstanding common shares after the issuance of these shares totaling
US$899, based on the Mosaic’s quotation at closing date of the transaction and a loss of US$55 was recognized
in the income statement from discontinued operations.
Mosaic’s shares received were accounted for as a financial investment measured at fair value through other
comprehensive income. The Company recognized a gain of US$90 (US$60, net of tax) for the year ended
December 31, 2018, in other comprehensive income as “Fair value adjustment to investment in equity securities”.
b) Cubatão (part of the fertilizer segment)
In November 2017, the Company entered into an agreement with Yara International ASA to sell its assets located
in Cubatão, Brazil. In May 2018, the transaction was concluded and the Company received US$255 in cash and a
loss of US$69 was recognized in the income statement from discontinued operations.
F-43
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
14. Non-current assets and liabilities held for sale and discontinued operations (Continued)
The results for the years and the cash flows of discontinued operations are presented as follows:
Income statement
Discontinued operations
Net operating revenue ..............................................................................................................
Cost of goods sold and services rendered ...............................................................................
Operating expenses ..................................................................................................................
Impairment of non-current assets .............................................................................................
Operating loss .........................................................................................................................
Financial Results, net................................................................................................................
Equity results in associates and joint ventures .........................................................................
Loss before income taxes ......................................................................................................
Income taxes .............................................................................................................................
Loss from discontinued operations .....................................................................................
Net income (loss) attributable to noncontrolling interests ........................................................
Loss attributable to Vale’s stockholders .............................................................................
Statement of cash flow
Discontinued operations
Cash flow from operating activities
Loss before income taxes .........................................................................................................
Adjustments:
Equity results in associates and joint ventures .........................................................................
Depreciation, amortization and depletion .................................................................................
Impairment of non-current assets .............................................................................................
Others .......................................................................................................................................
Increase (decrease) in assets and liabilities .............................................................................
Net cash provided by (used in) operating activities ...........................................................
Cash flow from investing activities
Additions to property, plant and equipment ..............................................................................
Others .......................................................................................................................................
Net cash used in investing activities ....................................................................................
Cash flow from financing activities
Loans and borrowings
Repayments ..............................................................................................................................
Net cash used in financing activities ....................................................................................
Net cash used in discontinued operations ..........................................................................
2018
121
(120)
(4)
(124)
(127)
(5)
–
(132)
40
(92)
–
(92)
2018
(132)
–
–
124
5
(34)
(37)
(9)
–
(9)
–
–
(46)
Year ended December 31
2016
2017
1,746
(1,605)
(141)
(885)
(885)
(28)
(2)
(915)
102
(813)
(7)
(806)
1,875
(1,887)
(130)
(1,738)
(1,880)
20
3
(1,857)
630
(1,227)
2
(1,229)
Year ended December 31
2016
2017
(915)
(1,857)
2
1
885
–
114
87
(305)
–
(305)
(34)
(34)
(252)
(3)
347
1,738
(20)
(25)
180
(292)
11
(281)
(17)
(17)
(118)
F-44
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
14. Non-current assets and liabilities held for sale and discontinued operations (Continued)
Accounting policy
A non-current asset is classified as held for sale if its carrying amount will be recovered principally through a sale
transaction rather than through continuing use.
The criteria for recognition of the non-current assets as held for sale are only considered satisfied when the sale
is highly probable and the asset (or group of assets) is available for immediate sale in its present condition.
The Company measures the assets held for sale (or group of assets) at the lower of its carrying amount and fair
value less costs to sell. If the carrying amount exceeds the fair value less costs to sell an impairment loss is
recognized against income statement. Any subsequent reversal of impairment is recognized only to the extent of
the loss previously recognized.
The assets and liabilities classified as held for sale are presented separately in the statement of financial position.
The classification as a discontinued operation occurs through disposal, or when the operation meets the criteria to
be classified as held for sale if this occurs earlier. A discontinued operation is a component of a Company
business comprising cash flows and operations that may be clearly distinct from the rest of the Company and that
represents an important separate line of business or geographical area of operations.
The result of discontinued operations is presented in a single amount in the income statement, including the
results after income tax of these operations less any impairment loss. Cash flows attributable to operating,
investing and financing activities of discontinued operations are disclosed in a separate note.
When an operation is classified as a discontinued operation, the income statements of the prior periods are
restated as if the operation had been discontinued since the beginning of the comparative period.
Any noncontrolling interest relating to a group disposal held for sale is presented in the stockholders’ equity and is
not reclassified in the statement of financial position.
F-45
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
15. Subsidiaries
The significant consolidated entities in each business segment are as follows:
Location
activity/Business % Ownership
% Voting capital
Main
% Noncontrolling
interest
Direct and indirect subsidiaries
Companhia Portuária da Baía de
Sepetiba ...............................................
Mineração Corumbaense Reunida S.A. ...
Minerações Brasileiras Reunidas S.A.
(“MBR”) ................................................
Salobo Metais S.A. ...................................
PT Vale Indonesia .....................................
Vale International Holdings GmbH ...........
Vale Canada Limited.................................
Vale International S.A. ..............................
Vale Malaysia Minerals Sdn. Bhd. ............
Vale Manganês S.A. .................................
Vale Moçambique S.A. .............................
Vale Nouvelle Caledonie S.A.S. ...............
Vale Oman Distribution Center LLC .........
Vale Oman Pelletizing Company LLC ......
Brazil
Brazil
Iron ore
Iron ore and manganese
Brazil
Brazil
Indonesia
Austria
Canada
Switzerland
Malaysia
Brazil
Mozambique
New Caledonia
Oman
Oman
Iron ore
Copper
Nickel
Holding and research
Nickel
Trading and holding
Iron ore
Manganese and ferroalloys
Coal
Nickel
Iron ore and pelletizing
Pelletizing
100.0%
100.0%
62.5%
100.0%
59.2%
100.0%
100.0%
100.0%
100.0%
100.0%
80.7%
95.0%
100.0%
70.0%
100.0%
100.0%
98.3%
100.0%
59.2%
100.0%
100.0%
100.0%
100.0%
100.0%
80.7%
95.0%
100.0%
70.0%
0.0%
0.0%
37.5%
0.0%
40.8%
0.0%
0.0%
0.0%
0.0%
0.0%
19.3%
5.0%
0.0%
30.0%
As explained in note 14, the Fertilizer Segment is presented as discontinued operations, which includes the
following subsidiaries:
Direct and indirect subsidiaries
Compañia Minera Miski Mayo S.A.C. ...............
Vale Fertilizantes S.A........................................
Vale Cubatão Fertilizantes Ltda........................
Location
Peru
Brazil
Brazil
Accounting policy
Main
activity/Business
% Ownership
% Voting capital
% Noncontrolling
interest
Fertilizers
Fertilizers
Fertilizers
40.0%
100.0%
100.0%
51.0%
100.0%
100.0%
60.0%
0.0%
0.0%
Consolidation and investments in associates and joint ventures—The financial statements reflect the assets,
liabilities and transactions of the Parent Company and its direct and indirect controlled entities (“subsidiaries”).
The subsidiaries are consolidated when the Company is exposed or has rights to variable returns from its
involvement with the investee and has the ability to direct the significant activities of the investee. Intercompany
balances and transactions, which include unrealized profits, are eliminated.
The entities over which the Company has joint control (“joint ventures”) or significant influence, but not control
(“associates”) are presented in note 16. Those investments are accounted for using the equity method. For
interests in joint arrangements not classified as joint ventures (“joint operations”), the Company recognizes its
share of assets, liabilities and net income.
Unrealized gains on downstream or upstream transactions between the Company and its associates and joint
ventures are eliminated proportionately to the Company’s interest.
F-46
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
15. Subsidiaries (Continued)
Investments held by other investors in Vale’s subsidiaries are classified as noncontrolling interests (“NCI”). The
Company treats transactions with noncontrolling interests as transactions with equity owners of the Company as
described in note 17.
For purchases or disposals from noncontrolling interests, the difference between the consideration paid and the
proportion acquired of the carrying value of net assets of the subsidiary is directly recorded in stockholders’ equity
in “Results from operation with noncontrolling interest”.
Translation from the functional currency to the presentation currency—The income statement and
statement of financial position of the subsidiaries for which the functional currency is different from the
presentation currency are translated into the presentation currency as follows: (i) assets, liabilities and
stockholders’ equity, except for the components described in item (iii) are translated at the closing rate at the
statement of financial position date; (ii) income and expenses are translated at the average exchange rates,
except for specific significant transactions that are translated at the rate at the transaction date and; (iii) capital,
capital reserves and treasury stock are translated at the rate at each transaction date. All resulting exchange
differences are recognized directly in the comprehensive income as “translation adjustments”. When a foreign
operation is disposed of or sold, foreign exchange differences that were recognized in equity are recognized in
the income of statement.
16. Investments in associates and joint ventures
The significant non-consolidated entities of the Company are as follows:
Joint ventures
Aliança Geração de Energia S.A. ...............................
Companhia Coreano-Brasileira de Pelotização .........
Companhia Hispano-Brasileira de Pelotização ..........
Companhia Ítalo-Brasileira de Pelotização.................
Companhia Nipo-Brasileira de Pelotização ................
Companhia Siderúrgica do Pecém (“CSP”) ...............
MRS Logística S.A. .....................................................
Nacala Corridor Holding Netherlands B.V. .................
Samarco Mineração S.A. ............................................
Direct and indirect associates
Henan Longyu Energy Resources Co., Ltd. ...............
VLI S.A. .......................................................................
Location
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Netherlands
Brazil
China
Brazil
Main
activity/Business
% Ownership
% Voting
capital
% Noncontrolling
interest
Energy
Pelletizing
Pelletizing
Pelletizing
Pelletizing
Steel
Logistics
Coal
Pelletizing
Coal
Logistics
55.0%
50.0%
50.9%
50.9%
51.0%
50.0%
48.2%
50.0%
50.0%
25.0%
37.6%
55.0%
50.0%
51.0%
51.0%
51.1%
50.0%
46.8%
50.0%
50.0%
25.0%
37.6%
45.0%
50.0%
49.1%
49.1%
49.0%
50.0%
51.8%
50.0%
50.0%
75.0%
62.4%
F-47
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
16. Investments in associates and joint ventures (Continued)
a) Changes during the year
Changes in investments in associates and joint ventures as follows:
Balance at January 1st, ..........................................
Additions(i) ................................................................
Translation adjustment..............................................
Equity results in income statement ...........................
Equity results in statement of comprehensive
income .................................................................
Dividends declared ...................................................
Transfer from non-current assets held for sale(ii) ....
Others .......................................................................
Balance at December 31, .......................................
Associates
1,441
—
(184)
44
—
—
87
4
1,392
2018
2017
Joint
ventures
2,127
23
(272)
261
—
(291)
—
(15)
1,833
Total
3,568
23
(456)
305
—
(291)
87
(11)
3,225
Associates
1,437
1
(2)
57
—
(57)
—
5
1,441
Joint
ventures
2,259
92
(28)
41
(152)
(226)
—
141
2,127
Total
3,696
93
(30)
98
(152)
(283)
—
146
3,568
(i) Refers to the Coal segment and others in the amounts of US$11 and US$12, respectively, on December 31, 2018 and US$75 and US$18, respectively, on
December 31, 2017.
(ii) Refers to 18% interest held by Vale Fertilizantes at Ultrafertil which was transferred to Vale as part of the settlement in January 2018 (note 14).
The investments by segments are presented in note 4(c).
b) Acquisitions and divestitures
2018
Ferrous Resources Limited—In December 2018, the Company entered into an agreement to purchase the
control of Ferrous Resources Limited, a company that currently owns and operates iron ore mines closely located
to Company’s operations in Minas Gerais, Brazil. The purchase price is US$550 and the conclusion of transaction
is expected to occur in 2019, subject to conditions precedent.
New Steel—In January 2019 (subsequent event), the Company acquired for the total consideration of US$500
the control of New Steel Global NV, a company that develops innovative iron ore beneficiation technologies and
currently owns patents of dry processing concentration in 56 countries.
2017
Nacala Logistic Corridor—In March 2017, the Company concluded the transaction with Mitsui & Co., Ltd.
(“Mitsui”) to transfer 50% of its stake of 66.7% in Nacala Logistic Corridor, which comprises entities that holds
railroads and port concessions located in Mozambique and Malawi, and sell 15% participation in the holding entity
of Vale Moçambique, which holds the Moatize Coal Project, for the amount of US$690.
F-48
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
16. Investments in associates and joint ventures (Continued)
After the completion of the transaction, the Company (i) holds 81% of Vale Moçambique and retains the control of
the Moatize Coal Project and (ii) shares control of the Nacala Logistic Corridor structure (Nacala BV), with Mitsui.
As a consequence of sharing control of Nacala BV, the Company:
(i) derecognized the assets and liabilities classified as held for sale in the total amount of US$4,144, from which
US$4,063 refers to property, plant and equipment and intangibles;
(ii) derecognized US$14 related to cash and cash equivalents;
(iii) recognized a gain of US$447 in the income statement related to the sale and the re-measurement at fair
value, of its remaining interest at Nacala BV based on the consideration received;
(iv) reclassified the gain related to the cumulative translation adjustments on to income statements in the
amount of US$11;
The result of the transaction regarding the assets from Nacala’s logistic corridor was recognized in the income
statement as “Impairment and disposal of non-current assets”.
The results of the transaction with the coal holding entity was recognized in “Results from operation with
noncontrolling interest” in the amount of US$105, directly in Stockholders’ Equity.
The consideration received was recognized in the statement of cash flows in “Proceeds from disposal of assets
and investments” in the amount of US$435 and “Transactions with noncontrolling stockholders” in the amount of
US$255.
After the conclusion of the transaction, Vale has outstanding loan balances with the related parties Nacala BV and
Pangea Emirates Ltd due to the deconsolidation of Nacala Logistic Corridor as disclosed in note 31.
2016
Thyssenkrupp Companhia Siderúrgica do Atlântico Ltd (“CSA”)—In April 2016, the Company sold 100% of
its interest at CSA (26.87%) for a non-significant amount. The transaction resulted in a loss of US$75 due to
recycling the “Cumulative translation adjustments” recognized in the income statement as “Equity results and
other results in associates and joint ventures”.
F-49
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
16. Investments in associates and joint ventures (Continued)
% ownership
% voting
capital
Investments in associates and joint ventures
December 31,
2017
December 31,
2018
Associates and joint ventures
Ferrous minerals
Baovale Mineração S.A. ...............................................................
Companhia Coreano-Brasileira de Pelotização ............................
Companhia Hispano-Brasileira de Pelotização(i) .........................
Companhia Ítalo-Brasileira de Pelotização(i) ................................
Companhia Nipo-Brasileira de Pelotização(i) ...............................
MRS Logística S.A. ......................................................................
VLI S.A. ........................................................................................
Zhuhai YPM Pellet Co. .................................................................
50.00
50.00
50.89
50.90
51.00
48.16
37.60
25.00
50.00
50.00
51.00
51.00
51.11
46.75
37.60
25.00
Coal
Henan Longyu Energy Resources Co., Ltd. .................................
25.00
25.00
Base metals
Korea Nickel Corp. .......................................................................
Others ...........................................................................................
Others
Aliança Geração de Energia S.A.(i) ..............................................
Aliança Norte Energia Participações S.A.(i) .................................
California Steel Industries, Inc. .....................................................
Companhia Siderúrgica do Pecém ...............................................
Mineração Rio do Norte S.A. ........................................................
Others ...........................................................................................
Total .............................................................................................
25.00
25.00
55.00
51.00
50.00
50.00
40.00
55.00
51.00
50.00
50.00
40.00
23
104
83
81
148
496
857
22
1,814
317
317
14
–
14
486
162
247
–
93
92
1,080
3,225
26
89
82
80
137
517
968
23
1,922
317
317
13
–
13
571
160
200
262
101
22
1,316
3,568
Equity results in the income
statement
Year ended December 31
2016
2017
Dividends received
Year ended December 31
2017 2016
2018
7
50
41
40
93
69
29
–
329
20
20
1
–
1
27
(2)
42
(264)
13
(68)
(252)
98
9
17
15
16
29
57
36
–
179
(4)
(4)
(1)
(3)
(4)
46
(6)
33
25
48
(8)
138
309
1
32
23
32
67
27
7
–
189
–
–
–
–
–
25
–
31
–
–
–
56
245
1
19
16
17
29
29
19
–
130
–
–
–
–
–
29
–
27
–
41
–
97
227
–
26
27
9
41
10
–
–
113
–
–
4
–
4
39
–
4
–
32
1
76
193
2018
5
69
55
60
126
72
30
–
417
16
16
1
–
1
25
15
77
(243)
2
(5)
(129)
305
(i)
Although the Company held a majority of the voting capital, the entities are accounted under equity method due to the stockholders’ agreement where relevant decisions are shared with other parties.
F-50
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
16. Investments in associates and joint ventures (Continued)
c) Summarized financial information
The summarized financial information about relevant associates and joint-ventures for the Company are as
follows:
Current assets ..............................................................
Non-current assets .......................................................
Total assets ................................................................
Current liabilities ..........................................................
Non-current liabilities ...................................................
Total liabilities ............................................................
Stockholders’equity...................................................
Net income (loss) .......................................................
Current assets .............................................................
Non-current assets ......................................................
Total assets ...............................................................
Current liabilities .........................................................
Non-current liabilities ..................................................
Total liabilities ...........................................................
Stockholders’equity..................................................
Net income (loss) ......................................................
Aliança Geração
de Energia
186
938
1,124
83
158
241
883
45
Aliança Geração
de Energia
137
1,200
1,337
86
213
299
1,038
49
CSP
693
3,062
3,755
970
2,785
3,755
–
(486)
CSP
759
3,712
4,471
1,060
2,887
3,947
524
(528)
Joint ventures
MRS
Logística
263
1,826
2,089
Pelletizing(i)
964
296
1,260
437
2
439
821
609
359
699
1,058
1,030
150
Joint ventures
MRS
Logística
309
2,063
2,372
Pelletizing(i)
760
310
1,070
301
5
306
764
442
454
844
1,298
1,074
143
December 31, 2018
Associates
Henan
Longyu
1,104
392
1,496
203
26
229
1,267
65
VLI S.A.
679
3,938
4,617
544
1,795
2,339
2,278
79
December 31, 2017
Associates
Henan
Longyu
1,072
422
1,494
226
–
226
1,268
79
VLI S.A.
738
4,172
4,910
537
1,799
2,336
2,574
77
(i)
Aggregate entity information: Companhia Coreano-Brasileira de Pelotização, Companhia Hispano-Brasileira de Pelotização, Companhia Ítalo-Brasileira de
Pelotização, Companhia Nipo-Brasileira de Pelotização.
