Vale's Second Quarter Earnings and Conference Call Announcement

RIO DE JANEIRO, July 30 /PRNewswire-FirstCall/ -- Vale (NYSE: VALE) would like to share the highlights of it's Webcast about the company's performance in the 2Q of 2010.

Main highlights of Vale's Webcast:

http://www.vale.com/en-us/investidores/press-releases/pages/default.aspx

The main highlights of Vale's performance in 2Q10 were:

• Operating revenue of US$ 9.9 billion in 2Q10, 45.0% more than the US$ 6.8 billion in 1Q10.
• Operating income, as measured by adjusted EBIT (earnings before interest and taxes), of US$ 4.6 billion in 2Q10, 124.5% above 1Q10.
• Operational margin, as measured by adjusted EBIT margin, increased to 47.9% in 2Q10 from 31.2% in 1Q10.
• Cash generation, as measured by adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), rose to US$ 5.6 billion in 2Q10 - the third highest quarterly EBITDA in our history - from US$ 2.9 billion in 1Q10.
• Net earnings of US$ 3.7 billion, equal to US$ 0.70 per share on a fully diluted basis, against US$ 1.6 billion in 1Q10.
• Investments - excluding acquisitions - reached US$ 2.4 billion, with US$ 2.0 billion spent on organic growth.
• First tranche of the minimum dividend for 2010, equal to US$ 1.25 billion or US$ 0.24 per share, paid on April 30.
• Total debt/LTM EBITDA ratio fell below 2x, reaching 1.76x.

A webcast was held today in Rio de Janeiro (Brazil) on Vale's performance during the second quarter of 2010, as the company reports strong operational and financial performance in the second quarter of 2010 (2Q10), the best since the global financial shock took place in 3Q08, signaling that value creation is gaining momentum. These results reflect a rising global demand for minerals and metals, operating costs under control and our efforts to increase production. 2Q10 marks the first quarter with the implementation of the new pricing regime for iron ore.

The move towards price flexibility brings more efficiency and transparency to iron ore pricing and allows the recognition of quality differences, contributing to stimulate long-term investment. In addition, clients are able to know beforehand the price to be paid in the following quarter, thus facilitating cost control and inventory management. Vale strongly believes that the continuous quest for growth will keep Vale on the road to significant shareholder value creation.

The main steps for the acquisition of Brazilian fertilizer assets were completed and one month's performance of the newly acquired assets is already captured in the 2Q10 results. Bayovar, Vale's first greenfield project in the fertilizer business, came on stream this month, on time and on budget. This was the third project to be delivered out of seven scheduled to be concluded this year.

As the many greenfield projects due to start up in the near future are delivered, the ground will be laid for the building of new growth platforms through the development of low-capex brownfield projects to meet global demand expansion, opening additional lanes to shareholder value creation.

KEY COMMENTS MADE BY VALE'S EXECUTIVES DURING THE WEBCAST

OVERALL RESULTS

"Everything is going well, the trend is very good in terms of revenue, costs and perspectives, we are very happy that we are in a very good year for Vale. We have several projects we are finalizing right now, we have been investing heavily in the last three, four years and now we are going to see some return in those investments," said Vale's CEO Roger Agnelli.

"We are in a very strong position, I should say that we are in the best moment of our history, we developed our assets, our workforce is strong and trained, ready to face day by day issues and we tackled other difficulties we might face. The scenario is very positive," completed Agnelli.

PRICING

"As far as the price system is concerned, we just came from a one year price system to a price that is established quarterly. So it was a big improvement from one system to the other… We need a system that can cope with volatility and we believe that the quarterly system can do that. We are very optimistic about the new system… We believe the quarterly pricing system will stay," said Jose Carlos Martins, Executive Officer for Strategy, Marketing and Business Development.

INVESTMENTS IN AFRICA AND SUSTAINABILITY

"We are right now investing heavily in Africa. Africa is a place that we really need to pay more attention in sustainability and social development, they need and deserve this attention and we are very pleased to be creating some opportunities for the local people. Some may say Africa is a risky continent but we understand very well the needs that they have, how we have to carry the investments there. So we don't see any problem there. We are very happy in Mozambique, Zambia and Kenya," mentioned Agnelli.

"Everyone needs to learn which measures we can take to respect all environmental issues. Ten years from now no one will accept the level of water consumption we have today or the fuel emissions we have today. Everyone will ask for a clean energy, so every single project we are delivering is much more sustainable and cleaner. This is a challenge to every company and we're trying to be innovative to overcome these challenges," he added.

"Vale is ahead of other mining companies in terms of sustainability, I'm confident and proud of the work we are developing today in Vale and we are prepared to take advantage of good moments in the economy."

