Announcement of Vale's Performance in 1Q10

RIO DE JANEIRO, May 6 /PRNewswire-FirstCall/ -- We would like to share with you the highlights of Vale's Webcast about the company's performance for Q1 2010.

Main highlights of Vale's Webcast:  http://www.vale.com/vale_us/media/vale_usgaap_1t10i.pdf

The main highlights of Vale's performance in 1Q10 were:

• Operating revenue of US$ 6.8 billion in 1Q10, 4.7% more than the US$ 6.5 billion attained in 4Q09.
• Operational income, as measured by adjusted EBIT(a) (earnings before interest and taxes), of US$ 2.1 billion in 1Q10, 86.9% above 4Q09.
• Operational margin, as measured by adjusted EBIT margin, recovered to 31.2%, from 17.4% in 4Q09.
• Cash generation, as measured by adjusted EBITDA(b) (earnings before interest, taxes, depreciation and amortization), rose to US$ 2.9 billion in 1Q10 from US$ 2.1 billion in 4Q09.
• Net earnings of US$ 1.6 billion, equal to US$ 0.30 per share on a fully diluted basis, against US$ 1.5 billion in 4Q09.

A webcast was held today in Rio de Janeiro (Brazil) on Vale's performance during the first quarter of 2010, and the company reported a solid performance during the period, reflecting primarily their efforts to minimize costs and the strong recovery of the global demand for minerals and metals.

As a consequence of the structural changes in the global iron ore market, Vale has reached agreements, both permanent and provisional, with all its iron ore clients around the globe, to move existing contracts to index based prices1. The new pricing system will reflect in the company's financial performance in 2Q10.

Vale has taken a pro-active stance towards the optimization of their asset portfolio, entering into transactions involving mainly their aluminum assets and the acquisition of world-class Brazilian fertilizer assets, which gives Vale a strong regional operating base in leading consumers markets around the globe, including Simandou in West Africa, one of the best undeveloped iron ore deposits in the world, combining high quality with large scale. The availability of Carajas and Simandou allows Vale to have by far the best and the largest growth potential in the global iron ore industry.

KEY COMMENTS MADE BY VALE'S EXECUTIVES DURING THE WEBCAST

Market Forecast

"What we saw in the first quarter confirmed the expectations of our industry and market, we achieved a positive level of development that was in line with what we had discussed in previous quarters. Recovery is on the way and we are happy to see that we are on the right path, preserving growth capacity despite facing the largest crisis we've seen in the past 80 years," affirmed Fabio Barbosa, Finance Director of Vale

"The results we achieved increased sharply and cost reduction was a very important element in this variation. We achieved 354 million dollars in cost savings, and have now reached 4.4 billion dollars in savings, down from 5 billion dollars," declared Barbosa.

China operation and pricing systems

"China is a driving factor behind iron demand. The exports to China are a major factor, resulting in major increases in the demand for iron ore, which is driving the market at the moment. We never had a liquid market to drive the price before, and now we do," affirmed Jose Carlos Martins, Executive Officer for Ferrous Minerals

"With the crisis we learned that the benchmark system was not working anymore, so we are no longer committed to this system. We want to improve our relationship with the market using spot iron ore prices. In the past we didn't use this price reference, but now we do. If it is going to allow us greater liquidity and avoid manipulation, then I think it is reasonable to use this system," stated Martins.

"For this quarter, 100% of our sales are in this new system, based on a market price average," completed Jose Carlos Martins.

"Transparency is also a major factor for choosing this pricing system. Today, you can find several spot price sources in China, you can find references in websites and newspapers, publications have laid out all processes, so it's transparent. We are open to negotiating different indexes and different averages, according to our costumers' needs," affirmed Vale's Executive Officer for Ferrous Minerals.

"This allows us as well as our clients to have more freedom to negotiate, avoiding yearly disputes and allowing a more practical and beneficial relationship with our clients. We can avoid a lot of discussion with this new system," completed Jose Carlos Martins.

On the shipping operations, Jose Carlos Martins highlighted Vale's strategy: "We will maintain our shipping strategy, but now we'll make use of a more flexible pricing mechanism. We will have as many ships as needed. Currently, there are 20 ships being built for us and we've signed contracts with ship owners for their work and support on this market. We hope to have a low as possible fleet differential."

Stainless steel market

"We have had a strong recovery in the stainless steel market, led by a very strong demand from China in nickel consumption. We are not sure of the levels of the stocks in the Chinese market, but if the situation remains as it is today, we should continue seeing stable nickel prices," declared Tito Martins, Executive Director of non-ferrous minerals of Vale.

Vale Inco

"We have restarted our production in Canada. In the 2nd quarter we should be able to show strong numbers from this return. We are estimating at least 6.3 million tons of nickel in Sudbury. The market is eager to see our product coming back," completed Tito Martins.