The stand-alone financial statements of those entities may differ from the financial information reported herein,
which is prepared considering Vale’s accounting policies including eventual goodwill, provisional price adjustment
and others.
Accounting policy
Joint arrangements investments—Joint arrangements are all entities over which the Company has shared
control with one or more parties. Joint arrangement investments are classified as either joint operations or joint
ventures depending on the contractual rights and obligations of each investor.
F-51
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
16. Investments in associates and joint ventures (Continued)
The joint operations are recorded in the financial statements to represent the Company’s contractual rights and
obligations.
Interests in joint ventures are accounted for using the equity method, after initially being recognized at cost. The
Company’s investment in joint ventures includes the goodwill identified in the acquisition, net of any impairment
loss.
The Company’s interest in the profits or losses of its joint ventures is recognized in the income statement and
participation in the changes in reserves is recognized in the Company’s reserves. When the Company’s interest in
the losses of an associate or joint venture is equal to or greater than the carrying amount of the investment,
including any other receivables, the Company does not recognize additional losses, unless it has incurred
obligations or made payments on behalf of the joint venture.
Critical accounting estimates and judgments
Judgment is required in some circumstances to determine whether after considering all relevant factors, the
Company has either control, joint control or significant influence over an entity. Significant influence includes
situations of collective control.
The Company holds the majority of the voting capital in five joint arrangements (Aliança Geração de Energia S.A.,
Aliança Norte Energia Participações S.A., Companhia Hispano-Brasileira de Pelotização, Companhia
Ítalo-Brasileira de Pelotização and Companhia Nipo-Brasileira de Pelotização), but management has concluded
that the Company does not have a sufficiently dominant voting interest to have the power to direct the activities of
the entity. As a result, these entities are accounted under equity method due to shareholder’s agreements where
relevant decisions are shared with other parties.
F-52
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
17. Noncontrolling interest
a) Summarized financial information
The summarized financial information, prior to the eliminations of the intercompany balances and transactions,
about subsidiaries with material noncontrolling interest are as follows:
Current assets ............................................................................................
Non-current assets .....................................................................................
Related parties—Stockholders ..................................................................
Total assets ..............................................................................................
Current liabilities ........................................................................................
Non-current liabilities .................................................................................
Related parties—Stockholders ..................................................................
Total liabilities ..........................................................................................
Stockholders’ equity ...................................................................................
Equity attributable to noncontrolling interests ....................................
Net income (loss) .......................................................................................
Net income (loss) attributable to noncontrolling interests .................
Dividends paid to noncontrolling interests ..........................................
MBR
581
2,499
721
3,801
187
282
197
666
3,135
1,254
434
174
168
PTVI
465
1,567
111
2,143
165
153
–
318
1,825
745
58
24
–
VNC
202
1,922
56
2,180
141
256
766
1,163
1,017
51
351
18
–
Vale
Moçambique
S.A.
303
1,709
22
2,034
313
79
8,731
9,123
(7,089)
(1,290)
(985)
(190)
–
(i)
Dividends paid to noncontrolling interests relates to Vale Oman Pelletizing
Current assets ...............................................................................
Non-current assets ........................................................................
Related parties—Stockholders .....................................................
Total assets .................................................................................
Current liabilities ...........................................................................
Non-current liabilities ....................................................................
Related parties—Stockholders .....................................................
Total liabilities .............................................................................
Stockholders’ equity ......................................................................
Equity attributable to noncontrolling interests .......................
Net income (loss) ..........................................................................
Net income (loss) attributable to noncontrolling interests ....
Dividends paid to noncontrolling interests .............................
MBR
408
3,041
591
4,040
170
288
226
684
3,356
1,342
434
174
113
PTVI
394
1,586
147
2,127
128
237
3
368
1,759
735
(15)
(6)
–
VNC
251
2,046
115
2,412
142
222
1,318
1,682
730
37
(572)
(28)
–
Vale
Moçambique
S.A.
381
1,653
253
2,287
128
32
8,232
8,392
(6,105)
(1,101)
(659)
(104)
–
Compañia
Mineradora
Miski Mayo
S.A.C.(i)
78
436
6
520
36
97
9
142
380
228
(11)
(6)
–
(i) Discontinued operations
(ii) Dividends paid to noncontrolling interests relates to Vale Oman Pelletizing
December 31, 2018
Others(i)
–
–
–
–
–
–
–
–
–
87
–
10
14
Total
847
36
182
December 31, 2017
Others(ii)
–
–
–
–
–
–
–
–
–
73
–
(16)
13
Total
1,314
14
126
F-53
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
17. Noncontrolling interest (Continued)
Net income (loss) ............................................................
Net income (loss) attributable to noncontrolling
interests ....................................................................
Dividends paid to noncontrolling interests ...............
MBR
400
PTVI
2
165
263
1
–
VNC
(807)
(40)
–
(i) Discontinued operation
(ii) Dividends paid to noncontrolling interests relates to Vale Oman Pelletizing
Vale
Moçambique
S.A.
(541)
(27)
–
Compañia
Mineradora
Miski Mayo
S.A.C.(i)
3
2
11
December 31, 2016
Others(ii)
–
(107)
17
Total
–
(6)
291
The stand-alone financial statements of those entities may differ from the financial information reported herein,
which is prepared considering Vale’s accounting policies including eventual goodwill, provisional price adjustment
and others.
18. Intangibles
Changes in intangibles are as follows:
Balance at December 31, 2016 ..........................................................
Additions ...............................................................................................
Disposals ...............................................................................................
Amortization ..........................................................................................
Translation adjustment..........................................................................
Merger of Valepar (note 30) ..................................................................
Balance at December 31, 2017 ..........................................................
Cost .......................................................................................................
Accumulated amortization ....................................................................
Balance at December 31, 2017 ..........................................................
Additions ...............................................................................................
Disposals ...............................................................................................
Amortization ..........................................................................................
Translation adjustment..........................................................................
Balance at December 31, 2018 ..........................................................
Cost .......................................................................................................
Accumulated amortization ....................................................................
Balance at December 31, 2018 ..........................................................
Goodwill
3,081
–
–
–
65
964
4,110
4,110
–
4,110
–
–
–
(457)
3,653
3,653
–
3,653
Concessions
3,301
980
(9)
(209)
(61)
–
4,002
5,075
(1,073)
4,002
855
(27)
(135)
(634)
4,061
5,043
(982)
4,061
Right of use
147
–
–
(2)
7
–
152
241
(89)
152
–
–
(2)
(13)
137
201
(64)
137
Software
342
26
–
(142)
3
–
229
1,554
(1,325)
229
7
(2)
(99)
(24)
111
923
(812)
111
Total
6,871
1,006
(9)
(353)
14
964
8,493
10,980
(2,487)
8,493
862
(29)
(236)
(1,128)
7,962
9,820
(1,858)
7,962
a) Goodwill—The goodwill arose from the acquisition of iron ore and nickel businesses. In 2017, the goodwill
was recognized on the acquisition of Vale controlling interest by Valepar, based on the expected future returns on
the ferrous segment. As the fundamentals are still valid on the date of the merger of Valepar by Vale, the goodwill
was fully recognized. The Company has not recognized the deferred taxes
F-54
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
18. Intangibles (Continued)
over the goodwill, since there are no differences between the tax basis and accounting basis. The Company
assesses annually the recoverable amount of the goodwill.
b) Concessions—The concessions refer to the agreements with governments for the exploration and the
development of ports and railways. The Company holds railway concessions which are valid over a certain period
of time. Those assets 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.
c) Right of use—Refers to intangible identified in the business combination of Vale Canada Limited (“Vale
Canada”) and to the usufruct contract between the Company and noncontrolling stockholders to use the shares of
Empreendimentos Brasileiros de Mineração S.A. (owner of Minerações Brasileiras Reunidas S.A. shares). The
amortization of the right of use will expire in 2037 and Vale Canada’s intangible will end in September of 2046.
Accounting policy
Intangibles are carried at the acquisition cost, net of accumulated amortization and impairment charges.
The estimated useful lives are as follows:
Concessions.....................................................................................................................................................................................................
Right of use ......................................................................................................................................................................................................
Software ...........................................................................................................................................................................................................
Useful life
3 to 50 years
22 to 31 years
5 years
F-55
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
19. Property, plant and equipment
Changes in property, plant and equipment are as follows:
Balance at December 31, 2016 ...........
Additions(i) .............................................
Disposals ................................................
Assets retirement obligation ..................
Depreciation, amortization and
depletion ...........................................
Impairment (note 20) ..............................
Translation adjustment...........................
Transfers ................................................
Balance at December 31, 2017 ...........
Cost ........................................................
Accumulated depreciation .....................
Balance at December 31, 2017 ...........
Additions(i) .............................................
Disposals ................................................
Assets retirement obligation ..................
Depreciation, amortization and
depletion ...........................................
Impairment (note 20) ..............................
Translation adjustment...........................
Transfers ................................................
Balance at December 31, 2018 ...........
Cost ........................................................
Accumulated depreciation .....................
Balance at December 31, 2018 ...........
Land
724
–
–
–
Building
10,674
–
(11)
–
Facilities
9,471
–
(57)
–
Equipment
6,794
–
(67)
–
Mineral
properties
8,380
–
(138)
425
–
(20)
79
(65)
718
718
–
718
–
(11)
–
–
–
(84)
12
635
635
–
635
(587)
–
(122)
2,146
12,100
19,163
(7,063)
12,100
–
(53)
–
(531)
(10)
(1,360)
806
10,952
18,267
(7,315)
10,952
(736)
–
(105)
3,213
11,786
18,292
(6,506)
11,786
–
(93)
–
(655)
(18)
(1,471)
1,687
11,236
17,611
(6,375)
11,236
(814)
(34)
(83)
1,097
6,893
12,840
(5,947)
6,893
–
(234)
–
(847)
(21)
(560)
1,176
6,407
12,424
(6,017)
6,407
(618)
(131)
222
929
9,069
17,471
(8,402)
9,069
–
(8)
446
(525)
–
(864)
381
8,499
16,717
(8,218)
8,499
Others
7,515
–
(212)
–
(754)
–
29
1,615
8,193
12,461
(4,268)
8,193
–
(79)
–
(653)
(31)
(990)
829
7,269
11,697
(4,428)
7,269
Constructions
in progress
11,861
3,392
(151)
–
–
(86)
38
(8,935)
6,119
6,119
–
6,119
2,823
(92)
–
–
(104)
(468)
(4,891)
3,387
3,387
–
3,387
Total
55,419
3,392
(636)
425
(3,509)
(271)
58
–
54,878
87,064
(32,186)
54,878
2,823
(570)
446
(3,211)
(184)
(5,797)
–
48,385
80,738
(32,353)
48,385
(i)
Includes capitalized borrowing costs.
Disposals of assets
The Company recognized a loss of US$322 and US$348 in the income statement as “Impairment and disposal of
non-current assets” for the year ended December 31, 2018 and 2017, respectively, due to non-viable projects and
operating assets written off through sale or obsolescence.
Additionally, in the year ended December 31, 2017, the Company concluded the sale of four VLOC’s and two
Floating Transfer Stations in the amount of US$391. The Company recognized a loss of US$133 in the income
statement as “Impairment and disposal of non-current assets”.
Accounting policy
Property, plant and equipment are recorded at the cost of acquisition or construction, net of accumulated
depreciation and impairment charges.
F-56
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
19. Property, plant and equipment (Continued)
Mineral properties developed internally are determined by (i) direct and indirect costs attributed to build the mining
facilities, (ii) financial charges incurred during the construction period, (iii) depreciation of other fixed assets used
during construction, (iv) estimated decommissioning and site restoration expenses, and (v) other capitalized
expenditures during the development phase (phase when the project demonstrates its economic benefit to the
Company, and the Company has ability and intention to complete the project).
The depletion of mineral properties is determined based on the ratio between production and total proven and
probable mineral reserves.
Property, plant and equipment, other than mineral properties 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 and are
capitalized, except for land which is not depreciated.
The estimated useful lives are as follows:
Buildings .......................................................................................................................................................................................................................
Facilities .......................................................................................................................................................................................................................
Equipment ....................................................................................................................................................................................................................
Others:
Locomotives .................................................................................................................................................................................................................
Wagon ..........................................................................................................................................................................................................................
Railway equipment .......................................................................................................................................................................................................
Ships ............................................................................................................................................................................................................................
Others ..........................................................................................................................................................................................................................
Useful life
15 to 50 years
3 to 50 years
3 to 40 years
12 to 25 years
30 to 44 years
5 to 33 years
20 years
2 to 50 years
The residual values and useful lives of assets are reviewed at the end of each reporting period and adjusted if
necessary.
Expenditures and stripping costs
(i) Exploration and evaluation expenditures—Expenditures on mining research are accounted for as operating
expenses until the effective proof of economic feasibility and commercial viability of a given field can be
demonstrated. From then on, the expenditures incurred are capitalized as mineral properties.
(ii) Expenditures on feasibility studies, new technologies and other researches—The Company also
conducts feasibility studies for many businesses which it operates including researching new technologies to
optimize the mining process. After these costs are proven to generate future benefits to the Company, the
expenditures incurred are capitalized.
(iii) Maintenance costs—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.
(iv) Stripping Costs—The costs 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 the mineral properties. These costs are subsequently amortized over the useful life of the
mine.
F-57
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
19. Property, plant and equipment (Continued)
Post-production stripping costs are included in the cost of inventory, except when a new project is developed to
permit access to a significant ore deposits. In such cases, the cost is capitalized as a non-current asset and is
amortized during the extraction of the ore deposits, over the useful life of the ore deposits.
Critical accounting estimates and judgments
Mineral reserves—The estimates of proven and probable reserves are regularly evaluated and updated. These
reserves are determined using generally accepted geological estimates. The calculation of reserves requires the
Company to make assumptions about expected future conditions that are uncertain, including future ore prices,
exchange rates, inflation rates, mining technology, availability of permits and production costs. Changes in
assumptions could have a significant impact on the proven and probable reserves of the Company.
The estimated volume of mineral reserves is used as basis for the calculation of depletion of the mineral
properties, and also for the estimated useful life which is a major factor to quantify the provision for asset
retirement obligation, environmental recovery of mines and impairment of long lived asset. 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 and assessments of impairment.
20. Impairment and onerous contracts
The impairment losses (reversals) recognized in the year are presented below:
Assets or cash-generating unit
Segments by class of assets
Property, plant and equipment and intangible
Iron ore ................................................................................................ North system
Coal ..................................................................................................... Australia
Base metals—nickel ........................................................................... Stobie (VCL)
Base metals—nickel ........................................................................... Newfoundland (VNL)
Base metals—nickel ........................................................................... Nouvelle Caledonie (VNC)
Several segments ............................................................................... Other assets
Impairment of non-current assets ..................................................
Onerous contracts ...............................................................................
Impairment of non-current assets and onerous contracts ..........
Income statement
Impairment (reversals)
2016
2017
2018
–
–
–
–
–
184
184
393
577
–
–
133
–
–
138
271
–
271
(160)
27
–
631
284
135
917
257
1,174
F-58
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
20. Impairment and onerous contracts (Continued)
a) Impairment of non-financial assets
The Company has carried out an impairment test for the assets for which triggering event was identified. The
recoverable amount is assessed by reference to the higher of value in use (“VIU”) and fair value less costs of
disposal (“FVLCD”).
The recoverable amount of each Cash Generating Unit (“CGU”) under the impairment testing was assessed using
FVLCD model, through discounted cash flow techniques, which is classified as “level 3” in the fair value hierarchy.
The cash flows were discounted using a post-tax discount rate ranging from 6% to 10%, which represents an
estimate of the rate that a market participant would apply having regard to the time value of money and the risks
specific to the asset. The Company used its weighted average cost of capital (“WACC”) as a starting point for
determining the discount rates, with appropriate adjustments for the risk profile of the countries in which the
individual CGU operates.
Iron ore and pellets—During 2018, the Company did not identify any changes in the circumstances or indicators
that would require reassessment of the carrying amount of the iron ore and pellets CGUs. Of the total goodwill
(note 18), US$1,841 is allocated to the group of ferrous mineral CGUs. The impairment analysis based on FVLCD
model demonstrates that there was no impairment loss in relation to the individual CGUs or goodwill.
In 2016, based on the market circumstances, the Company decided to resume Nortés system pelletizing plant,
based on the studies carried out by management that demonstrated its economic feasibility. Accordingly, the
Company reversed the full impairments of US$160 recorded in 2013 and 2015.
Coal—Based on the 2018 impairment triggering assessment, the Company has identified trigger of impairment in
the Mozambique CGU driven by the lower than planned production volumes during the year. The Company
carried out an impairment test based on FVLCD model and concluded that there were no changes in the
impairment recognized in 2015.
In 2016, the mining plans for the coal assets in Australia were revised and an impairment loss of US$27 was
recognized in the income statement.
Nickel (Onça Puma)—In September 2017, the Federal Court granted an injunction suspending the nickel mining
operations at Onça Puma (base metals segment). The Company has appealed this decision to seek a suspension
of this injunction, but it is not possible to anticipate when Onça Puma activities will resume. On the assumption
that the Company will be able to operate this asset in the future, the Company carried out an impairment test
based on FVLCD model assuming different returning of operations scenarios and concluded that no impairment
loss should be booked.
Nickel (Others)—In addition, the Company did not identify any changes in the circumstances or indicators during
2018 that would require reassessment of the carrying amount of the other Nickel CGUs. Of the
F-59
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
20. Impairment and onerous contracts (Continued)
total goodwill (note 18), US$1,812 is allocated to the group of nickel CGUs. The impairment analysis based on
FVLCD model demonstrates that there was no impairment loss in relation to the individual CGUs or goodwill.
In 2017, an underground mine in Sudbury (Stobie) was affected by seismic activities and the cost to repair the
asset is deemed not recoverable in the current market conditions. Therefore, the Company has placed this asset
on “care and maintenance” and an impairment of US$133 was recognized in the income statement.
In 2016, the decrease in long term nickel price projections, that significantly reduced the recoverable amounts of
the VNL and VNC CGUs, associated with significant capital investments in new processing facilities in recent
years, resulted in impairment losses of US$631 and US$284, respectively.
Other assets—The Company has undertaken a review on the business plan of its biological assets leading to a
reduction in the expected operational capacity of these assets. The Company carried out an impairment test
based on FVLCD model and an impairment loss of US$184 was recognized in the income statement.
b) Onerous contract
In 2018, the Company recognized a provision of US$393 (2016: US$257) for the costs in respect of certain
long-term contracts in the Midwest system for fluvial transportation and port structure, with minimum guaranteed
volume.