ORGANIC GROWTH

"Vale is the only company which can double its capacity with organic investments. So our focus is really organic growth," said Vale's CFO Guilherme Cavalcanti.

"We have been following strictly our plan announced in 2001. Everything that we made in terms of M&A was opportunistic approach and of course there are some assets that we would like to hold, but they are not at our position. If someone is ready to sell their assets and it is something that fits our strategy, will strengthen our position, this is something we can consider," said Roger Agnelli.

CHINESE IRON ORE INDUSTRY

"The performance of the Chinese iron ore industry in the last three months… the Chinese ore industry was operating near full capacity and this is one of the reasons that brought stability to the spot market. They don't have much room to grow, the majority of their mines are underground, so you can imagine how expensive this production is.  Their cost structure is very high," mentioned Jose Carlos Martins.

NICKEL BUSINESS

"Canadian operations should be back in full capacity by the end of September. We are already operating with 50% capacity and this is the reason why we'll be able to reach full capacity in such short time," said Tito Martins, Executive Officer for Base Metals Operations.

ESSENTIAL ELEMENTS TAKEN FROM VALE'S 2Q2010 RESULTS PRESS RELEASE

REVENUE

Gross operating revenues totaled US$ 9.930 billion in 2Q10, with an increase of 45.0% over the US$ 6.848 billion in 1Q10. Higher sales prices produced a positive effect of US$ 2.259 billion on 2Q10 operating revenues, while sales volume growth added US$ 823 million. The implementation of the quarterly pricing system for iron ore and pellets started to be reflected in the revenues for 2Q10. Rising iron ore and pellet prices contributed with an increase of US$ 2.179 billion, while price changes of other products accounted for US$ 80 million.

COSTS

Operating costs remained under control as costs of goods sold (COGS) decreased by US$ 29 million in comparison to 1Q10 after adjusting for the expansion in sales volumes and the effect of the depreciation of the US dollar. Higher shipments and currency price changes caused a total cost increase of US$ 595 million and US$ 17 million, respectively, whereas non-adjusted COGS rose by US$ 583 million.

OPERATING INCOME

Operating income, as measured by adjusted EBIT, amounted to US$ 4.630 billion in 2Q10, substantially higher than the US$ 2.062 billion achieved in the 1Q10, and almost five times the number recorded in 2Q09, US$ 976 million.

The increase of US$ 2.568 billion in our quarterly adjusted EBIT was due to the positive impact of operating revenues, driven by higher sales prices for iron ore and pellets (US$ 2.178 billion), higher shipment volumes in almost all of our products (US$ 823 million) and lower expenses (US$ 96 million), partially offset by the higher COGS (US$ 583 million), which, as previously commented, was mainly due to the larger sales volumes.

NET EARNINGS

In 2Q10, net earnings amounted to US$ 3.705 billion, compared with US$ 1.604 billion in 1Q10, with a significant quarter-on-quarter increase of 131.0%. Earnings per share, on a fully diluted basis, reached US$ 0.70. The increase is even more significant when compared to net earnings in 2Q09, with a year-on-year variation of 369.0%.

Earnings quality in 2Q10 is also shown by the fact that it was driven by operating income which represented 125% of net earnings.

Financial revenues totaled US$ 69 million, above the US$ 48 million figure for 1Q10.  Financial expenses reached US$ 514 million, compared to US$ 465 million spent in 1Q10, impacted mainly by tax charges of US$ 56 million on the conversion into ADRs of the two series of mandatorily convertible notes due June 15, 2010, representing 1.5% and 1.3%, respectively, of the outstanding common and preferred shares on June 15, 2010.

INVESTMENTS

In 2Q10, Vale's investments, excluding acquisitions, amounted to US$ 2.375 billion. US$ 1.694 billion was spent on project development of organic growth, US$ 273 million on research and development (R&D), and US$ 407 million on the maintenance of existing operations.

The capex in the first half of the year totaled US$ 4.533 billion, compared to US$ 3.794 billion in the same period of last year. Of the total disbursement in 1H10, 81.5% was allocated to finance growth, involving project execution and R&D.

In 2Q10, R&D investments comprised expenditures of US$ 79 million in the mineral exploration program, US$ 75 million in natural gas exploration, US$ 102 million in conceptual, pre-feasibility and feasibility studies for projects, and US$ 17 million to develop new processes, technological innovations and adaptation of technologies. To support our growth strategy, we continue to invest in greenfield mineral exploration to find new reserves and create additional growth options for Vale, searching mainly for non-ferrous minerals, fertilizers and bulk materials in South and North America, Africa, Asia and Oceania.

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 potash, 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

SOURCE VALE