Acquisition of Assets - Simandou

"The Simandou area was always on our radar. Vale arrived a little later than our competitors. We took some time to arrive there, but we have finally been given an opportunity to do so. It's one of the largest resources of high quality iron ore in the world, similar to Canada in quality and quantity," affirmed Jose Carlos Martins, Executive Director of non-ferrous minerals of Vale.

"Now that we have reached an agreement with BSG Resources Ltd our plans are to work as fast as possible in that area. We already got the legal approvals and the rights to invest in a new port and new tracks, as well as modernizing existing ones in Liberia and Guinea, with the objective of optimizing operations locally. By 2012 we want to produce 10 to 15 million tons with this project," completed Martins.

Martins also added: "Simandou is only 4 hours from Brazil by plane, so Vale is in a very strong position and has leverage because of this. With our experience in new technologies and our proximity to the area it will be easier for us to develop this project."

Regarding the operations in Carajas, Jose Carlos Martins reported some difficulty in getting licenses: "Our operations in Carajas already have a 2 year delay due to the difficulties in getting environmental licenses, so Simandou will give us more flexibility to start producing sooner, because the conditions are better. Both projects are going forwards, but in different time lines."

Norsk Hydro

Regarding the recent announcement on Hydro, Fabio Barbosa said: "It was a natural choice to join Norsk Hydro is this transaction. They have knowledge and expertise in aluminum production. By combining assets in this new organization, Vale is not leaving the business, remaining with 22% of the new company, enjoying the potential upside of this 5.3 billion dollars operation."

India supply and demand

"India has increased the supply but other factors have increased the demand in the country for iron ore. Before the crisis the supply of iron ore in Europe and many other countries was only for the local market, during the world financial crisis this local supply was spread to other countries. With the recovery of the economy, we expect the supply will be available only locally at least for the next semester," declared Jose Carlos Martins.

ESSENTIAL ELEMENTS TAKEN FROM VALE'S 1Q2010 RESULTS PRESS RELEASE

Revenues

In the first quarter of 2010, Vale's operating revenues totaled US$ 6.848 billion, with an increase of 4.7% from the total of US$ 6.541 billion in 4Q09. Higher sales prices produced a positive effect of US$ 775 million on operating revenues, which was partially offset by the negative impact of lower volumes (US$ 468 million.)

The strike in two of the Canadian nickel operations, the rainy season in the Southern Hemisphere and operational problems at iron ore maritime terminals contributed to hinder the performance of shipments.

Revenues generated from the sales of ferrous minerals accounted for 69.0% of 1Q10 operating revenues, thus returning to the levels prevailing in early 2006. Non-ferrous minerals contributed 23.9% to the revenues, logistics services 4.5%, coal 1.8% and other products 0.8%.

Sales to Asia represented 51.6% of total revenues, while sales to the Americas accounted for 25.2%, to Europe 19.8% and the rest of the world 3.3%.

Operating Income

Vale's operating income, as measured by adjusted EBIT, staged a significant improvement, achieving US$ 2.062 billion, thus showing a 86.9% quarter-on-quarter increase .

The increase of US$ 959 million in Vale's quarterly adjusted EBIT was due to the positive impact of operating revenues, driven by price increases (US$ 271 million), lower COGS (US$ 456 million) and lower expenses (US$ 232 million).

Net Earnings

Net earnings reached US$ 1.604 billion in 1Q10, up 5.6% compared to US$ 1.519 billion in the previous quarter. Earnings per share, on a fully diluted basis, were US$ 0.30 against US$ 0.28 in 4Q09.

Simultaneously to its increase, there was an improvement in earnings quality. While in 4Q09 operating income represented 73% of net earnings, in 1Q10 it rose to 129%, as the financial result, which in a extent reflects the effect of non-cash charges, contributed to reduce net earnings by US$ 677 million.

Investments

In the first quarter of 2010, Vale's investments totaled US$ 2.158 billion, of which US$ 1.725 billion went to financing organic growth – US$ 1.540 billion for project development and US$ 185 million for R&D – and US$ 433 million for the support of existing operations. Investments were up 25.8% against those made in 1Q09.

To watch the webcast of this conference and previous events please go to www.vale.com

About Vale

Vale is the world's second largest diversified mining company in market capitalization. Present in more than 30 countries, Vale is the world's largest producer of iron ore and pellets, key raw materials for the steel industry, and one of the largest  producers of nickel, which is used to produce stainless steel, batteries, special alloys, chemicals and other products.  The company also produces copper, manganese, ferroalloys, bauxite, alumina, aluminum and coal, among other raw materials important to the global industrial sector and present in people's daily lives. For more information, please access www.vale.com/pressoffice

SOURCE Vale