Accounting policy
Impairment of non-financial assets—Non-financial assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount might not be recoverable. An impairment loss is
recognized for the amount by which the asset’s carrying value exceeds its recoverable amount. The recoverable
amount is the higher of an asset’s fair value less costs of disposal (“FVLCD”) and value in use (“VIU”).
FVLCD is generally determined as the present value of the estimated future cash flows expected to arise from the
continued use of the asset from a market participant’s perspective, including any expansion prospects. VIU model
is determined as the present value of the estimated future cash flows expected to arise from the continued use of
the asset in its present form. Value in use is determined by applying assumptions specific to the Company’s
continued use and cannot take into account future development. These assumptions are different to those used in
calculating fair value and consequently the VIU calculation is likely to give a different result to a FVLCD
calculation.
Assets that have an indefinite useful life and are not subject to amortization, such as goodwill, are tested annually
for impairment.
F-60
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
20. Impairment and onerous contracts (Continued)
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (CGU). Goodwill is allocated to Cash Generating Units or Cash Generating Units groups
that are expected to benefit from the business combinations in which the goodwill arose and are identified in
accordance with the operating segment.
Non-current assets (excluding goodwill) in which the Company recognized impairment in the past are reviewed
whenever events or changes in circumstances indicate that the impairment may no longer be applicable. In such
cases, an impairment reversal will be recognized.
Onerous Contracts—For certain long-term contracts, a provision is recognized when the present value of the
unavoidable cost to meet the Company’s obligation exceeds the economic benefits that could be received from
those contracts.
Critical accounting estimates and judgments
The Company determines its cash flows based on the budgets approved by management, which require the use
of the following assumptions: (i) mineral reserves and mineral resources measured by internal experts; (ii) costs
and investments based on the best estimate of projects as supported by past performance; (iii) sale prices
consistent with projections available in reports published by industry considering the market price when
appropriate; (iv) the useful life of each cash-generating unit (ratio between production and mineral reserves); and
(v) discount rates that reflect specific risks relating to the relevant assets in each cash-generating unit. These
assumptions are subject to risk and uncertainty. Hence, there is a possibility that changes in circumstances will
change these projections, which may affect the recoverable amount of the assets.
21. Loans, borrowings and cash and cash equivalents
a) Cash and cash equivalents
Cash and cash equivalents includes cash, immediately redeemable deposits and short-term investments with an
insignificant risk of change in value. They are readily convertible to cash, part in R$, indexed to the Brazilian
Interbank Interest rate (“DI Rate”or”CDI”) and part denominated in US$, mainly time deposits.
b) Loans and borrowings
As at December 31, 2018 and 2017, loans and borrowings are secured by property, plant and equipment and
receivables in the amount of US$221 and US$275, respectively.
The securities issued through Vale’s wholly-owned finance subsidiary Vale Overseas Limited are fully and
unconditionally guaranteed by Vale.
F-61
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
21. Loans, borrowings and cash and cash equivalents (Continued)
i) Total debt
Principal in:
US$ .....................................................................
EUR .....................................................................
R$
Other currencies .................................................
Accrued charges ...............................................
Total ....................................................................
December 31, 2018
Current liabilities
December 31, 2017
December 31, 2018
Non-current liabilities
December 31, 2017
256
–
492
25
230
1,003
649
–
515
17
522
1,703
10,300
1,088
2,940
127
8
14,463
16,060
1,140
3,368
206
12
20,786
The future flows of debt payments principal and interest are as follows:
2019 ............................................................................................................................................................................................
2020 ............................................................................................................................................................................................
2021 ............................................................................................................................................................................................
2022 ............................................................................................................................................................................................
Between 2023 and 2027 .............................................................................................................................................................
2028 onwards..............................................................................................................................................................................
Total ............................................................................................................................................................................................
Estimated future
interest
payments(i)
831
799
732
662
2,132
3,794
8,950
Principal
773
1,053
1,233
1,872
5,109
5,188
15,228
(i)
Based on interest rate curves and foreign exchange rates applicable as at December 31, 2018 and considering that the payments of principal will be made
on their contracted payments dates. The amount includes the estimated interest not yet accrued and the interest already recognized in the financial
statements.
F-62
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
21. Loans, borrowings and cash and cash equivalents (Continued)
ii) Reconciliation of debt to cash flows arising from financing activities
December 31, 2017 ....................................................................................................................................................................................................
Additions .....................................................................................................................................................................................................................
Repayments(i) .............................................................................................................................................................................................................
Interest paid ................................................................................................................................................................................................................
Cash flow from financing activities ........................................................................................................................................................................
Effect of exchange rate ...............................................................................................................................................................................................
Interest accretion ........................................................................................................................................................................................................
Non-cash changes ....................................................................................................................................................................................................
December 31, 2018 ....................................................................................................................................................................................................
Loans and
borrowings
22,489
1,225
(7,841)
(1,121)
(7,737)
(407)
1,121
714
15,466
(i)
In 2018, the Company conducted a cash tender offer for Vale Overseas’ 5.875% guaranteed notes due
2021, 6.875% guaranteed notes due 2036, 4.375% guaranteed notes due 2022 and a cash tender offer
for Vale S.A.’ 5.625% guaranteed notes due 2042 and repurchased a total of US$3,730. The Company
also redeemed all of Vale Overseas’ 4.625% guaranteed notes due 2020 totaling US$499.
Accounting policy
Loans and borrowings 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 Income statement over the
period of the loan, using the effective interest rate method. The fees paid in obtaining the loan are recognized as
transaction costs.
Loans and borrowing costs are capitalized as part of property, plants and equipment if those costs are directly
related to a qualified asset. The capitalization occurs until the qualified asset is ready for its intended use. The
average capitalization rate is 17%. Borrowing costs that are not capitalized are recognized in the income
statement in the period in which they are incurred.
Liquidity risk—The revolving credit facilities available today were provided by a syndicate of several global
commercial banks. To mitigate liquidity risk, Vale has two revolving credit facilities, which will mature in 2020 and
2022, in the available amount of US$5,000 to assist the short term liquidity management and to enable more
efficiency in cash management, being consistent with the strategic focus on cost of capital reduction. As of
December 31, 2018 these lines are undrawn.
Some of the Company’s debt agreements with lenders contain financial covenants. The primary financial
covenants in those agreements require maintaining certain ratios, such as debt to EBITDA and interest coverage.
The Company has not identified any instances of noncompliance as at December 31, 2018 and 2017.
F-63
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
22. Liabilities related to associates and joint ventures
In March 2016 Samarco and its shareholders, Vale S.A. and BHP Billiton Brasil Ltda. (“BHPB”), entered into an
Agreement (“Framework Agreement”) with the Brazilian federal government, the two Brazilian states (Espírito
Santo and Minas Gerais) and other governmental authorities, in connection with the lawsuit related to the
Samarco dam failure (note 28d), in order to implement the programs for remediation and compensation of the
areas and communities affected.
The Framework Agreement has a 15-year term, renewable for successive one-year periods until all the
obligations under the Framework Agreement have been satisfied.
Under the Framework Agreement, Samarco, Vale S.A. and BHPB have established a foundation (“Fundação
Renova” or “Foundation”) to develop and implement social and economic remediation and compensation, to be
funded by Samarco. To the extent that Samarco does not meet its funding obligations to the foundation, each of
Vale S.A. and BHPB will provide, under the terms of the Framework Agreement, funds to the Foundation in
proportion to its 50% equity interest in Samarco.
As a consequence of the dam failure, governmental authorities ordered the suspension of Samarco’s operations.
Due to the uncertainties regarding Samarco’s future cash flow, Vale S.A. maintains a provision for the obligation
to comply with the reparation and compensation programs under the Framework Agreement (pro rata to its
proportional equity interest in Samarco).
The changes in the provisions are as follows:
Balance at January 01, ........................................................................................................................................................................................
Payments ...............................................................................................................................................................................................................
Present value valuation..........................................................................................................................................................................................
Provision increase ..................................................................................................................................................................................................
Translation adjustment...........................................................................................................................................................................................
Balance at December 31, ....................................................................................................................................................................................
Current liabilities ....................................................................................................................................................................................................
Non-current liabilities .............................................................................................................................................................................................
Liabilities ...............................................................................................................................................................................................................
2018
996
(290)
165
403
(153)
1,121
289
832
1,121
2017
1,077
(294)
182
38
(7)
996
326
670
996
In 2018, the Fundação Renova reviewed the estimates for the expenditures required to mitigate and compensate
for the impacts of the disruption from Samarco’s tailing dam. As a result of this revision, Vale S.A. recognized in
2018 an additional provision of US$403 (R$1,523 million), which amounts to the present value of Vale’s new
estimated secondary responsibility to support the Renova Foundation works and is equivalent to 50% of
Samarco’s additional obligations over the next 12 years.
In addition to the provision above, Vale S.A. made available in the year ended December 31, 2018 and 2017 the
amount of US$84 and US$142, respectively, which was fully used to fund Samarco’s working
F-64
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
22. Liabilities related to associates and joint ventures (Continued)
capital and was recognized in Vale’s income statement as an expense in “Equity results and other results in
associates and joint ventures”. Vale S.A. intends to make available until June 30, 2019 short-term facilities up to
US$88 to support Samarco’s cash necessity, without any binding obligation to Samarco in this regard. Such
support will be released simultaneously with BHPB, and pursuant to the same amounts, terms and conditions,
subject to the fulfillment of certain milestones.
The summarized financial information of Samarco are as follows:
Current assets ........................................................................................................................................
Non-current assets .................................................................................................................................
Total assets ..........................................................................................................................................
Current liabilities ....................................................................................................................................
Non-current liabilities .............................................................................................................................
Total liabilities ......................................................................................................................................
Negative reserves ................................................................................................................................
Loss .......................................................................................................................................................
December 31, 2018
54
3,443
3,497
6,069
3,934
10,003
(6,506)
(1,257)
December 31, 2017
66
6,016
6,082
5,481
3,636
9,117
(3,035)
(930)
Under Brazilian legislation and the terms of the joint venture agreement, Vale does not have an obligation to
provide funding to Samarco. Therefore, Vale’s investment in Samarco was impaired in full and no provision was
recognized in relation to the Samarco’s negative reserves.
Critical accounting estimates and judgments
The provision requires the use of assumptions that may be mainly affected by: (i) changes in scope of work
required under the Framework Agreement as a result of further technical analysis and the ongoing negotiations
with the Federal Prosecution Office, (ii) resolution of uncertainty in respect of the resumption of Samarco’s
operations; (iii) updates in the discount rate; and (iv) resolution of existing and potential legal claims. As a result,
future expenditures may differ from the amounts currently provided and changes to key assumptions could result
in a material impact to the amount of the provision in future reporting periods. At each reporting period, Vale S.A.
will reassess the key assumptions used by Samarco in the preparation of the projected cash flows and will adjust
the provision, if required.
F-65
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
23. Financial instruments classification
The Company classifies its financial instruments in accordance with the purpose for which they were acquired,
and determines the classification and initial recognition according to the following categories:
December 31, 2018
December 31, 2017
Financial assets
Current
Cash and cash equivalents ..................
Financial investments ..........................
Derivative financial instruments ...........
Accounts receivable .............................
Related parties .....................................
Non-current
Derivative financial instruments ...........
Investments in equity securities ...........
Loans ...................................................
Related parties .....................................
Total of financial assets ....................
Financial liabilities
Current
Suppliers and contractors ....................
Derivative financial instruments ...........
Loans and borrowings..........................
Related parties .....................................
Non-current
Derivative financial instruments ...........
Loans and borrowings..........................
Related parties .....................................
Participative stockholders’
debentures ......................................
Total of financial liabilities ................
Amortized
cost
At fair value
through OCI
At fair value
through
profit or
loss
5,784
–
–
2,756
364
8,904
–
–
153
1,612
1,765
10,669
3,512
–
1,003
1,134
5,649
–
14,463
960
–
15,423
21,072
–
–
–
–
–
–
–
987
–
–
987
987
–
–
–
–
–
–
–
–
–
–
–
–
32
39
(108)
–
(37)
392
–
–
–
392
355
–
470
–
–
470
344
–
–
1,407
1,751
2,221
Loans and
receivables or
amortized
cost
At fair value
through
profit or
loss
4,328
18
–
2,430
1,898
8,674
–
–
151
2,628
2,779
11,453
4,041
–
1,703
882
6,626
–
20,786
975
–
21,761
28,387
–
–
106
170
–
276
453
–
–
–
453
729
–
104
–
–
104
686
–
–
1,233
1,919
2,023
Total
5,784
32
39
2,648
364
8,867
392
987
153
1,612
3,144
12,011
3,512
470
1,003
1,134
6,119
344
14,463
960
1,407
17,174
23,293
Total
4,328
18
106
2,600
1,898
8,950
453
–
151
2,628
3,232
12,182
4,041
104
1,703
882
6,730
686
20,786
975
1,233
23,680
30,410
F-66
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
23. Financial instruments classification (Continued)
The classification of financial assets and liabilities by currencies are as follows:
December 31, 2018
Financial assets
Current
Cash and cash equivalents ..................................................
Financial investments ..........................................................
Derivative financial instruments ...........................................
Accounts receivable .............................................................
Related parties .....................................................................
Non-current
Derivative financial instruments ...........................................
Investments in equity securities ...........................................
Loans ...................................................................................
Related parties .....................................................................
Total of financial assets ....................................................
Financial liabilities
Current
Suppliers and contractors ....................................................
Derivative financial instruments ...........................................
Loans and borrowings..........................................................
Related parties .....................................................................
Non-current
Derivative financial instruments ...........................................
Loans and borrowings..........................................................
Related parties .....................................................................
Participative stockholders’ debentures ................................
Total of financial liabilities ................................................
R$
US$
CAD
EUR
Others
currencies
2,765
1
30
447
–
3,243
380
–
5
–
385
3,628
1,791
389
532
769
3,481
321
2,948
65
1,407
4,741
8,222
2,883
31
9
2,197
364
5,484
12
987
148
1,612
2,759
8,243
1,182
81
410
365
2,038
23
10,300
895
–
11,218
13,256
23
–
–
4
–
27
–
–
–
–
–
27
292
–
25
–
317
–
127
–
–
127
444
12
–
–
–
–
12
–
–
–
–
–
12
141
–
36
–
177
–
1,088
–
–
1,088
1,265
101
–
–
–
–
101
–
–
–
–
–
101
106
–
–
–
106
–
–
–
–
–
106
Total
5,784
32
39
2,648
364
8,867
392
987
153
1,612
3,144
12,011
3,512
470
1,003
1,134
6,119
344
14,463
960
1,407
17,174
23,293
F-67
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
23. Financial instruments classification (Continued)
December 31, 2017
Financial assets
Current
Cash and cash equivalents ..................................................
Financial investments ..........................................................
Derivative financial instruments ...........................................
Accounts receivable .............................................................
Related parties .....................................................................
Non-current
Derivative financial instruments ...........................................
Loans ...................................................................................
Related parties .....................................................................
Total of financial assets ....................................................
Financial liabilities
Current
Suppliers and contractors ....................................................
Derivative financial instruments ...........................................
Loans and borrowings..........................................................
Related parties .....................................................................
Non-current
Derivative financial instruments ...........................................
Loans and borrowings..........................................................
Related parties .....................................................................
Participative stockholders’ debentures ................................
Total of financial liabilities ................................................
Accounting policy
R$
US$
CAD
EUR
Others
currencies
1,790
1
60
246
–
2,097
384
5
–
389
2,486
2,464
95
768
–
3,327
638
3,379
78
1,233
5,328
8,655
2,395
17
46
2,334
1,898
6,690
69
146
2,628
2,843
9,533
1,108
9
880
882
2,879
48
16,060
897
–
17,005
19,884
48
–
–
6
–
54
–
–
–
–
54
386
–
18
–
404
–
207
–
–
207
611
11
–
–
–
11
–
–
–
–
11
49
–
37
–
86
–
1,140
–
–
1,140
1,226
84
–
–
14
–
98
–
–
–
–
98
34
–
–
–
34
–
–
–
–
–
34
Total
4,328
18
106
2,600
1,898
8,950
453
151
2,628
3,232
12,182
4,041
104
1,703
882
6,730
686
20,786
975
1,233
23,680
30,410
The Company classifies financial instruments based on its business model for managing the assets and the
contractual cash flow characteristics of those assets. The business model test determines the classification based
on the business purpose for holding the asset and whether the contractual cash flows represent only payments of
principal and interest.
Financial instruments are measured at fair value through profit or loss unless certain conditions are met that
permit measurement at fair value through other comprehensive income (“FVOCI”) or amortized cost. Gains and
losses recorded in other comprehensive income for debt instruments are recognized in profit or loss only on
disposal.
F-68
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
23. Financial instruments classification (Continued)
Investments in equity instruments are measured at fair value through profit or loss unless they are eligible to be
measured at FVOCI. The Company recognizes equity instruments and gains and losses are never being recycled
to profit or loss.
Information about the Company’s exposure to credit risk is set out in note 33.
All financial liabilities 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. Participative stockholders’
debentures and Derivative financial instruments are measured at fair value through profit or loss.
24. Fair value estimate
Due to the short-term cycle, it is assumed that the fair value of cash and cash equivalents balances, financial
investments, accounts receivable and accounts payable approximate 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 are 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.
a) Assets and liabilities measured and recognized at fair value:
Financial assets
Financial investments .....................................
Derivative financial instruments ......................
Accounts receivable ........................................
Investments in equity securities ......................
Total ................................................................
Financial liabilities
Derivative financial instruments ......................
Participative stockholders’ debentures ...........
Total ................................................................
Level 1
Level 2
December 31, 2018
Total
Level 3
Level 2
December 31, 2017
Total
Level 3
32
–
–
987
1,019
–
–
–
–
136
(108)
–
28
636
1,407
2,043
–
295
–
–
295
178
–
178
32
431
(108)
987
1,342
814
1,407
2,221
–
289
170
–
459
581
1,233
1,814
–
270
–
–
270
209
–
209
–
559
170
–
729
790
1,233
2,023
F-69
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
24. Fair value estimate (Continued)
The Company changed its accounting estimate on the calculation of the participative stockholders’ debentures
from January 1, 2018. The Company has replaced in the calculation the assumption of spot price at the reporting
date to the weighted average price traded on the market within the last month of the quarter.
There were no transfers between Level 1 and Level 2, or between Level 2 and Level 3 in the year ended
December 31, 2018.
The following table presents the changes in Level 3 assets and liabilities for the year ended December 31, 2018:
Balance at December 31, 2017 ................................................................................................
Gain and losses recognized in income statement ......................................................................
Balance at December 31, 2018 ................................................................................................
Financial assets
270
25
295
Derivative financial instruments
Financial liabilities
209
(31)
178
Methods and valuation techniques
i) Derivative financial instruments
Derivative financial instruments are evaluated through the use of market curves and prices impacting each
instrument at the closing dates, detailed in the item “market curves” (note 34).
For the pricing of options, the Company often uses the Black & Scholes model. In this model, the fair value of the
derivative is determined basically as a function of the volatility and the price of the underlying asset, the strike
price of the option, the risk free interest rate and the option maturity. In the case of options where payoff is a
function of the average price of the underlying asset over a certain period during the life of the option, the
Company uses Turnbull & Wakeman model. In this model, in addition to the factors that influence the option price
in the Black-Scholes model, the formation period of the average price is also considered.
In the case of swaps, both the present value of the long and short positions are estimated by discounting their
cash flows by the interest rate in the related currency. The fair value is determined by the difference between the
present value of the long and short positions of the swap in the reference currency.
For the swaps indexed to TJLP, the calculation of the fair value assumes that TJLP is constant, that is, the
projections of future cash flows in Brazilian Reais are made considering the last TJLP disclosed.
Forward and future contracts are priced using the future curves of their corresponding underlying assets.
Typically, these curves are obtained on the stock exchanges where these assets 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.
F-70
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
24. Fair value estimate (Continued)
The fair value of derivatives within level 3 is estimated using discounted cash flows and option model valuation
techniques with unobservable inputs of discount rates, stock prices and commodities prices.
ii) Participative stockholders’ debentures—Consist of the debentures issued during the privatization process
(note 13), for which fair values are measured based on the market approach. Reference prices are available on
the secondary market.
Critical accounting estimates and judgments
The fair values of financial instruments that are not traded in active markets are determined using valuation
techniques. Vale uses its own judgment to choose between the various methods. Assumptions are based on the
market conditions, at the end of the year.
An analysis of the impact if actual results are different from management’s estimates is present on note 34
(sensitivity analysis).
b) Fair value of financial instruments not measured at fair value
The fair value estimate for level 1 is based on market approach considering the secondary market contracts. For
loans allocated to level 2, the income approach is adopted and the fair value for both fixed-indexed rate debt and
floating rate debt is determined on a discounted cash flow basis using LIBOR future values and Vale’s bonds
curve.
The fair values and carrying amounts of loans and borrowings are as follows:
Financial liabilities
December 31, 2018
Debt principal ......................................................................................................
December 31, 2017
Debt principal ......................................................................................................
Balance
Fair value
Level 1
Level 2
15,228
21,955
16,262
23,088
10,686
14,935
5,576
8,153
F-71
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
25. Derivative financial instruments
a) Derivatives effects on statement of financial position
Current
December 31, 2018
Non-current
Current
Assets
December 31, 2017
Non-current
Derivatives not designated as hedge accounting
Foreign exchange and interest rate risk
CDI & TJLP vs. US$ fixed and floating rate swap .........................................................
IPCA swap .....................................................................................................................
Eurobonds swap ............................................................................................................
Pré-dolar swap ...............................................................................................................
Commodities price risk
Nickel .............................................................................................................................
Bunker oil .......................................................................................................................
Others (note 34) ...........................................................................................................
Total ...............................................................................................................................
9
7
–
19
35
2
1
3
1
1
39
–
84
4
1
89
–
–
–
303
303
392
38
9
–
22
69
22
15
37
–
–
106
–
82
27
32
141
3
–
3
309
309
453
Current
December 31, 2018
Non-current
Current
Liabilities
December 31, 2017
Non-current
Derivatives not designated as hedge accounting
Foreign exchange and interest rate risk
CDI & TJLP vs. US$ fixed and floating rate swap .........................................................
IPCA swap .....................................................................................................................
Eurobonds swap ............................................................................................................
Pré-dolar swap ...............................................................................................................
Commodities price risk
Nickel .............................................................................................................................
Bunker oil .......................................................................................................................
Others (note 34) ...........................................................................................................
Total ...............................................................................................................................
383
35
5
10
433
8
29
37
–
–
470
98
47
–
18
163
2
–
2
179
179
344
95
4
5
104
–
–
–
–
–
104
410
41
–
24
475
–
–
–
211
211
686
F-72
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
25. Derivative financial instruments (Continued)
b) Effects of derivatives on the income statement, cash flow and other comprehensive income
Gain (loss) recognized in the
income statement
Year ended December 31
2016
2017
2018
Derivatives not designated as hedge accounting
Foreign exchange and interest rate risk
CDI & TJLP vs. US$ fixed and floating rate swap ......................................................................................................................................... (206)
IPCA swap ..................................................................................................................................................................................................... (23)
Eurobonds swap ............................................................................................................................................................................................ (27)
Euro forward...................................................................................................................................................................................................
–
Pré-dolar swap ............................................................................................................................................................................................... (23)
(279)
Commodities price risk
Nickel ............................................................................................................................................................................................................. (25)
6
Bunker oil .......................................................................................................................................................................................................
(19)
32
Others ............................................................................................................................................................................................................
Derivatives designated as cash flow hedge accounting
Foreign exchange ..........................................................................................................................................................................................
–
–
Total ............................................................................................................................................................................................................... (266)
152
43
36
46
36
313
30
(80)
(50)
191
–
–
454
869
78
(19)
(46)
77
959
(42)
268
226
74
(3)
(3)
1,256
Financial settlement inflows
(outflows)
Year ended December 31
2016
2017
2018
Derivatives not designated as hedge accounting
Foreign exchange and interest rate risk
CDI & TJLP vs. US$ fixed and floating rate swap ......................................................................................................................................... (135)
7
IPCA swap .....................................................................................................................................................................................................
(3)
Eurobonds swap ............................................................................................................................................................................................
10
Pré-dolar swap ...............................................................................................................................................................................................
(121)
Commodities price risk
Nickel .............................................................................................................................................................................................................
Bunker oil .......................................................................................................................................................................................................
Others ............................................................................................................................................................................................................
Derivatives designated as cash flow hedge accounting
Foreign exchange ..........................................................................................................................................................................................
–
–
Total ............................................................................................................................................................................................................... (67)
(181)
(20)
(39)
(1)
(241)
4
(3)
1
–
(513)
(25)
(142)
(90)
(770)
(30)
(799)
(829)
–
–
–
(240)
(3)
(3)
(1,602)
8
49
57
(3)
F-73
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
25. Derivative financial instruments (Continued)
Derivatives designated as cash flow hedge accounting
Foreign exchange ...................................................................................................................................................................
Total ........................................................................................................................................................................................
The maturity dates of the derivative financial instruments are as follows:
Gain (loss) recognized in other
comprehensive income
Year ended December 31
2016
2017
2018
–
–
–
–
2
2
Currencies and interest rates ...............................................................................................................................................................
Bunker oil .............................................................................................................................................................................................
Nickel ...................................................................................................................................................................................................
Others ..................................................................................................................................................................................................
Last maturity dates
December 2027
June 2019
December 2020
December 2027
c) Hedge in foreign operations
As at December 31, 2018 the carrying value of the debts designated as instrument hedge of the Company’s
investment in foreign operations (Vale International S.A. and Vale International Holding GmbH; hedging objects)
are US$2,467 and EUR750, respectively. The foreign exchange losses of US$823 (US$543, net of taxes) and
US$144 (US$95, net of taxes), were recognized for the year ended December 31, 2018 and 2017, respectively in
the “Cumulative translation adjustments” in stockholders’ equity. This hedge was highly effective throughout the
year ended December 31, 2018.
Accounting policy
The Company uses financial instruments to hedge its exposure to certain market risks arising from operational,
financing and investing activities. Derivatives are included within financial assets or liabilities at fair value through
profit or loss unless they are designated as effective hedging instruments.
At the beginning of the hedge operations, the Company documents the type of hedge, the relation between the
hedging instrument and hedged items, its risk management objective and strategy for undertaking hedge
operations. The Company also documents, both at hedge inception and on an ongoing basis that the hedge is
expected to continue to be highly effective. The Company adopts the hedge accounting procedure and
designates certain derivatives as shows below:
Cash flow hedge—The effective portion of changes in the fair value of derivatives that are designated and qualify
as cash flow hedges is recognized in equity within “Unrealized fair value gain (losses)”. The gain or loss relating
to the ineffective portion is recognized immediately in the income statement. When a hedging instrument expires
or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing
in equity at that time remains in equity and is recognized in profit or loss when the transaction is recognized in the
income statement.
F-74
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
25. Derivative financial instruments (Continued)
Net investment hedge—Hedges of net investments in foreign operations are accounted for similarly to cash flow
hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in
equity within “Cumulative translation adjustments”. The gain or loss relating to the ineffective portion is recognized
immediately in the income statement. Gains and losses accumulated in equity are included in the statement of
income when the foreign operation is partially or fully disposed of or sold.
Derivatives at fair value through profit or loss—Certain derivative instruments do not qualify for hedge
accounting. Changes in the fair value of any of these derivative instruments are recognized immediately in the
income statement.
26. Provisions
Payroll, related charges and other remunerations ........
Onerous contracts ..........................................................
Environmental obligations(i) ..........................................
Asset retirement obligations (note 27) ...........................
Provisions for litigation (note 28) ...................................
Employee postretirement obligations (note 29) .............
Provisions .....................................................................
December 31, 2018
1,046
60
100
85
–
72
1,363
Current liabilities
December 31, 2017
1,101
102
30
87
–
74
1,394
December 31, 2018
–
642
202
3,030
1,357
1,864
7,095
Non-current liabilities
December 31, 2017
–
364
79
3,081
1,473
2,030
7,027
(i)
In 2018, the Company recognized an obligation in the amount of US$229 related to certain environmental obligation that became effective from the current
year due to changes in the regulation in place.
F-75
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
27. Asset retirement obligations
Provision is made for expected costs for the closure of the mines and deactivation of the related mining assets.
Changes in the provision for asset retirement obligations and long-term interest rates (per annum, used to
discount these obligations to present value and to update the provisions) are as follows:
Balance at beginning of the year .....................................................................................................
Present value valuation........................................................................................................................
Settlements ..........................................................................................................................................
Revisions on cash flows estimates ......................................................................................................
Translation adjustment.........................................................................................................................
Effect of discontinued operations
Transfer to net assets held for sale .....................................................................................................
Balance at end of the year ................................................................................................................
Current .................................................................................................................................................
Non-current ..........................................................................................................................................
December 31, 2018
3,168
15
(259)
461
(270)
December 31, 2017
2,519
70
(60)
620
96
–
3,115
85
3,030
3,115
(77)
3,168
87
3,081
3,168
Long-term interest rates (per annum)
Brazil ....................................................................................................................................................
Canada .................................................................................................................................................
Other regions .......................................................................................................................................
4.94%
0.77%
1.33%–8.59%
5.34%
0.57%
0.72%–6.13%
Accounting policy
When the provision is recognized, the corresponding cost is capitalized as part of property, plant and equipment
and it is depreciated over the useful life of the related mining asset, resulting in an expense recognized in the
income statement.
The long-term liability is discounted at presented value using a long-term risk free discount rate applicable to the
liability and the unwinds are recorded in the income statement and is reduced by payments for mine closure and
decommissioning of mining assets.
The accrued amounts of these obligations are not deducted from the potential costs covered by insurance or
indemnities.
Critical accounting estimates and judgments
Judgment is required to determine key assumptions used on the asset retirement obligation measurement such
as, interest rate, cost of closure, useful life of the mining asset considering the current conditions of closure and
the projected date of depletion of each mine. Any changes in these assumptions may significantly impact the
recorded provision. Therefore, the estimated costs for closure of the mining assets are deemed to be a critical
accounting estimate. These estimates are annually reviewed.
F-76
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
28. Litigation
a) Provision for litigation
Vale is party to labor, civil, tax and other ongoing lawsuits, at administrative and court levels. Provisions for losses
resulting from lawsuits are estimated and updated by the Company, based on analysis from the Company’s legal
consultants.
Changes in provision for litigation are as follows:
Balance at December 31, 2016 .....................
Additions and reversals, net ......................
Payments ...................................................
Indexation and interest ..............................
Translation adjustment ..............................
Merger of Valepar (note 30)(i) ...................
Balance at December 31, 2017 .....................
Additions and reversals, net ......................
Payments ...................................................
Additions—discontinued operations ..........
Indexation and interest ..............................
Translation adjustment ..............................
Balance at December 31, 2018 .....................
Tax litigation
214
22
(117)
10
(10)
631
750
17
(5)
21
23
(114)
692
Civil litigation
84
17
(3)
35
(2)
–
131
65
(23)
1
17
(25)
166
Labor litigation
534
126
(105)
37
(10)
–
582
106
(116)
16
(7)
(85)
496
Environmental
litigation
7
4
–
(1)
–
–
10
(3)
(2)
–
(1)
(1)
3
Total of litigation
provision
839
169
(225)
81
(22)
631
1,473
185
(146)
38
32
(225)
1,357
(i)
refers to litigations of PIS/COFINS of interest on capital.
i. Provisions for labor litigation—Consist of lawsuits filed by employees and service suppliers, related to
employment relationships mainly in Brazil. The relevant claims are related to payment for overtime work,
commuting time, and health and safety conditions. Also the Brazilian national social security institute (“INSS”)
contingencies are related to legal and administrative disputes between INSS and Vale due to applicability of
compulsory social security charges.
b) Contingent liabilities
Contingent liabilities are administrative and judicial claims, with expectation of loss classified as possible, and for
which the recognition of a provision is not considered necessary by the Company, based on legal advice. The
contingent liabilities are as follows:
Tax litigation ..........................................................................................................................................
Civil litigation .........................................................................................................................................
Labor litigation .......................................................................................................................................
Environmental litigation .........................................................................................................................
Total ......................................................................................................................................................
December 31, 2018
8,641
1,957
1,475
1,051
13,124
December 31, 2017
8,840
1,623
1,952
2,190
14,605
F-77
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
28. Litigation (Continued)
i—Tax litigation—Our most significant tax-related contingent liabilities result from disputes related to (i) the
deductibility of our payments of social security contributions on the net income (“CSLL”) from our taxable income,
(ii) challenges of certain tax credits we deducted from our PIS and COFINS payments, (iii) assessments of CFEM
(“royalties”), and (iv) charges of value-added tax on services and circulation of goods (“ICMS”), especially relating
to certain tax credits we claimed from the sale and transmission of energy, ICMS charges to anticipate the
payment in the entrance of goods to Pará State and ICMS/penalty charges on our own transportation. The
changes reported in the period resulted, mainly, from the exclusion of the tax cases related to IPI, PIS and
COFINS (isolated fine), IRPJ and ICMS (PRCT) and due to the new proceedings related to IRPJ, CSLL, ICMS,
ISS and IPTU and the application interest and inflation adjustments to the disputed amounts.
ii—Civil litigation—Most of those claims have been filed by suppliers for indemnification under construction
contracts, primarily relating to certain alleged damages, payments and contractual penalties. A number of other
claims are related to contractual disputes regarding inflation index. The changes reported in the period resulted,
mainly from reviewing the process related to commercial divergences of supply contracts.
iii—Labor litigation—Represents individual claims by employees and service providers, primarily involving
demands for additional compensation for overtime work, commuting time or health and safety conditions; and the
Brazilian national social security institute (“INSS”) regarding contributions on compensation programs based on
profits.
iv—Environmental litigation—The most significant claims concern alleged procedural deficiencies in licensing
processes, non-compliance with existing environmental licenses or damage to the environment.
c) Judicial deposits
In addition to the provisions and contingent liabilities, the Company is required by law to make judicial deposits to
secure a potential adverse outcome of certain lawsuits. These court-ordered deposits are monetarily adjusted and
reported as non-current assets until a judicial decision to draw the deposit occurs.
Tax litigation ..............................................................................................................................................................
Civil litigation .............................................................................................................................................................
Labor litigation ...........................................................................................................................................................
Environmental litigation .............................................................................................................................................
Total ..........................................................................................................................................................................
December 31, 2018
1,069
60
555
32
1,716
December 31, 2017
1,201
60
712
13
1,986
Beside the deposits already made, the Company has bank guarantees for judicial deposits in the amount of
US$1.5 billion. The annual cost of these guarantees is 1.5% and it is recognized as “financial expenses”.
F-78
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
28. Litigation (Continued)
d) Contingencies related to Samarco accident
Given the status of the contingencies related to Samarco accident, it is not possible to provide a range of possible
outcomes or a reliable estimate of potential losses for Vale S.A. Consequently, no contingent liability has been
quantified and no provision was recognized.
(i) Public civil claim filed by the Federal Government and others and Public civil claim filed by Federal Prosecution
Office (“MPF”)
In 2016, the federal government, the Brazilian states of Espírito Santo and Minas Gerais and other governmental
authorities have initiated a public civil lawsuit against Samarco and its shareholders, with an estimated value
indicated by the plaintiffs of US$5.2 billion (R$20.2 billion). In the same year, MPF filed a public civil action
against Samarco and its shareholders and presented several claims, including: (i) the adoption of measures for
mitigating the social, economic and environmental impacts resulting from the dam failure and other emergency
measures; (ii) the payment of compensation to the community; and (iii) payments for the collective moral damage.
The action value indicated by MPF is US$40 billion (R$155 billion).
In 2018, the parties entered into an agreement (“Term of Adjustment of Conduct”), which was determined, in
summary, (i) the complete extinction of the public civil claim of US$5.2 billion (R$20.2 billion) filed by the Federal
Government and others; and (ii) the partial extinction of the public civil claim of US$40 billion (R$155 billion) filed
by MPF. In relation to the public civil claim of US$40 billion (R$155 billion), the parties continue to negotiate for
the termination of some of their requests, as well as other lawsuits whose objects have already been included in
the Term of Adjustment of Conduct.
(ii) United States class action lawsuits
Samarco and its shareholders were named as defendants in securities class action lawsuits in the Federal Court
in New York, related to disclosures of risks of the operations of Samarco and others. The plaintiffs have not
specified an amount of alleged damages in these actions.
(iii) Criminal lawsuit
In 2016, the MPF brought a criminal lawsuit against Samarco and its shareholders, VogBr Recursos Hídricos e
Geotecnia Ltda. and 22 individuals for the consequences related to Fundão dam failure. All prosecution witnesses
residing in Brazil have been heard. Currently, the criminal lawsuit awaits for a position from Judiciary and all
hearings related to this action are suspended.
e) Contingent assets
In 2015, the Company filed an enforceable action in the amount of US$135 (R$524 million) referring to the final
court decision in favor of the Company of the accrued interest of compulsory deposits from 1987 to 1993.
Currently it is not possible to estimate the economic benefit inflow as there is a pending judicial decision.
Consequently, the asset was not recognized in the financial statements.
F-79
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
28. Litigation (Continued)
In March 2017, the Federal Supreme Court (STF) decided that the ICMS shall not be included in PIS and
COFINS tax basis. The related decision is not final because is still pending the judgment of an appeal from the
Federal Government. Vale has been discussing this issue in two judicial proceedings, which are covered by
taxable events occurred since December 2001. In one of them, Vale reached a favorable final judicial decision on
March 18, 2019. In the other case, the Company is awaiting the application of the STF decision by Federal
Regional Court of the 2nd Region. The asset was not recognized in the financial statements and the effects of the
favorable final judicial decision on March 18, 2019 will be evaluated by the Company.
Accounting policy
A provision is recognized when it is considered probable that an outflow of resources will be required to settle the
obligation and can be reliably estimated. The liability is accounted against an expense in the income statement.
This obligation is updated based on the developments of the judicial process or interest accretion and can be
reversed if the expectation of loss is not considered probable due to changes in circumstances or when the
obligation is settled.
Critical accounting estimates and judgments
By 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 of the Company’s control. Legal uncertainties involve the application
of significant estimates and judgments by management regarding the potential outcomes of future events.
29. Employee benefits
a) Employee postretirements obligations
In Brazil, the management of the pension plans is the responsibility of Fundação Vale do Rio Doce de Seguridade
Social (“Valia”) a nonprofit entity with administrative and financial autonomy. The Brazilian plans are as follows:
Benefit plan Vale Mais (“Vale Mais”) and benefit plan Valiaprev (“Valiaprev”)—Certain Company’s
employees are participants of Vale Mais and Valiaprev plans with components of defined benefits (specific
coverage for death, pensions and disability allowances) and components of defined contributions (for
programmable benefits). The defined benefit plan is subject to actuarial evaluations. The defined contribution plan
represents a fixed amount held on behalf of the participants. Both Vale Mais and Valiaprev were overfunded as at
December 31, 2018 and 2017.
Defined benefit plan (“Plano BD”)—The Plano BD has been closed to new entrants since the year 2000, when
the Vale Mais plan was implemented. It is a plan that has defined benefit characteristics, covering almost
exclusively retirees and their beneficiaries. It was overfunded as of December 31, 2018 and 2017 and the
contributions made by the Company are not relevant.
F-80
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
29. Employee benefits (Continued)
Complementary Allowance (“Abono complementação”) benefit plan—The Company sponsors a specific
group of former employees entitled to receive additional benefits from Valia regular payments plus post-retirement
benefits that covers medical, dental and pharmaceutical assistance. The contributions made by the Company
finished in 2014. The complementary allowance benefit was overfunded as at December 31, 2018 and 2017.
Other benefits—The Company sponsors medical plans for employees that meet specific criteria and for
employees who use the complementary allowance benefit. Although those benefits are not specific retirement
plans, actuarial calculations are used to calculate future commitments. As those benefits are related to health
care plans they have the nature of underfunded benefits, and are presented as underfunded plans as at
December 31, 2018 and 2017.
The Foreign plans are managed in accordance with their region. They are divided between plans in Canada,
United States of America, United Kingdom, Indonesia, New Caledonia, Japan and Taiwan. Pension plans in
Canada are composed of a defined benefit and defined contribution component. Currently the defined benefit
plans do not allow new entrants. The foreign defined benefit plans are underfunded as at December 31, 2018 and
2017.
Employers’ disclosure about pensions and other post-retirement benefits on the status of the defined benefit
elements of all plans is provided as follows.
i. Change in benefit obligation
Benefit obligation as at December 31, 2016 ............................................................................
Service costs .................................................................................................................................
Interest costs .................................................................................................................................
Benefits paid .................................................................................................................................
Participant contributions ...............................................................................................................
Effect of changes in the actuarial assumptions ............................................................................
Translation adjustment..................................................................................................................
Benefit obligation as at December 31, 2017 ............................................................................
Service costs .................................................................................................................................
Interest costs .................................................................................................................................
Benefits paid .................................................................................................................................
Participant contributions ...............................................................................................................
Effect of changes in the actuarial assumptions ............................................................................
Translation adjustment..................................................................................................................
Benefit obligation as at December 31, 2018 ............................................................................
Overfunded
pension plans
3,343
7
360
(326)
–
64
(51)
3,397
5
282
(296)
–
679
(490)
3,577
Underfunded
pension plans
4,045
86
183
(275)
(12)
167
276
4,470
101
158
(272)
(11)
(164)
(353)
3,929
Other
benefits
1,296
30
67
(65)
–
11
71
1,410
36
59
(60)
–
(32)
(133)
1,280
F-81
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
29. Employee benefits (Continued)
ii. Evolution of assets fair value
Fair value of plan assets as at December 31, 2016 .............................
Interest income .........................................................................................
Employer contributions .............................................................................
Participant contributions ...........................................................................
Benefits paid .............................................................................................
Return on plan assets (excluding interest income) ..................................
Translation adjustment..............................................................................
Fair value of plan assets as at December 31, 2017 .............................
Interest income .........................................................................................
Employer contributions .............................................................................
Participant contributions ...........................................................................
Benefits paid .............................................................................................
Return on plan assets (excluding interest income) ..................................
Translation adjustment..............................................................................
Fair value of plan assets as at December 31, 2018 .............................
Overfunded pension plans
4,694
513
45
–
(326)
(21)
(77)
4,828
406
35
2
(296)
479
(717)
4,737
Underfunded pension plans
3,419
151
65
(12)
(275)
174
254
3,776
127
49
–
(247)
(145)
(287)
3,273
Other benefits
–
–
65
–
(65)
–
–
–
–
60
–
(60)
–
–
–
iii. Reconciliation of assets and liabilities recognized in the statement of financial position
Balance at beginning of the year .......................................
Interest income ......................................................................
Changes on asset ceiling .......................................................
Translation adjustment...........................................................
Balance at end of the year ..................................................
Amount recognized in the statement of financial
position
Present value of actuarial liabilities .......................................
Fair value of assets ................................................................
Effect of the asset ceiling .......................................................
Liabilities ...............................................................................
Current liabilities ....................................................................
Non-current liabilities .............................................................
Liabilities ...............................................................................
Overfunded
pension plans
1,431
124
(172)
(223)
1,160
December 31, 2018
Other
benefits
–
–
–
–
–
Underfunded
pension plans
–
–
–
–
–
Overfunded
pension plans
1,351
152
(45)
(27)
1,431
Plans in Brazil
December 31, 2017
Other
benefits
–
–
–
–
–
Underfunded
pension plans
–
–
–
–
–
(3,577)
4,737
(1,160)
–
–
–
–
(334)
162
–
(172)
(4)
(168)
(172)
(249)
–
–
(249)
(19)
(230)
(249)
(3,397)
4,828
(1,431)
–
–
–
–
(401)
239
–
(162)
–
(162)
(162)
(258)
–
–
(258)
(22)
(236)
(258)
F-82
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
29. Employee benefits (Continued)
Amount recognized in the statement of financial
position
Present value of actuarial liabilities .........................................
Fair value of assets ..................................................................
Liabilities .................................................................................
Current liabilities ......................................................................
Non-current liabilities ...............................................................
Liabilities .................................................................................
Balance at beginning of the year ..........................................
Interest income .........................................................................
Changes on asset ceiling ..........................................................
Translation adjustment..............................................................
Balance at end of the year .....................................................
Amount recognized in the statement of financial position
Present value of actuarial liabilities ..........................................
Fair value of assets ...................................................................
Effect of the asset ceiling ..........................................................
Liabilities ..................................................................................
Current liabilities .......................................................................
Non-current liabilities ................................................................
Liabilities ..................................................................................
Overfunded
pension plans
December 31, 2018
Other
benefits
Underfunded
pension plans
Overfunded
pension plans
Foreign plan
December 31, 2017
Other
benefits
Underfunded
pension plans
–
–
–
–
–
–
(3,595)
3,111
(484)
(16)
(468)
(484)
(1,031)
–
(1,031)
(33)
(998)
(1,031)
–
–
–
–
–
–
(4,069)
3,537
(532)
(16)
(516)
(532)
(1,152)
–
(1,152)
(36)
(1,116)
(1,152)
Total
Overfunded
pension plans
1,431
124
(172)
(223)
1,160
December 31, 2018
Other
benefits
–
–
–
–
–
Underfunded
pension plans
–
–
–
–
–
Overfunded
pension plans
1,351
152
(45)
(27)
1,431
December 31, 2017
Other
benefits
–
–
–
–
–
Underfunded
pension plans
–
–
–
–
–
(3,577)
4,737
(1,160)
–
–
–
–
(3,929)
3,273
–
(656)
(20)
(636)
(656)
(1,280)
–
–
(1,280)
(52)
(1,228)
(1,280)
(3,397)
4,828
(1,431)
–
–
–
–
(4,470)
3,776
–
(694)
(16)
(678)
(694)
(1,410)
–
–
(1,410)
(58)
(1,352)
(1,410)
F-83
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
29. Employee benefits (Continued)
iv. Costs recognized in the income statement
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 .....................................................
Overfunded
pension
plans
5
282
(406)
Underfunded
pension
plans
101
158
(127)
2018
Other
benefits
36
59
–
Overfunded
pension
plans
7
360
(513)
Underfunded
pension
plans
86
183
(151)
2017
Other
benefits
30
67
–
Year ended December 31
2016
Overfunded
pension
plans
10
362
(512)
Underfunded
pension
plans
76
175
(151)
Other
benefits
(16)
66
–
124
5
–
132
–
95
152
6
–
118
–
97
156
16
–
100
–
50
v. Costs recognized in the statement of comprehensive income
Overfunded
pension
plans
(163)
2018
Underfunded
pension
plans
(496)
Year ended December 31
2017
Other
benefits
(189)
Overfunded
pension
plans
(153)
Underfunded
pension
plans
(496)
Other
benefits
(160)
Overfunded
pension
plans
(113)
2016
Underfunded
pension
plans
(495)
Other
benefits
(95)
Balance at beginning of the year ....
Effect of changes actuarial
assumptions ...................................
(679)
172
(144)
–
–
28
(7)
21
11
(4)
32
–
–
(1)
31
(8)
23
10
28
(65)
–
47
(3)
(21)
7
(14)
4
–
(167)
167
–
–
–
(3)
(3)
4
(1)
(27)
–
–
(14)
(41)
12
(29)
1
(1)
(271)
(117)
281
(36)
–
(26)
9
(17)
(23)
–
71
–
35
(11)
16
5
(6)
–
(75)
–
–
–
(75)
17
(58)
(7)
–
479
172
(1)
(29)
10
(19)
23
(7)
(166)
(468)
(128)
(163)
(496)
(189)
(153)
(496)
(160)
Return on plan assets (excluding
interest income) .............................
Change of asset ceiling.......................
Others .................................................
Deferred income tax ............................
Others comprehensive income .......
Translation adjustments ......................
Transfers/ disposal ..............................
Accumulated other comprehensive
income ..........................................
vi. Risks related to plans
The Administrators of the plans have committed to strategic planning to strengthen internal controls and risk
management. This commitment is achieved by conducting audits and assessments of internal controls, which aim
to mitigate operational market and credit risks. Risks are presented as follow:
Legal—lawsuits: issuing periodic reports to internal audit and directors contemplating the analysis of lawyers
about the possibility of loss (remote, probable or possible), aiming to support the administrative
F-84
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
29. Employee benefits (Continued)
decision regarding provisions. Analysis and ongoing monitoring of developments in the legal scenario and its
dissemination within the institution in order to subsidize the administrative plans, considering the impact of
regulatory changes.
Actuarial—the annual actuarial valuation of the benefit plans comprises the assessment of costs, revenues and
adequacy of plan funding. It also considers the monitoring of biometric, economic and financial assumptions
(asset volatility, changes in interest rates, inflation, life expectancy, salaries and other).
Market—profitability projections are performed for the various plans and profiles of investments for 10 years in
the management study of assets and liabilities. These projections include the risks of investments in various
market segments. Furthermore, the risks for short-term market of the plans are monitored monthly through
metrics of VaR (Value at Risk) and stress testing. For exclusive investment funds of Valia, the market risk is
measured daily by the custodian asset bank.
Credit—assessment of the credit quality of issuers by hiring expert consultants to evaluate financial institutions
and internal assessment of payment ability of non-financial companies. For assets of non-financial companies,
the assessment is conducted by monitoring of the company until the maturity of the security.
vii. Actuarial and economic assumptions and sensitivity analysis
All calculations involve future actuarial projections about some parameters, such as: salaries, interest, inflation,
the trend of social security in Brazil (“INSS”) benefits, mortality and disability.
The economic and actuarial assumptions adopted have been taken considering the maturity dates and therefore,
in the short term they would not realize.
The following assumptions were adopted in the assessment:
Discount rate to determine benefit obligation.................
Nominal average rate to determine expense/ income ...
Nominal average rate of salary increase .......................
Nominal average rate of benefit increase ......................
Immediate health care cost trend rate ...........................
Ultimate health care cost trend rate ...............................
Nominal average rate of price inflation ..........................
Overfunded
pension plans
8.86% - 9.10%
8.86% - 9.10%
4.00% - 6.08%
4.00%
N/A
N/A
4.00%
Underfunded
pension plans
9.10%
9.10%
6.08%
6.08%
N/A
N/A
4.00%
December 31, 2018
Other
benefits
9.05% - 9.29%
N/A
N/A
N/A
7.12%
7.12%
4.00%
Overfunded
pension plans
9.74% - 9.85%
9.74% - 9.85%
4.25% - 6.34%
4.85%
N/A
N/A
4.25%
Brazil
December 31, 2017
Other
benefits
9.74% - 9.91%
N/A
N/A
N/A
7.38%
7.38%
4.25%
Underfunded
pension plans
9.84%
9.84%
4.25% - 6.34%
4.85%
N/A
N/A
4.25%
F-85
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
29. Employee benefits (Continued)
Discount rate to determine benefit obligation ....................................
Nominal average rate to determine expense/ income .......................
Nominal average rate of salary increase ...........................................
Nominal average rate of benefit increase ..........................................
Immediate health care cost trend rate ...............................................
Ultimate health care cost trend rate ...................................................
Nominal average rate of price inflation ..............................................
Underfunded
pension plans
3.56%
3.26%
3.20%
N/A
N/A
N/A
2.10%
December 31, 2018
Other benefits
3.66%
N/A
N/A
3.00%
5.90%
4.56%
2.10%
Underfunded
pension plans
3.26%
3.84%
3.27%
N/A
N/A
N/A
2.10%
Foreign
December 31, 2017
Other benefits
3.44%
N/A
N/A
3.00%
5.99%
4.56%
2.10%
For the sensitivity analysis, the Company considers the effect of 1% in nominal discount rate to determine the
actuarial liability. The effects of this variation on the actuarial liability, the assumption adopted the average
duration of the plan are as follows:
Nominal discount rate—1% increase
Actuarial liability balance ..........................................................................................................
Assumptions made ...................................................................................................................
Nominal discount rate—1% reduction
Actuarial liability balance ..........................................................................................................
Assumptions made ...................................................................................................................
viii. Assets of pension plans
Overfunded
pension plans
Underfunded
pension plans
December 31, 2018
Other benefits
3,310
9.98%
3,891
7.98%
3,459
5.03%
4,471
3.03%
1,114
5.42%
1,488
3.42%
Brazilian plan assets as at December 31, 2018 and 2017 include respectively (i) investments in a portfolio of
Vale’s stock and other instruments in the amount of US$13 and US$37 and (ii) Brazilian Federal Government
securities in the amount of US$4,199 and US$4,617.
Foreign plan assets as at December 31, 2018 and 2017 include Canadian Government securities in the amount
of US$674 and US$864, respectively.
F-86
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
29. Employee benefits (Continued)
ix. Overfunded pension plans
Assets by category are as follows:
Debt securities—Corporate ..........................................
Debt securities—Government .......................................
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(i) ..................................
Fair value of plan assets at end of year ...................
Level 1
–
2,447
2,441
450
25
–
–
–
–
5,363
Level 2
47
–
–
–
–
–
–
–
–
47
December 31, 2018
Total
Level 3
47
–
2,447
–
2,441
–
450
–
25
–
159
159
15
15
339
339
160
160
6,083
673
(1,346)
4,737
Level 1
–
2,757
2,515
531
24
–
–
–
–
5,827
Level 2
72
–
–
–
–
–
–
–
–
72
December 31, 2017
Total
Level 3
–
72
2,757
–
2,515
–
531
–
–
24
196
196
15
15
365
365
224
224
6,699
800
(1,871)
4,828
(i)
Financial investments not related to coverage of overfunded pension plans
Measurement of overfunded plan assets at fair value with no observable market variables (level 3) are as follows:
Balance as at December 31, 2016 .............................
Return on plan assets ...................................................
Assets purchases ..........................................................
Assets sold during the year ..........................................
Translation adjustment..................................................
Balance as at December 31, 2017 .............................
Return on plan assets ...................................................
Assets purchases ..........................................................
Assets sold during the year ..........................................
Translation adjustment..................................................
Balance as at December 31, 2018 .............................
Private equity funds
140
37
31
(8)
(4)
196
15
2
(26)
(28)
159
Real estate funds
10
(2)
8
–
(1)
15
–
2
–
(2)
15
Real estate
370
4
13
(17)
(5)
365
39
7
(16)
(56)
339
Loans to
participants
260
29
75
(137)
(3)
224
25
233
(292)
(30)
160
Total
780
68
127
(162)
(13)
800
79
–
(334)
(116)
673
F-87
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
29. Employee benefits (Continued)
x. Underfunded pension plans
Assets by category are as follows:
Cash and cash equivalents ......................................
Equity securities .......................................................
Debt securities—Corporate .....................................
Debt securities—Government ..................................
Investments funds—Fixed Income ..........................
Investments funds—Equity ......................................
Structured investments—Private Equity funds ........
Real estate ...............................................................
Loans to participants ................................................
Others ......................................................................
Total .........................................................................
December 31, 2018
December 31, 2017
Level 1
3
1,186
–
116
42
–
–
–
–
–
1,347
Level 2
18
2
374
680
296
124
–
–
–
–
1,494
Level 3
–
–
–
–
–
–
213
51
3
165
432
Total
21
1,188
374
796
338
124
213
51
3
165
3,273
Level 1
4
1,364
–
141
159
8
97
–
–
–
1,773
Level 2
28
3
338
801
–
392
–
–
–
–
1,562
Level 3
–
–
–
–
–
–
197
44
5
195
441
Total
32
1,367
338
942
159
400
294
44
5
195
3,776
Measurement of underfunded plan assets at fair value with no observable market variables (level 3) are as
follows:
Balance as at December 31, 2016 .............................................................
Return on plan assets ...................................................................................
Assets purchases ..........................................................................................
Assets sold during the year ..........................................................................
Translation adjustment..................................................................................
Balance as at December 31, 2017 .............................................................
Return on plan assets ...................................................................................
Assets purchases ..........................................................................................
Assets sold during the year ..........................................................................
Translation adjustment..................................................................................
Balance as at December 31, 2018 .............................................................
xi. Disbursement of future cash flow
Private equity
funds
187
8
13
(18)
7
197
32
22
(22)
(16)
213
Real estate
24
1
17
(1)
3
44
3
18
(10)
(4)
51
Loans to
participants
6
–
–
–
(1)
5
–
–
(1)
(1)
3
Others
173
10
–
–
12
195
(15)
–
–
(15)
165
Total
390
19
30
(19)
21
441
20
40
(33)
(36)
432
Vale expects to disburse US$125 in 2019 in relation to pension plans and other benefits.
F-88
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
29. Employee benefits (Continued)
xii. Expected benefit payments
The expected benefit payments, which reflect future services, are as follows:
2019 ............................................................................................................................................
2020 ............................................................................................................................................
2021 ............................................................................................................................................
2022 ............................................................................................................................................
2023 ............................................................................................................................................
2024 and thereafter .....................................................................................................................
b) Profit sharing program (“PLR”)
Overfunded
pension plans
259
268
276
284
291
1,543
December 31, 2018
Underfunded
pension plans
222
223
223
223
224
1,116
Other benefits
61
63
65
67
69
369
The Company recorded as cost of goods sold and services rendered and other operating expenses related to the
profit sharing program US$503, US$780 and US$331 for the years ended December 31, 2018, 2017 and 2016,
respectively.
c) Long-term compensation plan
For the long-term awarding of eligible executives, the Company compensation plans include Matching Program
and Performance Share Unit Program—PSU, with three to four years-vesting cycles, respectively, with the aim of
encouraging employee’s retention and stimulating their performance.
For the Matching program, the participants can acquire Vale’s common shares in the market without any benefits
being provided by Vale. If the shares acquired are held for a period of three years and the participants keep
employment relationship with Vale, the participant is entitled to receive from Vale an award in shares, equivalent
to the number of shares originally acquired by the executive. It should be noted that, although a specific custodian
of the shares is defined by Vale, the shares initially purchased by the executives have no restriction and can be
sold at any time. However, if it’s done before the end of the three-year-vesting period, they lose the entitlement of
receiving the related award paid by Vale.
For PSU program, the eligible executives have the opportunity to receive during a four year-vesting cycle, an
award equivalent to the market value of a determined number of common shares and conditioned to Vale’s
performance factor measured as an indicator of total return to the shareholders (TSR). This award is paid in cash
and can occur in cumulative installments of 20% (at the end of 2nd year), 30% (at the end of 3rd year) and 50%
(at the end of 4th year), conditioned to the performance factor of each year.
Liabilities of the plans are measured at fair value at every reporting period, based on market rates. Compensation
costs incurred are recognized by the defined vesting period of three or four years. For the years ended
December 31, 2018, 2017 and 2016 the Company recognized in the income statement the amounts of US$95,
US$65 and US$37, respectively, related to long-term compensation plan.
F-89
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
29. Employee benefits (Continued)
Accounting policy
Employee benefits
i. Current benefits—wages, vacations and related taxes
Payments of benefits such as wages or accrued vacation, as well as the related social security taxes over those
benefits are recognized monthly in income, on an accruals basis.
ii. Current benefits—profit sharing program
The Company has the Annual Incentive Program (AIP) based on Team and business unit’s contribution and
Company-wide performance through operational cash generation. The Company makes an accrual based on
evaluation periodic of goals achieved and Company result, using the accrual basis and recognition of present
obligation arising from past events in the estimated outflow of resources in the future. The accrual is recorded as
cost of goods sold and services rendered or operating expenses in accordance with the activity of each
employee.
iii. Non-current benefits—long-term incentive programs
The Company has established a procedure for awarding certain eligible executives (Matching and Virtual Shares
Programs) with the goal of encouraging employee retention and optimum performance. 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 vesting period as defined.
iv. Non-current benefits—pension costs and other post-retirement benefits
The Company has 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 these plans.
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
statement of financial position represents the present value of the defined benefit obligation as at that date, less
the fair value of plan assets. The Company recognized in the income statement the costs of services, the interest
expense of the obligations and the interest income of the plan assets. The remeasurement of gains and losses,
return on plan assets (excluding the amount of interest on return of assets, which is recognized in income for the
year) and changes in the effect of the ceiling of the active and onerous liabilities are recognized in comprehensive
income for the year.
F-90
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
29. Employee benefits (Continued)
For overfunded plans, the Company does not recognize any assets or benefits in the statement of financial
position or income statement until such time as the use of the surplus is clearly defined. For underfunded plans,
the Company recognizes actuarial liabilities and results arising from the actuarial valuation.
Critical accounting estimates and judgments
Post-retirement benefits for employees—The amounts 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 review the assumptions that will be used for the
following year. These assumptions are used in determining the fair values of assets and liabilities, costs and
expenses and the future values of estimated cash outflows, which are recorded in the plan obligations.
30. Stockholders’ equity
a) Share capital
As at December 31, 2018, the share capital was US$61,614 corresponding to 5,284,474,782 shares issued and
fully paid without par value.
Stockholders
Litel Participações S.A. and Litela Participações S.A. ..........................................................................
BNDES Participações S.A. ....................................................................................................................
Bradespar S.A. .......................................................................................................................................
Mitsui & Co., Ltd .....................................................................................................................................
Foreign investors—ADRs ......................................................................................................................
Foreign institutional investors in local market ........................................................................................
FMP—FGTS ..........................................................................................................................................
PIBB—Fund ...........................................................................................................................................
Institutional investors .............................................................................................................................
Retail investors in Brazil.........................................................................................................................
Brazilian Government (Golden Share) ..................................................................................................
Outstanding shares .............................................................................................................................
Shares in treasury ..................................................................................................................................
Total issued shares .............................................................................................................................
Share capital per class of shares (in millions) .................................................................................
Total authorized shares ......................................................................................................................
ON
1,075,773,534
342,484,176
296,009,366
286,347,055
1,211,272,764
1,235,808,225
54,638,358
2,300,038
332,021,902
289,602,980
–
5,126,258,398
158,216,372
5,284,474,770
61,614
7,000,000,000
December 31, 2018
Total
1,075,773,534
342,484,176
296,009,366
286,347,055
1,211,272,764
1,235,808,225
54,638,358
2,300,038
332,021,902
289,602,980
12
5,126,258,410
158,216,372
5,284,474,782
61,614
7,000,000,000
PNE
–
–
–
–
–
–
–
–
–
–
12
12
–
12
–
–
The Board of Directors may, regardless of changes to by-laws, issue new common shares (up to the total
authorized shares), including the capitalization of profits and reserves to the extent authorized.
F-91
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
30. Stockholders’ equity (Continued)
The Company repurchases its 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 determined terms and number 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.
b) Share buyback program
The Company concluded in November 2018, share buyback program for Vale’s common shares and their
respective ADSs approved by the Board of Directors on July 25, 2018, and repurchased a total of 71,173,683
common shares, at an average price of US$14.05 per share, for a total aggregate purchase price of US$1,000.
The shares were acquired in the stock market based on regular trading conditions. The shares acquired are held
in treasury for future sale or cancellation.
c) Remuneration to the Company’s stockholders
The Company’s by-laws determine the minimum remuneration to stockholders of 25% of net income, after
appropriations to legal reserve and tax incentive reserve, as follows:
Net income of the year ........................................................................................................................................................................................................
Appropriation to legal reserve ................................................................................................................................................................................................
Appropriation to tax incentive reserve ...................................................................................................................................................................................
Net income after appropriations to legal reserve and tax incentive reserve ................................................................................................................
Minimum mandatory remuneration(i) .....................................................................................................................................................................................
Stockholders’ remuneration paid in September, 2018 ..........................................................................................................................................................
Appropriation to investments reserve ....................................................................................................................................................................................
2018
6,860
(343)
(401)
6,116
1,529
(2,054)
(4,062)
(i) Due to the Brazilian legislation, the Company must retain and collect the amount of withholding tax (15%) and cannot be considered when charging the
interest on capital to the mandatory dividend, the minimum mandatory remuneration before tax is US$1,799 based on the interest on capital.
The Company approved in March, 2018, the new policy of stockholders’ remuneration of the Company, approved
in March 2018, which provides for a semi-annual payment of 30% of Adjusted EBITDA less sustaining capital. In
September, 2018, the Company paid stockholders’ remuneration in the amount of US$1,876 (US$0.360951164
per share), US$1,659 based on the interest on capital and US$217 based on dividends, for the first half of 2018
approved by Board of Directors on July 25, 2018. This payment comprises the minimum mandatory remuneration
for the year ended December 31, 2018.
Following the Brumadinho dam failure (as described on note 3), Vale has determined the suspension of the
Shareholder Remuneration Policy and any other deliberation on shares buyback.
F-92
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
30. Stockholders’ equity (Continued)
The remuneration paid to stockholders based on the on interest on capital and dividends during 2018 and 2017
amounted US$3,313 (US$0.636637439 per share) and US$1,456 (US$0.282400343 per share), respectively.
d) Profit reserves
The amount of profit reserves is distributed as follows:
Balance as at December 31, 2016 ..............................
Allocation of Income .......................................................
Dividends and interest on capital of Vale’s
stockholders ..............................................................
Translation adjustment...................................................
Balance as at December 31, 2017 ..............................
Allocation of Income .......................................................
Translation adjustment...................................................
Balance as at December 31, 2018 ..............................
Legal reserve
1,384
275
Tax incentive
reserve
377
216
Investments
reserve
1,808
3,541
–
(29)
1,630
343
(251)
1,722
–
(13)
580
401
(99)
882
–
(140)
5,209
4,062
(907)
8,364
Additional
remuneration
reserve
634
–
(658)
24
–
–
–
–
Total of profit
reserves
4,203
4,032
(658)
(158)
7,419
4,806
(1,257)
10,968
Legal reserve—Is a legal requirement for Brazilian public companies to retain 5% of the annual net income up to
20% of the capital. The reserve can only be used to compensate losses or to increase capital.
Tax incentive reserve—Results 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.
Investment reserve—Aims to ensure the maintenance and development of the main activities that comprise the
Company’s operations and to retain budgeted capital for investments. Based on the Company’s by-laws, this
reserve is capped to 50% of the annual distributable net income, up to the amount of the share capital. The
remaining balance over 50% of the annual distributable net income is retained based on the capital investments
budget submitted for approval in the Stockholders’ Meeting, pursuant to article 196 of the Law 6,404.
Additional remuneration reserve—Arises from the remuneration proposed by Management that exceeds the
mandatory minimum remuneration of 25% of the adjusted net income.
F-93
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
30. Stockholders’ equity (Continued)
e) Unrealized fair value gain (losses)
Balance as at December 31, 2016 .........................................................................
Other comprehensive income ...................................................................................
Translation adjustment..............................................................................................
Balance as at December 31, 2017 .........................................................................
Other comprehensive income ...................................................................................
Translation adjustment..............................................................................................
Balance as at December 31, 2018 .........................................................................
f) Vale’s corporate governance restructuring in 2017
Retirement
benefit
obligations
(809)
(46)
10
(845)
41
49
(755)
Fair value
adjustment to
investment in
equity securities
–
–
–
–
60
–
60
Conversion
shares
(338)
–
–
(338)
–
–
(338)
Total gain
(losses)
(1,147)
(46)
10
(1,183)
101
49
(1,033)
At the General Extraordinary Stockholders’ Meeting, held on June 27, 2017, stockholders approved the corporate
restructuring of the Company proposed by Valepar S.A. (former controlling stockholder). The corporate
restructuring was based on (i) conversion of Vale class “A” preferred shares into common shares; (ii) amendment
of Vale’s by-laws, so as to adjust to Novo Mercado rules; and (iii) the merger of Valepar S.A. into Vale.
(i) Conversion of preferred shares and merger of Valepar S.A.
At the General Extraordinary Stockholders’ Meeting, held on June 27, 2017, stockholders approved the voluntary
conversion of Vale class “A” preferred shares into common shares (“ON”), based on the conversion rate of 0.9342
common shares for each Vale class “A” preferred share.
On August 11, 2017, the voluntary conversion period expired and an aggregate of 1,660,581,830 preferred
shares (excluding treasury shares), corresponding to 84.4% of the total outstanding preferred shares, were
converted into common shares.
At the Extraordinary Stockholders’ Meeting of Valepar S.A, held on August 14, 2017, stockholders approved the
merger of Valepar with and into Vale. Thereafter, Valepar ceases to exist and, as consequence, its stockholders
hold direct interests in Vale, through the 1.2065 Vale common shares received for each Valepar share held by
them. As a result, Vale issued 173,543,667 new common shares to Valepar’s stockholders, all registered and
without par value.
On August 14, 2017, the merger was accounted in Vale’s stockholders’ equity as capital reserve, based on the
accounting appraisal report of Valepar’s net assets, amounting to US$1,158.
F-94
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
30. Stockholders’ equity (Continued)
The impacts arising from the merger in the Company’s assets and liabilities are as follows:
Current assets ..........................................................................................................................................................................................................
Judicial deposits .......................................................................................................................................................................................................
Intangible ..................................................................................................................................................................................................................
Current liabilities ......................................................................................................................................................................................................
Provisions for litigation .............................................................................................................................................................................................
Taxes payable ..........................................................................................................................................................................................................
Net assets ...............................................................................................................................................................................................................
August 14, 2017
24
951
964
20
631
130
1,158
At the Extraordinary Stockholders’ Meeting and at the Special Stockholders’ Meeting, held on October 18, 2017,
preferred stockholders approved the conversion of all Class “A” preferred shares into common shares of the
Company, in the proportion of 0.9342 common share for each class “A” preferred share. During the period from
October 20, 2017 until November 21, 2017, inclusive, the stockholders holding Vale’s Class “A” preferred shares
dissenting with regard to the resolution of the Special Meeting, had the right to withdraw from the Company,
receiving R$24.26 per share which is the equivalent of Vale stockholders’ equity per share at December 31, 2016.
At the end of this period, 10,397 common shares were converted into treasury shares (corresponding to 11,130
preferred shares).
At the Extraordinary Stockholders’ Meeting held on December 21, 2017 stockholders’ approved the migration of
the Company to the special listing segment of B3 S.A. (“Novo Mercado”), following the conversion of the class “A”
preferred shares into common shares.
The stockholders’ equity corresponds to 5,284,474,770 common shares and 12 preferred shares special class
(“PNE” or “Golden shares”), and there were no changes in the amount of share capital.
Shares outstanding
ON .........................................................................................
PNA/PNE ..............................................................................
Shares in treasury
ON .........................................................................................
PNA .......................................................................................
Total issued shares ............................................................
g) Shareholders Agreement
Share position before
conversion
Conversion of the
preferred shares
Issue of new shares
Share position after
conversion
3,185,653,000
1,967,721,926
5,153,374,926
31,535,402
59,405,792
5,244,316,120
1,838,235,414
(1,967,721,914)
(129,486,500)
55,507,287
(59,405,792)
(133,385,005)
173,543,667
–
173,543,667
–
–
173,543,667
5,197,432,081
12
5,197,432,093
87,042,689
–
5,284,474,782
On the date of the merger of Valepar into Vale, August 14, 2017, the former Controlling Shareholders of Valepar
executed a new shareholders’ agreement (“Vale Agreement”) that binds only 20% of the totality
F-95
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
30. Stockholders’ equity (Continued)
of Vale’s common shares issued by Vale, and will be in force until November 9, 2020, with no provision for
renewal.
For 6 months from the date of entry into force of the Vale Agreement, the Shareholders will be obligated not to
transfer, by any means, either directly or indirectly, Vale shares they receive as a result of the implementation of
the Proposal (“Lock-Up”), except for (i) the transfer of Vale’s shares by the Shareholders to their affiliates and
their current shareholders, provided that such transferred shares shall remain subject to the Lock-Up, and (ii) the
transfer of shares held by the Shareholders prior to the merger of Valepar.
Accounting policy
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 mandatory remuneration approved by the by-laws shall only be recognized in current
liabilities on the date that is approved by stockholders.
The Company 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 the net income for the year or 50% of retained earnings plus profit
reserves as determined by Brazilian corporate law.
The benefit to the Company, as opposed to making a dividend payment, is a reduction in the 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. 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
deductibility recorded in the income statement.
31. Related parties
The Company’s related parties are subsidiaries, joint ventures, associates, stockholders and its related entities
and key management personnel of the Company. Transactions between the parent company and its subsidiaries
are eliminated on consolidation and are not disclosed in this note.
Related party transactions were made by the Company on terms equivalent to those that prevail in arm’s-length
transactions, with respect to price and market conditions that are no less favorable to the Company than those
arranged with third parties.
Purchases, accounts receivable and other assets, and accounts payable and other liabilities relate largely to
amounts charged by joint ventures and associates related to the pelletizing plants operational lease and railway
transportation services.
F-96
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
31. Related parties (Continued)
Information about related party transactions and effects on the financial statements is set out below:
a) Transactions with related parties
Net operating revenue .............................................................................................................................
Cost and operating expenses ..................................................................................................................
Financial result .........................................................................................................................................
Net operating revenue ..............................................................................................................................
Cost and operating expenses ...................................................................................................................
Financial result ..........................................................................................................................................
Net operating revenue ..............................................................................................................................
Cost and operating expenses ...................................................................................................................
Financial result ..........................................................................................................................................
Joint
Ventures
352
(2,269)
115
Associates
309
(39)
–
Joint
Ventures
399
(1,943)
118
Associates
337
(29)
(14)
Joint
Ventures
166
(916)
(29)
Associates
345
(51)
1
Year ended December 31
2018
Major
stockholders
207
–
(115)
Total
868
(2,308)
–
Year ended December 31
2017
Major
stockholders
146
(29)
(819)
Total
882
(2,001)
(715)
Year ended December 31
2016
Major
stockholders
141
(37)
(882)
Total
652
(1,004)
(910)
Net operating revenue relates to sale of iron ore to the steelmakers and right to use capacity on railroads. Cost
and operating expenses mostly relate to the operational leases of the pelletizing plants.
F-97
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
31. Related parties (Continued)
b) Outstanding balances with related parties
December 31, 2018
December 31, 2017
Joint
Ventures
Associates
Major
stockholders
Total
Joint
Ventures
Associates
Major
stockholders
Assets
Cash and cash equivalents ..........................................
Accounts receivable .....................................................
Dividends receivable ....................................................
Loans ...........................................................................
Derivatives financial instruments .................................
Other assets .................................................................
Liabilities
Supplier and contractors ..............................................
Loans ...........................................................................
Derivatives financial instruments .................................
Other liabilities .............................................................
–
110
132
1,976
–
25
221
–
–
769
–
42
–
–
–
–
21
1,325
–
–
1,256
3
–
–
297
–
24
2,650
112
–
1,256
155
132
1,976
297
25
266
3,975
112
769
–
73
112
4,526
–
17
192
–
–
612
–
55
14
–
–
–
35
1,245
–
–
817
3
–
–
284
–
201
4,508
109
16
Total
817
131
126
4,526
284
17
428
5,753
109
628
Major stockholders
Refers to regular financial instruments with large financial institutions of which the stockholders are part of the
controlling “shareholders’ agreement”.
Coal segment transactions
In March 2018, Nacala BV, a joint venture between Vale and Mitsui on the Nacala’s logistic corridor, closed the
project financing and repaid a portion of the shareholders’ loans from Vale, in the amount of US$2,572. The
outstanding receivable of US$1,976 carries interest at 7.44% p.a.
F-98
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
31. Related parties (Continued)
The loan from associates mainly relates to the loan from Pangea Emirates Ltd, part of the group of shareholders
which owns 15% interest on Vale Moçambique which carries interest at 6.54% p.a.
c) The key management personnel remuneration
Short-term benefits
Wages ................................................................................................................................................................
Direct and indirect benefits ................................................................................................................................
Profit sharing program (“PLR”) ..........................................................................................................................
Long-term benefits
Shares based .....................................................................................................................................................
Severance .........................................................................................................................................................
2018
2017
Year ended
December 31
2016
8
11
10
29
3
20
52
10
10
8
28
5
19
52
8
4
–
12
1
5
18
The amounts described above include the Board of Directors and the Executive Officers.
32. Commitments
a) Contractual obligations
The table below presents the annual minimum future payments, which are required and non-cancelable, related
to contractual obligations of the Company as of December 31.
Operating lease ......................................................
Purchase obligations..............................................
Total minimum payments required ....................
2019
250
2,677
2,927
2020
201
1,445
1,646
2021
189
548
737
2022
166
463
629
2023 and
thereafter
1,692
2,194
3,886
Total
2,498
7,327
9,825
Operating lease—The Company has operating lease agreements in place with third parties related to port
structures and port operations, transportation services, energy plants and property leases for its operational
facilities.
Vale also has long-term agreements for the exploration and processing of iron ore with its joint ventures, such as
the agreements to lease pelletizing plants in Brazil. The leases have varying terms and on renewal, the terms of
the leases are renegotiated. The minimum future payments have been calculated considering the non-cancellable
period of the lease agreements.
The total amount of operational leasing expenses for the year ended on December 31, 2018, 2017 and 2016 were
US$1,044, US$805 and US$532, respectively.
F-99
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
32. Commitments (Continued)
Purchase obligations—Mainly relate to agreements for the acquisition of fuel, energy and the acquisition of raw
materials and services.
b) Guarantees provided
As of December 31, 2018, corporate guarantees provided by Vale (within the limit of its direct or indirect interest)
for the companies Norte Energia S.A. and Companhia Siderúrgica do Pecém S.A. were US$331 and US$1,404,
respectively.
The net book value of property, plant and equipment pledged to secure judicial claims on December 31, 2018 and
2017 were US$6 and US$15, respectively.
c) Nickel Operations—Indonesia
The Company’s subsidiary PT Vale Indonesia Tbk (“PTVI”), a public company in Indonesia, has an agreement in
place with the Government of Indonesia to operate its mining licenses which includes a commitment to divest an
additional 20% of PTVI’s shares to Indonesian participants by October 2019 (approximately 20% of PTVI’s shares
are already registered on the Indonesian Stock Exchange). The existing major shareholders, Vale Canada and
Sumitomo Metal Mining, Co., Ltd., will comply with the divestment obligation on a pro rata basis.
33. Risk management
Vale considers that an effective risk management is key to achieve the Company’s objectives and to ensure
people and environmental safety, financial stability and flexibility of the Company as well as the going concern of
its business.
Therefore, Vale has developed its risk management strategy in order to provide an integrated approach of the
risks that the company is exposed to, considering not only the risks generated by variables traded in financial
markets (market risk) and those arising from liquidity risk, but also risk from counterparties obligations (credit risk);
those that are related to governance, business model and external environment (strategic risks); risks relating to
inadequate or failed internal processes, people, health, safety, environmental and social (operational risk);
information security (cybernetic risk) and internal and external compliance (compliance risk).
a) Corporate risk management policy
The Board of Directors established a corporate risk management policy defining principles and guidelines
applicable to this process in the company and the corresponding governance structure based on the lines of
defense model.
F-100
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
33. Risk management (Continued)
This policy determines that the first line of defense, that is, the owners of the control activities related to the
identified risks and testing assignees of the business units, projects, administrative and support are direct
responsible for identifying, assessing, remediating, monitoring and managing risk events under an integrated
approach.
The Executive Risk Management Committee is the main body of the risk management structure, and is
responsible to provide recommendations regarding Vale’s Risk Management System and to support the
Executive Board on the risk monitoring activities and with the related deliberations needed on its corporate
management.
The Executive Board is in-charge for the approval of the policy deployment into rules and responsibilities directed
to management and control of risks through issuing of internal normative documents.
Internal normative documents related risk management complement the corporate risk management policy and
define practices, processes, controls, roles and assignments.
b) Liquidity risk management
The liquidity risk arises from the possibility that Vale might not perform its obligations on due dates, as well as
face difficulties to meet its cash requirements due to market liquidity constraints.
See note 21 “Loans, borrowings and cash and cash equivalents” for details on the Company’s liquidity risk.
c) Credit risk management
Vale’s exposure to credit risk arises 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.
(i) Commercial credit risk management
See note 10 “Accounts receivable” for details on commercial credit risk.
(ii) Treasury credit risk management
To manage the credit exposure arising from cash investments and derivative instruments, credit limits are
approved to each counterparty with whom the Company has credit exposure.
Furthermore, the Company controls the portfolio diversification and monitors different indicators of solvency and
liquidity of the different counterparties that were approved for trading.
F-101
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
33. Risk management (Continued)
d) Market risk management
Vale is exposed to several market risk factors that can impact its cash flow. 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 regarding the risk management strategy, that may incorporate financial instruments,
including derivatives.
The portfolio of these financial instruments is monitored on a monthly basis, enabling financial results surveillance
and its 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.
Foreign exchange and interest rate risk
The company’s cash flow is subjected to volatility of several currencies, as its product are predominantly priced in
US dollar, while most of the costs, disbursements and investments are denominated in other currencies, mainly
Brazilian real and Canadian dollar.
In order to reduce the potential impact that arises from this currency mismatch, derivatives instruments may be
used as a risk mitigation strategy.
Vale implements hedge transactions to protect its cash flow against the market risks that arises from its debt
obligations—mainly currency volatility. The hedges cover most of the debt denominated in Brazilian reais and
Euros. The Company uses swap and forward transactions to convert debt linked to Brazilian real and Euros into
US dollar, with volumes, flows and settlement dates similar to those of the debt instruments—or sometimes lower,
subject to market liquidity conditions.
Hedging instruments with shorter settlement dates are renegotiated through time so that their final maturity
matches—or becomes closer—to the debts` final maturity. At each settlement date, the results of the swap and
forward transactions partially offset the impact of the foreign exchange rate in Vale’s obligations, contributing to
stabilize the cash disbursements in US dollar.
Vale has also exposure to interest rate 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 LIBOR (London Interbank Offer Rate) in US dollar.
F-102
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
33. Risk management (Continued)
Risk of product and input prices
Vale is also exposed to market risks related to volatility in commodity and input prices. In accordance with risk
management policy, risk mitigation strategies involving commodities may be used to reduce Vale’s cash flow
volatility. The risk mitigation strategy may incorporate derivative instruments, predominantly forwards, futures and
options.
e) Strategic risk management
Vale addresses the risks related to the execution of established business strategies considering the internal and
external environment, as well as risks related to internal procedures and conduct consistent with the Company’s
values, mission and strategic objectives.
f) Operational risk management
Vale acts managing operational risks primarily guaranteeing the satisfactory management of health, safety and
the environment, but also acts preventing material losses, maintenance of its productive capacity and good
relationship with communities.
g) Cybernetic risk management
Vale invests in information security technology to mitigate risks of theft, breach or violation of information privacy,
availability of its technology assets and data integrity on the Company’s systems.
h) Compliance risk management
Vale manage risks associated with the ongoing compliance with legal requirements, standards and other
regulations related to the Company’s business, including the standards required on reporting and disclosing
information to the market.
i) Capital management
The Company’s policy aims at establishing a capital structure that will ensure the continuity of the business in the
long term. Within this perspective, the Company has been able to maintain a debt profile suitable for its activities,
with an amortization well distributed over the years, thus avoiding a concentration in one specific period.
j) Insurance
Vale contracts several types of insurance policies, such as operational risk policy, engineering risks insurance
(projects), civil responsibility, life insurance policy for their employees, among others. The coverage of these
policies is similar to the ones used in general by the mining industry and is issued 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.
F-103
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
33. Risk management (Continued)
Insurance management is performed with the support of focal points in the various operational areas of the
Company. Among the management instruments, Vale uses captive reinsurance to balance the price on
reinsurance contracts with the market, as well as, enable direct access to key international markets of insurance
and reinsurance.
34. Additional information about derivatives financial instruments
The risk of the derivatives portfolio is measured using the delta-Normal parametric approach, and 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 estimate considers a 95% confidence level for a one-business day time
horizon.
The following tables detail the derivatives positions for Vale and its controlled companies as of December 31,
2018, with the following information: notional amount, fair value including credit risk, gains or losses in the period,
value at risk and the fair value breakdown by year of maturity.
a) Foreign exchange and interest rates derivative positions
(i) Protection programs for the R$ denominated debt instruments
In order to reduce cash flow volatility, swap transactions were implemented to convert into US$ the cash flows
from certain debt instruments denominated in R$ with interest rates linked mainly to CDI, TJLP and IPCA. In
those swaps, Vale pays fixed or floating rates in US$ and receives payments in R$ linked to the interest rates of
the protected debt instruments.
The swap transactions were negotiated over-the-counter and the protected items are the cash flows from debt
instruments linked to R$. These programs transform into US$ the obligations linked to R$ to achieve
F-104
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
34. Additional information about derivatives financial instruments (Continued)
a currency offset in the company’s cash flows, by matching its receivables—mainly linked to US$—with its
payables.
Notional
December 3
1,
2018
Index
CDI
Fix
R$1,581
US$456
R$2,303
US$994
R$3,540
US$1.104
December 31,
2017
Average
rate
Flow
CDI vs. US$ fixed rate swap .......................................................................................
98.70%
Receivable ............................
Payable .................................
3.12%
TJLP vs. US$ fixed rate swap .....................................................................................
1.20%
Receivable ............................
1.54%
Payable .................................
TJLP vs. US$ floating rate swap ................................................................................
0.84%
Receivable ............................
Payable .................................
−1.24%
R$ fixed rate vs. US$ fixed rate swap ........................................................................
7.05%
Receivable ............................
−0.62%
Payable .................................
IPCA vs. US$ fixed rate swap .....................................................................................
6.55%
Receivable ............................
Payable .................................
3.98%
IPCA vs. CDI swap .......................................................................................................
6.62%
Receivable ............................
98.59%
Payable .................................
R$2,982
US$1.323
R$1,350
R$1,350
R$1,158
US$385
R$1,000
US$434
R$1,315
US$434
R$1,350
R$1,350
R$1,078
US$351
R$181
US$107
R$216
US$123
IPCA +
CDI
TJLP +
Libor +
IPCA +
Fix
TJLP +
Fix
Fix
Fix
December 3
1,
2018
(46)
Fair value
December 3
1,
2017
(33)
Financial
Settlement
Inflows
(Outflows)
December 3
1,
2018
(28)
Value at
Risk
December 3
1,
2018
6
Fair value by year
2019
(13)
202
0
(21)
2021
+
(12)
(370)
(381)
(102)
20
(306)
(21)
(43)
(56)
(53)
(8)
24
(80)
(34)
89
85
(5)
10
6
1
2
(56)
–
–
19
9
46
(63)
7
(33)
(10)
(37)
–
5
48
36
(ii) Protection program for EUR denominated debt instruments
In order to reduce the cash flow volatility, swap transactions were implemented to convert into US$ the cash flows
from certain debt instruments issued in Euros by Vale. In those swaps, Vale receives fixed rates in EUR and pays
fixed rates in US$.
The swap transactions were negotiated over-the-counter and the protected items are the cash flows from debt
instruments linked to EUR. The financial settlement inflows/outflows are offset by the protected items’
losses/gains due to EUR/US$ exchange rate.
Financial
Settlement
Inflows
Flow
EUR fixed rate vs. US$ fixed rate
December 31,
2018
Notional
December 31,
2017
Index
Average
rate
December 31,
2018
Fair value
December 31,
2017
(Outflows) Value at Risk
December 31,
December 31,
2018
2018 2019 2020 2021+
Fair value by year
swap .........................................................
(1)
23
(3)
8
(7)
(5)
9
Receivable ..................................................... €500
Payable .......................................................... US$613
€500
US$613
Fix
Fix
3.75%
4.29%
F-105
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
34. Additional information about derivatives financial instruments (Continued)
b) Commodities derivative positions
(i) Bunker Oil purchase cash flows protection program
In order to reduce the impact of bunker oil price fluctuation on maritime freight hiring/supply and, consequently,
reducing the company’s cash flow volatility, bunker oil hedging transactions were implemented, through options
contracts.
The derivative transactions were negotiated over-the-counter and the protected item is part of Vale’s costs linked
to bunker oil prices. The financial settlement inflows/outflows are offset by the protected items’ losses/gains due
to bunker oil price changes.
December 31,
2018
Flow
Call options .................................................... 2,100,000
Put options ..................................................... 2,100,000
Total ...............................................................
Notional (ton)
December 31,
2017
–
–
Bought /
Sold
B
S
Average
strike
(US$/ton)
520
297
December 31,
2018
1
(29)
28
Fair value
December 31,
2017
–
–
–
(Outflows) Value at Risk
December 31,
2018
1
9
10
December 31,
2018
40
9
49
Financial
settlement
Inflows
Fair
value
by
year
2019
1
(29)
28
(ii) Protection programs for base metals raw materials and products
In the operational protection program for nickel sales at fixed prices, derivative transactions were implemented to
convert into floating prices the contracts with clients that required a fixed price, in order to keep nickel revenues
exposed to nickel price fluctuations. Those operations are usually implemented through the purchase of nickel
forwards.
In the operational protection program for the purchase of raw materials and products, derivative transactions were
implemented, usually through the sale of nickel and copper forward or futures, in order to reduce the mismatch
between the pricing period of purchases (concentrate, cathode, sinter, scrap and others) and the pricing period of
the final product sales to the clients.
The derivative transactions are negotiated at London Metal Exchange or over-the-counter and the protected item
is part of Vale’s revenues and costs linked to nickel and copper prices. The financial
F-106
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
34. Additional information about derivatives financial instruments (Continued)
settlement inflows/outflows are offset by the protected items’ losses/gains due to nickel and copper prices
changes.
December 31,
2018
Notional (ton)
December 31,
2017
Bought /
Sold
Average
strike
(US$/ton)
December 31,
2018
Fair value
December 31,
2017
(Outflows) Value at Risk
December 31,
December 31,
2018
Flow
Fixed price sales protection
Nickel forwards ...............................................
Raw material purchase protection
Nickel forwards ...............................................
Copper forwards .............................................
Total ................................................................
7,244
9,621
120
81
292
79
B
S
S
12,166
12,242
6,142
(10)
–
–
(10)
24
–
–
24
7
1
–
8
Fair value by
year
2018 2019 2020+
2
–
–
2
(8)
(2)
–
–
(8)
–
–
(2)
Financial
settlement
Inflows
c) Freight derivative positions
In order to reduce the impact of maritime freight price volatility on the company’s cash flow, freight hedging
transactions were implemented, through Forward Freight Agreements (FFAs). The protected item is part of Vale’s
costs linked to maritime freight spot prices. The financial settlement inflows/outflows of the FFAs are offset by the
protected items’ losses/gains due to freight price changes.
The FFAs are contracts traded over the counter and can be cleared through a Clearing House, in this case
subject to margin requirements.
Flow
Freight forwards ....................
December 31,
2018
480
Notional (days)
December 31,
2017
–
Bought /
Sold
B
Average
strike
(US$/day)
14,509
December 31,
2018
1
Fair value
December 31,
2017
–
(Outflows) Value at Risk
December 31,
2018
–
December 31,
2018
(3)
d) Wheaton Precious Metals Corp. warrants
Financial
settlement
Inflows
Fair value
by year
2019
1
The company owns warrants of Wheaton Precious Metals Corp. (“Wheaton”), a Canadian company with stocks
negotiated in Toronto Stock Exchange and New York Stock Exchange. Such warrants configure American call
options and were received as part of the payment regarding the sale of part of gold payable flows produced as a
sub product from Salobo copper mine and some nickel mines in Sudbury.
Financial
settlement
Inflows
December 31,
2018
–
(Outflows) Value at Risk
December 31,
Fair
value
by
year
2018 2023
8
1
Flow
Call options .....................................
December 31,
2018
10,000,000
Notional (quantity)
December 31,
2017
10,000,000
Bought /
Sold
B
Average
strike
(US$/share)
44
December 31,
2018
8
Fair value
December 31,
2017
39
F-107
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
34. Additional information about derivatives financial instruments (Continued)
e) Debentures convertible into shares of Valor da Logística Integrada (“VLI”)
The company has debentures in which lenders have the option to convert the outstanding debt into a specified
quantity of shares of VLI owned by the company.
December 31,
Flow
2018
Conversion options ....................... 140,239
Notional (quantity)
December 31,
2017
140,239
Bought /
Sold
S
Average
strike
(R$/share)
8,006
December 31,
2018
(59)
Fair value
December 31,
2017
(57)
f) Options related to Minerações Brasileiras Reunidas S.A. (“MBR”) shares
Financial
settlement
Inflows
December 31,
2018
–
(Outflows) Value at Risk
December 31,
Fair
value
by
year
2018 2027
(59)
4
The Company entered into a stock sale and purchase agreement that has options related to MBR shares. Mainly,
the Company has the right to buy back this non-controlling interest in the subsidiary. Moreover, under certain
restrict and contingent conditions, which are beyond the buyer’s control, such as illegality due to changes in the
law, the contract has a clause that gives the buyer the right to sell back its stake to the Company. It this case, the
Company could settle through cash or shares.
Flow
Options ................................................
Notional (quantity, in
millions)
December 31,
2017
2,139
December 31,
2018
2,139
Bought /
Sold
B/S
Average
strike
(R$/share)
1.7
December 31,
2018
279
Fair value
December 31,
2017
251
Financial
settlement
Inflows
December 31,
2018
–
(Outflows) Value at Risk
December 31,
Fair
value
by
year
2018 2019+
279
15
g) Embedded derivatives in contracts
The Company has some nickel concentrate and raw material purchase agreements in which there are provisions
based on nickel and copper future prices behaviour. These provisions are considered as embedded derivatives.
Flow
Nickel forwards .....................................
Copper forwards ...................................
Total ......................................................
December 31,
2018
3,763
2,035
Notional (ton)
December 31,
2017
2,627
2,718
Bought /
Sold
S
S
Average
strike
(US$/ton)
11,289
6,172
December 31,
2018
2
–
2
Fair value Value at Risk
December 31,
2018
1
–
1
December 31,
2017
1
–
1
Fair value
by year
2019
2
–
2
F-108
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
34. Additional information about derivatives financial instruments (Continued)
The Company has also a natural gas purchase agreement in which there’s a clause that defines that a premium
can be charged if the Company’s pellet sales prices trade above a pre-defined level. This clause is considered an
embedded derivative.
Flow
Call options ..........................................
Notional (volume/month)
December 31,
2017
746,667
December 31,
2018
746,667
Bought /
Sold
S
Average
strike
(US$/ton)
233
December 31,
2018
(1)
Fair value
December 31,
2017
(2)
December 31,
2018
–
(Outflows) Value at Risk
December 31,
2018 2019 2020+
(1)
–
1
Financial
settlement
Inflows
Fair value by
year
In August 2014 the Company sold part of its stake in Valor da Logística Integrada (“VLI”) to an investment fund
managed by Brookfield Asset Management (“Brookfield”). The sales contract includes a clause that establishes,
under certain conditions, a minimum return guarantee on Brookfield’s investment. This clause is considered an
embedded derivative, with payoff equivalent to that of a put option.
Notional (quantity)
December 31,
Flow
2017
Put option ............................................. 1,105,070,863 1,105,070,863
December 31,
2018
Bought /
Sold
S
Average
strike
(R$/share)
3.88
December 31,
2018
(103)
Fair value
December 31,
2017
(133)
(Outflows) Value at Risk
December 31,
2018
10
December 31,
2018
–
h) Sensitivity analysis of derivative financial instruments
Financial
settlement
Inflows
Fair
value
by year
2019+
(103)
The following tables present the potential value of the instruments given hypothetical stress scenarios for the
main market risk factors that impact the derivative positions. The scenarios were defined as follows:
• Probable: the probable scenario was based on the risks listed below and instruments were
developed based on data from B3, Central Bank of Brazil, London Metals Exchange and Bloomberg
• Scenario I: fair value estimated considering a 25% deterioration in the associated risk variables
• Scenario II: fair value estimated considering a 50% deterioration in the associated risk variables
Instrument
CDI vs. US$ fixed rate swap ................................. R$ depreciation
Instrument’s main risk events
US$ interest rate inside Brazil decrease
Brazilian interest rate increase
Protected item: R$ denominated debt .................... R$ depreciation
Probable
(46)
(46)
(46)
n.a.
Scenario I
(154)
(50)
(46)
–
Scenario II
(262)
(53)
(46)
–
F-109
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
34. Additional information about derivatives financial instruments (Continued)
Instrument
TJLP vs. US$ fixed rate swap ........................................ R$ depreciation
Instrument’s main risk events
US$ interest rate inside Brazil decrease
Brazilian interest rate increase
TJLP interest rate decrease
Protected item: R$ denominated debt .............................. R$ depreciation
TJLP vs. US$ floating rate swap ................................... R$ depreciation
US$ interest rate inside Brazil decrease
Brazilian interest rate increase
TJLP interest rate decrease
Protected item: R$ denominated debt .............................. R$ depreciation
R$ fixed rate vs. US$ fixed rate swap ........................... R$ depreciation
Protected item: R$ denominated debt .............................. R$ depreciation
IPCA vs. US$ fixed rate swap ........................................ R$ depreciation
US$ interest rate inside Brazil decrease
Brazilian interest rate increase
US$ interest rate inside Brazil decrease
Brazilian interest rate increase
IPCA index decrease
Protected item: R$ denominated debt .............................. R$ depreciation
IPCA vs. CDI swap .......................................................... Brazilian interest rate increase
Protected item: R$ denominated debt linked to IPCA ......
EUR fixed rate vs. US$ fixed rate swap ........................ EUR depreciation
IPCA index decrease
IPCA index decrease
Euribor increase
US$ Libor decrease
Protected item: EUR denominated debt ........................... EUR depreciation
Bunker Oil protection
Options .............................................................................. Bunker Oil price decrease
Protected item: Part of costs linked to bunker oil prices .. Bunker Oil price decrease
Maritime Freight protection
Forwards ........................................................................... Freight price decrease
Protected item: Part of costs linked to maritime
freight prices ................................................................ Freight price decrease
Nickel sales fixed price protection
Forwards ........................................................................... Nickel price decrease
Protected item: Part of nickel revenues with fixed prices . Nickel price fluctuation
Purchase protection program
Nickel forwards ................................................................. Nickel price increase
Protected item: Part of costs linked to nickel prices ......... Nickel price increase
Copper forwards ............................................................... Copper price increase
Protected item: Part of costs linked to copper prices ....... Copper price increase
Wheaton Precious Metals Corp. warrants ................... WPM stock price decrease
Conversion options—VLI ............................................... VLI stock value increase
Options—MBR .................................................................
Iron ore price decrease
Probable
(370)
(370)
(370)
(370)
n.a.
(56)
(56)
(56)
(56)
n.a.
(8)
(8)
(8)
n.a.
(80)
(80)
(80)
(80)
n.a.
89
89
n.a.
(1)
(1)
(1)
n.a.
(28)
n.a.
1
n.a.
(10)
n.a.
–
n.a.
–
n.a.
8
(59)
279
Scenario I
(614)
(378)
(379)
(379)
–
(82)
(56)
(56)
(56)
–
(85)
(18)
(25)
–
(194)
(83)
(87)
(84)
–
71
79
(79)
(170)
(6)
(16)
170
(126)
126
(1)
1
(29)
29
–
–
–
–
2
(94)
186
Scenario II
(858)
(386)
(388)
(388)
–
(108)
(57)
(57)
(57)
–
(161)
(28)
(40)
–
(308)
(87)
(93)
(87)
–
55
70
(70)
(340)
(11)
(33)
340
(283)
283
(3)
3
(48)
48
–
–
–
–
–
(138)
105
F-110
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
34. Additional information about derivatives financial instruments (Continued)
Instrument
Embedded derivatives—Raw material purchase (nickel) Nickel price increase
Embedded derivatives—Raw material purchase
Main risks
(copper) ....................................................................... Copper price increase
Embedded derivatives—Gas purchase ........................... Pellet price increase
Embedded derivatives—Guaranteed minimum
return (VLI) .................................................................. VLI stock value decrease
i) Financial counterparties’ ratings
Probable
2
Scenario I
(8)
Scenario II
(19)
–
(1)
(103)
(3)
(2)
(229)
(6)
(5)
(442)
The transactions of derivative instruments, cash and cash equivalents as well as investments are held with
financial institutions whose exposure limits are periodically reviewed and approved by the delegated authority.
The financial institutions’ credit risk is performed through a methodology that considers, among other information,
ratings provided by international rating agencies.
F-111
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
34. Additional information about derivatives financial instruments (Continued)
The table below presents the ratings published by agencies Moody’s and S&P regarding the main financial
institutions that we had outstanding positions as of December 31, 2018.
Long term ratings by
counterparty
ANZ Australia and New Zealand Banking ...............................................................................................................................................................
Banco ABC...............................................................................................................................................................................................................
Banco Bradesco .......................................................................................................................................................................................................
Banco do Brasil ........................................................................................................................................................................................................
Banco de Credito del Peru .......................................................................................................................................................................................
Banco do Nordeste ..................................................................................................................................................................................................
Banco Safra .............................................................................................................................................................................................................
Banco Santander .....................................................................................................................................................................................................
Banco Votorantim ....................................................................................................................................................................................................
Bank of America .......................................................................................................................................................................................................
Bank of China...........................................................................................................................................................................................................
Bank of Mandiri ........................................................................................................................................................................................................
Bank of Nova Scotia ................................................................................................................................................................................................
Bank Rakyat .............................................................................................................................................................................................................
Bank of Tokyo Mitsubishi UFJ .................................................................................................................................................................................
Banpará ....................................................................................................................................................................................................................
Barclays ...................................................................................................................................................................................................................
BBVA ........................................................................................................................................................................................................................
BNP Paribas.............................................................................................................................................................................................................
BTG Pactual .............................................................................................................................................................................................................
Caixa Economica Federal ........................................................................................................................................................................................
Canadian Imperial Bank ..........................................................................................................................................................................................
China Construction Bank .........................................................................................................................................................................................
CIMB Bank ...............................................................................................................................................................................................................
Citigroup ...................................................................................................................................................................................................................
Credit Agricole .........................................................................................................................................................................................................
Credit Suisse ............................................................................................................................................................................................................
Deutsche Bank .........................................................................................................................................................................................................
Goldman Sachs .......................................................................................................................................................................................................
HSBC .......................................................................................................................................................................................................................
Intesa Sanpaolo Spa................................................................................................................................................................................................
Itaú Unibanco ...........................................................................................................................................................................................................
JP Morgan Chase & Co ...........................................................................................................................................................................................
Macquarie Group Ltd ...............................................................................................................................................................................................
Mega Int. Commercial Bank ....................................................................................................................................................................................
Mizuho Financial ......................................................................................................................................................................................................
Morgan Stanley ........................................................................................................................................................................................................
National Australia Bank NAB ...................................................................................................................................................................................
National Bank of Canada .........................................................................................................................................................................................
National Bank of Oman ............................................................................................................................................................................................
Natixis ......................................................................................................................................................................................................................
Rabobank .................................................................................................................................................................................................................
Royal Bank of Canada .............................................................................................................................................................................................
Societe Generale .....................................................................................................................................................................................................
Standard Bank Group ..............................................................................................................................................................................................
Standard Chartered .................................................................................................................................................................................................
Sumitomo Mitsui Financial .......................................................................................................................................................................................
UBS ..........................................................................................................................................................................................................................
Unicredit ...................................................................................................................................................................................................................
Moody’s
Aa3
Ba3
Ba3
Ba3
Baa1
Ba3
Ba3
A2
Ba3
A3
A1
Baa2
Aa2
Baa2
A1
–
Baa3
A3
Aa3
Ba3
Ba3
Aa2
A1
A3
Baa1
A1
Baa2
A3
A3
A2
Baa1
Ba3
A2
A3
A1
A1
A3
Aa3
Aa3
Baa3
A1
Aa3
Aa2
A1
Ba1
A2
A1
Aa3
Baa1
S&P
AA−
BB−
BB−
BB−
BBB+
BB−
BB−
A
BB−
A−
A
BB+
A+
BB+
A−
BB−
BBB
A−
A
BB−
BB−
A+
A
A−
BBB+
A+
BBB+
BBB+
BBB+
A
BBB
BB−
A−
BBB
A
A−
BBB+
AA−
A
–
A+
A+
AA−
A
–
BBB+
A−
A−
BBB
F-112
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
34. Additional information about derivatives financial instruments (Continued)
j) Market curves
(i) Products
Nickel
Maturity
SPOT
JAN19
FEB19
MAR19
APR19
MAY19
Copper
Maturity
SPOT
JAN19
FEB19
MAR19
APR19
MAY19
Bunker Oil
Maturity
SPOT
JAN19
FEB19
MAR19
APR19
MAY19
Price (US$/ton)
10,595
10,637
10,663
10,692
10,720
10,749
Price (US$/lb)
2.63
2.71
2.71
2.71
2.71
2.71
Price (US$/ton)
334
327
322
319
315
311
Maritime Freight (Capesize 5TC)
Maturity
SPOT
JAN19
FEB19
MAR19
APR19
MAY19
Price (US$/day)
14,797
16,175
12,225
13,233
13,521
13,896
Maturity
JUN19
JUL19
AUG19
SEP19
OCT19
NOV19
Maturity
JUN19
JUL19
AUG19
SEP19
OCT19
NOV19
Maturity
JUN19
JUL19
AUG19
SEP19
OCT19
NOV19
Maturity
JUN19
JUL19
AUG19
SEP19
OCT19
NOV19
Price (US$/ton)
10,777
10,809
10,838
10,865
10,891
10,916
Price (US$/lb)
2.71
2.70
2.70
2.70
2.70
2.70
Price (US$/ton)
307
302
297
291
283
276
Price (US$/day)
15,096
16,817
16,817
16,817
20,350
20,350
Maturity
DEC19
DEC20
DEC21
DEC22
Price (US$/ton)
10,943
11,231
11,516
11,799
Maturity
DEC19
DEC20
DEC21
DEC22
Price (US$/lb)
2.70
2.70
2.69
2.70
Maturity
DEC19
DEC20
DEC21
DEC22
Price (US$/ton)
270
267
238
213
Maturity
DEC19
Cal 2020
Cal 2021
Cal 2022
Price (US$/day)
20,350
15,613
13,350
13,433
F-113
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
34. Additional information about derivatives financial instruments (Continued)
(ii) Foreign exchange and interest rates
US$—Brazil Interest Rate
Maturity
02/01/19
03/01/19
04/01/19
05/02/19
06/03/19
07/01/19
08/01/19
09/02/19
10/01/19
11/01/19
US$ Interest Rate
Maturity
1M
2M
3M
4M
5M
TJLP
Maturity
02/01/19
03/01/19
04/01/19
05/02/19
06/03/19
07/01/19
08/01/19
09/02/19
10/01/19
11/01/19
BRL Interest Rate
Maturity
02/01/19
03/01/19
04/01/19
05/02/19
06/03/19
07/01/19
08/01/19
09/02/19
10/01/19
11/01/19
Rate (% p.a.)
4.24
3.83
3.55
3.50
3.47
3.48
3.52
3.47
3.53
3.60
Rate (% p.a.)
2.52
2.62
2.79
2.79
2.79
Rate (% p.a.)
6.98
6.98
6.98
6.98
6.98
6.98
6.98
6.98
6.98
6.98
Rate (% p.a.)
6.41
6.42
6.43
6.44
6.44
6.45
6.46
6.46
6.49
6.52
Maturity
12/02/19
01/02/20
04/01/20
07/01/20
10/01/20
01/04/21
04/01/21
07/01/21
10/01/21
01/03/22
Maturity
6M
7M
8M
9M
10M
Maturity
12/02/19
01/02/20
04/01/20
07/01/20
10/01/20
01/04/21
04/01/21
07/01/21
10/01/21
01/03/22
Maturity
12/02/19
01/02/20
04/01/20
07/01/20
10/01/20
01/04/21
04/01/21
07/01/21
10/01/21
01/03/22
Rate (% p.a.)
3.61
3.60
3.63
3.64
3.64
3.67
3.66
3.65
3.67
3.67
Rate (% p.a.)
2.78
2.78
2.78
2.78
2.78
Rate (% p.a.)
6.98
6.98
6.98
6.98
6.98
6.98
6.98
6.98
6.98
6.98
Rate (% p.a.)
6.53
6.55
6.70
6.91
7.16
7.36
7.59
7.77
7.95
8.08
Maturity
04/01/22
07/01/22
10/03/22
01/02/23
04/03/23
07/03/23
10/02/23
01/02/24
07/01/24
01/02/25
Maturity
11M
12M
2Y
3Y
4Y
Maturity
04/01/22
07/01/22
10/03/22
01/02/23
04/03/23
07/03/23
10/02/23
01/02/24
07/01/24
01/02/25
Maturity
04/01/22
07/01/22
10/03/22
01/02/23
04/03/23
07/03/23
10/02/23
01/02/24
07/01/24
01/02/25
Rate (% p.a.)
3.68
3.73
3.69
3.73
3.74
3.72
3.74
3.82
3.73
3.85
Rate (% p.a.)
2.78
2.78
2.71
2.67
2.69
Rate (% p.a.)
6.98
6.98
6.98
6.98
6.98
6.98
6.98
6.98
6.98
6.98
Rate (% p.a.)
8.17
8.35
8.43
8.53
8.64
8.70
8.79
8.86
8.98
9.1
F-114
Notes to the Financial Statements
Expressed in millions of United States dollar, unless otherwise stated (Continued)
34. Additional information about derivatives financial instruments (Continued)
Implicit Inflation (IPCA)
Maturity
02/01/19
03/01/19
04/01/19
05/02/19
06/03/19
07/01/19
08/01/19
09/02/19
10/01/19
11/01/19
EUR Interest Rate
Maturity
1M
2M
3M
4M
5M
CAD Interest Rate
Maturity
1M
2M
3M
4M
5M
Rate (% p.a.)
3.74
3.75
3.77
3.78
3.78
3.79
3.79
3.79
3.83
3.85
Rate (% p.a.)
(0.41)
(0.38)
(0.36)
(0.32)
(0.29)
Rate (% p.a.)
2.30
2.29
2.31
2.32
2.33
Maturity
12/02/19
01/02/20
04/01/20
07/01/20
10/01/20
01/04/21
04/01/21
07/01/21
10/01/21
01/03/22
Maturity
6M
7M
8M
9M
10M
Maturity
6M
7M
8M
9M
10M
Rate (% p.a.)
3.87
3.88
3.81
3.88
3.90
3.93
3.98
4.01
4.04
4.05
Rate (% p.a.)
(0.28)
(0.26)
(0.25)
(0.25)
(0.24)
Rate (% p.a.)
2.34
2.00
1.74
1.54
1.37
Maturity
04/01/22
07/01/22
10/03/22
01/02/23
04/03/23
07/03/23
10/02/23
01/02/24
07/01/24
01/02/25
Maturity
11M
12M
2Y
3Y
4Y
Maturity
11M
12M
2Y
3Y
4Y
Rate (% p.a.)
4.03
4.12
4.11
4.14
4.18
4.19
4.22
4.25
4.30
4.35
Rate (% p.a.)
(0.24)
(0.23)
(0.17)
(0.08)
0.05
Rate (% p.a.)
1.24
1.13
2.29
2.31
2.35
Currencies—Ending rates
CAD/US$
0.7341
US$/BRL
3.8748
EUR/US$
1.1452
F-115